SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2004
Commission file number 000-30690
EUROTRUST A/S
(Translation of Company's name into English)
POPPELGARDVEJ 11-13
2860 S0BORG
DENMARK
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): N/A
NOTE: Regulation S-T Rule 101(b)(1) only permits the submission in paper
of a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): N/A
NOTE: Regulation S-T Rule 101(b)(7) only permits the submission in paper
of a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Form 20-F [ ] Form 40-F [X]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): N/A
EUROTRUST A/S
FORM 6-K
TABLE OF CONTENTS
PAGE
----
Disclosure Regarding Forward-Looking Statements ........................... 2
Exchange Rate Information ................................................. 2
Unaudited Consolidated Condensed Balance Sheets
as of June 30, 2004 and December 31, 2003 ................................. 3
Unaudited Consolidated Condensed Statements of Operations for
the six-month and three-month periods ended June 30, 2004 and 2003 ........ 5
Unaudited Consolidated Condensed Statements of Shareholders' Equity
for the Years Ended December 31, 2000 through December 31, 2003
and for the six-month period ended June 30, 2004 .......................... 6
Unaudited Consolidated Condensed Statements of Cash Flows
for the six-month periods ended June 30, 2004 and 2003 .................... 7
Notes To Unaudited Consolidated Condensed Financial Statements ............ 9
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations ................................................. 24
Risk Factors .............................................................. 35
Signature ................................................................. 42
Index to Exhibits ......................................................... 43
------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 6-K 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. We do not intend or assume any obligation
to update these forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking statements included in this
report, the inclusion of these statements should not be interpreted by anyone
that we can achieve our objectives or implement our plans. 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, certain factors set
forth in this Report under the heading Risk Factors on page 34 and in our Annual
Report on Form 20-F for the fiscal year ended December 31, 2003, filed with the
Securities and Exchange Commission on May 12, 2004, under the headings "Key
Information - Risk Factors" (Item 3.D), "Information on the Company" (Item 4)
and "Operating and Financial Review and Prospects" (Item 5).
------------
EXCHANGE RATE INFORMATION
In this 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, 2004 into U.S. dollars at an exchange rate of $1.00 = DKK 6.1143,
the exchange rate on June 30, 2004. 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, 2004, 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.
2
EUROTRUST A/S AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
December 31,
2003 June 30, 2004
------------ ---------------------------
DKK DKK USD $
ASSETS
Current assets:
Cash and cash equivalents 9,363 20,583 $3,366
Restricted cash 0 5,924 969
Accounts receivable trade, net of allowances for doubtful
accounts of DKK 2,239 in 2003 and DKK 1,252 in 2004 25,150 17,752 2,903
Broadcast programming rights, current 952 4,766 779
Inventories 128 0 0
Deferred tax assets, current 2,036 403 66
VAT receivables 184 943 154
Prepaid expenses and deposits 12,568 3,360 549
Other receivables 3,994 10,318 1,687
------------ ------------ ------------
Total current assets 54,375 64,049 10,473
Marketable securities - available for sale 304 304 50
Broadcast programming rights, long term 0 4,339 710
Rent and other deposits 1,379 1,334 218
Other receivables 64 64 10
Long term investments at cost 2,494 2,494 408
Investments in affiliated companies - equity method 1,500 1,500 245
Property, plant and equipment, net 55,341 83,497 13,655
Goodwill 23,941 25,286 4,135
Deferred tax assets, long-term 347 347 57
License rights, net 1,100 950 155
------------ ------------ ------------
Total assets 140,845 184,164 $30,116
============ ============ ============
(Continued )
DKK amounts have been converted into US$ at an exchange rate of $1=DKK 6.1143.
See accompanying Notes.
3
EUROTRUST A/S AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
December 31,
2003 June 30, 2004
------------ ---------------------------
DKK DKK USD $
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities:
Accounts payable 26,914 32,489 $5,313
Accounts payable, related parties 477 0 0
Accrued expenses 26,282 14,972 2,448
Equipment purchase obligation, current 0 11,667 1,908
Deferred revenue 35,139 7,700 1,259
Secured Line of Credit, current, 0 6,878 1,125
Lease obligations, current 1,176 0 0
Income tax payable 61 120 20
------------ ------------ ------------
Total current liabilities 90,049 73,826 12,073
Long term liabilities:
Long term equipment purchase obligation, net of current portion 0 11,666 1,908
Deferred revenue, net of current portion 1,576 2,693 440
------------ ------------ ------------
Total long term liabilities 1,576 14,359 2,348
Minority interest in subsidiaries 2,860 0 0
Shareholders' equity:
Common shares - par value DKK 1.25, 49,050,000 authorized
31,753,474 issued at December 31, 2003 and June 30, 2004 39,693 39,693 6,491
Additional paid - in capital 526,040 526,040 86,027
Accumulated deficit (515,840) (458,970) (75,059)
Accumulated other comprehensive income 512 258 42
Less treasury stock, 426,562 common shares at December 31,
2003 and 3,175,282 at June 30, 2004, at cost (4,045) (11,042) (1,806)
------------ ------------ ------------
Total shareholders' equity 46,360 95,979 15,695
------------ ------------ ------------
Total liabilities and shareholders' equity 140,845 184,164 $30,116
============ ============ ============
DKK amounts have been converted into US$ at an exchange rate of $1=DKK 6.1143.
See accompanying Notes.
4
EUROTRUST A/S AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
2003 2004 2004 2003 2004 2004
---------- ---------- ---------- ---------- ---------- ----------
DKK DKK USD $ DKK DKK USD $
Net Revenue 82,914 60,916 $9,962 43,969 26,840 $4,389
Operating expenses:
Cost of revenue 39,035 35,490 5,804 26,523 19,469 3,184
Selling and marketing expenses 24,616 14,510 2,373 12,214 6,941 1,135
General and administrative expenses 21,923 12,944 2,117 11,323 6,979 1,141
Depreciation and amortization 4,008 4,141 677 2,063 935 153
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 89,582 67,085 10,971 52,123 34,324 5,613
---------- ---------- ---------- ---------- ---------- ----------
Operating loss (6,668) (6,169) (1,009) (8,154) (7,484) (1,224)
Interest income 65 38 6 132 35 6
Interest expense (1,409) (255) (42) (1,262) (153) (25)
Foreign exchange gain (loss), net (1,811) (19) (3) (1,233) (41) (7)
Gains from sales of business 0 63,331 10,357 0 63,131 10,325
Other (expenses) income, net 0 (239) (39) (37) (210) (34)
---------- ---------- ---------- ---------- ---------- ----------
(Loss) income before income taxes and minority interest (9,823) 56,687 9,270 (10,554) 55,278 9,041
Income tax expense 0 0 0 0 0 0
Minority interest in net (loss) income of
subsidiaries (239) 183 30 (42) 0 0
---------- ---------- ---------- ---------- ---------- ----------
Net (loss) income (10,062) 56,870 $9,300 (10,596) 55,278 $9,041
========== ========== ========== ========== ========== ==========
Net (loss) income per weighted average common share, basic (0.38) 1.93 0.32 (0.39) 1.93 0.32
========== ========== ========== ========== ========== ==========
Net (loss) income per weighted average common share, diluted (0.38) 1.64 0.27 (0.39) 1.64 0.27
========== ========== ========== ========== ========== ==========
Weighted average common shares outstanding, basic 26,222 29,499 29,499 26,897 28,578 28,578
========== ========== ========== ========== ========== ==========
Weighted average common shares outstanding, diluted 26,222 34,658 34,658 26,897 33,737 33,737
========== ========== ========== ========== ========== ==========
DKK amounts have been converted into US$ at an exchange rate of $1=DKK 6.1143.
See accompanying Notes.
5
EUROTRUST A/S AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WHERE OTHERWISE INDICATED)
NOTES
ADDITIONAL OTHER COM- RECEIVABLE TOTAL
COMMON PAID-IN ACCUMULATED PREHENSIVE TREASURY FROM SALE OF
SHARES CAPITAL DEFICIT INCOME STOCK SHARES
==================================================================================
DKK DKK DKK DKK DKK DKK DKK
BALANCE AT DECEMBER 31, 2002 34,006 532,280 (509,510) (556) (11,978) 0 44,242
Issuance of 4,550 common shares for cash
through exercise of stock options 5,687 605 6,292
Sale of treasury stock (6,845) 7,933 1,088
Currency translation adjustments 921 921
Unrealized loss on investmentsecurities 147 147
Net loss (6,330) (6,330)
----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003 39,693 526,040 (515,840) 512 (4,045) 0 46,360
Currency translation adjustments (254) (254)
Purchase of 2,748,720 shares of treasury stock (6,997) (6,997)
Net income 56,870 56,870
----------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2004 39,693 526,040 (458,970) 258 (11,042) 0 95,979
DKK amounts have been converted into US$ at an exchange rate of $1=DKK 6.1143.
See accompanying Notes.
6
EUROTRUST A/S AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED JUNE 30,
2003 2004 2004
---------- ---------- ----------
DKK DKK USD $
Cash flows from operating activities:
Net income (loss) from operations (10,062) 56,870 $9,300
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation, amortization and write down 4,008 4,141 677
(Gains)/loss on sales business 0 (63,331) (10,357)
(Gains)/loss on sales of fixed assets 34 0 0
Deferred tax 0 1,633 267
Minority interest 239 (183) (30)
Changes in operating assets and liabilities:
Accounts receivable (4,242) 5,922 969
Broadcasting rights 1,902 (3,090) (505)
Inventories and other assets 236 128 21
Income tax payable (474) 59 10
Other receivables 6,532 (5,286) (865)
Accounts payable 864 4,399 719
Accounts payable, related parties (12,369) (477) (78)
Accrued expenses (3,482) (7,873) (1.288)
Deferred revenue 3,626 3,298 539
---------- ---------- ----------
Cash used in operating activities: (13,188) (3,790) (621)
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of short-term investments 0 0 0
Acquisition of new business, net of cash 0 (11,500) (1,881)
Proceeds from sale of business, net of cash 0 42,598 6,967
Purchase of fixed assets (4,765) (9,791) (1,601)
Proceeds from sales of fixed assets 263 0 0
---------- ---------- ----------
Cash provided by (used in) investing activities: (4,502) 21,307 3,485
---------- ---------- ----------
Cash flows from financing activities:
Net change in short-term borrowings (23) 6,878 1,125
Sales (purchase) of treasury stock 1,088 (6,997) (1,144)
Leasing commitments (2,548) 0 0
Net change in restricted cash 0 (5,924) (969)
Other (4,512) 0 0
Proceeds from issuance of common shares and warrants 405 0 0
---------- ---------- ----------
Cash provided by (used in) financing activities: (5,590) (6,043) (988)
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents (152) (254) (42)
---------- ---------- ----------
Net increase in cash and cash equivalents (23,432) 11,220 1,834
Cash and cash equivalents, beginning of period 37,672 9,363 1,532
---------- ---------- ----------
Cash and cash equivalents, end of period 14,240 20,583 $3,366
========== ========== ==========
Cash received for interest 65 38 $6
========== ========== ==========
Cash paid for interest (1,409) (255) $(42)
========== ========== ==========
Cash paid for taxes 0 0 0
========== ========== ==========
(Continued)
7
EUROTRUST A/S AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Non-cash Investing and Financing Activities:
During the six months ended June 30, 2004, The Company purchased DKK
26,000 of mobile production equipment under an equipment purchase agreement. At
June 30, 2004 DKK 18,666 was still outstanding. The Company further reclassified
DKK 1,176 in lease obligations currently payable to accounts payable.
DKK amounts have been converted into US$ at an exchange rate of $1=DKK 6.1143.
See accompanying Notes.
8
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Generally Accepted Accounting Principles
in the United States of America. However, certain information or footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the financial statements include all normal
recurring adjustments that are necessary for the fair presentation of the
results of the interim periods presented. Interim results are not necessarily
indicative of results for the fiscal year. These financial statements should be
read in conjunction with the Company's audited financial statements for the year
ended December 31, 2003, as set forth in the Company's Annual Report on Form
20-F, filed with the Securities and Exchange Commission on May 12, 2004.
In preparing financial statements that conform with Generally Accepted
Accounting Principles in the United States of America, management must make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and amounts of revenues and expenses reflected during the
reporting period. Actual results could differ from those estimates.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
EuroTrust A/S, formerly euro909.com and earlier Telepartner A/S, and
its subsidiaries (the "Company") engage in providing production and broadcasting
services and Internet security products and services in Scandinavia.
The Company is currently organized into two reportable service-based
segments: A Production and Broadcasting Segment and an Internet Security Product
and Services Segment.
PRODUCTION AND BROADCASTING SEGMENT
The Company's Production and Broadcasting Segment consists of a
broadcast media property and one of the largest media production companies in
Scandinavia with a special focus on sports programming. The Company's media
division also offers educational courses in television production.
On December 31, 2003, the Company purchased the remaining 15% interest
in Europe-Visions A/S. Europe-Visions A/S owns 75% of the outstanding shares of
common stock of its subsidiary Mobile Broadcasting A/S. The minority interests'
proportionate share of income or loss of Europe-Vision A/S and Mobile
Broadcasting is included in the consolidated statement of operations through
March 31, 2004. On April 1, 2004, the Company purchased the remaining 25%
interest of Mobile Broadcasting A/S for DKK 3 million and recorded goodwill of
DKK 620.
9
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
INTERNET SECURITY PRODUCT AND SERVICE SEGMENT
The Company's Internet Security Product and Services Segment offers
trusted Internet security products and services including virus detection, email
security products and vulnerability testing.
On April 1, 2004, the Company sold the Secure Socket Layer certificate
assets of EuroTrust PKI to VeriSign, Inc. EuroTrust PKI, a wholly-owned
subsidiary of the Company, is the subsidiary through which the Company sold
Public Key Infrastructure (PKI) Services, including VeriSign's SSL certificates
and related services in Austria, Switzerland, Finland, Norway, Sweden and
Denmark. Under the terms of the agreement, VeriSign paid the Company $8.5
million U.S. in cash and assumed the ongoing obligations of all EuroTrust PKI
SSL contracts.
The Company also provided secure remote backup services, digital video
surveillance and secure hosting until the sale of these businesses in November
2003, December 2003 and January 1, 2004, respectively. The Company owned
approximately 75% of its subsidiary EuroTrust Secure Hosting A/S until its sale
on January 1, 2004.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP") and
include the accounts of EuroTrust A/S and its majority-owned subsidiaries.
The following is a list of our significant operating subsidiaries and
their jurisdiction of incorporation and our ownership interest in those
subsidiaries at June 30, 2004 includes:
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
EuroTrust PKI Services A/S (1) Denmark 100.0% (Assets sold April 1, 2004)
EuroTrust Virus112 A/S (2) Denmark 100.0%
Europe-Visions A/S (3) Denmark 100.0%
InAphone A/S (4) Denmark 60.0%
----------
(1) Formerly known as EuroTrust Denmark A/S.
(2) Formerly known as Virus112.com A/S.
(3) Formerly known as Euro909Media A/S
(4) Formerly known as 909.909 A/S
Other significant operating subsidiaries consolidated under
Europe-Visions A/S and their jurisdiction of incorporation and our ownership
interest in those subsidiaries at June 30, 2004:
10
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
COUNTRY OF INTEREST
SUBSIDIARY INCORPORATION OWNERSHIP
---------- ------------- ---------
Ciac A/S (dk4) Denmark 100.0%
Prime Vision A/S Denmark 100.0%
Aarhustudiet A/S Denmark 100.0%
Publishing & Management ApS Denmark 100.0%
TV Akademiet A/S Denmark 100.0%
Mobile Broadcasting A/S Denmark 100.0% (Purchased the
remaining 25% interest
on April 1, 2004)
All intercompany balances and transactions have been eliminated in
consolidation. The Company's investments representing a 20% to 50% interest in
unconsolidated subsidiaries are accounted for by the equity method of
accounting.
At June 30, 2004, the Company had the following equity method
investment:
Mediehuset Danmark ApS Denmark 25.0%
REPORTING CURRENCY
The consolidated financial statements are stated in Danish Kroner
("DKK"), the local currency of the country in which the Company and its major
subsidiaries are incorporated and operate. Balance sheet accounts of foreign
subsidiaries are translated into DKK at the period-end exchange rate and items
in the statement of operations are translated at the average exchange rate.
Resulting translation adjustments are charged or credited to a separate
component of shareholders' equity.
Translation adjustments arising from inter-company financing of a
long-term investment nature are accounted for similarly. Some transactions of
the Company and its subsidiaries are made in currencies other than the
functional currency. Any resulting transactional gains and losses from these
transactions are included in the income statement.
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 6.1143 DKK to
one US Dollar, the approximate exchange rate at June 30, 2004. 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
allowance for uncollectible accounts, inventory obsolescence, 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
11
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
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.
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.
MARKETABLE SECURITIES - AVAILABLE FOR SALE
The Company accounts for investments in Marketable securities in
accordance with Statement of Financial Accounting Standard (SFAS) 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under SFAS
115 the Company's investments in public companies 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.
LONG-TERM INVESTMENTS
Investments in non-public companies are included in long-term
investments in the consolidated balance sheet and are accounted for under the
cost method. For these 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, the Company writes-down the investment to its
fair value and record the related write-down as an investment loss in the
consolidated statement of operations.
TRADE 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.
BROADCASTING PROGRAMMING RIGHTS
The Company acquires rights to broadcasting programming and produces
programming for exhibit on its cable television station. The costs incurred in
acquiring and producing programs are capitalized and amortized over the greater
of when the program is aired or the license period or the projected useful life
of the programming. Program rights and the related liabilities are
12
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
recorded at the gross amount of the liabilities when the license period has
begun, the cost of the program is determinable, and the program is accepted and
available for airing.
INVENTORIES
Inventories principally consist of 38,000 (not in thousands) IBM Tivoli
licenses at both December 31, 2003 and June 30, 2004, relating to our remote
back-up business. Inventories are stated at the lower of cost or market with
cost determined on the basis of the first-in, first-out method. In order to
evaluate the designated market value of such assets the company investigates the
available market for these products and their expected sales price. 15,000 (not
in thousands) of the IBM Tivoli licenses are held as collateral by IBM on a
lease obligation payable to them.
PROPERTY, PLANT AND EQUIPMENT
Building, technical equipment, furniture and fixtures, automobiles and
leasehold improvements are carried at cost, less accumulated depreciation.
Assets held under capital leases are recorded at the present value of minimum
lease payments less accumulated depreciation. Land is carried at cost and is not
depreciated.
Buildings are depreciated on a straight-line basis over 50 years.
Technical 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.
The Company's building located in Soeborg, Denmark also serves as
collateral for the DKK 10,000 secured line of credit.
GOODWILL AND OTHER DEFINITE LIFE INTANGIBLE ASSETS
The Company accounts for Goodwill and Other Intangibles Assets in
accordance with provisions of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. Goodwill represents the excess of costs over the fair value of the
identifiable net assets of businesses acquired. Other definite life intangibles
assets consist of license rights to virus scanning software and other intangible
assets. Goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not amortized,
but instead are tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. Impairment losses arising from this impairment test,
if any, are included in operating expenses in the period of impairment. SFAS No.
142 requires that definite intangible assets with estimable useful lives be
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.
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
13
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
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 estimate 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.
REVENUE RECOGNITION
The Company derives revenues from three primary categories: (i)
Internet services, which include managed public key infrastructure ("PKI")
services and digital certificate services (until April 1, 2004), virus
surveillance and detection services, and royalty relating to remote data backup
services; and (ii) broadcasting, which includes cable and digital television
subscriber income and program production income. The Company's revenue
recognition policies are in accordance with SEC Staff Accounting Bulletin
("SAB") No. 104, "REVENUE RECOGNITION, unless otherwise noted below. The revenue
recognition policy for each of these categories is as follows:
INTERNET SERVICES
The Company recognizes revenues from issuances of digital certificates
and managed PKI services, virus surveillance and detection services, and
remote data backup, when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists, (2) delivery of products and
services has occurred, (3) the fee is fixed or determinable and (4)
collectibility is reasonably assured. We determine each of the criteria in
our revenue recognition as follows:
PERSUASIVE EVIDENCE OF AN ARRANGEMENT EXISTS. We enter into written
agreements with our customers, that are signed by both the customer and
the Company, or other related documentation from those customers who have
previously negotiated an arrangement.
DELIVERY OF PRODUCTS AND SERVICES HAS OCCURRED. Certificate and
security technologies may be delivered physically or downloaded by the
customer. Undelivered components of these technologies that are essential
to the functionality of the products, if any are not recognized until
delivery in full is complete.
THE FEE IS FIXED OR DETERMINABLE. Agreements with customers do not
include a right to return. The majority of the initial fees are due within
one year or less. Should there be arrangements with payment terms that
extending beyond customary payment terms, the fees then are considered not
to be fixed or determinable, and revenues from such arrangements are
recognized as payments become due and realizable.
14
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
COLLECTIBILITY IS PROBABLE. Collectibility is assessed for each
customer class of which there is a history of successful collection based
upon a credit review. Initial determination that collectibility is not
probable results in the revenues being recognized as cash is collected.
In software arrangements involving multiple elements, as required by
the EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables"
and American Institue of Certified Public Accountants Statement of
Position ("SOP") 97-2, as amended by SOP 98-9, the Company allocates and
defers revenue for the undelivered elements based on vendor-specific
objective evidence, or VSOE, of the fair value of the undelivered
elements, and recognizes the difference between the total arrangement fee
and the amount deferred for the undelivered elements as revenue. VSOE of
each element is based on the price for which the undelivered element is
sold separately. If VSOE does not exist for undelivered elements such as
maintenance services, then the entire arrangement fee is recognized over
the performance period.
Fees from the sales of digital certificates and managed PKI services,
which include bundled maintenance services that are not sold separately,
are deferred and recognized ratably over the period that such contracted
services are provided, usually 12 to 24 months.
Revenues from virus surveillance and detection services, which include
bundled maintenance services that are not sold separately, are deferred
and recognized ratably over the period that the service is provided,
usually 3 to 36 months.
Up-front fees from hosting and remote data backup services were
deferred and recognized ratably over the period that the services are
provided, usually 3 to 12 months.
The Company's consulting and installation services relating to secure
communication, virus protection and network security are not essential to
the functionality of the software. These software products are fully
functional upon delivery and do not require any significant modification
or alteration. Revenues from consulting and installation services, which
are provided on a time and materials basis, are recognized as the services
are performed.
BROADCASTING
The Company recognizes cable and digital television revenue on an
accrual basis in accordance with the terms of the contracts entered into
with cable and digital television providers, which are based on the number
of subscribers for the Company's television channel and as programming is
made available to viewers. Revenue and costs associated with program
production are recognized when programs are completed and delivered to our
customers with no further obligation to them.
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
15
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
the enactment date. The Company records a valuation allowance to reduce deferred
tax assets to an amount which realization is more likely than not.
STOCK OPTIONS
At June 30, 2004, the Company has a number of stock options
outstanding. We apply the intrinsic value-based method of accounting prescribed
by Accounting Principles Board ("APB") Opinion No. 25, "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES", and related interpretations including FASB Interpretation
No. 44, "ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION AN
INTERPRETATION OF APB NO. 25" issued in March 2000, to account for our fixed
plan stock options.
Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123 "ACCOUNTING FOR STOCK-BASED COMPENSATION,"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, we have elected to continue to apply the intrinsic value-based
method of accounting described above, and have adopted the disclosure
requirements of SFAS No. 123.
The following table (in DKK) illustrates the effect on net loss and net
loss per share if we had applied the fair value recognition provisions of SFAS
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," to stock-based employee
compensation under which the estimated fair value of the options would have been
expensed over the options' vesting periods:
2003 2004 2004
---------- ---------- ----------
DKK DKK US $
Reported net income (loss) (10,062) 56,870 9,300
Reported stock-based compensation expense 0 0 0
Pro forma stock-based compensation expense (4,014) (6,751) (1,104)
---------- ---------- ----------
Pro forma net income (loss) (14,076) 50,119 8,196
Reported basic income (loss) per share (0.38) 1.93 0.32
Reported diluted income (loss) per share (0.38) 1.64 0.27
Pro forma basic loss per share (0.54) 1.70 0.28
Pro forma diluted loss per share (0.54) 1.45 0.24
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.
The Company has a large number of small customers located throughout
Scandinavia, and, to a limited extent, in certain Western European countries,
and does not require collateral from its customers. The Company has one large
customer in the broadcasting segment which alone accounts
16
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
for 25% and 31% of the Company's consolidated net revenue for 2003, and the six
months ended June 30, 2004 respectively.
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 its' contribution.
Other than the pension benefits described above, the Company does not
provide its employees with post-retirement and post-employment benefits.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No,
104 "REVENUE RECOGNITION" which codifies, revises and rescinds certain sections
of SAB No. 101, "REVENUE RECOGNITION", in order to make this interpretive
guidance consistent with current authoritative accounting and auditing guidance
and SEC rules and regulations. The changes noted in SAB No. 104 did not have a
material effect on EuroTrust consolidated financial position, results of
operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, "CONSOLIDATION
OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ACCOUNTING RESEARCH BULLETIN
("ARB") NO. 51." In December 2003, the FASB issued a revision to Interpretation
No. 46, and interpretation of ARB Opinion No. 51 ("FIN 46R"). FIN 46R clarifies
the application of ARB 51 "CONSOLIDATED FINANCIAL STATEMENTS," to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support provided by any parties, including the equity holders. FIN 46R requires
the consolidation of these entities, known as variable interest entities
("VIE's"), by the primary beneficiary of the entity. The primary beneficiary is
the entity, if any, that will absorb a majority of the entity's expected losses,
receive a majority of the entity's expected residual returns, or both.
Among other changes, the revisions of FIN 46R (a) clarified some
requirements of the original FIN 46, which had been issued in January 2003, (b)
eased some implementation problems, and (c) added new scope exceptions. FIN 46R
deferred the effective date of the interpretation for public companies to the
end of the first reporting period ending after March 15, 2004, except that all
public companies must at a minimum apply the unmodified provisions of the
interpretation to entities that were previously considered "special-purpose
entities" in practice and under the FASB literature prior to the issuance of FIN
46R by the end of the first reporting period ending after December 15, 2003.
Among the scope expectations, companies are not required to apply FIN
46R to an entity that meets the criteria to be considered a "business" as
defined in the interpretation unless one or more of four named conditions exist.
FIN 46R applies immediately to a VIE created or acquired after January 31, 2003.
EuroTrust does not have any interests in VIE's and the adoption of FIN 46R did
not have a material impact on EuroTrust financial position, results of
operations or cash flows.
17
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
In March 2004, the FASB issued EITF Issue No. 03-1 ("EITF 03-1"), "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." EITF 03-1 includes new guidance for evaluating and recording
impairment losses on debt and equity instruments, as well as new disclosure
requirements for investments that are deemed to be temporarily impaired. The
accounting guidance provided in EITF 03-1 is effective for fiscal years
beginning after June 15, 2004, while the disclosure requirements are effective
for annual periods ending after June 15, 2004. The Company does not expect the
adoption of EITF 03-1 will have a material impact on its financial position,
results of operations, or cash flows.
PURCHASE OF EQUIPMENT
The Company entered into an agreement to purchase approximately DKK
26,000 in production equipment. The DKK 26,000 obligation is payable in
quarterly payments of DKK 2,333 through June 30, 2006. At June 30, 2004 the
remaining obligation was DKK 18,666.
EARNINGS PER SHARE
Basic net (loss) income per share is computed by dividing net (loss)
income (numerator) by the weighted-average number of shares of common stock
outstanding during the period (denominator). Diluted net (loss) income per share
gives effect to stock options considered to be potential common shares, if
dilutive. Potential common shares consist of shares issuable upon the exercise
of stock options computed using the treasury stock method.
The following table presents the computation of basic and diluted
average common shares outstanding:
PERIOD ENDED JUNE 30,
2003 2004
Determination of basic and diluted shares:
Weighted-average shares outstanding 26,222 29,499
Potential dilutive securities - stock options 0 5,159
------ ------
Basic and diluted average common shares outstanding 26,222 34,658
At June 30, 2004 the Company had 2,230, stock options outstanding to
purchase common stock of the company at DKK 0.63 to DKK 1.40 per share that were
not included in the earnings per share computation because their effect would be
anti-dilutive.
At June 30, 2003 the Company had 5,676, stock options outstanding to
purchase common stock of the company at DKK 0.20 to DKK1.78 per share that were
not included in the earnings per share computation because their effect would be
anti-dilutive.
TREASURY STOCK
On April 1, 2004, the Company, repurchased 2,748,720 of its ordinary
shares from VeriSign for DKK 6,997 in connection with the sale of assets of PKI
to VeriSign.
18
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
BUSINESS ACQUISITION
On April 23, 2004, the Company acquired the assets of InAphone A/S.
(engaged in the development and marketing of mobile phone software technologies)
in a transaction accounted for as a purchase. The terms of the purchase required
the Company to invest DKK 3,000,000 of working capital into InAphone. On June 4,
2004, the Company changed the name of the acquisition subsidiary (909.909 A/S)
to InAphone A/S. The consolidated financial statements include the results of
operations of InAphone A/S from April 23, 2004 through June 30, 2004.
The Company acquired the operations of InAphone A/S with the intention
of using InAphone technology to increase the use of media in mobile phones and
hand-held personal organizers, which will potentially stimulate growth
opportunities for the Company's media production operations.
BUSINESS DIVESTITURES
Internet Hosting
In January 2004, the Company sold its hosting subsidiary, EuroTrust
Secure Hosting A/S, to Mondo A/S. The consideration we received includes a
3-years royalty agreement on future sales generated from our transferred
customer base. The agreement includes a minimum amount of DKK 7.1 million over
the 3-years period.
Internet Security Product and Services Operations
On April 1, 2004, the Company sold the Secure Socket Layer certificate
assets of EuroTrust PKI to VeriSign. EuroTrust PKI, a wholly-owned subsidiary of
the Company, is the operation through which the Company sells Public Key
Infrastructure (PKI) Services, including VeriSign's SSL certificates and related
services in Austria, Switzerland, Finland, Norway, Sweden and Denmark. Under the
terms of the agreement, VeriSign paid the Company $8.5 million U.S. in cash and
assume the ongoing obligations of EuroTrust PKI SSL contracts.
In connection with the sale VeriSign agreed to lease certain office
space and equipment from the Company. The lease calls for VeriSign to make
monthly payments of $10,417 (not in thousands) through April 1, 2007. VeriSign
may cancel the lease after 18 months through the payment of a $50,000
(not in thousands) cancellation fee.
The following table summarizes the proceeds received, the assets and
liabilities divested and the gain recorded by the Company on the closing date of
the sale to VeriSign:
19
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
APRIL 1, 2004
------------------
(IN THOUSANDS DKK)
Proceeds from sale of EuroTrust PKI assets:
Cash received 46,312
------
Cash held in escrow 5,959
------
52,271
------
Assets and liabilities divested in sale of EuroTrust PKI assets:
Current assets 8,888
------
Total assets divested 8,888
------
Current deferred revenue (29,620)
------
Total liabilities divested (29,620)
------
Net liabilities divested (20,732)
------
Write-down of related property and equipment in connection
with the sale 9,367
------
Legal and related cost of divestiture 574
------
Gain on sale of business 63,062
------
The gains on the sale of the Company's Internet security product and services
operations were included in the Gain from sales of business line item on the
consolidated condensed statements of operations.
STOCK OPTIONS
During the first six months of 2004, the Board authorized the grant and
issuance of 2,608 stock options each to purchase one common share at various
share prices ranging from $0.54 to $0.63 to employees and directors of the
Company. The exercise price of the options was equal to the market price on the
date of grant. Of these stock options, 2,008 are exercisable during the year of
grant through their expiration dates ranging from May 12, 2007 to May 12, 2009.
A summary of the Company's stock option activity, and related
information for the six-month period ended June 30, 2004 is as follows:
JUNE 30, 2004
WEIGHTED
OPTIONS AVERAGE
EXERCISE PRICE
--------------
Outstanding, beginning of period 5,676 $0.52
Granted 2,608 $0.59
Exercised 0 0
Forfeited 0 0
Expired (295) $1.33
--------------------------
Outstanding, end of period 7,989 $0.51
Exercisable, end of period 7,389 $0.55
Weighted average fair value of
options granted during the year $0.53
20
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
The fair value of the stock options granted during the six months ended
June 30, 2004 was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted average assumptions
2004
---------
Risk free interest rate 3.47%
Dividend yield 0%
---------
ADR's Annual volatility of the expected market price 1.6
Expected life of the options 4.5
The following table summarizes information about stock options outstanding
as of June 30, 2004:
WEIGHTED-AVERAGE
RANGE OF SHARES REMAINING WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
$0.20 - $0.25 2,824 3.7 years $0.22 2,824 $0.22
$0.41 - $0.48 540 2.7 years $0.44 540 $0.44
$0.39 - $0.55 457 0.9 years $0.55 457 $0.55
$0.54 - $0.63 2,608 4.4 years $0.59 2,008 $0.57
$0.78 - $1.09 1,355 0.8 years $0.91 1,355 $0.91
$1.12 - $1.78 205 0.26 years $1.16 205 $1.16
--------------- ----------- ---------------- -------------- ----------- --------------
Total 7,989 2.3 years $0.73 7,389 $0.68
No compensation cost is recognized in income for any of the years
presented above as the options can be exercised at a price equal to or greater
than the price on the date of grant.
SECURED LINE OF CREDIT
At June 30, 2004, the Company had a secured line of credit from banks
totaling DKK 10 million, from which DKK 6,878 have been drawn. Interest is
payable on the line at a floating rate based on the market rates of the major
banks. The weighted average interest rate as of June 30, 2004 was 5.5%. In
Denmark, a line of credit, such as that used by us, can be cancelled upon three
months notice. Any termination would result in the principal and interest
becoming due and payable immediately. The line of credit has been used for
working capital purposes. The line is secured by property owned by the Company.
SEGMENT REPORTING
The Company's Chief Operating Decision-maker, as defined in SFAS No.
131, is considered to be Aldo Pedersen, EuroTrust's CEO. The Chief Operating
Decision-maker reviews separate consolidated financial information for the
Internet services business segment and the Broadcast media business segment.
Each of the Company's business segments are managed separately because they
offer and distribute distinct services to different customer segments. The
21
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
Company therefore considers that it has two reportable segments under SFAS 131
(i) Internet services and (ii) Broadcast media.
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. It is the Company's policy that
trade between the segments is entered into on an arms-length basis.
Reportable segment information for each of the periods ended June 30,
2003 and 2004 is presented in the following table:
22
EUROTRUST A/S AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DKK AND US$ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND WHERE OTHERWISE INDICATED)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
2003 2004 2004 2003 2004 2004
---------- ---------- ---------- ---------- ---------- ----------
DKK DKK $ DKK DKK $
INTERNET SERVICES:
Net revenue 41,143 17,831 2,916 21,471 4,376 716
Operating expenses:
Cost of sales 14,666 6,819 1,115 13,057 2,139 350
Selling and marketing expenses 19,499 8,127 1,329 9,463 3,432 561
General and administrative
expenses 14,703 5,634 922 7,487 3,068 502
Depreciation and amortization 2,123 1,068 174 1,096 299 49
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 50,991 21,648 3,540 31,103 8,938 1,462
---------- ---------- ---------- ---------- ---------- ----------
Operating loss (9,848) (3,817) (624) (9,632) (4,562) (746)
---------- ---------- ---------- ---------- ---------- ----------
Total assets 72,520 62,677 10,249
BROADCASTING:
Net revenue 41,771 43,085 7,046 22,498 22,464 3,674
Operating expenses:
Cost of sales 24,369 28,671 4,689 13,466 17,330 2,834
Selling and marketing expenses 5,117 6,383 1,044 2,751 3,509 574
General and administrative expenses 7,220 7,310 1,195 3,836 3,911 640
Depreciation and amortization 1,885 3,073 503 967 636 104
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 38,591 45,437 7,431 21,020 25,386 4,152
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) 3,180 (2,352) (385) 1,478 (2,922) (478)
---------- ---------- ---------- ---------- ---------- ----------
Total assets 68,297 121,487 19,867
CONSOLIDATED
Net revenue 82,914 60,916 9,962 43,969 26,840 4,390
Operating expenses:
Cost of sales 39,035 35,490 5,804 26,523 19,469 3,184
Selling and marketing expenses 24,616 14,510 2,373 12,214 6,941 1,135
General and administrative expenses 21,923 12,944 2,117 11,323 6,979 1,142
Depreciation and amortization 4,008 4,141 677 2,063 935 153
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 89,582 67,085 10,971 52,123 34,324 5,614
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (6,668) (6,169) (1,009) (8,154) (7,484) (1,224)
========== ========== ========== ========== ========== ==========
Total assets 140,817 184,164 30,116
DKK amounts have been converted into US$ at an exchange rate of $1=DKK 6.1143.
See accompanying Notes.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On April 1, 2004, we sold the Secure Socket Layer certificate assets of
EuroTrust PKI to VeriSign. EuroTrust PKI, our wholly-owned subsidiary, was the
subsidiary through which we sold Public Key Infrastructure (PKI) Services,
including VeriSign's SSL certificates and related services in Austria,
Switzerland, Finland, Norway, Sweden and Denmark. Under the terms of the
agreement, VeriSign paid us $8.5 million U.S. in cash and assumed the ongoing
obligations of EuroTrust PKI SSL contracts.
Our business now consists of two distinct divisions, a broadcast media
division and an Internet services division.
Our broadcast media division owns dk4, a Danish cable/satellite
television station and operates one of the largest mobile television production
companies in Scandinavia. Dk4 owns and operates a fleet of eight
state-of-the-art mobile units, including one of the few high definition
television units in Northern Europe.
Our internet services division markets virus detection software and
services under our "Virus 112" brand name and also monitors the royalty payments
we receive in connection with the sale of our secure hosting and remote back-up
services business in the fourth quarter of 2003 and first quarter of 2004,
respectively.
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.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated 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
24
significant invoices that are past due to determine if an allowance is
appropriate based on the risk category using the factors described above. We
also monitor our accounts receivable for any build up of concentration to any
one customer, industry or geographic region. To date our receivables have not
had any particular concentrations that, if not collected, would have a
significant impact on our operating income. We require all acquired companies to
adopt our credit policies. The allowance for doubtful accounts represents our
best estimate, but changes in circumstances relating to accounts receivable may
result in a requirement for additional allowances in the future.
BROADCAST PROGRAMMING RIGHTS
We acquire rights to broadcast programming and produce programming to
exhibit on our cable television station. The costs incurred in acquiring and
producing programs are capitalized and amortized over the greater of when the
program is aired or the license period or the projected useful life of the
programming. Program rights and the related liabilities are recorded at the
gross amount of the liabilities when the license period has begun, the cost of
the program is determinable, and the program is accepted and available for
airing.
LONG-TERM INVESTMENTS
We invest in securities of companies for business and strategic
purposes. These investments are in the form of equity securities of private
companies for which there is no public market. These companies are typically in
the early stage of development and are expected to incur substantial losses in
the near-term. Therefore, we may never realize any return on these investments.
Further, if these companies are not successful, we could incur charges related
to write-downs or write-offs of these investments.
We review, the assumptions underlying the operating performance from
these privately held companies on an annual basis. This information may be more
limited, may not be as timely and may be less accurate than information
available from publicly traded companies. If we determine that an
other-than-temporary decline in fair value of the investment exists, we
write-down the investment to its fair value and record the related write-down as
an investment loss in our consolidated statement of operations.
No write-downs were made in the six months ended June 30, 2004.
Our long-lived assets totaled DKK 84.4 million, as of June 30, 2004,
which consist primarily of rights, other intangible assets and property and
equipment subject to amortization and depreciation. We test long-lived assets
for recoverability whenever events or changes in circumstances indicate that the
carrying amount of such an asset may not be recoverable. Such events or
circumstances include, but are not limited to:
o a significant decrease in the market price of a long-lived asset;
o a significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition;
o a significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset;
o a current-period operating or cash flow loss combined with a history of
operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset; and
25
o a current expectation that it is probable that a long-lived asset will
be sold or otherwise disposed of significantly before the end of its
previously estimated useful life.
An impairment loss would be recognized when the sum of the undiscounted
future net cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. Such impairment loss
would be measured as the difference between the carrying amount of the asset and
its fair value, which is usually based on future estimated discounted cash
flows. Significant judgment is required in the forecasting of future operating
results, which are used in the preparation of projected cash flows. If we made
different judgments or utilized different estimates, material differences may
result in write-downs of net long-lived and intangible assets, which would be
reflected by charges to our operating results for any period presented.
No impairment charges were recorded in the six months ended June 30,
2004.
GOODWILL
We account for acquisitions under the purchase method of accounting,
typically resulting in goodwill. Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, requires us to assess
goodwill for impairment at least annually in the absence of an indicator of
possible impairment and immediately upon an indicator of possible impairment.
The statement requires estimates of the fair values of our reporting units. If
we determine the fair values of a reporting unit is less than the carrying
amount recorded on our Consolidated Balance Sheet, we will record the related
impairment loss. The measurement of the impairment loss involves comparing the
fair value of the reporting unit with the fair values of the recognized and
unrecognized assets and liabilities to arrive at an implied fair value of
goodwill, which is then compared to the book value of the goodwill of the
reporting unit. At June 30, 2004, we had DKK 25.3 million of goodwill recorded
on our Consolidated Balance Sheet. The entire goodwill was recorded in our
Broadcasting media segment.
We performed our annual impairment assessment of goodwill in accordance
with the provisions of SFAS No. 142. In testing for potential impairment, we
measured the estimated fair value of our reporting units based upon discounted
future operating cash flows using a discount rate reflecting our estimated
discount rate for the specific reporting units. Differences in assumptions used
in projecting future operating cash flows and estimated discount rate could have
a significant impact on the determination of impairment amounts.
In estimating future cash flows we used our internal budgets. Our
budgets were based on recent sales data for existing products and expected
growth rates for the Internet security services and framework agreements entered
into with customers in the broadcasting segment. These budgets were based on
current royalty percentages, expected staffing levels and expected inflation.
Due to the numerous variables associated with our judgments and
assumptions relating to the valuation of the reporting units and the effects of
changes in circumstances affecting these valuations, both the precision and
reliability of the resulting estimates are subject to uncertainty, and as
additional information becomes known, we may change our estimates.
26
For the year ended December 31, 2003, based on our annual impairment
assessment of goodwill, there were no impairment charges. No impairment charge
has been made in the six months ended June 30, 2004.
INVENTORIES
The inventory principally consists of 38,000 IBM Tivoli licenses
relating to our remote back-up business. These licenses were written-off in 2002
and have no carrying value at June 30, 2004. Inventories are stated at the lower
of cost or market with cost determined on the basis of the first in, first out
method.
Management must make estimates about the future customer demand for IBM
Tivoli licenses when establishing the appropriate loss provisions for inventory.
When making these estimates, we consider general economic conditions and
historical sales of licenses, the market acceptance of the current generation of
licenses, the available market for these products and expected sales prices for
the licenses. These judgments must be made in the context of our customers'
shifting technology needs. A misinterpretation or misunderstanding of any of
these conditions could result in significant changes to the provisions
determined to be appropriate as of the balance sheet date.
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union, or EU, provides for
the introduction of a single European currency, the Euro, in substitution for
the national currencies of the member states of the EU that adopt the Euro. This
was effective on January 1, 2002. The Euro was introduced and foreign exchange
operations in the Euro commenced on January 1, 1999 when irrevocable conversion
rates were set between the national currencies of the eleven member states of
the EU that qualified to participate, and elected to participate in the Euro.
Denmark, Sweden and the United Kingdom elected not to participate in the Euro.
Norway is not currently a member state of the EU. Finland, Austria and Italy
qualified and elected to participate. The change to the Euro has not had a
significant financial effect on us.
UNAUDITED CONSOLIDATED RESULTS
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2003
Net revenue for the three months ended June 30, 2004 was DKK 26.8
million, a decrease of DKK 17.1 million, or 39.1%, compared to Net revenue of
DKK 44.0 million for the three months ended June 30, 2003. The table below
compares revenues for the relevant periods on a segment-by-segment basis.
NET REVENUE AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
------------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 21,471 4,376 (17,095) (79.6%)
Broadcast media 22,498 22,464 (34) (0.2%)
------------- ------------- -------------- ---------------
Total 43,969 26,840 (17,129) (39.0%)
27
The decrease in Net revenue in our Internet services segment reflects
the fact that during 2003, we made the decision to change our strategic focus to
our broadcasting business and consequently, we sold our Public Key
Infrastructure business to VeriSign on April 1, 2004, our Hosting business to
Mondo A/S as of January 1, 2004, all activity in our Remote backup business to
MUNK IT A/S as of November 30, 2003, EuroTrust France as of December 31, 2003
and our surveillance business in Realtime Security and our Swedish subsidiary
EuroTrust Sweden AB as of November 30, 2003 and December 31, 2003, respectively.
Total operating expenses for the three months ended June 30, 2004 were
DKK 34.3 million, a decrease of DKK 17.8 million, or 34.2%, compared to total
operating expenses of DKK 52.1 million for the three months ended June 30, 2003.
Total operating expenses include cost of revenue, selling and marketing
expenses, general and administrative expenses and depreciation, amortization,
write-down and impairment. For the three months ended June 30, 2004 compared to
the same period in 2003, the percentage of total net revenues represented by
each of the following expenses are as follows: (i) Cost of revenue was 72.5%
compared to 60.3%; (ii) Selling and marketing expenses was 25.9% compared to
27.8%; (iii) General and administrative expenses was 26.0% compared to 25.8%;
and (iv) Depreciation, amortization, write-down and impairment expenses was 3.5%
compared to 4.7%. The tables below shows our operating expenses by category on a
segment-by-segment basis.
COST OF SALES AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
------------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 13,057 2,139 (10,918) (83.6%)
Broadcast media 13,466 17,330 3,864 28.7%
------------- ------------- -------------- ---------------
Total 26,523 19,469 (7,054) (26.6%)
SELLING AND MARKETING AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
------------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 9,463 3,432 (6,031) (63.7%)
Broadcast media 2,751 3,509 758 27.6%
------------- ------------- -------------- ---------------
Total 12,214 6,941 (5,273) (43.2%)
GENERAL AND
ADMINISTRATIVE AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
------------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 7,487 3,068 (4,419) (59.0%)
Broadcast media 3,836 3,911 75 2.0%
------------- ------------- -------------- ---------------
Total 11,323 6,979 (4,344) (38.4%)
28
DEPRECIATION,
AMORTIZATION,
WRITE DOWNS AMOUNT OF PERCENTAGE
AND IMPAIRMENT INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
------------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 1,096 299 (797) (72.7%)
Broadcast media 967 636 (331) (34.2%)
------------- ------------- -------------- ---------------
Total 2,063 935 (1,128) (54.7%)
With respect to our Internet services segment, cost of sales decreased
by DKK 10.9 million to DKK 2.1 million which is primarily attributable to our
decision to change our strategic focus to our broadcasting business and the sale
of all non-profitable internet businesses during fourth quarter of 2003 and the
first quarter of 2004 and the sale of our Public Key Infrastructure business to
VeriSign on April 1, 2004. For the three months ended June 30, 2004 compared to
the same period in 2003, the percentage of segment revenue represented by each
of the following expenses are as follows: (i) Cost of sales was 48.9% compared
to 60.8%; (ii) Selling and marketing expenses was 78.4% compared to 44.1%; (iii)
General and administrative expenses was 70.1% compared to 34.9%; and (iv)
Depreciation, amortization and write-down and impairment expenses was 6.8%
compared to 5.1%. The increase in Selling and marketing, General and
administrative and Depreciation and amortization, expenses primarily reflects
the reduction in Net revenue from the sale of all non-profitable internet
businesses in fourth quarter of 2003 and the first quarter of 2004 and the sale
of our Public Key Infrastructure business to VeriSign on April 1, 2004. The
decrease in Cost of sales resulted from the general decrease in expenditure
resulting from the aforementioned sales.
In the case of our Broadcast media segment, for the three months ended
June 30, 2004 compared to the same period in 2003, the percentage of segment
revenue represented by each of the following expenses are as follows: (i) Cost
of sales was 77.1% compared to 59.9%; (ii) Selling and marketing expenses was
15.6% compared to 12.2%; (iii) General and administrative expenses was 17.4%
compared to 17.1%; and (iv) Depreciation, amortization and write-down and
impairment expenses was 2.8% compared to 4.3%. The general increase in expenses
we experienced in this quarter is primarily attributable to the growth in the
production of programs and our increased investment in the broadcasting
business.
For the three months ended June 30, 2004, the gross profit for our
Internet services segment decreased to DKK 2.2 million, or 51.1% of segment
revenues compared to DKK 8.4 million, or 39.2% of segment revenues for the same
period in 2003. This decrease is primarily attributable to the sale of all
non-profitable Internet businesses in fourth quarter of 2003 and the first
quarter of 2004 and the sale of our Public Key Infrastructure business to
VeriSign on April 1, 2004, which reduced our activities for the three months
ended June 30, 2004. In the case of our Broadcast media segment, for the three
months ended June 30, 2004 the gross profit decreased to DKK 5.1 million, or
22.9% of segment revenues compared to DKK 9.0 million, or 40.1% of segment
revenues for the same period in 2003. The decrease in the gross profit margin
reflects our increased investment in the broadcasting business.
29
GROSS PROFIT AMOUNT OF AMOUNT OF
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
------------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 8,414 2,237 (6,177) (73.4%)
Broadcast media 9,032 5,134 (3,898) (43.2%)
------------- ------------- -------------- ---------------
Total 17,446 7,371 (10,075) (57.7%)
We had an operating loss of DKK 7.5 million for the three months ended
June 30, 2004 compared to an operating loss of DKK 8.2 million for the same
period in the prior year. In our Internet services segment we had an operating
loss of DKK 4.6 million for the three months ended June 30, 2004 compared to an
operating loss of DKK 9.6 million for the same period in the prior year. The
reduction of operating loss is attributable to the sale of all non-profitable
Internet businesses in fourth quarter of 2003 and the first quarter of 2004 and
the sale of our Public Key Infrastructure business to VeriSign on April 1, 2004.
In our Broadcast media segment our operating income decreased by DKK 4.4 million
to an operating loss of DKK 2.9 million for the three months ended June 30, 2004
compared to an operating income of DKK 1.4 million for the same period in the
prior year. The decrease in operating income reflects an increase in Cost of
sales of DKK 3.9 million, Selling and marketing expenses of DKK 758 thousand and
General and administrative expenses of DKK 75 thousand, offset by a decrease in
Depreciation and amortization of DKK 331 thousand due to a significant increase
in capital expenditures this year in connection with the expanded activity in
our production of programs and a general increase in our investment in the
broadcasting business.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003
Net revenue for the six months ended June 30, 2004 was DKK 60.9
million, a decrease of DKK 22.0 million, or 26.5%, compared to Net revenue of
DKK 82.9 million for the six months ended June 30, 2003. The table below
compares revenues for the relevant periods on a segment-by-segment basis.
NET REVENUE AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
----------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 41,143 17,831 (23,312) (56.7%)
Broadcast media 41,771 43,085 1,314 3.1%
----------- ------------- -------------- ---------------
Total 82,914 60,916 (21,998) (26.5%)
The decrease in Net revenue in our Internet services segment reflects
the fact that during 2003, we made the decision to change our strategic focus to
our broadcasting business and consequently, we sold our Public Key
Infrastructure business to VeriSign on April 1, 2004, our Hosting business to
Mondo A/S as of January 1, 2004, all activity in our Remote backup business to
MUNK IT A/S as of November 30, 2003, EuroTrust France as of December 31, 2003
and our surveillance business in Realtime Security and our Swedish subsidiary
EuroTrust Sweden AB as of November 30, 2003 and December 31, 2003, respectively.
The increase in Net revenue in our Broadcast media segment for the six months
ended June 30, 2004 reflects an increase in the number of subscribers to dk4 and
in the growth in the production of programs for broadcasting.
30
Total operating expenses for the six months ended June 30, 2004 was DKK
67.1 million, a decrease of DKK 22.5 million, or 25.1%, compared to total
operating expenses of DKK 89.6 million for the six months ended June 30, 2003.
Total operating expenses include cost of revenue, selling and marketing
expenses, general and administrative expenses and depreciation, amortization,
write-down and impairment. For the six months ended June 30, 2004 compared to
the same period in 2003, the percentage of total net revenues represented by
each of the following expenses are as follows: (i) Cost of sales was 58.3%
compared to 64.1%; (ii) Selling and marketing expenses was 23.8% compared to
40.4%; (iii) General and administrative expenses was 21.2% compared to 36.0%;
and (iv) Depreciation, amortization, write-down and impairment expenses was 6.8%
compared to 6.6%. The tables below shows our operating expenses by category on a
segment-by-segment basis.
COST OF SALES AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
----------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 14,666 6,819 (7,847) (53.5%)
Broadcast media 24,369 28,671 4,302 17.7%
----------- ------------- -------------- ---------------
Total 39,035 35,490 (3,545) (9.1%)
SELLING AND MARKETING AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
----------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 19,499 8,127 (11,372) (58.3%)
Broadcast media 5,117 6,383 1,266 24.7%
----------- ------------- -------------- ---------------
Total 24,616 14,510 (10,106) (41.1%)
GENERAL AND
ADMINISTRATIVE AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
----------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 14,703 5,634 (9,069) (61.7%)
Broadcast media 7,220 7,310 90 1.2%
----------- ------------- -------------- ---------------
Total 21,923 12,944 (8,979) (41.0%)
DEPRECIATION,
AMORTIZATION AND
WRITE DOWNS AMOUNT OF PERCENTAGE
AND GOODWILL IMPAIRMENT INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
----------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 2,123 1,068 (1,055) (49.7%)
Broadcast media 1,885 3,073 1,188 63.0%
----------- ------------- -------------- ---------------
Total 4,008 4,141 133 3.3%
31
With respect to our Internet services segment, cost of sales decreased
by DKK 7.8 million to DKK 6.8 million which is primarily attributable to our
decision to change our strategic focus to our broadcasting business and the sale
of all non-profitable internet businesses during fourth quarter of 2003 and the
first quarter of 2004 and the sale of our Public Key Infrastructure business to
VeriSign on April 1, 2004. For the six months ended June 30, 2004 compared to
the same period in 2003, the percentage of segment revenue represented by each
of the following expenses are as follows: (i) Cost of sales was 38.2% of
compared to 35.6%; (ii) Selling and marketing expenses was 45.6% compared to
47.4%; (iii) General and administrative expenses was 31.6% compared to 35.7%;
and (iv) Depreciation, amortization and write-down and impairment expenses was
6.0% compared to 5.2%. The decrease in Selling and marketing, and General and
administrative, expenses primarily attributable to the sale of all
non-profitable Internet businesses during fourth quarter of 2003 and the first
quarter of 2004. The increase in Cost of sales and the decrease in Depreciation,
amortization, write-down and impairment expenses reflects the reduction in Net
revenue from the aforementioned sale of all non-profitable internet businesses.
In the case of our Broadcast media segment, for the six months ended
June 30, 2004 compared to the same period in 2003, the percentage of segment
revenue represented by each of the following expenses are as follows: (i) Cost
of sales was 66.5% compared to 58.3%; (ii) Selling and marketing expenses was
14.8% compared to 12.3%; (iii) General and administrative expenses was 17.0%
compared to 17.3%; and (iv) Depreciation, amortization and write-down and
impairment expenses was 7.1% compared to 4.5%. The general increase in expenses
we experienced in the six months ended June 30, 2004 is primarily attributable
to the growth in the production of programs and our increased investment in the
broadcasting business.
For the six months ended June 30, 2004, the gross profit for our
Internet services segment decreased to DKK 11.0 million, or 61.8% of segment
revenues compared to DKK 26.5 million, or 64.4% of segment revenues for the same
period in 2003. This decrease is primarily attributable the sale of all
non-profitable internet businesses in fourth quarter of 2003 and the first
quarter of 2004 and the sale of our Public Key Infrastructure business to
VeriSign on April 1, 2004, which reduced our cost of sales for the six months
ended June 30, 2004. In the case of our Broadcast media segment, for the six
months ended June 30, 2004 the gross profit decreased to DKK 14.4 million, or
33.5% of segment revenues compared to DKK 17.4 million, or 41.7% of segment
revenues for the same period in 2003. The decrease in the gross profit margin
reflects our increased investment in the broadcasting business during the first
six months of 2004.
GROSS PROFIT AMOUNT OF PERCENTAGE
INCREASE INCREASE
2003 2004 (DECREASE) (DECREASE)
----------- ------------- -------------- ---------------
(IN THOUSANDS OF DKK)
Internet services 26,477 11,012 (15,465) (58.4%)
Broadcast media 17,402 14,414 (2,988) (17.2%)
----------- ------------- -------------- ---------------
Total 43,879 25,426 (18,453) (42.1%)
We had an operating loss of DKK 6.2 million for the six months ended
June 30, 2004 compared to an operating loss of DKK 6.7 million for the same
period in the prior year. In our Internet services segment we had a operating
loss of DKK 3.8 million for the six months ended June 30, 2004 compared to a
loss of DKK 9.8 million for the same period in the prior year. In our
32
Broadcast media segment our operating income decreased by DKK 5.5 million to an
operating loss of DKK 2.4 million for the six months ended June 30, 2004
compared to an operating income of DKK 3.2 million for the same period in the
prior year. The decrease reflects a general increase in operating expenses due
to a significant increase in capital expenditures made this year in connection
with the expanded activity in our production of programs for broadcasting by
others and a general increase in our investment in the broadcasting business.
On April 1, 2004, we sold the Secure Socket Layer certificate assets of
our wholly-owned subsidiary, EuroTrust PKI, to VeriSign. EuroTrust PKI was the
subsidiary through which we sold Public Key Infrastructure (PKI) Services,
including VeriSign's SSL certificates and related services in Austria,
Switzerland, Finland, Norway, Sweden and Denmark. Under the terms of the
agreement, VeriSign paid us DKK 52.3 million ($8.5 million U.S.) in cash and
assume the ongoing obligations of EuroTrust PKI SSL contracts. In connection
with the sale we recognized a net gain on sale of business of DKK 63 million
($10.2 million U.S.).
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary cash needs have been for capital expenditures
and to fund operating losses. At June 30, 2004, our cash balances totaled DKK
26.5 million including restricted cash of DKK 5.9 million compared to cash
balances DKK 9.4 million with no restricted cash at December 31, 2003. At June
30, 2004 the ratio of current assets to current liabilities was 0.87 to 1. Our
current assets primarily reflect our cash, restricted cash, accounts
receivables, other receivables and prepaid expenses and deposits.
At June 30, 2004, we have secure lines of credit from banks totaling
DKK 10 million, from which DKK 6,878 have been drawn. Interest is payable on the
line at a floating rate based on the market rates of the major banks. The
weighted average interest rate as of June 30, 2004 was 5.5%. In Denmark, a line
of credit, such as that used by us, can be cancelled upon three months notice.
Any termination would result in the principal and interest becoming due and
payable immediately. The line of credit has been used for working capital
purposes.
For the six months ended June 30, 2004, cash used in operations was DKK
3.8 million compared to DKK 13.1 million for the six months ended June 30, 2003,
a decrease of DKK 9.3 million. The decrease is primarily due to the sale of
certain of our business and business assets in the Internet services segment and
the improved results of operations for the six months ended June 30, 2004.
For the six months ended June 30, 2004, cash provided in investing
activities was DKK 21.3 million compared to cash used in investing activities of
DKK 4.5 million for the six months ended June 30, 2003, an increase of DKK 25.8
million. This increase is primarily attributable to the sale of our Secure
Socket Layer certificate assets of EuroTrust PKI to VeriSignas of April 1, 2004,
For the six months ended June 30, 2004, DKK 6.0 million was used in
financing activities compared to cash used in financing activities of DKK 5.6
million for the six months ended June 30, 2003.
Our capital expenditures for the six months ended June 30, 2004 were
DKK 9.8 million, for the purchase of certain mobile production equipment.
Additionally, we purchased DKK 26.3 million of mobile production equipment under
an equipment purchase agreement financed
33
through the supplier pursuant to which we will be required to make quarterly
payments of DKK 2.33 million through March 2006.
For the first six months of 2004 we have continued to experience net
cash outflows from our operations. If this trend continues we may be required to
raise additional cash to fund both our operations and any capital expenditures.
We believe that our cash on hand together with borrowings currently
available and other potential sources of funds 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
a substantial burden could be placed on our cash resources.
34
RISK FACTORS
OUR FUTURE OPERATING RESULTS ARE HIGHLY UNCERTAIN AND MAY BE INFLUENCED
BY A VARIETY OF FACTORS INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS
REPORT. IN ADDITION TO OTHER INFORMATION IN THIS FORM 6-K, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING OUR BUSINESS AND US BECAUSE
THESE FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY 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 6-K AS A RESULT OF THE RISK FACTORS DISCUSSED BELOW AND
ELSEWHERE IN THIS FORM 6-K.
WE HAVE A SIGNIFICANT ACCUMULATED LOSS AND THE LIKELIHOOD OF FUTURE
PROFITABILITY IS UNCERTAIN. CONTINUING LOSSES MAY EXHAUST OUR CAPITAL RESOURCES
AND FORCE US TO TERMINATE OPERATIONS.
We incurred a net loss in each of the years ended December 31, 1999,
2000, 2002 and 2003 and we incurred an operating loss in each of those years and
for the year ended December 31, 2001. For the six months ended June 30, 2004 we
had an operating loss of DKK 6,169,000, ($1,009,000). As of June 30, 2004, we
had a cumulative net loss of DKK 459.0 million, ($75.1 million). We may incur
additional losses in the foreseeable future. We cannot assure you that we will
become profitable or, if we do become profitable, that we will be able to
sustain or increase our profitability in the future. If operating losses
continue for longer than we expect and we cannot raise additional capital, we
may be forced to terminate operations.
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 new acquisition opportunities and our ability to increase our revenues
and control our expenses. 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 FUTURE REVENUES ARE UNPREDICTABLE AND OUR FINANCIAL RESULTS MAY FLUCTUATE.
IF OUR FINANCIAL RESULTS FALL BELOW EXPECTATIONS IN ONE OR MORE FUTURE QUARTERS,
THE MARKET PRICE OF OUR ADSS MAY BE NEGATIVELY IMPACTED.
We cannot accurately forecast our revenues or operating results. Our
revenues and operating results may fluctuate significantly because of several
factors, many of which are beyond our control. These factors include:
o market acceptance of our products and services;
o a change in television viewer preferences if we are unsuccessful in
addressing those changes in our programming; and
o the non-renewal or termination of our contract with TeleDanmark Kabel.
o the non-renewal or termination of our contract with Canal Digital A/S
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o the continued interest in televising live sporting events in
Scandanavia
o the pace at which new television programming is produced in
Scandinavia;
o customer renewal rates for our products and services;
o our success in cross marketing our products and services to our
existing customers and to new customers;
o developing our direct and indirect distribution channels;
o a decrease in the level of spending for Internet virus detection
products and services by our existing customers;
o our ability to expand our operations;
o our success in assimilating the operations and personnel of any
acquired businesses;
o the impact of price changes in our products and services or those of
our competitors;
o general economic conditions and economic conditions specific to the
television programming production or Internet services industry;
Due to all of the above factors, we believe that period-to-period comparisons of
our operating results will not necessarily be meaningful, and you should not
rely on them as an indication of future performance. Also, operating results may
fall below our expectations and the expectations of securities analysts or
investors in one or more future quarters. If this were to occur, the market
price of our ordinary shares would likely decline which may result in a
significant decline in the value of your investment.
WE HAVE A LIMITED OPERATING HISTORY IN THE MEDIA BUSINESS AND IN THE BUSINESS OF
PROVIDING INTERNET VIRUS DETECTION PRODUCTS AND SERVICES AND MAY ENCOUNTER
DIFFICULTIES SIMILAR TO THOSE FACED BY EARLY STAGE COMPANIES. OUR RESULTS FROM
OPERATIONS MAY DEPEND ON HOW SUCCESSFUL WE ARE IN DEALING WITH THESE
DIFFICULTIES.
Over the last five years, our business has evolved from (i) a
telecommunications company that also provided Internet access to (ii) an
Internet services provider focusing primarily on domain name registration
services to (iii) providing trusted Internet infrastructure products and
services. Our current business primarily consists of our media division which is
made up of our TV broadcast channel - dk4 and our TV production company - Prime
Vision and our Internet services division. We have only a limited operating
history in these businesses on which you can base an evaluation of our current
business and prospects. As such, our current business and prospects must be
considered in light of the risks and uncertainties encountered by companies in
the early stages of development.We cannot be certain that we will successfully
address this risk. If we fail, our business and results from operations may be
materially and adversely impacted.
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WE COMPETE IN THE HIGHLY COMPETITIVE BROADCASTING INDUSTRY.
The Danish broadcast industry is highly competitive and dominated by a
few large companies. As a result of competition, we consolidated our broadcast
operations into one channel. In addition, we expect that the number of channels
competing for the places in the TeleDanmark Kabel programming network will
increase in the ensuing years. If viewer preferences change and we are
unsuccessful in addressing those changes in our programming, we may lose favor
with them and they may choose to view a competitor's channel over ours.
IF WE ARE UNABLE TO NEGOTIATE A RENEWAL OF OUR CONTRACT WITH EITHER TELEDANMARK
KABEL OR CANAL DIGITAL A/S THE REVENUES FROM OUR BROADCASTING BUSINESS MAY BE
ADVERSELY AFFECTED.
Our dk4 television channel is carried as part of the basic package of
channels provided to all cable television subscribers to TeleDanmark Kabel (the
primary Company providing cable television service in Denmark), for which we
receive a per subscriber fee as well as to all subscribers of Canal Digital A/S,
a Danish digital satellite television service provider. Our agreement with each
of TeleDanmark Kabel and Canal Digital A/S to carry dk4 as part of its basic
package expires on December 31, 2006 and December 31, 2007, respectively. If we
are unable to renew either agreement the revenues from our broadcasting business
would decrease significantly and the results of operations from our broadcasting
business would be materially and adversely affected. We cannot assure you that
we will successfully negotiate a renewal of our agreement with TeleDanmark Kabel
or Canal Digital A/S.
IF THE INTEREST IN VIEWING LIVE SPORTING EVENTS IN THE SCANDINAVIAN MARKET
SHOULD DECREASE OR IF THERE IS A SLOWDOWN IN OTHER TELEVISION PROGRAMMING
PRODUCTION OUR RESULTS COULD BE ADVERSELY AFFECTED.
We have eight large mobile television production vans which are leased
to various other companies primarily for their broadcast of live sporting events
or the production of original television programming. We also provide many of
the technical personnel required for these productions. If we are unable to
lease these vans and our technical personnel to other broadcasters or television
production companies we will be in a position where we will not be able to cover
the expenses associated with this business which in turn could materially and
adversely effect our business. Our ability to keep these vans busy in order to
generate revenue will be effected by many factors outside of our control,
including the continued interest in viewing live sporting events and the
continued desire to produce television programming in Scandinavia.
THE SUCCESS OF OUR VIRUS DETECTION BUSINESS DEPENDS LARGELY ON THE LEVEL OF
MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES.
The market for Internet virus detection products and services is
relatively new and rapidly evolving. As a result, the future demand for our
products and services is uncertain. Even if the market for electronic commerce
and online communications grows, we cannot assure you that our products and
services will become widely accepted. If this market fails to grow, our business
and results from operations may be adversely affected.
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OUR VIRUS DETECTION BUSINESS FACES SIGNIFICANT COMPETITION FROM COMPETITORS
WHICH ARE MUCH LARGER THAN WE ARE AND HAVE LONGER OPERATING HISTORIES, LARGER
CLIENT BASES, GREATER BRAND OR NAME RECOGNITION AND SIGNIFICANTLY GREATER
FINANCIAL, TECHNICAL, MARKETING AND PUBLIC RELATIONS RESOURCES THAN WE HAVE.
The market for virus detection products is intensely competitive and we
expect this competition to continue for the foreseeable future. In addition,
there are relatively few barriers preventing new competitors from entering the
markets in which we operate. Furthermore, we do not own any patented technology
and our competitors may develop new technologies in the future that are
perceived as being more secure, effective or cost efficient than the technology
underlying our products and services. Increased competition could result in
pricing pressures, reduced margins or the failure of our virus detection
products and services to achieve or maintain market acceptance, any of which
could harm our business.
OUR RESULTS FROM OPERATIONS MAY BE NEGATIVELY IMPACTED IF WE ARE NOT ABLE TO
ESTABLISH A BRAND IDENTITY.
We believe that establishing and maintaining a good reputation and name
recognition is critical to our success. We also believe that the importance of
reputation and name recognition will increase due to the growing number of
companies providing Internet infrastructure products and services. Over the last
three years, we have gone through several name changes as our business has
evolved. In 1999, we changed our name from Telepartner A/S to euro909.com A/S
and in December 2001 to EuroTrust A/S. Our brand-enhancement strategy includes
mass market and multimedia advertising, promotional programs and public
relations activities. In addition, promoting and enhancing our name depends
largely on our success in providing uninterrupted high quality services. We
intend to make significant expenditures on advertising and promotional programs
and activities. We cannot assure you that our efforts will lead to an increase
in net revenues sufficient to cover our advertising and promotional expenses. To
build brand identity we must provide high quality services at a competitive
price. If our reputation is damaged or if potential clients are not aware of the
products and services we provide, or if our clients do not perceive our services
as effective, reasonably priced or qualitatively better than the competition,
our reputation could be materially and adversely affected and we could lose
market share.
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, technologies, services or products 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.
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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 a portion
of 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;
o managing more geographically-dispersed operations;
o diverting management's resources from other business concerns;
o retaining the employees of the acquired businesses;
o maintaining existing customer relationships of acquired companies;
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, CUSTOMER SERVICE STAFF 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, customer service capabilities and sales and marketing efforts.
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. In addition, as we
offer new products and services, we will need to increase the size and expand
the training of our customer service staff to ensure that they can adequately
respond to customer inquiries. If we fail to adequately train our customer
service staff and provide staffing sufficient to support our new products and
services, we may lose customers.
OUR INTERNATIONAL PRESENCE CREATES RISKS WHICH MAY ADVERSELY AFFECT OUR
BUSINESS.
Currently, our operations focus on the Scandinavian, markets. In
addition to the uncertainty as to our ability to successfully expand our
Scandinavian presence, 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,
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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. Changes in competition, economics, politics or
laws, including tax, labor, environmental and employment, could affect our
ability to sell our products and services in those countries. 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.
IF WE ARE UNABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL
PERSONNEL, OUR BUSINESS MAY BE HARMED.
Our success depends in large part on the contributions of our senior
management team, technology personnel and other key employees and on our ability
to attract, integrate, train, retain and motivate these individuals and
additional highly skilled technical and sales and marketing personnel. We face
intense competition in hiring and retaining quality management personnel. Many
of these companies have greater financial resources than we do to attract and
retain qualified personnel. The only key employees that have signed employment
agreements are Aldo Petersen, our Chief Executive Officer, and Soren Degn, our
Chief Financial Officer. Under these agreements, they can terminate their
employment on six months notice. As a result, we may be unable to retain our key
employees or attract, integrate, train and retain other highly qualified
employees in the future, when necessary. If we fail to attract qualified
personnel or retain and motivate our current personnel, our business may be
negatively impacted.
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. Except for one hedging
transaction done in March of 2002, 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 the Danish kroner
depreciates and the currencies of the countries in which we operate appreciate
or remain stable our results from operations may be negatively affected.
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.
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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 SmallCap 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 industry 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, particularly in the technology sector. 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.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
EUROTRUST A/S
Dated: September 14, 2004 By: /s/ Soren Degn
------------------------------
Soren Degn
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBITS
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.*
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* Included herewith.
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