SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NO.: 000-26031
EURO TRADE & FORFAITING, INC.
Exact name of Registrant as specified in its charter
UTAH 87-0571580
State or other jurisdiction IRS Employer
of incorporation or organization Identification No.
SUITE 1620 - 400 BURRARD STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 3A6
Address of principal executive office Zip Code
Registrant's telephone number including area code: (604) 683-5767
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
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COMMON SHARES
Title of Class
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of September 24, 2001 was approximately
$3,829,612. The last reported sale price of the common shares of
beneficial interest on the OTC Bulletin Board on September 24, 2001 was
$0.20 per share.
As of September 24, 2001, the Registrant had 22,240,724 common shares of
beneficial interest, $0.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants 2001 proxy statement to be filed within 120
days of the period ended June 30, 2001 are incorporated by reference in Part III
hereof.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 4
The Company 4
Description of Business 4
Competition 6
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS 8
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF REGISTRANT 13
ITEM 11. EXECUTIVE COMPENSATION 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K 15
SIGNATURES 29
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or other
business plans. Investors are cautioned that forward-looking statements are
subject to an inherent risk that actual results may vary materially from those
described herein. Factors that may result in such variance, in addition to
those accompanying the forward-looking statements, include changes in general
economic and business conditions; governmental regulations; the ability of
management to execute its business plan; interest rates, and other economic
conditions; actions by competitors; natural phenomena; actions by government
authorities; uncertainties associated with legal proceedings; technological
development; future decisions by management in response to changing conditions;
and misjudgments in the course of preparing forward-looking statements.
PART I
ITEM 1. BUSINESS
THE COMPANY
Euro Trade & Forfaiting Inc. ("Euro Trade") is organized under the laws of
the State of Utah. In this document, unless the context otherwise requires, the
"Company" refers to Euro Trade and its wholly-owned subsidiaries, and all
references to monetary amounts are in U.S. dollars unless otherwise indicated.
Euro Trade was originally incorporated as Rotunda Oil and Mining, Inc. on
November 19, 1980 under the laws of the State of Utah. On November 20, 1998 the
Company entered into an Acquisition Agreement and Plan of Reorganization with
Euro Trade & Forfaiting Company Limited ("Euro Trade Limited"), pursuant to
which the Company acquired all of the issued and outstanding common stock of
Euro Trade Limited and changed its name to Euro Trade & Forfaiting, Inc.
The Company is principally based in Vancouver, British Columbia, Canada and
its operations are primarily conducted internationally. The Company currently
has two employees.
DESCRIPTION OF BUSINESS
The Company operates in the financial services business internationally,
engaging primarily in merchant banking activities, including the financing of
trade receivables (forfaiting). The Company was originally organized in 1998 to
operate in the forfaiting business.
Forfaiting involves the refinancing of trade receivables on a discount
basis without recourse to the previous holder. The forfaiter purchases from an
exporter the debt due by an importer when credit is required. The debt is
usually evidenced by a series of negotiable financial instruments such as
promissory notes or bills of exchange. This financial service is available in
all major currencies for export contracts in excess of $250,000. Depending on
transaction parameters, such as country and bank risk, the financing periods
range between a few months and several years.
Forfaiting transactions are normally comprised of bills of exchange drawn
and accepted under a letter of credit or promissory notes issued by an importer.
Typically, the bills of exchange or promissory notes are "avaled" by the
importer's bank. An aval is a guarantee, usually a bank guarantee, that is
separate from the underlying trade contract. In a typical transaction, the bank
avals, or makes an unconditional guarantee of repayment, if the debtor fails to
repay. An aval is the preferred form of guarantee as it is self-evident,
irrevocable and unconditional so long as the law of the country of the buyer
does not impose specific restrictions. Bills of exchange are usually issued in
hard currencies such as U.S. dollars, deutschmarks and other recognized
currencies and are priced relative to the average life London Interbank Offering
Rate (LIBOR), plus a margin to reflect the credit risk, and are discounted
through maturity.
The Company's forfaiting transactions are financed through a mixture of capital
and borrowings from banks which are asset backed (secured) facilities. At
present, the level of gearing (leverage) that the Company undertakes is limited
by the board of directors to two to one, borrowings to capital. The level of
gearing within this limit depends on market conditions and the desire of the
Company to expand or constrict the size of its trading portfolio.
Income from forfaiting comes from fees relating to the negotiation of the
transaction and capital gains on the sale of the assets. Capital gains are the
result of an improvement in the perceived credit risk or because of a downward
movement in interest rates during the period the assets are held in the
portfolio. The Company also earns a yield over and above the carrying costs of
the assets to maturity.
Non-recourse trade finance purchases are frequently made "subject to
receipt of satisfactory documentation" and sometimes pay under reserve before
the documentation is finally approved. If the Company commits to a purchase, it
is commonly communicated to the seller before the Company has had an opportunity
to review the underlying documentation in detail. The Company may specify
certain detailed aspects of the documentation, which it expects the seller to be
able to satisfy. If the detailed documentation supporting the transaction is
materially incomplete, the Company is not required to proceed with the purchase.
The Company will commonly commit to purchase a transaction from an exporter
at a pre-determined rate of interest and to hold the commitment open for a
period to time to allow the exporter to negotiate its contract with the
importer. These commitments are fee earning and require the Company to take an
informed view of the interest rate outlook in the particular currency concerned.
In the event of fraud, the "non-recourse" element of the transaction is
nullified and each party may proceed against the person from whom they purchased
the commitment.
In any forfaiting transaction, the Company makes a full assessment of the
counterparty, country, hard currency availability and bank credit risks. If the
transaction is a primary market deal involving an exporter unknown to the
Company, the Company will make a full credit assessment of the exporter as well
as check on its previous experience and performance as an exporter. In the case
of a secondary market transaction, the Company primarily deals only with banks
or financial institutions with which it has dealt before. If the transaction
comes through an intermediary, the Company will make a complete check of the
exporter and the intermediary. The creditworthiness of all counterparties with
whom the Company conducts business is reviewed at least annually.
In 1999, the Company's forfaiting business was negatively affected by,
among other things, a global decrease in forfaiting activity generally, relating
primarily to the economic crisis in Asia. The Company's forfaiting business was
further negatively affected in 2000 and 2001 by the continuing economic crisis
and the Company being involved in several litigation matters involving, among
others, the Company and certain of its current and former officers, directors
and shareholders. See "Item 3. Legal Proceedings".
As a result of the global decline in forfaiting activity, particularly in
the Asian markets where the Company was most active, the Company determined in
2001 to expand its business to include merchant banking activities.
Such merchant banking operations will include financial and management
services for corporate finance transactions, including bridge financing and
corporate restructurings and seeking controlling interests in businesses or
assets which the Company believes are undervalued and will potentially generate
positive cash flow from operations as opportunities arise. Through merchant
banking partnerships, the Company may provide companies and their management
with investment capital and financial direction. The Company intends to generate
fees for services provided, including options and other conversion privileges to
participate as an equity investor in businesses to which merchant banking
services have been provided.
The Company may also provide short-term bridge financing to corporations to
assist in capital transactions or to further their business plans and, in
certain circumstances, a corporation's financial flexibility may be
enhanced by the Company acquiring loans owing to a party's traditional
lenders, which would then be restructured on financial terms consistent with
the party's immediate requirements.
The distribution of the Company's income by business activity and
geographic region is set out in the following table for the periods indicated:
YEARS ENDED JUNE 30,
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2001 2000 1999
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(in thousands)
INCOME SOURCE
Sale of forfaiting assets $ (85) $ 706 $4,907
Interest income 889 1,215 2,218
Loss on investments (622) - -
Fees and charges 26 316 514
Structured trades - - 105
Other 65 98 -
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Total $ 273 $2,335 $7,744
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The composition of the notes by country of the issuing financial
institution is as follows:
AS AT JUNE 30,
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2001 2000 1999
---- ---- ----
Turkey -% 70% 23%
Russia - - 26
Ukraine - - 5
Czech Republic 100 22 4
Indonesia - - 35
Nigeria - 8 2
Germany - - 5
--- --- ---
Total 100% 100% 100%
=== === ===
COMPETITION
The Company competes against other forfaiting companies and investment
banks, merchant banks and other investment managers for appropriate forfaiting
business and investments, as applicable. These businesses are highly competitive
and are subject to fluctuations based upon many factors over which the Company
has no control, such as the condition of public markets, interest rates and the
state of capital markets. Many of the Company's competitors are national or
international companies with far greater resources, capital and access to
information than the Company. As a result, the Company may become involved in
transactions with more risk than if it had greater resources.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Vancouver, British
Columbia, Canada and are rented.
ITEM 3. LEGAL PROCEEDINGS
On November 3, 2000, the Company commenced an action, as amended, in the
United States District Court, Southern District of New York (the "New York
Court") against its former Chief Executive Officer, John Vowell, its former
Chairman, Chandra Sekar, its former Chief Financial Officer, Naren Desai, John
W. Duffell and John Does 1-10 (collectively, the "Defendants") alleging, in
part, that Mr. Vowell, Mr. Sekar and Mr. Desai breached their fiduciary duties
to the Company and, along with the other Defendants, participated in a
wide-ranging fraudulent scheme to benefit themselves and their associates at the
expense of the Company (the "Euro Trade Action"). The Company is seeking to
recover from the Defendants, among other things, actual and punitive damages, as
well as the return of certain shares issued to the Defendants as a result of
their fraudulent behaviour. In April 2001, the Company entered into a settlement
agreement with one of the Defendants, John Vowell, pursuant to which Mr. Vowell
agreed to transfer to the Company 1,250,000 common shares of the Company and to
cooperate and assist the Company in its claims against the other Defendants.
On November 22, 2000, Clarion Investment and Mortgage and Clifftown
Holdings International Inc. and others (collectively, "Clifftown") commenced an
action, as amended, in the United States District Court for the District of
Columbia against, among others, the Company alleging, among other things, that
the Company violated certain United States federal securities laws and breached
its duty to state certain material facts or to correct certain material facts
previously disclosed in its public filings with the Securities and Exchange
Commission (the "Clifftown Action"). The Company considers the Clifftown Action
to be without merit and intends to vigorously defend itself against Clifftown's
allegations. The Company regards the Clifftown Action to be a response to the
Euro Trade Action. The Clifftown Action has subsequently been transferred to
the New York Court to be heard with the Euro Trade Action.
On December 18, 2000, North Cascade Limited, Collingwood Investments
Limited and Kishor Kumar Kantilal Naik (collectively, "Collingwood") commenced
an action, as amended, in the New York Court against, among others, the Company
as nominal defendant alleging, among other things, violations of federal
securities laws and applicable state law arising out of an alleged improper
acquisition of control of the Company by certain defendants, including directors
of the Company (the "Collingwood Action"). The Collingwood Action was brought by
Collingwood in its own right and, derivatively, to assert claims on behalf of
the Company. On April 3, 2001, Collingwood filed a Notice of Voluntary
Dismissal with the New York Court, thereby dismissing the amended verified
complaint brought by Collingwood against, among others, the Company as nominal
defendant. A copy of the Notice of Voluntary Dismissal was sent to all
shareholders of record of the Company as of March 31, 2001.
Although the Company considers the Clifftown Action to be without merit, it
is unable to predict the final outcome at this time. An adverse outcome could
materially affect the Company's results of operations and financial position.
In addition, the Company's involvement in the Euro Trade Action and the
Clifftown Action, regardless of their eventual outcome, will likely be costly
and time consuming. Substantial expenses are expected to be incurred in
connection with the litigation. Accordingly, there can be no assurance that the
litigation may not have a material adverse impact on the Company's results of
operations and financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information. The Company's common stock has been trading on
the OTC Bulletin Board under the symbol "ETFC" since December 1998. The
following table sets forth the high and low closing prices of the Company's
common stock for the periods indicated.
FISCAL QUARTER ENDED HIGH LOW
------------------------------- ------ -----
1999
March 31 $27.00 $4.00
June 30 $22.00 $5.00
September 30 $ 7.63 $3.56
December 31 $ 6.63 $3.13
2000
March 31 $ 4.75 $2.13
June 30 $ 2.94 $0.51
September 30 $ 0.63 $0.41
December 31 $ 0.56 $0.16
2001
March 31 $ 0.31 $0.24
June 30 $ 0.30 $0.14
Period ended September 24, 2001 $ 0.25 $0.16
(b) Shareholder Information. As of September 24, 2001, there were
approximately 540 holders of record of the Company's common shares and a total
of 22,240,724 common shares were issued and outstanding.
(c) Dividend Information. The Company has not declared or paid cash
dividends or made distributions in the past and does not anticipate that it will
pay cash dividends or make distributions in the foreseeable future. The Company
intends to retain and invest future earnings to finance its operations.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information for the
Company for each of the last five years. The information has been reclassified
to conform with the current year's presentation and is qualified in its entirety
by, and should be read in conjunction with, the more detailed financial
statements and related notes contained elsewhere herein.
YEARS ENDED JUNE 30,
----------------------
2001 2000 1999 1998 1997(1)
-------- -------- -------- -------- ---------
(IN THOUSANDS, OTHER THAN PER SHARE AMOUNTS)
Revenues $ 273 $ 2,335 $ 7,744 $ 5,216 $ 460
Net income (loss) $ (3,388) $ (1,659) $ 4,114 $ (4,992) $ 304
Net income (loss) per common share,
Basic $ (0.16) $ (0.10) $ 0.28 $ (0.42) $ 0.03
Diluted $ (0.16) $ (0.10) $ 0.28 $ (0.42) $ 0.03
Weighted average common shares
outstanding,
Basic 21,713 16,945 14,468 11,945 11,945
Diluted 21,713 16,945 14,468 11,945 11,945
Current assets $ 29,974 $ 26,759 $ 42,950 $ 35,423 $ 9,453
Current liabilities $ 490 $ 3,767 $ 18,524 $ 15,204 $ 9,152
Working capital $ 29,484 $ 22,992 $ 24,426 $ 20,222 $ 301
Total assets $ 29,974 $ 26,759 $ 42,950 $ 35,516 $ 9,456
Long-term liabilities $ - $ - $ - $ - $ -
Shareholders' equity $ 29,484 $ 22,992 $ 24,426 $ 20,312 $ 304
Cash dividends $ - $ - $ - $ - $ -
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(1) Euro Trade Limited commenced operations in February 1997 and became a
wholly-owned subsidiary of the Company on November 20, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion of the financial condition and results of
operations of the Company for the three years ended June 30, 2001 should be read
in conjunction with the consolidated financial statements and related notes
included elsewhere in this annual report. Certain amounts in the Company's
financial statements and related notes have been restated to conform to the
current presentation. The following management discussion and analysis of
financial condition and results of operations are based upon the restated
financial statements for all prior years as aforesaid.
RESULTS OF OPERATIONS
ACQUISITIONS
The Company continues to pursue strategic alternatives to maximize the
value of its portfolio. Some of these alternatives have included, and will
continue to include, selective acquisitions, divestitures and sales of certain
assets. The Company has provided, and may from time to time in the future
provide, information regarding portions of its business to interested parties
for such purposes.
The following table sets forth the approximate percentage relationship to
total revenues of principal items contained in the Company's Consolidated
Statements of Operations for the fiscal years ended June 30, 2001, 2000 and
1999.
JUNE 30,
----------
2001 2000 1999
-------- ------ ------
Total revenue 100% 100% 100%
Costs of revenue
Interest 9 23 10
Provisions for losses - 23 -
--------- ---- ----
Gross profit 91 54 90
-------- ---- ----
General and administrative expenses and foreign currency
transaction losses (1,332) 125 37
-------- ---- ----
Net income (loss) (1,241) (71) 53
======== ==== ====
FOR THE YEAR ENDED JUNE 30, 2001 COMPARED TO THE YEAR ENDED JUNE 30, 2000
Revenues for 2001 decreased 88% to $0.3 million from $2.3 million in 2000,
primarily due to the Company's decreased activity in the forfaiting business as
a result of the continued economic slowdown in Asia and the Company focusing on
litigation matters. Cost of revenues, comprising interest expense and provision
for losses on forfaiting assets, decreased to $25,000 in 2001 from $1.1 million
in 2000. There was no loan loss revenue charged to income in 2001, compared to
$0.5 million charged in the same period in 2000. Interest expense decreased to
$25,000 in 2001 from $0.5 million in 2000, reflecting the Company's decreased
activity in the forfaiting business.
Interest income decreased 27% to $0.9 million in 2001 from $1.2 million in
2000.
General and administrative expenses decreased to $2.8 million in 2001 from
$3.3 million in 2000. Professional fees paid increased to $1.8 million in 2001,
compared to $0.1 million in 2000, primarily as a result of legal fees paid in
connection with the Company's continuing litigation.
Net loss in 2001 totalled $3.4 million, or $0.16 per share of common stock,
compared to net loss of $1.7 million, or $0.10 per share of common stock, in
2000.
FOR THE YEAR ENDED JUNE 30, 2000 COMPARED TO THE YEAR ENDED JUNE 30, 1999
Revenues for 2000 decreased 70% to $2.3 million from $7.7 million in 1999,
primarily due to the Company's decreased activity in the market. Cost of
revenues, comprising interest expense and provision for losses on forfaiting
assets, increased to $1.1 million in 2000 from $0.7 million in 1999 as a result
of an increase of $0.5 million in loan loss reserves charged to income in 2000.
Interest expense decreased 26% to $0.5 million in 2000 from $0.7 million in
1999, reflecting the Company's decreased activity in the market.
Interest income decreased 45% to $1.2 million in 2000 from $2.2 million in
1999, primarily as a result of a reduction in forfaiting assets.
General and administrative expenses were $3.3 million and $2.9 million for
the years ended 2000 and 1999, respectively. These expenses are primarily
personnel and occupancy costs.
Net loss in 2000 totalled $1.7 million, or $0.10 per share of common stock,
compared to net income of $4.1 million, or $0.28 per share of common stock, in
1999.
PROVISION FOR LOSSES
The Company's forfaiting assets portfolio at June 30, 2001 and 2000 was
$1.0 million and $4.6 million, respectively, while the provision for losses was
$1.0 million for June 30, 2001 and 2000, respectively. Loss expense charged to
the provision account was nil, $0.5 million and nil for the years ended June
30, 2001, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at June 30, 2001 of $16.5
million, compared to $16.3 million at June 30, 2000.
Operating activities used cash of $7.1 million in 2001, compared to
providing cash of $13.6 million in 2000. A decrease in forfaiting assets
provided cash of $3.6 million in 2001, compared to $13.0 million in 2000. An
increase in accounts payable and other accrued expenses provided cash of $0.4
million in 2001, compared to a decrease of same using cash of $0.4 million in
2000. An increase in interest and other receivable used cash of $12,000 in
2001, compared to a decrease of same providing cash of $1.1 million in 2000.
Investing activities provided no cash in 2001, compared to using cash of
$5.0 million in 2000.
Financing activities provided cash of $7.3 million in 2001, compared to
using cash of $2.2 million in 2000, primarily as a result of the issuance of
common shares and warrants in 2001. In 2001, a change in restricted cash
balances provided cash of $1.1 million, compared to $12.0 million in 2000. The
Company did not pay any dividends on its common shares in 2001.
In 2001, the Company received in settlement from its former Chief Executive
Officer and cancelled 1.2 million shares of its common stock. In 2001, the
Company also repurchased and cancelled 2.0 million shares of its common stock
from one vendor in a private transaction for an aggregate of $0.5 million.
INFLATION
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks from changes in interest rates and
foreign currency exchange rates which may affect its results of operations and
financial condition. The Company manages these risks through internal risk
management policies which are administered by management committees. The
Company does not enter into derivative contracts for its own account to hedge
against these risks.
INTEREST RATE RISK
The Company is subject to the effects of interest rate fluctuations on its
financial instruments. A sensitivity analysis of the projected incremental
effect of a hypothetical 10% change in 2001 and 2000 year-end interest rates on
the fair value of its financial instruments is provided in the following table:
AS AT JUNE 30, 2001 AS AT JUNE 30, 2000
------------------- ---------------------
CARRYING HYPOTHETICAL(1) POTENTIAL CARRYING HYPOTHETICAL(1) POTENTIAL
VALUE VALUE LOSS VALUE VALUE LOSS
-------- --------------- --------- --------- --------------- ---------
(THOUSANDS)
Financial assets:
Forfaiting assets $ 1 $ 1 $ - $ 3,617 $ 3,614 $ (3)
Investments(2) 805 805 - - - -
Note receivable 5,000 4,978 (22) 5,000 4,960 (40)
Financial liabilities:
Bank loans payable $ - $ - $ - $ 3,318 $ 3,337 $ (19)
---------------
(all due within one year)
(1) Reflects a 10% increase in interest rates of financial assets and a 10%
decrease in interest rates of financial liabilities.
(2) Consists of treasury bills only. Convertible debentures are, in theory,
subject to interest rate risk. However, since they are trading at a deep
discount, the impact of the hypothetical increase in interest rate risk on the
convertible debenture is not determinable.
FOREIGN CURRENCY EXCHANGE RATE RISK
The reporting currency of the Company is the U.S. dollar. The Company
holds financial instruments primarily denominated in U.S. dollars,
deutschmarks, sterling pounds, and euros. A depreciation of other currencies
against the U.S. dollar will decrease the fair value and an appreciation
of such currencies against the U.S. dollar will increase the fair value
of such financial instruments. The Company's financial instruments
which may be sensitive to foreign currency exchange rate fluctuations
are forfaiting assets, investments, restricted cash and bank loans
payable. The following table provides information about the Company's
exposure to foreign currency exchange rate fluctuations for the
carrying amount of financial instruments that may be sensitive
to such fluctuations as at June 30, 2001 and 2000 and expected
cash flows from these instruments:
EXPECTED FUTURE CASH FLOW
--------------------------------------------------
CARRYING FAIR
AS AT JUNE 30, 2001 VALUE VALUE 2002 2003 2004 2005 2006 THEREAFTER
-------- ----- ---- ---- ---- ---- ---- ----------
(THOUSANDS)
Forfaiting assets $ 1 $ 1 $ 1 $ - $ - $ - $ - $ -
Investments 343 343 343 - - - - -
Cash restricted - - - - - - - -
Bank loans payable - - - - - - - -
EXPECTED FUTURE CASH FLOW
---------------------------------------------------
CARRYING FAIR
AS AT JUNE 30, 2000 VALUE VALUE 2001 2002 2003 2004 2005 THEREAFTER
-------- ----- ---- ---- ---- ---- ---- ----------
(THOUSANDS)
Forfaiting assets $3,617 $3,617 $3,617 $ - $ - $ - $ - $ -
Cash restricted 1,139 1,139 1,139 - - - - -
Bank loans payable (3,681) (3,681) (3,681) - - - - -
EQUITY PRICE RISK
Changes in trading prices of equity securities may affect the fair value of
equity securities or the fair value of other securities convertible into equity
securities. An increase in trading prices will increase the fair value and a
decrease in trading prices will decrease the fair value of equity securities or
instruments convertible into equity securities. The Company's financial
instruments which may be sensitive to fluctuations in equity prices are
investments. The following table provides information about the Company's
exposure to fluctuations in equity prices for the carrying amount of financial
instruments sensitive to such fluctuations and expected cash flows from these
instruments:
EXPECTED FUTURE CASH FLOW
---------------------------------------------------
CARRYING FAIR
AS AT JUNE 30, 2001 VALUE VALUE 2002 2003 2004 2005 2006 THEREAFTER
-------- ----- ---- ---- ---- ---- ---- -----------
(THOUSANDS)
Investments(1) $6,490 $6,490 $6,490 $ - $ - $ - $ - $6,925
---------------
(1) Investments consist of equity securities and debt securities convertible
into equity securities.
The Company had no equity price risk at June 30, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required with
respect to Item 8 and as listed in Item 14 of this annual report, are included
in this annual report commencing on page 16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In January 2000, the Company's board of directors changed independent
accountants from Marc Lumer & Company ("MLC") to Peterson Sullivan P.L.L.C.
There were no disagreements between the Company and MLC, and nor was there any
adverse opinion, disclaimer of opinion, modification or qualification contained
in any financial report prepared by MLC for the past two years. Reference is
made to the Company's Form 8-K dated March 7, 2000 and Form 8-K/A dated March
21, 2000 for further information concerning the Company's change of auditor.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The executive officers and directors of the Company are as follows:
Michael J. Smith, age 53, has been the President, Chief Executive Officer
and a director of the Company since February 4, 2000. Mr. Smith is the
President, Chief Executive Officer and a director of MFC Bancorp Ltd. and is the
Chief Executive Officer, Chief Financial Officer and a director of TriMaine
Holdings, Inc. and Drummond Financial Corporation.
James Carter, age 56, has been the Secretary and a director of the Company since
February 4, 2000. Mr. Carter is currently a Vice President of MFC Bancorp Ltd.
He served as President and a director of Pine Resources Corporation from October
1998 to December 1999 and was the President and Chief Executive Officer
of Carlin Resources Corp. from 1994 to 1998.
Slobodan Andjic, age 57, became a director of the Company on October 10,
2000. Mr. Andjic has served as Vice President and a director of Swiss
Investment Group since 1998. He served as an advisor to the President of Mercur
and a director and coordinator of the Mercur group of companies from 1996 to
1998. Mr. Andjic was the Chairman of Yugoexport Athens Company from 1994 to
1996.
Simon Law, age 41, became a director of the Company on November 27, 2000.
Mr. Law has been a director of Kelsion Secretarial and Consultants Ltd. in Hong
Kong since 1990.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, require the Company's directors and executive
officers and persons who beneficially own more than 10% of the common shares
(collectively, the "Reporting Persons"), to file with the SEC initial reports of
beneficial ownership (Form 3) and reports of changes in beneficial ownership of
common shares and other equity securities of the Company (Form 4). Reporting
Persons are required by SEC regulations to furnish to the Company copies of all
Section 16(a) reports that they file. To the Company's knowledge, based solely
on a review of the copies of such reports furnished to the Company, all Section
16(a) filing requirements applicable to the Reporting Persons were complied with
for the fiscal year ended June 30, 2001.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrant's definitive proxy statement
to be filed within 120 days of the Registrant's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Registrant's definitive proxy statement
to be filed within 120 days of the Registrant's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrant's definitive proxy statement
to be filed within 120 days of the Registrant's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
(a)(1) FINANCIAL STATEMENT PAGE
----
Independent Auditors' Report 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Changes
in Shareholders' Equity 19
Consolidated Statements of Cash
Flows 20
Notes to the Consolidated Financial
Statements 21
All other schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
(2) LIST OF EXHIBITS
21 List of Subsidiaries of Registrant.
(b) The Registrant did not file any reports on Form 8-K during the
fourth quarter of the fiscal year.
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
Euro Trade & Forfaiting, Inc.
We have audited the accompanying consolidated balance sheets of Euro Trade &
Forfaiting, Inc. and Subsidiaries as of June 30, 2001 and 2000, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the year ended June 30, 1999, were audited by another accountant. His report,
dated September 13, 1999, expressed an unqualified opinion on those financial
statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. 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 Euro Trade &
Forfaiting, Inc. and Subsidiaries as of June 30, 2001 and 2000, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
/s/ Peterson Sullivan P.L.L.C.
Peterson Sullivan P.L.L.C.
Seattle, Washington
August 16, 2001
EURO TRADE & FORFAITING, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2001 and 2000
(In Thousands of Dollars)
2001 2000
--------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 16,535 $16,338
Restricted cash balances - 1,139
Forfaiting assets 1 3,617
Investments 7,295 -
Note receivable 5,000 5,000
Interest receivable 223 211
Deposits and other current assets 920 454
-------- -------
$ 29,974 $26,759
======== =======
LIABILITIES
Current Liabilities
Accounts payable and other accrued expenses $ 490 $ 86
Bank loans payable - 3,681
-------- -------
Total current liabilities 490 3,767
SHAREHOLDERS' EQUITY
Shareholders' Equity
Common stock, par value $0.001; 50,000,000
shares authorized; 22,240,724 and 16,945,224
shares issued and outstanding at June 30, 2001
and 2000, respectively 22 17
Additional paid-in capital 35,139 25,264
Retained deficit (5,677) (2,289)
-------- -------
29,484 22,992
-------- -------
$ 29,974 $26,759
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2001, 2000, and 1999
(In Thousands of Dollars, except for per share amounts)
2001 2000 1999
-------- -------- --------
Revenue $ 273 $ 2,335 $ 7,744
Expenses
Interest 25 546 733
Provision for losses on forfaiting assets - 537 -
General and administrative 2,755 3,289 2,891
Foreign currency transaction losses (gains) 881 (378) 6
-------- -------- --------
3,661 3,994 3,630
-------- -------- -------
Net income (loss) $ (3,388) $ (1,659) $ 4,114
======== ======== =======
Basic and diluted earnings (loss) per share $ (0.16) $ (0.10) $ 0.28
======== ======== =======
Weighted average number of common shares
outstanding (in thousands) 21,713 16,945 14,468
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended June 30, 2001, 2000, and 1999
(In Thousands of Dollars)
Common Stock
--------------------------
Number
of Shares Additional
Issued and Paid-in Retained
Outstanding Amount Capital Deficit Total
------------- ------------ ---------- --------- --------
Balance at June 30, 1998 11,945,224 $ 12 $ 25,044 $ (4,744) $20,312
Shares issued in 1999;
paid for in the next year 5,000,000 - - - -
Net income - - - 4,114 4,114
------------ ----------- --------- -------- -------
Balance at June 30, 1999 16,945,224 12 25,044 (630) 24,426
Payment for shares issued
in prior year - 5 220 - 225
Net loss - - - (1,659) (1,659)
------------ ----------- --------- -------- -------
Balance at June 30, 2000 16,945,224 17 25,264 (2,289) 22,992
Issuance of shares and
warrants 8,500,000 8 10,549 - 10,557
Redemption and
cancellation of shares (3,204,500) (3) (674) - (677)
Net loss - - - (3,388) (3,388)
------------ ----------- --------- -------- -------
Balance at June 30, 2001 22,240,724 $ 22 $ 35,139 $ (5,677) $29,484
============ =========== ========= ======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2001, 2000, and 1999
(In Thousands of Dollars)
2001 2000 1999
-------- -------- --------
Cash Flows from Operating Activities
Net income (loss) $(3,388) $(1,659) $ 4,114
Adjustments to reconcile net income (loss)
to cash flows from operating activities
Unrealized loss on investments 622 - -
Provision for losses on forfaiting assets - 537 -
Changes in operating assets and liabilities
Interest and other receivables (12) 1,126 (814)
Forfaiting assets 3,616 13,003 (2,514)
Accounts payable and other accrued expenses 404 (368) (1,892)
Purchase of investments (9,690) - -
Proceeds from sale of investments 1,346 - -
Other (39) 927 94
------- ------- -------
Net cash flows from operating activities (7,141) 13,566 (1,012)
Cash Flows from Investing Activities
Purchase of note receivable - (5,000) -
Cash Flows from Financing Activities
Payment of bank loan (3,681) (5,074) (4,101)
Payment of other amounts due to bank - (9,315) 9,315
Change in restricted cash balances 1,139 12,009 (7,600)
Issuance of shares and warrants 10,557 - -
Repurchase of shares (677) - -
Payment received for shares issued
in prior year - 225 -
------- ------- -------
Net cash flows from financing activities 7,338 (2,155) (2,386)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 197 6,411 (3,398)
Cash and cash equivalents, beginning of year 16,338 9,927 13,325
------- ------- -------
Cash and cash equivalents, end of year $16,535 $16,338 $ 9,927
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
EURO TRADE & FORFAITING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Euro Trade & Forfaiting, Inc. ("the Company") is a merchant banking company
whose activities also include trade financing primarily with importers and
exporters.
In November 1998, the stockholders of the Company exchanged their stock for the
common stock of another company in a transaction accounted for as a reverse
purchase whereby the Company is the continuing entity.
The notes to the financial statements are stated in United States dollars as
rounded to the nearest thousand.
Basis of Presentation
-----------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Significant intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents
----------------------------
Cash and cash equivalents include highly liquid debt instruments purchased with
original maturities of three months or less. The Company usually has cash or
cash equivalents at financial institutions in excess of insured limits.
On a cash basis, interest payments were $45, $540, and $700 in 2001, 2000 and
1999, respectively. No cash payments were made for income taxes in 2001, 2000
and 1999.
Restricted Cash Balances
--------------------------
Occasionally, the Company borrows the funds necessary to purchase forfaiting
assets. The lender may require a portion of collections on forfaiting assets be
deposited into restricted cash accounts until the lender is repaid. Upon
repayment, the cash is released to the Company.
Investments
-----------
Investments primarily include trading securities that are accounted for at
market value. Investments also include non-marketable securities that are
accounted for at cost (unless there is a loss in value that is other than
temporary, in which case cost would be adjusted down accordingly). In
determining realized gains and losses, cost is based on the specific
identification method.
Note 1. (Continued)
Forfaiting Activities and Notes Receivable
----------------------------------------------
Forfaiting activities involve purchasing short-term debt due to an exporter from
an importer at a discount, then either reselling the debt or holding it until
maturity. Debts acquired are referred to as forfaiting assets and are generally
supported by negotiable financial instruments (such as promissory notes or
letters of credit). Debts acquired are usually guaranteed by a bank in the
importer's country and, subject to the quality of the guarantor, are marketable
to financial institutions.
Forfaiting assets and notes receivable are stated net of allowances for credit
losses, accrued interest, reimbursable expenses, and unamortized loan fees.
Forfaiting assets and notes receivable are classified as impaired when there is
no longer reasonable assurance of the timely collection of principal and
interest. Whenever a contractual payment is 90 days past due, forfaiting assets
and notes receivable are automatically classified as impaired unless they are
fully secured and in the process of collection. When a forfaiting asset or a
note receivable is deemed impaired, its carrying amount is reduced to its
estimated realizable amount, which is measured by discounting the expected
future cash flows at the effective interest rate. As a practical expedient, it
may also be based on a loan's observable market price or the fair value of
collateral, if it is collateral dependent. In subsequent periods, any increase
in the carrying value of an impaired forfaiting asset or a note receivable is
credited to the provision for credit losses. Impaired forfaiting assets and
notes receivable are returned to performing status when there is no longer any
reasonable doubt regarding timely collection of principal and interest, all
amounts in arrears including interest have been collected, and all charges for
loan impairment have been reversed. Where a portion of a forfaiting asset or a
note receivable is written off and the remaining balance is restructured, the
new forfaiting asset or note receivable is carried on the accrual basis when
there is no longer any reasonable doubt regarding collectibility of principal
and interest, and payments are not 90 days past due. Collateral is obtained if,
based on an evaluation of credit-worthiness, it is considered necessary for the
overall borrowing facility.
Assets acquired in satisfaction of forfaiting assets are recorded at the lesser
of their fair value at the date of transfer or the carrying value of the asset.
Any excess of the carrying value of the forfaiting asset over the fair value of
the assets acquired is written off. Operating results and gains and losses on
disposal of such assets are treated as write-offs and recoveries.
Interest income from forfaiting assets or notes receivable is recognized when
earned using the interest accrual method, unless the forfaiting asset or note
receivable is classified as impaired at which time recognition of interest
income ceases. Interest on impaired loans is credited to the carrying value of
the loan when received.
Note 1. (Continued)
Due to the relatively short term of the Company's receivable amounts, exposure
to interest rate sensitivity is not significant.
Taxes on Income
-----------------
The Company accounts for income taxes under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactments of
changes in the tax laws or rates.
Earnings Per Share
--------------------
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares. There were no potentially dilutive common shares at June 30,
2000 or 1999. Potentially dilutive common shares at June 30, 2001, were
warrants to purchase common stock described in Note 4, but due to the current
year loss, the effect of these warrants is antidilutive.
Foreign Currency Transactions
-------------------------------
The Company's functional currency is the United States dollar. Gains and losses
resulting from foreign currency transactions are included in the determination
of net income or loss.
Comprehensive Income
---------------------
There are no reconciling items between the net loss presented in the Statements
of Operations and comprehensive loss as defined by SFAS No. 130, "Reporting
Comprehensive Income."
Segment Reporting
------------------
Management considers the Company to operate in only one business segment.
Accordingly, any disclosures required by SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," are already incorporated in
other financial statement disclosures.
Note 1. (Continued)
New Accounting Standards
--------------------------
Management has determined that any new accounting standards issued through the
date of the independent auditors' report do not have an effect on these
financial statements.
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could differ from the estimates that were used.
Note 2. Investments
Investments are summarized as follows:
June 30, 2001 June 30, 2000
-------------- --------------
United States Treasury Bills $ 805 $ -
Convertible Bonds 4,827 -
Equity Securities 1,663 -
-------------- --------------
Totals $ 7,295 $ -
============== ==============
Convertible bonds represent debt from a company that matures on December 5,
2006. Included in equity securities is an investment in shares that represents
42% of total equity securities at June 30, 2001. The change in unrealized
holding losses on trading securities which has been included in earnings was
$(622) during 2001.
Note 3. Forfaiting Assets
At June 30, 2001, the forfaiting asset bears interest at 8.8%, but as the asset
is impaired, interest is not being accrued. The following table represents the
number of debts outstanding and the country where the debts originated:
June 30, 2001 June 30, 2000
------------------------------------------------------- ----------------------------------------
Country Number Balance Percentage of Balance Number Balance Percentage of Balance
-------------- --------------- --------------- --------------------- ------ -------- ----------------------
Turkey - $ - -% 1 $ 3,253 70%
Czech Republic 1 1,000 100 1 1,000 22
Nigeria - - - 1 363 8
-------------- -------------- --------------------- ------ -------- ---------------------
Totals 1 1,000 100% 3 4,616 100%
============== ===================== ====== =====================
Loss reserve (999) (999)
-------------- --------
$ 1 $ 3,617
============== ========
Management has determined that certain debts are impaired. Impaired and
non-impaired debts are summarized as follows:
June 30, 2001 June 30, 2000
-------------- --------------
Non-impaired debt $ - $ 3,616
Impaired debt at face value 1,000 1,000
-------------- --------------
Totals $ 1,000 $ 4,616
============== ==============
The fair value of non-impaired debt approximates carrying value due to the
short-term nature of the debts. The carrying value of impaired debt has been
adjusted to fair value with a loss reserve as follows:
June 30, 2001 June 30, 2000
--------------- ---------------
Face value of impaired debt $ 1,000 $ 1,000
Loss reserve (999) (999)
-------------- --------------
Fair value of impaired debt $ 1 $ 1
============== ==============
Note 3. (Continued)
The loss reserve has been established only for impaired debt. A reserve for
non-impaired debt was not considered necessary by management. Activity on the
loss reserve is summarized as follows:
June 30, 2001 June 30, 2000
-------------- ---------------
Balance, beginning of year $ 999 $ 6,740
Loss expense - 537
Reductions due to sale of assets or write-offs - (6,278)
-------------- --------------
Balance, end of year $ 999 $ 999
============== ==============
Management believes the reserve for losses is adequate to offset future losses
in the Company's current loan portfolio. A specific loss reserve of $999 was
established during the year ended June 30, 2000, using a loan-by-loan analysis
and relates to the forfaiting asset originated in the Czech Republic. When
determining the reserve for losses, management considers many factors including
the country risk (exposures in less developed countries and management's overall
assessment of the underlying economic conditions in those countries). Also
considered are items that mitigate losses including collateral associated with
debts. The outstanding debt originating in the Czech Republic is currently due.
Note 4. Transactions with Affiliates
A person who is an officer and a director of the Company is also an officer and
a director of another related company ("the Affiliate"). The Affiliate is a
shareholder in the Company and has a management agreement with the Company
expiring in January 2003. Fees under the management agreement may be earned by
the Affiliate based on the Company's future performance.
The Company has a note receivable from the Affiliate in the amount of $5,000 at
June 30, 2001 and 2000. The note is due January 31, 2002, bears interest at
8.25% and is unsecured. Interest income on the note was $412 for the year ended
June 30, 2001, and $155 for the year ended June 30, 2000. Based on the
short-term nature of this note receivable, fair value approximates carrying
value.
The Company has $10,695 on deposit with a bank subsidiary of the Affiliate at
June 30, 2000. The Company had no deposit with this bank subsidiary at June 30,
2001. Interest income from this deposit amounted to $152 for the year ended
June 30, 2001, and $86 for the year ended June 30, 2000.
Note 4. (Continued)
In 2001, the Company reimbursed expenses (plus a 15% service charge) paid by the
Affiliate amounting to $327.
The Company issued 8,500,000 shares of common stock through a private placement
that was underwritten by the Affiliate. Underwriting fees of $918 were paid to
the Affiliate out of the proceeds of this stock issuance. For each share
issued, a warrant to purchase an additional share for $1.35 was issued. These
warrants expire in November 2005. For each warrant exercised, the Company is
required to pay the Affiliate 8% of the proceeds.
The Company also paid management fees of $17 and $280 during the years ended
June 30, 2000 and 1999, respectively, to companies controlled by a former
shareholder. There were no management fees paid to these companies during the
year ended June 30, 2001.
Note 5. Bank Loans Payable
June 30, 2001 June 30, 2000
-------------- --------------
Loans payable to banks secured by forfaiting assets $ - $ 3,318
Other short-term bank borrowings - 363
-------------- --------------
$ - $ 3,681
============== ==============
The weighted average interest rate on bank loans payable was 6.3%, 6.5%, and
6.2% for the years ended June 30, 2001, 2000, and 1999, respectively. The fair
value of bank loans payable approximates carrying value based on the interest
rates and short-term nature of the loans.
Note 6. Income Taxes
There is no current or deferred tax provision for the years ended June 30, 2001,
2000, or 1999. Differences between the U.S. statutory tax rate and the
Company's effective tax rate are as follows:
June 30, 2001 June 30, 2000 June 30, 1999
--------------- --------------- ---------------
Tax at U.S. statutory rate $ (1,152) $ (564) $ 1,399
Change in valuation allowance for deferred tax asset 1,152 564 (1,399)
-------------- -------------- ---------------
Income tax expense $ - $ - $ -
============== ============== ==============
The deferred tax asset is composed of the following:
June 30, 2001 June 30, 2000
--------------- ---------------
Net operating tax loss carryforwards $ 1,088 $ 439
Loss reserve 340 340
Unrealized loss on securities 269 -
Other 234 -
Valuation allowance (1,931) (779)
-------------- --------------
$ - $ -
============== ==============
The Company has net operating tax loss carryforwards of $3,199 for United
Kingdom income tax purposes. These losses do not expire.
Note 7. Legal Actions
The Company is involved in two related legal actions. One of the actions was
brought by the Company in the United States District Court, Southern District of
New York against certain of the Company's former officers and others. The
Company alleges that the defendants participated in a fraudulent plan to benefit
themselves at the Company's expense. The Company is seeking monetary damages as
well as the return of Company shares previously issued to certain of the
defendants. The Company and one of the defendants (who was also a former
officer) entered into a settlement agreement whereby the defendant transferred
1,170,000 common shares back to the Company. These shares are included in the
total of shares redeemed and cancelled during 2001 in the Consolidated
Statements of Changes in Shareholders' Equity.
An action was brought against the Company which alleges that the Company
violated certain United States security laws and breached its duty to state
certain material facts or to correct certain material facts previously disclosed
in public filings with the Securities and Exchange Commission. This action is
to be heard along with the action discussed in the preceding paragraph. The
Company believes this action is without merit and intends to vigorously defend
itself against it.
No asset or liability have been recorded in the June 30, 2001, consolidated
financial statements because of the two legal actions.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EURO TRADE & FORFAITING, INC.
Dated: September 24, 2001
By: /s/ Michael J. Smith
-----------------------
Michael J. Smith
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael J. Smith Date: September 24, 2001
-----------------------
Michael J. Smith
President, Chief Executive Officer
Director
/s/ James Carter Date: September 24, 2001
------------------
James Carter
Director
/s/ Slobodan Andjic Date: September 24, 2001
---------------------
Slobodan Andjic
Director
/s/ Simon Law Date: September 24, 2001
---------------
Simon Law
Director
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------ ------------------------
21 List of Subsidiaries of Registrant.