Exhibit 99.1
Consolidated Financial Statements for December 31, 2012, 2011 and 2010
| Independent Auditors’ Report | 1 |
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| Consolidated Statement of Income for the years ended December 31, 2012, 2011 and 2010 | 2 |
| | |
| Consolidated Balance Sheet – Assets at December 31, 2012, 2011 and 2010 | 3 |
| | |
| Consolidated Balance Sheet – Equity and Liabilities at December 31, 2012, 2011 and 2010 | 4 |
| | |
| Pledged Assets and Contingent Liabilities | 4 |
| | |
| Consolidated Statement of Cash Flows | 5 |
| | |
| Accounting Principles and Notes to the Accounts | 6 |
| | |
| Notes to Consolidated Financial Statements | 9 |
| | |
Independent auditors’ report
The Board of Directors and Stockholders
Hego AB
We have audited the accompanying consolidated balance sheets of Hego AB and subsidiaries as of December 31, 2012, 2011 and 2010, and the related consolidated statements of income and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Hego AB’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hego AB and subsidiaries as of December 31, 2012, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with generally accepted accounting principles in Sweden.
Accounting principles generally accepted in Sweden vary in certain significant respects from generally accepted accounting principles in the United States of America. Information relating to the nature and effect of such differences is presented in note 14 to the consolidated financial statements.
Stockholm February 28, 2013
KPMG AB
/s/ Duane J. Swanson
Duane J. Swanson
Consolidated statement of income
| Amount in SEK 000s | Note | 01/01/2012- 31/12/2012 | | 01/01/2011- 31/12/2011 | | 01/01/2010- 31/12/2010 |
Operating income Net sales | 1 | 100,295 | | 70,388 | | 66,050 |
| Other operating income | | 3,316 | | 21 | | 562 |
| | | 103,611 | | 70,409 | | 66,612 |
Operating expenses Production costs and supplies | | (24,340) | | (20,632) | | (18,970) |
| Other external costs | 2 | (16,708) | | (21,092) | | (12,540) |
Personnel costs Depreciation and amortization of tangible and intangible fixed assets Other costs | 3 5,6,7,8 | (48,225) (3,221) (320) | | (31,214) (2,378) - | | (26,371) (2,173) - |
| Operating profit (loss) | | 10,797 | | (4,907) | | 6,558 |
Profit (loss) from financial items Share of income (loss) from associated companies | 9 | - | | (6,436) | | (4,880) |
| Profit (loss) from non-current receivables | | - | | (250) | | - |
Interest income and foreign exchange gains Interest expense and foreign exchange loss | | 253 (2,290) | | 242 (1,955) | | 700 (1,034) |
Profit (loss) before income taxes and minority interests | | 8,760 | | (13,306) | | 1,344 |
Income taxes Minority share of profit for the year | 4 | (919) (113) | | 950 (29) | | (1,462) (619) |
| Net profit (loss) for the year | | 7,728 | | (12,385) | | (737) |
| | | | | | | |
The accompanying notes are an integral part of these financial statements.
Consolidated balance sheet - Assets
| Amount in SEK 000s | Note | 31/12/2012 | | 31/12/2011 | | 31/12/2010 |
ASSETS | | | | | | |
| Non-current assets | | | | | | |
Intangible fixed assets Capitalized software development cost | 5 | 287 | | 338 | | 406 |
| Goodwill | 6 | 2,483 | | 2,952 | | 440 |
| | | 2,770 | | 3,290 | | 846 |
Tangible fixed assets Leasehold improvements | 8 | - | | 66 | | 133 |
| Equipment, tools, fixtures and fittings | 7 | 7,166 | | 3,784 | | 3,595 |
| | | 7,166 | | 3,850 | | 3,728 |
Financial non-current assets Investment in associated companies | 9 | - | | - | | - |
| Deferred tax assets | | 109 | | 204 | | 104 |
| Other long-term receivables | 10 | 348 | | 431 | | 710 |
| Other long-term investments | | 7 | | 8 | | 8 |
| | | 464 | | 643 | | 822 |
| Total non-current assets | | 10,400 | | 7,783 | | 5,396 |
Current assets | | | | | | |
| Supplies | | 5 | | 76 | | 9 |
| | | 5 | | 76 | | 9 |
Current receivables Accounts receivable | | 11,132 | | 9,868 | | 12,000 |
| Receivables from associated companies | | - | | - | | 4,950 |
| VAT and other receivables | | 1,376 | | 1,201 | | 370 |
| Prepaid expenses and accrued income | 11 | 6,694 | | 2,678 | | 2,181 |
| | | 19,202 | | 13,747 | | 19,501 |
| Cash and bank | | 5,148 | | 5,216 | | 8,299 |
| Total current assets | | 24,355 | | 19,039 | | 27,809 |
| TOTAL ASSETS | | 34,755 | | 26,822 | | 33,205 |
The accompanying notes are an integral part of these financial statements.
Consolidated balance sheet – Equity and Liabilities
| Amount in SEK 000s | Note | 31/12/2012 | | 31/12/2011 | | 31/12/2010 |
Equity and liabilities | | | | | | |
| Equity | 12 | | | | | |
| Share capital | | 154 | | 154 | | 122 |
| New share issue being registered | | - | | - | | 4,975 |
| Restricted reserves | | 185 | | 20 | | 4,208 |
| Non-restricted reserves | | (117) | | 12,565 | | 3,071 |
| Net profit (loss) for the year | | 7,728 | | (12,385) | | (737) |
| Total equity | | 7,950 | | 354 | | 11,639 |
| Minority shares | | 1,419 | | 907 | | 2,588 |
Provisions Provisions for deferred taxes | | 58 | | - | | 1,494 |
| | | 58 | | - | | 1,494 |
Long-term liabilities Liabilities to credit institutions | 13 | 949 | | 1,823 | | 1,060 |
| | | 949 | | 1,823 | | 1,060 |
Current liabilities Liabilities to credit institutions | 13 | 3,738 | | 2,663 | | 1,891 |
| Accounts payable | | 6,631 | | 6,402 | | 4,486 |
| Loans from shareholders | | 4,458 | | 4,371 | | 2,615 |
| Taxes payable | | 595 | | 1,317 | | 544 |
| Other current liabilities | | 3,206 | | 1,410 | | 1,856 |
| Accrued expenses and deferred income | 12 | 5,751 | | 7,575 | | 5,032 |
| | | 24,379 | | 23,738 | | 16,424 |
| TOTAL EQUITY AND LIABILITIES | | 34,755 | | 26,822 | | 33,205 |
Pledged assets and contingent liabilities
| Other pledged assets and collateral | | | | | | |
| Chattel mortgages | | 4,000 | | 3,000 | | 2,000 |
| Total | | 4,000 | | 3,000 | | 2,000 |
The accompanying notes are an integral part of these financial statements.
Consolidated statement of cash flows
| Amount in SEK 000s | 31/12/2012 | | 31/12/2011 | | 31/12/2010 |
Cash flows from operating activities Profit (loss) after financial items | 8,760 | | (13,306) | | 1,344 |
| Adjustments for non-cash transactions | 2,756 | | 9,205 | | 7,043 |
| | 11,516 | | (4,101) | | 8,387 |
| Taxes (paid) received | (1,488) | | 228 | | (2,086) |
| Cash flow from operating activities, before changes in working capital | 10,028 | | -3,873 | | 6,301 |
Cash flow from changes in working capital Increase(-)/Decrease (+) of supplies | 71 | | 67 | | 1 |
| Increase(-)/Decrease (+) of operating receivables | (6,241) | | 2,158 | | (8,179) |
| Increase(-)/Decrease (+) of operating liabilities | 692 | | 5,242 | | 770 |
| Cash flow from operating activities | 4,550 | | 3,595 | | (1,107) |
| Investment activities | | | | | |
| Acquisition of intangible fixed assets | (473) | | (221) | | (309) |
Acquisition of tangible fixed assets | (5,615) | | (647) | | (2,199) |
Acquisition of non-current assets | - | | (2,518) | | (4,880) |
| Acquisition of business, net of cash acquired | - | | (3,010) | | (360) |
| Investments in other non-current assets | 22 | | (107) | | 709 |
| Cash flow from investment activities | (6,066) | | (6,503) | | (7,039) |
Financing activities Proceeds from new share issue | - | | - | | 4,975 |
| Proceeds from stock rights issue and sale of shares to mi- | | | | | |
| nority shareholders | 1,262 | | - | | - |
| Proceeds from loans issued | 186 | | 1,535 | | 1,851 |
| Dividends paid | - | | (1,710) | | - |
| Cash flow from financing activities | 1,448 | | (175) | | 6,826 |
Net cash flow for the year Cash and bank at beginning of year | (68) 5,216 | | (3,083) 8,299 | | (1,320) 9,619 |
| Cash and bank at end of year | 5,148 | | 5,216 | | 8,299 |
Additional Information
| Depreciation, amortization and impairment | 3,541 | | 9,205 | | 7,043 |
| Net profit from stock rights issue | (785) | | - | | - |
| | 2,756 | | 9,205 | | - |
| | | | | | |
| Interest received | 253 | | 242 | | 700 |
| Interest paid | (2,290) | | (1,955) | | (1,034) |
| Liquid assets | | | | | |
| Cash and bank | 5,148 | | 4,209 | | 5,611 |
| Short term investments classified as liquid assets | - | | 1,007 | | 2,688 |
| Cash and bank | 5,148 | | 5,216 | | 8,299 |
The classification above is done on the following basis:
- Small risk of fluctuation in valuation
- Can easily be converted into cash
- A term of maximum three months
The accompanying notes are an integral part of these financial statements.
Accounting principles and notes to the accounts
Amounts in SEK 000s unless stated otherwise
General accounting principles
The same accounting principles as for the previous year have been applied. The annual report has been prepared in accordance with the Annual Accounts Act and the general recommendations of Swedish Accounting Standards Board (“BFNAR”), except for BFNAR 2008:1 Financial statements in small limited liabilities companies (“Swedish GAAP”). If no guideline has been issued by the Swedish Accounting Standards Board, guidance has been taken from the standards issued by the Financial Accounting Standards Council.
Valuation principles, etc.
Assets, allocations and liabilities have been valued at historical cost unless stated otherwise below.
Revenue recognition
Revenue recognition is made in accordance with BFNAR 2003:3 Revenue. The company reports its revenue as the value of consideration received or to be received.
Compensation for services rendered is recognized as they are performed. Revenue not yet invoiced is reported under accrued income. Compensation for product sales are recorded at delivery. License revenue is distributed linearly over the contract period.
Interest, royalties and dividends are recognized when it is probable that the company will have the economic benefits associated with the transaction and that the income can be measured reliably. Interest income is recognized using the interest rate that provides a consistent return for the assets in question. Royalty revenue is accrued in accordance with the relevant agreement. Dividend is recognized when the shareholder's right to receive dividend is deemed secure.
Tax
The Company and Group apply the BFNAR 2001:1 Income tax. Total tax comprises current and deferred tax.
Taxes are reported in the income statement. Current tax is tax which will be paid or received in regard to the current year. This also includes the adjustment of current tax attributable to previous periods.
Deferred tax is calculated in accordance with the balance sheet method based on temporary differences between reported and fiscal values on assets and liabilities with the exception of tax losses which are not valued. The amount is calculated based on how the temporary differences are expected to be settled and with application of those tax rates and tax regulations that have been determined or instructed as of the balance sheet date. Temporary differences are not taken into consideration in consolidated goodwill and neither are differences attributable to investments in subsidiaries and associated companies that are not expected to be reverse in the foreseeable future.
Intangible assets
Capitalized software development costs
In the balance sheet the development costs for software in some subsidiaries are recorded as actual cost less amortization and impairment. All other costs are recorded in the income statement.
Tangible assets
Tangible fixed assets are reported as assets in the balance sheet when, based on available information, it is likely that the future financial benefits that are associated with the holdings will be realised by the group/company and when the acquisition value for the asset can be calculated in a reliable way.
Depreciation of tangible and amortization of intangible fixed assets
Depreciation is based on the historical cost less any calculated residual value. Depreciation is calculated on a straight-line basis over the assets useful life.
The following useful lives are used:
Tangible fixed assets:
- Leasehold improvements 20%
- Equipment 20%
- Goodwill 20%
Impairment
At each reporting period it is analysed whether there is any indication of impairment of the assets. If so is the case the estimated recoverable amount is calculated which is the higher of net realizable value and value in use. Value in use is calculated based on the estimated future cash flows the asset is expected to generate. If the book value of the asset exceeds the recoverable amount of the asset it is reduced down to the last value.
Leasing - lessee
The Swedish Accounting Standards Board's general recommendation, BFNAR 2000:4, is applied and all leasing agreements are reported as operating leases.
Receivables
Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are stated net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on an individual assessment of the receivable considering factors such as the age of the amounts due, historical experience of collection and other factors which may affect the customers’ ability to pay.
Accounts payable
Accounts payable are short-term and are valued at nominal value.
Receivables and liabilities in foreign currency
Receivables and liabilities in foreign currencies have been translated to exchange rates prevailing on the balance sheet day in accordance with the Swedish Financial Accounting Standards Council's recommendation no. 8. Exchange rate differences on operating receivables and liabilities are included in the operating profit/loss, while differences in financial receivables and liabilities are reported as financial items.
For those cases when receivables or payables in foreign currency have been hedged, the receivables or payables have been translated using the rate in the hedging instrument. The group has no outstanding derivatives as of the balance sheet dates.
Foreign currency
The Swedish krona is the functional currency of Hego AB and also the presentation currency of the consolidated accounts. The assets and liabilities of foreign subsidiaries are translated to Swedish kronor at the exchange rates prevailing on the balance sheet date. The income and expenses are translated at average exchange rates which approximate the exchange rate for the respective transaction. The differences arising on the translation of the financial statements of a foreign subsidiary are recognized directly in equity.
Cash and cash equivalents
Cash and cash equivalents include cash, immediately available bank balances and other money market instruments with maturities of three months or less. These items are generally valued at amortized cost.
Provisions
A provision is recognized in the balance sheet when the company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made.
Consolidated accounting
The consolidated accounts have been prepared in accordance with the Swedish Accounting Standards Board’s recommendation RR1:00.
Basis of consolidation
Subsidiaries are companies in which the parent company directly or indirectly holds more than 50% of the voting rights, or in another way has a deciding influence over the operation and finances of the company.
Subsidiaries are normally reported in accordance with the acquisition method. The acquisition method means that an acquisition of a subsidiary is considered to be a transaction whereby the parent company indirectly acquires the subsidiary’s assets and takes over its liabilities. From the date of the acquisition, the acquired company’s income and costs, identifiable assets and liabilities as well as possible goodwill or negative goodwill are included in the consolidated accounts.
Goodwill
Group goodwill arises when the acquisition value, for the acquisition of shares in subsidiaries exceeds the fair value of the acquired company's identifiable net assets. Goodwill is reported at the acquisition value with deductions for accumulated amortization and possible impairment.
Notes
Note 1 Net sales per operating branch and geographic market
| | 01/01/2012- 31/12/2012 | | 01/01/2011- 31/12/2011 | | 01/01/2010- 31/12/2010 |
Net sales per country
| Sweden | 58,468 | | 39,937 | | 34,073 |
| Finland | 22,379 | | 18,078 | | 16,555 |
| Norway | 3,457 | | 2,705 | | 5,087 |
| Czech Republic | 7,442 | | 7,679 | | 8,098 |
| Slovakia | 1,230 | | 1,238 | | 2,117 |
| Denmark | 35 | | 276 | | 120 |
| Great Britain | 823 | | 496 | | - |
| USA | 6,461 | | - | | - |
| | 100,295 | | 70,409 | | 66,050 |
Revenue by type
| Services | 65,440 | | 46,627 | | 41,832 |
| Products | 25,241 | | 13,875 | | 15,055 |
| Licenses | 4,894 | | 3,909 | | 3,326 |
| Others | 4,720 | | 5,998 | | 5,837 |
| | 100,295 | | 70,409 | | 66,050 |
Note 2 Operating leases
| | 01/01/2012- 31/12/2012 | | 01/01/2011- 31/12/2011 | | 01/01/2010- 31/12/2010 |
| Assets that are used via operating leasing agreements | | | |
| Leasing costs excluding rent for premises | 1,216 | 757 | 556 |
| Future leasing fees < 5 years excl. rent for premises | 4,637 | - | - |
| | | | |
There are no future lease payments under non-cancellable leases exceeding 5 years.
Note 3 Employees and personnel costs
| | 01/01/2012- 31/12/2012 | | 01/01/2011- 31/12/2011 | | 01/01/2010- 31/12/2010 |
Average number of employees
| Men | 84 | | 54 | | 47 |
| Women | 14 | | 10 | | 10 |
| | 98 | | 64 | | 57 |
Salaries, other remuneration and social costs
| Board and Managing Director | 6,411 | | 3,894 | | 4,836 |
| Other employees | 28,671 | | 16,704 | | 14,995 |
| Total | 35,082 | | 20,598 | | 19,831 |
| Social fees | 10,321 | | 6,509 | | 4,908 |
| (of which pension costs) | 2,887 | | 1,498 | | 1,370 |
Of the groups pension costs 449’ (2011: 320’, 2010: 422’) is attributable to corporate management. The group's outstanding pension obligations to these total SEK 0 (2011: 0, 2010: 0).
Note 4 Income taxes
| | 01/01/2012- 31/12/2012 | | 01/01/2011- 31/12/2011 | | 01/01/2010- 31/12/2010 | |
| Current tax charge | (766) | | (545) | | 1,275 |
| Deferred tax (charge) credit | (153) | | 1,495 | | 187 |
| | (919) | | 950 | | 1,462 |
Tax losses of 5,553, 19 and 0 were utilized in 2012, 2011 and 2010 respectively and were primarily related to tax losses in Sweden and the UK. The group does not record deferred taxes benefits on tax losses. Unused tax losses amounted to 551, 5,866 and 0 as of December 31st 2012, 2011 and 2010 respectively.
Reconciliation of effective tax rate
| | 2012 | 2011 | 2010 |
| Profit (Loss) before taxes | | 8,760 | | (13,306) | | 1,344 |
| Income tax using the corporate tax rate for the Parent company | 26.3% | (2,304) | 26.3 % | 3,499 | 26.3 % | (353) |
| Non-deductible expenses | 0.2% | (20) | (4.8 %) | (639) | 97.8 % | (1,314) |
| Standard interest on tax allocation reserves | - | - | (0.2 %) | (31) | 2.2 % | (30) |
| International taxes and rate differentials | - | - | (0.3 %) | (36) | - | - |
| Effect of increase in valuation allowance for deferred tax assets | - | - | (11.0 %) | (1,463) | - | - |
| Tax loss carry forwards not recognized as deferred tax asset | (15.1 %) | 1,323 | - | - | - | - |
| Effect due to change in tax rate/ and tax regulations | (0.1 %) | 9 | - | - | - | - |
| Other | (0.8 %) | 73 | (1.5 %) | (381) | (17.5) % | 236 |
| Reported tax expense | 10.5 % | (919) | 3,9 % | 950 | 108.8 % | (1,462) |
Note 5 Capitalized software
Accumulated acquisition value:
| At beginning of year | 1,727 | | 1,508 | | 1,197 |
| New acquisitions | 129 | | 221 | | 309 |
| Translation differences for the year | 21 | | | | |
| | 1,877 | | 1,727 | | 1,506 |
Accumulated amortization according to plan
| At beginning of year | (1,389) | | (1,100) | | (835) |
| Amortization | (196) | | (269) | | (267) |
| Translation differences for the year | 5 | | (20) | | 2 |
| | (1,590) | | (1,389) | | (1,100) |
| Net value at year-end | 287 | | 338 | | 406 |
Note 6 Goodwill
Accumulated acquisition value:
| At beginning of year | 5,778 | | 2,770 | | 2,770 |
| New acquisitions | 344 | | 3,008 | | - |
| Divestment / closure of business | (5) | | - | | - |
| | 6,117 | | 5,778 | | 2,770 |
Accumulated amortization
| At beginning of year | (2,826) | | (2,330) | | (2,081) |
| Amortisation | (808) | | (496) | | (249) |
| | (3,634) | | (2,826) | | (2,330) |
| Net value at year-end | 2,483 | | 2,952 | | 440 |
In 2011, the Group acquired 100% of the business in Sportsground AB of which 49% were sold in 2012. The Group also acquired the remaining 35.6% of the shares in AKI Sports s.r.o, Czech in 2011 after which they were wholly owned. Goodwill acquired in 2012 relates to an acquisition made in Finland.
Note 7 Equipment, tools, fixtures and fittings
Accumulated acquisition value:
| At beginning of year | 14,770 | | 13,047 | | 10,787 |
| New acquisitions | 5,615 | | 1,723 | | 2,376 |
| Translation differences for the year | (61) | | 21 | | (471) |
| | 20,385 | | 14,770 | | 13,047 |
Accumulated depreciation according to plan
| At beginning of year | (11,007) | | (9,458) | | (8,087) |
| Depreciation | (2,134) | | (1,538) | | (1,581) |
| Translation differences for the year | (17) | | (11) | | (210) |
| | (13,158) | | (11,007) | | (9,458) |
| Net value at year-end | 7,166 | 3,784 | 3,594 |
Note 8 Leasehold improvements
Accumulated acquisition value:
| At beginning of year | 332 | | 331 | | 331 |
| Translation differences for the year | (2) | | 1 | | - |
| | 330 | | 332 | | 331 |
Accumulated depreciation
| At beginning of year | (265) | | (198) | | (132) |
| Depreciation | (65) | | (67) | | (66) |
| | (330) | | (265) | | (198) |
| Net value at year-end | - | 66 | 133 |
Note 9 Investment in associated companies
Accumulated acquisition value:
| At beginning of year | - | | - | | 6,335 |
| Acquisitions | - | | 2,518 | | 4,614 |
| Impairment | - | | (2,518) | | (4,614) |
| Translation differences for the year | - | | - | | - |
| | | | | | |
| Net value at year-end | - | | - | | - |
The group has accounted for investments in associated companies based on the equity method. The charge to earnings in 2011 also included a receivable totalling 4,950.
Note 10 Other long-term receivables
Accumulated acquisition value:
| At beginning of year | 431 | | 710 | | 795 |
| Additional receivables | 315 | | 12 | | 19 |
| Payments received | (236) | | (5) | | (82) |
| Reclassifications to current receivables | (162) | | (286) | | - |
| Exchange rate differences for the year | - | | - | | (22) |
| | | | | | |
| Net value at year-end | 348 | | 431 | | 710 |
Note 11 Prepaid and accrued income / accrued expenses and deferred income
| | 31/12/2012 | | 31/12/2011 | | 31/12/2010 |
Prepaid expenses and accrued income
| Prepaid expenses | 2,127 | | 1,395 | | 1,063 |
| Accrued income | 4,567 | | 1,283 | | 746 |
| Other items | - | | - | | 372 |
| | 6,694 | | 2,678 | | 2,181 |
Accrued expenses and deferred income
| Accrued salary costs | 2,361 | | 1,669 | | 1,044 |
| Prepaid income - agreement | 1,206 | | 1,132 | | 865 |
| Other items | 1,995 | | 4,774 | | 3,123 |
| | 5,562 | | 7,575 | | -9,458 |
Note 12 Equity
| | Share equity | | Restricted reserves | | Non-restricted reserves | | Total |
| | | | | | | | |
| Equity 2009-12-31 | 122 | | 4,667 | | 2,819 | | 7,608 |
| New share issue | - | | 4,975 | | - | | 4,975 |
| Foreign currency translation adj. | - | | - | | (208) | | (208) |
| Reclassification between restricted and non-restricted equity | - | | (459) | | 459 | | - |
| Profit/loss for the year | - | | - | | (737) | | (737) |
| Equity 2010-12-31 | 122 | | 9,183 | | 2,333 | | 11,638 |
| | | | | | | | |
| Equity 2010-12-31 | 122 | | 9,183 | | 2,333 | | 11,638 |
| New share issue | 32 | | 2,988 | | - | | 3,020 |
| Dividends | - | | - | | (1,900) | | (1,900) |
| Foreign currency translation adj. | - | | - | | (20) | | -20 |
| Reclassification between restricted and non-restricted equity | - | | (12,151) | | 12,151 | | - |
| Profit/loss for the year | - | | - | | (12,385) | | (12,385) |
| Equity 2011-12-31 | 154 | | 20 | | 180 | | 354 |
| Equity 2011-12-31 | 154 | | 20 | | 180 | | 354 |
| Dividends | - | | - | | | | |
| Foreign currency translation adj. | - | | - | | (132) | | (132) |
| Reclassification between restricted and non-restricted equity | - | | 165 | | (165) | | |
| Profit/loss for the year | - | | - | | 7,728 | | 7,728 |
| Equity 2012-12-31 | 154 | | 185 | | 7,611 | | 7,950 |
As of December 31, 2012 there were 1,539 shares issued and outstanding with a quotient of 100 SEK.
Note 13 Interest bearing borrowings
| Short term | 31/12/2012 | | 31/12/2011 | | 31/12/2010 |
| Granted credit limit | (3,645) | | (3,000) | | (2,000) |
| Non-utilised portion | 1,076 | | 337 | | 109 |
| Utilised credit amount | (2,569) | | (2,663) | | (1,891) |
| Other bank loans | (1,169) | | (-) | | (-) |
| | (3,738) | | (-) | | (-) |
| Long term | 31/12/2012 | | 31/12/2011 | | 31/12/2010 |
| Amounts expected to paid after more than 12 months | 949 | | 1,823 | | 1,060 |
| Amounts expected to paid after more than 5 years | - | | - | | - |
| | 949 | | 1,823 | | 1,060 |
Note 14 US GAAP Information
The accompanying consolidated financial statements have been prepared in accordance with Swedish GAAP which differs in certain significant respects from generally accepted accounting principles in the United States of America (US GAAP).
Those differences which have a significant effect on net income and shareholders’ equity are as follows:
| a) | Business combinations and goodwill |
In accounting for business combinations under Swedish GAAP, all of the value of consideration transferred in excess of the fair value of the assets and liabilities acquired have been classified as goodwill and is amortized over 5 years.
In accordance with US GAAP, the identifiable assets and liabilities acquired are measured at their fair values at the acquisition date including intangible assets other than goodwill such as software and customer relations. Goodwill is measured as a residual value and recognized as an asset. Goodwill and other intangible assets with an indefinite useful life are not amortized, but instead are subject to impairment testing at least annually.
Software and customer relations have been amortized under US GAAP based on a useful life of five years.
The increase in ownership of a subsidiary in 2011 was accounted for by increasing goodwill under Swedish GAAP. Under US GAAP, it would be accounted for as an equity transaction with an adjustment to the carrying amount of the non-controlling interest to reflect the change in ownership of the subsidiary. The difference in the fair value of the consideration paid and the change in the carrying amount of the non-controlling interests is recognized in equity attributable to the parent rather than as an increase in goodwill.
| b) | Changes in ownership interest in subsidiaries |
Changes in the ownership of two subsidiaries in 2012 through a rights issue and sale of shares to unrelated parties creating non-controlling interests have been accounted for in current earnings as other income under Swedish GAAP. Under US GAAP, it would be accounted for as an equity transaction with an adjustment to the carrying amount of the no controlling interest to reflect the change in ownership of the subsidiary. The difference in the fair value of the consideration received and the change in the carrying amount of the non-controlling interests is recognized in equity. No adjustment to equity is required for US GAAP.
| c) | Capitalized software development costs |
Under Swedish GAAP, certain costs incurred for software development in a subsidiary have been capitalized and are amortized over a useful life of five years. These costs are for software in the post implementation/operation stage. Under US GAAP, costs incurred for internal use-software that is acquired, internally developed or modified solely to meet the entity’s internal needs are capitalized depending on the stage of development.
Costs incurred during the post-implementation/operation stage are expensed as incurred.
Under Swedish GAAP, deferred taxes are calculated based on certain temporary differences but not on unused tax loss carry forward. Under US GAAP, deferred tax is recognized for the estimated future tax effects of temporary differences and unused tax losses carried forward.
Additionally all deferred tax assets are recognized and a valuation allowance is recognized to the extent that it is more likely than not that the deferred tax assets will not be usable.
Note 14 Continued
Under Swedish GAAP, all leases have been accounted for as operating leases with lease payments being recognized in current earnings as they fall due.
Under US GAAP, a lease is classified as a capital (finance) lease or an operating lease. The classification depends on whether substantially all of the risks and rewards incidental to ownership of the leased asset have been transferred from the lessor to the lessee. At the commencement of a capital lease, the leased asset and leased liability are recognized. The asset under a capital lease is depreciated in accordance with the depreciation policy used for comparable owned assets. The lease liability is amortized over the period of the lease by allocating lease payments to principle and interest.
| f) | Accounting for associated companies |
Under Swedish GAAP, the equity method of accounting is used for the investment in an associated company and the proportionate share of losses are recorded as a reduction in the investment in the associated company but not loans or other receivables.
Under US GAAP, the investors proportionate share of losses would also be recorded as a reduction in loans and other advances after the capital stock investment has been reduced to zero.
The following is a summary of the significant adjustments to net income (loss) and shareholders’ equity that would be required if US GAAP were to be applied instead of Swedish GAAP:
| | For the years ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Net income (loss) under Swedish GAAP | 7,728 | | (12,385) | | (737) |
Business combinations and goodwill (a) | 683 | | 268 | | 146 |
Changes in ownership interest in subsidiaries (b) | (785) | | - | | - |
Software development costs (c) | 51 | | 68 | | (44) |
| Leases (e) | 225 | | (21) | | 66 |
| Accounting for associated companies (f) | - | | (560) | | 1,470 |
Income taxes (d) | (1,323) | | 1,463 | | 12 |
| Tax effect of US GAAP adjustments | (68) | | (7) | | (9) |
| Net income (loss) under US GAAP | 6,510 | | (11,175) | | 904 |
Note 14 Continued
| Shareholders’ equity under Swedish GAAP | 7,950 | | 354 | | 11,639 |
| Business combinations and goodwill (a) | 36 | | (650) | | 839 |
| Development costs (c) | (287) | | (338) | | (406) |
| Income taxes (d) | 152 | | 1,475 | | 12 |
| Leases (e) | 270 | | 45 | | 66 |
| Accounting for associated companies (f) | - | | - | | 560 |
| Tax effect of US GAAP adjustments | (16) | | 53 | | 60 |
| Shareholders’ equity under US GAAP | 8,106 | | 938 | | 12,769 |
US GAAP requires that other comprehensive income is disclosed separately in the financial statements which are not required under Swedish GAAP. The following table presents other comprehensive income separately based on Swedish GAAP. In Swedish GAAP, the amounts are included in non-restricted reserves.
Other comprehensive income
Opening balance January 1, 2010 (128)
Foreign currency translation adjustment 2010 (208)
Closing balance December 31, 2010 (336)
Foreign currency translation adjustment 2011 (20)
Closing balance December 31, 2011 (356)
Foreign currency translation adjustment 2012 (132)
Closing balance December 31, 2012 (488)
Note 14 Continued
Financial statement presentation in accordance with US GAAP
The accompanying consolidated financial statements are presented in accordance with Swedish GAAP which differs in certain respects as to the presentation which would be commonly applied by entities reporting in accordance with US GAAP.
The consolidated financial statements of Hego AB are presented in Swedish kronor (“SEK”). In preparing the translation of the Swedish kronor to the U.S. dollar as the reporting currency, the assets and liabilities have been translated from Swedish kronor to U.S. dollar (USD) at the exchange rate prevailing on December 31, 2012. The income and expenses are translated at average exchange rates which approximates the exchange rate for the respective transaction. The exchange differences arising on the translation are recognized directly in equity. The translation to USD in the tables below has been performed using the Swedish Central Bank’s exchange rates. The exchange rates used were 6.5156 SEK/USD for December 31, 2012, and the average rate for 2012 was 6.7754 SEK/USD.
The following table present the assets, liabilities and shareholders’ equity as reclassified and presented under a typical US GAAP format. In addition to the revised presentation, the significant US GAAP adjustments noted above have been included to illustrate the balance sheet as it would be presented under US GAAP.
Balance sheet
| | Swedish kronor | | US dollar |
As of December 31, 2012 | Revised presentation based on Swedish GAAP | | US GAAP Adjustments | | Balance sheet in accordance with US GAAP | | Balance sheet in accordance with US GAAP |
| Assets | | | | | | | |
| Cash and cash equivalents | 5,148 | | - | | 5,148 | | 790 |
| Accounts receivable, net | 11,132 | | - | | 11,132 | | 1,709 |
| Inventories, net | 5 | | - | | 5 | | 1 |
| Other receivables | 1,376 | | - | | 1,376 | | 211 |
| Prepaid expenses and other current assets | 6,694 | | - | | 6,694 | | 1,027 |
| Total current assets | 24,355 | | - | | 24,355 | | 3,738 |
| | | | | | | | |
| Property and equipment, net | 7,166 | | - | | 7,166 | | 1,100 |
| Assets held under capital lease | - | | 4,019 | | 4,019 | | 617 |
| Intangible assets, net | 287 | | (287) | | - | | - |
| Goodwill | 2,483 | | 36 | | 2,519 | | 387 |
| Deferred taxes | 109 | | 136 | | 245 | | 36 |
| Other assets | 355 | | - | | 355 | | 54 |
| Total non-current assets | 10,400 | | 3,904 | | 14,304 | | 2,195 |
| TOTAL ASSETS | 34,755 | | 3,904 | | 38,659 | | 5,932 |
| | | | | | | | |
| Liabilities and Shareholders’ equity | | | | | | | |
| Accounts payable | 6,631 | | - | | 6,631 | | 1,018 |
| Deferred revenue and accrued expenses | 5,751 | | - | | 5,751 | | 883 |
| Due to associated companies | 4,458 | | - | | 4,458 | | 684 |
| Taxes payable | 595 | | - | | 595 | | 91 |
| Current portion of bank loan | 3,738 | | - | | 3,738 | | 572 |
| Current portion of capital lease obligations | - | | 1,377 | | 1,377 | | 211 |
| Other current liabilities | 3,206 | | - | | 3,206 | | 492 |
| Total current liabilities | 24,379 | | 1,377 | | 25,756 | | 3,951 |
| | | | | | | | |
Note 14 Continued
| Deferred taxes | 58 | | - | | 58 | | 9 |
| Noncurrent bank loans | 949 | | - | | 949 | | 145 |
| Non-current portion of capital lease obligations | - | | 2,372 | | 2,372 | | 364 |
| Total liabilities | 25,386 | | 3,749 | | 29,135 | | 4,469 |
| | | | | | | | |
| Share capital | 154 | | - | | 154 | | 24 |
| Other paid in capital | 8,931 | | - | | 8,931 | | 1,371 |
| Other comprehensive income | (488) | | | | (488) | | (74) |
| Retained earnings | (647) | | 155 | | (492) | | (77) |
| Non-controlling interest | 1,419 | | - | | 1,419 | | 218 |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 34,755 | | 3,904 | | 38,659 | | 5,932 |
Note 14 Continued
The primary difference in the presentation under US GAAP of the income statements relates to the classification of expenses by function rather than nature which have been adopted for Swedish GAAP.
The following table presents the income and expenses as reclassified and presented under a typical US GAAP format. In addition to the revised presentation, the significant US GAAP adjustments noted above have been included to illustrate the income statement as it would be presented under US GAAP.
Income statement
| | Swedish kronor | | US dollar |
For the year ended December 31, 2012 | Revised presentation based on Swedish GAAP | | US GAAP Adjustments | | Income statement in accordance with US GAAP | | Income statement in accordance with US GAAP |
| - Total revenues | 100,295 | | - | | 100,295 | | 14,802 |
| - Cost of sales | (48,991) | | - | | (48,991) | | (7,231) |
| Gross profit | 51,304 | | - | | 51,304 | | 7,572 |
| Operating expenses | | | | | | | |
| - Selling, general and administrative | (21,227) | | 1,140 | | (20,087) | | (2,965) |
| - Research and development | (22,596) | | 51 | | (22,545) | | (3,327) |
| Total operating expenses | (43,823) | | 1,191 | | (42,632) | | (6,292) |
| Operating income (loss) | 7,481 | | 1,191 | | 8,672 | | 1,279 |
| - Other income | 3,316 | | (785) | | 2,531 | | 373 |
| - Interest income | 253 | | - | | 253 | | 37 |
| - Interest expense | (2,290) | | (232) | | (2,522) | | (372) |
| Income (loss) before taxes | 8,760 | | 174 | | 8,934 | | 1,319 |
| | | | | | | | |
| - Income tax benefit (expense), net | (919) | | (1,391) | | (2,310) | | (341) |
| - Minority share of profit for the year | (113) | | - | | (113) | | (17) |
| Net income (loss) | 7,728 | | (1,217) | | 6,510 | | 960 |
| | | | | | | | |
The following table presents the cash flows as reclassified and presented under a typical US GAAP format.
In addition the revised presentation, the significant US GAAP adjustments noted above have been included to illustrate the cash flows as they would be presented under US GAAP.
Note 14 Continued
Consolidated statement of cash flows
| | Swedish kronor | | US dollar |
2012 | Revised presentation based on Swedish GAAP | | US GAAP Adjustments | | Cash flow in accordance with US GAAP | | Cash flow in accordance with US GAAP in USD |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
| Net profit (loss) | 7,728 | | (1,217) | | 6,510 | | 960 |
| Non-controlling interest share | 113 | | - | | 113 | | 17 |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | | |
| - Depreciation and amortization | 2,756 | | 963 | | 3,719 | | 549 |
| - Deferred income tax expense | 153 | | 1,391 | | 1,544 | | 228 |
| Changes in operating assets and liabilities: | | | | | | | |
| - Accounts receivable | (1,264) | | - | | (1,264) | | (187) |
| - Inventories | 71 | | - | | 71 | | 10 |
| - VAT and other receivables | (175) | | - | | (175) | | (26) |
| - Prepaid expenses and other assets | (4,016) | | - | | (4,016) | | (593) |
| - Accounts payable and accrued expenses | (1,858) | | - | | (1,858) | | (274) |
| - Deferred revenue and accrued expense | 74 | | - | | 74 | | 11 |
| - Other liabilities | 968 | | - | | 968 | | 145 |
| Net cash (used in) provided by operating activities | 4,550 | | | | 5,686 | | 840 |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
| Payments on capital lease obligations | - | | (1,137) | | (1,137) | | (168) |
| Acquisition of property and equipment | (6,088) | | - | | (6,088) | | (896) |
| Investments in other non-current assets | 22 | | - | | 22 | | 3 |
| Net cash used in investing activities | (6,066) | | (1,137) | | (7,203) | | (1,061) |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
| Proceeds from loans issued | 186 | | - | | 186 | | 27 |
| Proceeds from stocks rights issues to non- | | | | | | | |
| controlling shareholders | 1,262 | | - | | 1,262 | | 186 |
| Net cash used in financing activities | 1,448 | | - | | 1,448 | | 213 |
| | | | | | | | |
| Change in cash and cash equivalents | (68) | | - | | (68) | | (10) |
| Cash and cash equivalents at beginning of year | 5,216 | | - | | 5,216 | | 770 |
| Exchange rate effect in cash | | | | | | | 30 |
| Cash and cash equivalents at end of year | 5,148 | | - | | 5,148 | | 760 |
| | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | |
| Interest paid | 2,290 | | 232 | | 2,522 | | 372 |
| Taxes paid | 1,488 | | - | | 1,488 | | 220 |
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