EX-99.3 5 d03842exv99w3.txt ANNUAL REPORT OF OLICOM A/S EXHIBIT 99.3 OLICOM A/S ----------------------- Kongevejen 239, DK-2830 Virum -------------------------------------------- CVR No. 76 80 00 14 ANNUAL REPORT --------------------------- Year ended December 31, 2002 18th financial year TABLE OF CONTENTS
Page STATEMENTS................................................................................ 2 Management Statement...................................................................... 2 Independent Auditors' Report.............................................................. 3 MANAGEMENT REPORT......................................................................... 4 General Information....................................................................... 4 Board of Directors and Executive Management............................................... 5 Business Concept and Goals................................................................ 6 Highlights of the Year.................................................................... 6 Group Structure........................................................................... 7 Selected Financial Data................................................................... 8 The Directors' Report..................................................................... 9-13 Shareholder Data.......................................................................... 14-15 Financial Discussion...................................................................... 16-17 GROUP AND PARENT COMPANY FINANCIAL STATEMENTS - JANUARY 1 - DECEMBER 31................................................................... 18 Accounting Policies....................................................................... 18-23 Statement of Income - the Group........................................................... 24 Balance Sheet - the Group................................................................. 25-26 Statement of Equity - the Group........................................................... 27 Statement of Cash Flow - the Group........................................................ 28 Notes - the Group......................................................................... 29-34 Statement of Income - the Parent Company.................................................. 35 Balance Sheet - the Parent Company........................................................ 36-37 Statement of Equity - the Parent Company.................................................. 38-39 Notes - the Parent Company................................................................ 40-47
2 MANAGEMENT STATEMENT The Board of Directors and the Executive Management have today presented the Annual Report 2002 for Olicom A/S. The Annual Report has been prepared in accordance with the Danish Company Accounts Act, the Danish Accounts Instructions and the guidelines for public companies established by the Copenhagen Stock Exchange. We consider the accounting policies applied to be adequate and the financial estimates to be proper just as the Annual Report in our opinion includes the information relevant in order to evaluate the Group's and the Parent Company's financial position. We thus have the opinion that the Annual Report gives a true and fair view of the Group's and the Parent Company's activities for financial year 2002. The Annual Report is submitted for adoption by the Annual General Meeting. Virum, February 7, 2003 Executive Management: Boje Rinhart President, CEO Virum, February 7, 2003 Board of Directors: Lars Eskesen Ralf Egede Andersen Chairman. Deputy Chairman Eric Korre Horten Torben Jacobsen Adopted at the Annual General Meeting, April 10, 2003 Chairman of the Meeting 3 INDEPENDENT AUDITORS' REPORT FOR THE SHAREHOLDERS OF OLICOM A/S We have audited the Annual Report for Olicom A/S for the financial year January 1 - December 31, 2002. The Company's Executive Management is responsible for the Annual Report. It is our responsibility to arrive at a conclusion about the Annual Report based on our audit. THE AUDIT We have conducted our audit in accordance with the Danish auditing standards. These standards require that we plan and conduct our audit with a view to obtaining a high degree of assurance that the Annual Report is free from material misstatements. Our audit includes a spot check investigation of information that supports the amounts and disclosures in the Annual Report. The audit further includes our assessment of the accounting policies applied by the Management and the material estimates made by the Management. In addition, we have evaluated the overall adequacy of the presentation in the Annual Report. It is our opinion that our audit forms an adequate basis for us to render a conclusion. Our audit has not resulted in any qualifications. CONCLUSION In our opinion the Annual Report has been presented in accordance with the Danish Company Accounts Act and the Danish accounting standards and presents fairly the Group's and the Parent Company's assets, liabilities and financial position as at December 31, 2002 and the result of the Group's and the Parent Company's activities and the Group's cash flow for the financial year January 1 to December 31, 2002. Copenhagen, February 7, 2003 ERNST & YOUNG KPMG C. JESPERSEN Statsautoriseret Revisionsaktieselskab ------------------- ------------------- ------------------ ------------------ Peter Hertz Soren Strom Sven Carlsen Soren P. Krejler State Authorized Public Accountants State Authorized Public Accountants
4 GENERAL INFORMATION NAME, ADDRESS AND DATE OF INCORPORATION Olicom A/S Kongevejen 239 DK-2830 Virum Phone: +45 45 27 00 00 Fax: +45 45 27 00 01 Home page: www.olicom.com E-mail: info@olicom.com Olicom A/S was incorporated on December 12, 1984. REGISTERED OFFICE Olicom A/S's registered office is located in the municipality of Soelleroed. REGISTRATION Olicom A/S is registered with the Danish Commerce and Companies Agency under CVR No. 76 80 00 14. FINANCIAL YEAR Olicom A/S's financial year is the calendar year. INDEPENDENT PUBLIC AUDITORS Ernst & Young Statsautoriseret Revisionsaktieselskab Tagensvej 86 DK-2200 Copenhagen N KPMG C. Jespersen Borups Alle 177 P.O. Box 250 DK-2000 Frederiksberg BANKERS Nordea Bank Danmark A/S Niels Hemmingsens Gade 24 DK-1001 Copenhagen K ANNUAL GENERAL MEETING Olicom's Annual General Meeting will be held at the Radisson SAS Hotel Scandinavia, Copenhagen, Denmark, on Thursday, April 10, 2003 at 3.00 p.m. 5 BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT BOARD OF DIRECTORS: Lars Eskesen, Chairman Chairman of the Board of Directors of Symbion Capital I A/S and member of the Board of Directors of A/S Dansk Erhvervsinvestering af 3/9 1983, Nordea Invest Fund Management A/S and S Reg. A/S. Ralf Egede Andersen, Deputy Chairman Chairman of the Board of Directors of Advoforum A/S and CAPTO A/S and member of the Board of Directors of Tpack A/S and IT Practice A/S. Eric Korre Horten, Attorney Chairman of the Board of Directors of Sense A/S and member of the Board of Directors of Neohorm A/S, PLH Arkitekter A/S, Candor Kemiske A/S, Ejendomsaktieselskabet Grundstenen, IOB Holdings A/S, Leonhard Research A/S, Hymite A/S, Chempaq A/S and Wapmore A/S. Torben Jacobsen, Managing Director, CEO Managing Director of Ibsen Photonics A/S, Chairman of the Board of Directors of Hymite A/S and Photonics Management A/S and member of the Board of Directors of Ferroperm Optics A/S and Innkomplementar A/S. EXECUTIVE MANAGEMENT: Boje Rinhart, President and Chief Executive Officer Member of the Board of Directors of Comlog A/S and Sifira A/S. 6 BUSINESS CONCEPT AND GOALS BUSINESS CONCEPT The Olicom Group's ("the Company" or "the Group") business concept is to take an active part in the development of new products and services based on innovative technology within information and communication technology. The investment openings are identified through the Company's own research as well as through cooperation with newly established companies, which are offered seed and venture financing and access to the Company's established business network and infrastructure. LONG-TERM GOALS The Company's general goal is to increase the Company's market value through creative development of the portfolio companies and subsequent divestment of these. The time frame for the Company's investments is 3 to 5 years. HIGHLIGHTS OF THE YEAR OPERATIONS o For 2002, the Company's net result was a loss of tDKK 18,236, which is in accordance with the previously announced expectations for 2002 at the time of presenting the Annual Report for 2001 and the quarterly and half-yearly statements in 2002. o The result of primary operations was a loss of tDKK 39,523, of which write-down of investments in portfolio companies amounted to tDKK 22,790. o The result of discontinued companies was a profit of tDKK 15,025, which primarily relates to the termination of leaseholds with lower costs than originally anticipated and the refund of customs duty. INVESTMENTS In 2002, the Company has made two new investments in Danacell A/S and Tpack A/S respectively. In addition thereto, the Company has primarily concentrated on further development of the existing portfolio companies. Due to unfavorable market conditions it was decided during the year to exit the investments in the portfolio companies Transynergy A/S, Vizion Factory e-learning A/S, GoPinocchio ApS and Mobite A/S. DEVELOPMENTS IN 2003 Since the end of the financial year, no material matters have occurred with respect to the Company. 7 GROUP STRUCTURE The Olicom Group's legal structure is outlined below. (CHART) All of the Group's foreign affiliated companies, except Olicom Inc., are being wound-up with a view to liquidation. Olicom Trading A/S and Olicom Ventures A/S were merged into Olicom A/S effective as of January 1, 2002. 8 SELECTED FINANCIAL DATA During 2000, the Company's business activities underwent significant change. According to the requirements of the Danish Company Accounts Act of 2001 comparison figures for 1998 to 2001 have been included, but as a consequence of the change in activity, the figures for 1998 and 1999 are comparable with subsequent years only to a limited extent. KEY FIGURES (IN tDKK EXCEPT PER SHARE AMOUNTS):
1998 1999 2000 2001 2002 CONSOLIDATED STATEMENT OF INCOME Valuation adjustments of portfolio companies -- -- (2,609) (27,739) (22,790) Administrative expenses -- -- 24,569 17,249 16,733 INCOME (LOSS) FROM PRIMARY OPERATIONS -- -- (27,178) (44,988) (39,523) Other operating income -- -- 175 810 593 Other operating expenses -- -- 198 796 598 Foreign currency gains and losses -- -- 20,132 101 (113) Other financial items, etc -- -- 5,817 6,820 6,380 INCOME (LOSS) BEFORE INCOME TAX -- -- (1,252) (38,053) (33,261) Income tax of net income -- -- 0 0 0 Income of discontinued business operations (123,798) (539,411) 82,735 42,972 15,025 NET INCOME (LOSS) (123,798) (539,411) 81,483 4,919 (18,236) BALANCE SHEET DATA Working capital 490,454 164,490 221,204 181,410 116,902 Total assets 958,272 372,162 308,271 286,898 248,718 Total shareholders' equity at year-end 662,186 168,632 243,100 244,347 227,034 KEY FIGURES Book value per share at year-end 37.07 9.44 13.96 14.27 13.40 Share price at year-end (DKK) 36.30 6.17 10.96 8.67 4.98 Return on equity (%) (16.6) 129.9 39.6 2.0 (7.7) Earnings (loss) Per Share (6.92) (30.20) 4.6 0.28 (1.07) Weighted average shares outstanding 17,892 17,864 17,726 17,294 17,035 Number of employees at year-end 728 60 10 10 10
The key figures for 2000 to 2001 have been adjusted to comply with the applied accounting policies for 2002. The key figures have been prepared in accordance with the Association of Danish Financial Analysts' "Recommendations and Key Figures 1997". Reference is made to definitions and terms in applied accounting policies. 9 THE DIRECTORS' REPORT OLICOM A/S IN 2002 Since May, 2000, the Company has carried on venture capital business with a view to creating value through the development of new products and services based on innovative technology within information and communication technology. In addition to its listing on the Copenhagen Stock Exchange, Olicom's common shares are quoted on the NASD's other OTC. The Company is actively working to deregister the Company's shares in the U.S. In accordance with its new strategy, the Company made 5 investments in 2000, an additional 6 investments were made in 2001, while 2 investments were made in 2002. One investment was exited at a loss in 2001, while four investments were wound up at a loss in 2002. INVESTMENT IN PORTFOLIO COMPANIES At year-end, the Company's portfolio consisted of investments in 8 companies. Sifira A/S Sifira has developed a number of so-called messaging products reaching from a simple web-based answering machine with optional extra functionalities to advanced solutions for small and medium-sized companies. The products are sold in Scandinavia and Germany on a service or license basis to mobile and fixed wire operators and service providers. Sifira's solutions have been met with great interest, and contracts have so far been signed with 5 companies. At year-end, the Company had invested DKK 18.0 million in Sifira and owned 57.2% of the company. Sifira has 20 employees. Interactive Television Entertainment ApS Interactive Television Entertainment ApS ("ITE") is especially known for its Hugo game character, which today is present in more than 30 geographical markets. The company's main activity is the publishing of games for PC, Sony Playstation and Nintendo Gameboy. In certain markets the sale of games is supported by ITE's interactive TV concept. ITE is one of very few companies in Scandinavia, which possess the know-how and technology necessary for developing multi-platform games, and ITE has capitalized on this advantage by developing games for the new generation of mobile phones in cooperation with leading producers of mobile phones. The Company has invested DKK 22.2 million in ITE and owns 100% of the company. ITE has 50 employees. Hymite A/S Hymite develops technology for automated manufacturing of optical modules and products for sealing such modules deployed within the optical tele and data communications market. Hymite's concept for multifunctional optical modules should provide substantial cost savings compared to existing state-of-the-art technologies, where components are separately deployed. Hymite has several patents pending on the basis of its technology. Hymite has in 2002 signed a number of cooperation agreements with other companies within the optical industry and has also entered into its first commercial contract with one of the leading companies within the industry. The Company has invested DKK 13.0 million in Hymite. The investment is syndicated with an international group of investors. The Company owns 19.3% of the company. At its offices in Lyngby and Berlin, Hymite has 26 employees in total. 10 THE DIRECTORS' REPORT (CONTINUED) LH Comlog A/S Comlog is a mobile data technology company, which develops and markets fleet management systems for the transportation industry. Comlog has developed a range of mobile data terminals based on GSM mobile data technology and GPS - the satelite based global positioning system. The GSM technology enables terminals to send and receive data in most of the world, and the GPS system enables the terminals to determine their geographical position accurate to a few meters. In 2002, the company completed a web based solution, now sold on a license and service basis. At the same time, the company has initiated the marketing of its products on the large German market, and the first deliveries have already been initialized. The Company's investment in Comlog, which was made in cooperation with a Danish investor, amounts to DKK 12.5 million and the Company owns 22.5% of Comlog. Comlog has 32 employees. Scalado AB Scalado, which is located in Lund, Sweden, has developed solutions and applied for three patents for rendering and transferring digital image information independent of communication technology. Scalado's ImageZoom software, which was introduced in October, 2002, minimizes the amount of data sent from a web server when a visitor views an image and provides unique zooming functionality. Both image presentations on the Internet and within the emerging market for mobile data communication will benefit from the minimization of required bandwidth. In addition to the ImageZoom product, Scalado offers, on an OEM basis, adapted solutions for producers of digital photo and video cameras. The Company has invested DKK 16.3 million in Scalado and owns 37.3% of the company. The investment was made in cooperation with a Swedish investor. Scalado has 21 employees. Decuma AB Decuma, which is also located in Lund, Sweden, develops and markets handwriting recognition software for handheld devices like mobile phones, PDAs, PC Tablets and digital pens. Decuma's products are sold on an OEM basis to producers of such handheld devices. Decuma's patented Geometrical Invariant Technology (GIT) adds several advantages compared to traditional methods for handwriting recognition, including higher precision in recognizing characters and recognition of rotated, angled and shaky writing. In 2002, Decuma was granted the European IST Grand Prize of Euro 200,000 due to its unique technology. The Company has invested DKK 9.8 million in Decuma and owns 14.1% of the company. The investment has been made in cooperation with Swedish investors. Decuma has 21 employees. Danacell A/S Danacell has developed and patented a new type of polymer membrane electrolyte for use in rechargeable lithium polymer and lithium ion batteries. The advantages of the membrane are expected to be a substantially increased energy density as well as a substantially increased peak current. Danacell's immediate plan is to complete development of the lithium polymer technology and license it to battery manufacturers. It is expected that the underlying principles for Danacell's patented polymer technology can be used to develop polymers that increase the efficiency of fuel cells. The Company has invested DKK 1.2 million in Danacell and owns 16.7% of the company. Danacell has 1 employee. 11 THE DIRECTORS' REPORT (CONTINUED) Tpack A/S Tpack develops technology and products, which enable suppliers of optical SONET/SDH transmission systems to upgrade their products to support new intelligent data services based on IP and Ethernet like VPN (Virtual Private Network), dynamic adjustment of bandwidth and QoS (Quality of Service). Tpack's solutions aim at teleoperators, who seek new ways to increase their revenue and who wish to reduce their operating expenses without making significant new investments. Tpack enables operators to expand their existing network with new data services for IP, VPN and Ethernet at the same time as the utilization of bandwidth is improved. Tpack has already signed its first major development contract. The Company has invested DKK 8.5 million in Tpack and owns 21.3%. The investment was made in cooperation with an international group of investors. Tpack has 23 employees. DISCONTINUED INVESTMENTS Due to strongly adverse market conditions and subsequent increased funding need, it was decided during 2002 to wind up the investments in four portfolio companies through bankruptcy. The discontinued investments are Vizion Factory e-learning A/S, Transynergy A/S, which had developed a software platform primarily for Business-to-Employee solutions on handheld computers, GoPinocchio ApS, which offered systems integration within mobile data solutions and Mobite A/S, which offered solutions for management of capacity and resources for large companies within the service industry. The Company's total loss in connection with these investments in 2002 amounts to DKK 19.3 million. DIVESTED AND DISCONTINUED BUSINESS OPERATIONS During the last half of 1999, the Company sold its main activities in three transactions with Madge, Intel and Motorola, respectively. In 2002, the Company continued to fulfill the obligations, which the Company assumed in connection with transactions implemented in 1999, signed transfer agreements as well as other agreements relating to discontinued business operations. The Company's restructuring has generally been completed with lower costs than expected when the Company announced its 2001 full-year result. Accordingly, part of the provisions with respect to the 1999 transactions and subsequent restructuring has been reversed. Some activities in connection with the restructuring are still outstanding. These are primarily relating to the final winding up of foreign subsidiaries and leases and unsettled employee matters. The Company has accrued provisions to cover the currently expected costs in this regard. The Company's discontinued production of equipment used in local area networks was undertaken by contract manufacturers in Thailand, from where the equipment was exported to Denmark. For this import, the Company paid customs duty in accordance with the rating specified by the Danish customs authorities. In 2001, the EU Court of Justice rendered a judgment that directed that a lower rate of customs duty be utilized with respect to the importation of the above-mentioned equipment than the one applied by the Company from 1996 to 1999. In this connection, the Company made a demand for a refund of excess customs duties paid from 1996 to 1999. On the basis of the available information from the customs authorities, the Company has recorded DKK 29 million as income in the Financial Statements for 2001, representing the expected refund with 12 THE DIRECTORS' REPORT (CONTINUED) the addition of interest till year-end. As the final settlement of the accepted part of the Company's demand was higher than estimated, a further amount of DKK 5.9 million has been recorded as income in 2002 RESULTS For 2002, the Company's net result was a loss of DKK 18.2 million, which is in line with the announced expectations. QUOTATION IN THE US The Company's shares are predominantly traded on the Copenhagen Stock Exchange and the Company has therefore evaluated that the substantial current expenses in connection with the quotation of the Company's shares in the US are no longer reasonable. Deregistration of the Company's shares in the US (which would result in such shares generally ceasing to be quoted in the US) can take place when the number of shareholders in the US is 299 or less. The Company has thus during the year bought 187,978 treasury shares in the US with the purpose of reducing the number of shareholders in the US. However, as the number of shareholders in the US is still above 299, deregistration has not yet been effected. In 2003, the Company will continue its efforts to obtain the deregistration. CORPORATE GOVERNANCE The Board of the Company has considered the recommendations for Corporate Governance issued by the Norby Committee in November, 2001. The Company follows the relevant recommendations with only a few exceptions. Among these exceptions is the issue of remuneration of board members through stock options. The Board of the Company believes that remuneration through stock options is consistent with the shareholders' interests and in line with the tradition for incentive remuneration within the venture capital business. KNOW-HOW It is the Company's mission to provide extensive hands-on support and to offer the portfolio companies an experienced management team with background from the high-tech sector. This makes heavy demands on the Company's management and other employees to keep up with the news within the information and communication technology. At the same time, the support needed by each portfolio company is individual, for which reason the employee's personal knowledge plays a decisive part. DEVELOPMENTS IN 2003 Since the end of the financial year, no material matters have occurred with respect to the Company. EXPECTATIONS FOR 2003 In 2003, the Company will concentrate on further development of the existing portfolio companies. Until the Company's cash position has been strengthened as a consequence of successful exits, investments in new portfolio companies will only be made when particularly favorable opportunities are offered. With a view to better exploit the Company's management capabilities, the Company will look into the possibilities to further develop the cooperation with other venture capital companies as well as with institutional investors. Follow-up investments in the existing portfolio companies are expected to be in the range of DKK 30 million. 13 THE DIRECTORS' REPORT (CONTINUED) EXPECTATIONS FOR 2003 (CONTINUED) With few exceptions the Company's existing portfolio companies have completed the initial product development phase and have initiated marketing and sale of products and services. In general, this task is impacted by unfavorable market conditions, and therefore, it cannot be precluded that write-offs of further portfolio investments can become necessary. As to the possibility of exits from portfolio investments, these are also negatively influenced by the prevailing market conditions. The Company believes that two of the portfolio investments are ready for exiting, and the Company has initiated the identification of potential buyers. During 2003, additional portfolio investments are expected to become ready for exiting. Whether such exits can be carried through is uncertain, for which reason the Company's expected result for 2003 does not include possible profits from exits. Assuming that it will not be necessary to write off portfolio investments or to substantially write down the value hereof during 2003, the Company expects a negative result for 2003 in the range of DKK 20 million. DIVIDENDS It is proposed that no dividends are paid for 2002. 14 SHAREHOLDER DATA SHARE CAPITAL The Company's share capital amounts to DKK 4.3 million distributed on 17,357,295 shares of DKK 0.25. SHAREHOLDERS As at December 31, 2002, the Company had approximately 15,000 shareholders, the major part of them being registered shareholders. Shareholders, pursuant to Section 28a of the Danish Companies Act: The Ocean Fund, Heemmstede, the Netherlands, 9.3%. FINANCIAL CALENDAR Annual Report 2002: March 13, 2003 Annual General Meeting: April 10, 2003 First Quarter 2003 Results: April 23, 2003 Interim Report - six months - 2003: August 21, 2003 Third Quarter 2003 Results: October 22, 2003 DIVIDENDS It is proposed that no dividends are paid for 2002. TREASURY SHARES At year-end, the Company held a total of 418,969 treasury shares corresponding to 2.4% of the share capital. The shares were purchased at tDKK 9,534. From time to time within a period if 18 months after March 21, 2002, being the date of the Annual General Meeting, the Company is authorized to acquire up to 10% of the Company's treasury shares at the price current at the time +/- 10%. Treasury shares are acquired with a view to including them in the established incentive program for the Company's Board of Directors, Executive Management and employees. EMPLOYEES AND INCENTIVE PROGRAMS The total staff including the president consists of 10 persons of which 1 is employed in the US. In 2002, the Company's employees were granted options entitling them to acquire 100,000 shares at a price of DKK 9.95. The options may be utilized from April 1, 2003 to March 31, 2006 by 25% p.a. The options lapse should they not be utilized before March 31, 2007. 15 SHAREHOLDER DATA (CONTINUED) In 2002, the members of the Board of Directors were granted options entitling them to acquire 500,000 shares at a price of DKK 8.95. The price is increased by 15% p.a. from March 21, 2002 until the time of utilization. The first 50% of the options may be utilized on or after March 21, 2003 and the remaining 50% may be utilized on or after March 21, 2004, as the options lapse on March 21, 2007. The activities in connection with the Company's share options can be specified as follows:
OUTSTANDING FINALLY AVERAGE NUMBER OF ACQUIRED AGREED PRICE OPTIONS OPTIONS (DKK) As at December 31, 2000 .... 2,376,625 2,163,969 63.62 Allocated .................. 130,000 12.94 Utilized ................... 0 Cancelled .................. (307,500) 70.20 ------------ ------------ As at December 31, 2001 .... 2,199,125 1,915,250 62.99 ============ =========== ============ Allocated .................. 600,000 8.95 Utilized ................... 0 Cancelled .................. (614,725) 58.15 ------------ ------------ As at December 31, 2002 .... 2,184,400 1,381,125 39.79 ============ =========== ============
Of the 2,184,400 outstanding options as at December 31, 2002, 1,550,000 options have been granted to the Board of Directors, 350,000 have been granted to the Executive Management, 241,400 have been granted to top employees and 43,000 have been granted to other employees. 16 FINANCIAL DISCUSSION The Annual Report for 2002 has been prepared in accordance with the Danish Company Accounts Act for class D companies, the Danish Accounts Instructions and the guidelines for public companies established by the Copenhagen Stock Exchange. Commencing with financial year 2002, Olicom changed its accounting policy regarding the valuation of investments in portfolio companies. Prior to financial year 2002, such investments were accounted for by the equity method of accounting at the pro rata share of investee equity, with the addition of goodwill and the deduction of amortization of goodwill. Commencing with financial year 2002, the valuation of investments in portfolio companies will be made on the basis of the estimated market value of investments, measured as the cost of investment, as adjusted by subsequent write-ups and write-downs. A write-down of value will be made in cases where the development of the portfolio company has not been as expected and the change in expectation is not considered to be temporary. A write-up of an investment in a portfolio company will be made where the development of the portfolio company exceeds expectations and where the change is not considered to be temporary. The decision to change the Company's accounting policy has been made in order to better present a fair view of the Company's assets, its financial position and results. The change also facilitates comparison between the Company's financial statements and those of other Danish and international venture capital companies, as the Company's accounting policy will be more consistent with generally applied accounting principles utilized by such companies. To facilitate comparison, the Company's comparative figures have been adjusted in accordance with the new accounting policy. The change of the Company's accounting policy implies that the result for the year is positively influenced by DKK 51 million, and that the shareholders' equity as at December 31, 2002 is increased by DKK 67 million and would thus have amounted to tDKK 176,452. Reference is made to the section "Accounting Policies" of the Annual Report. CONSOLIDATED STATEMENT OF INCOME RESULT FROM PRIMARY OPERATIONS The result of the Company's primary operations was a loss of DKK 40 million. Of this, valuation adjustments of portfolio companies amounted to a loss of DKK 23 million, which includes the Company's loss in connection with the write-off of portfolio companies as well as write-downs. In 2002 and 2001, the Company's administrative expenses amounted to DKK 17 million. FINANCIAL ITEMS In 2002, the Group had a financial net income amounting to DKK 6 million compared to DKK 7 million the year before. In 2002, the Group had a net loss of DKK 0.1 million relating to foreign currency contracts and exchange rate adjustments of monetary assets in US dollars. 17 FINANCIAL DISCUSSION (CONTINUED) INCOME TAXES The result for 2002 is not taxable. RESULT OF DISCONTINUED ACTIVITIES The Group had a profit of DKK 15 million relating to discontinued activities. This is generally due to the fact that the restructuring activities have been completed with lower costs than expected. Items worth mentioning are the refund of customs duty, where the Company in 2002 received DKK 5.9 million more than expected when the Company announced its 2001 full-year result as well as termination of lease commitments with lower costs than estimated. RESULT FOR THE YEAR For 2002, the Company's net result was a loss of DKK 18.2 million compared to the previously announced expectation of a loss of approximately DKK 20 million. This positive deviation is primarily due to reversal of previous provisions for leaseholds, which have been terminated with a better result than expected. BALANCE SHEET FINANCIAL FIXED ASSETS Investments in portfolio companies have increased to DKK 98 million due to two new investments in Danacell A/S and Tpack A/S, respectively, as well as additional investments in existing portfolio companies. Outstanding amounts with portfolio companies has increased to DKK 10 million due to a subordinated loan to an existing portfolio company. CASH AND CASH EQUIVALENTS At the end of 2002, cash and cash equivalents amounted to DKK 95 million corresponding to 38% of the total assets. CASH FLOW The Group's total cash position by the end of the year amounted to DKK 95 million. Olicom had a cash flow of DKK 3 million from operating activities, including discontinued operations. Investments in portfolio companies amounted to DKK 53 million. In 2002, the Company spent DKK 1.6 million for the purchase of treasury shares. SHAREHOLDERS' EQUITY Shareholders' equity at year-end was DKK 227 million corresponding to 91% of the total assets of DKK 248 million. At year-end 2001, the shareholders' equity was DKK 244 million. TREASURY SHARES In 2002, the Company acquired an additional 218,958 treasury shares (1.3%), nominal value tDKK 54.7 at a total cost of DKK 1.6 million. 18 ACCOUNTING POLICIES The Annual Report for 2002 has been prepared in accordance with the Danish Company Accounts Act for class D companies, the Danish Accounts Instructions and the guidelines for public companies established by the Copenhagen Stock Exchange. CHANGE OF APPLIED ACCOUNTING POLICY From financial year 2002, as mentioned in the Management Report and the Financial Discussion, the Company has changed its accounting policy concerning revaluation of investments in portfolio companies. So far, investments in portfolio companies have been valued according to the equity method of accounting to the pro rata share of investee equity, with addition of goodwill and deduction of amortization of goodwill. Commencing with fiscal year 2002, the valuation of investments in portfolio companies will be made based on the estimated market value of the investment, measured as the cost of investment, and adjusted by subsequent write-ups and write-downs. For comparison reasons, the Annual Report for 2001 has been revised according to the new accounting policy. The revised Annual Report shows a shareholders' equity at year-end 2001 of DKK 244.3 million, which is DKK 16.3 million more than reported in the submitted Annual Report for 2001. Except from the above field, the Annual Report has been prepared according to the same accounting policy as last year. The new Danish Companies Accounts Act has not resulted in any change of accounting policy. RECOGNITION AND MEASURING IN GENERAL Assets are included in the balance when it is likely to be expected that future financial advantages will accrue to the Group, and the value of the asset can be faithfully measured. Liabilities are included in the balance when they are likely to be expected and can be faithfully measured. At first the assets and liabilities are taken into account at cost price. Assets and liabilities are subsequently measured as described below under each item. Certain financial assets and liabilities will be measured at amortized cost price, and an effective rate of interest is taken into account in the term. Amortized cost price is measured at the original cost price with deduction of any repayments and additions/deductions of the accumulated amortization of the difference between cost price and nominal amount. When measuring, losses, gains and risks resulting before submission of the Annual Report are taken into account if they confirm or fail to confirm conditions that existed at the balance sheet date. 19 ACCOUNTING POLICIES (CONTINUED) Income is recognized in the statement of income as it is realized, including valuation adjustments of finansial assets and liabilities, which are measured at the estimated market value or the amortized cost price. Furthermore, expenses, which have been paid to obtain the year earnings including depreciations, write-downs, provisions for reserves and reversed entries as the result of change in the accounting estimate, which have previously been included in the statement of income, are taken into account. CONSOLIDATED FINANCIAL STATEMENTS The consolidated Financial Statements include the parent company Olicom A/S and affiliated companies, of which Olicom A/S directly or indirectly holds more than 50% of the voting power. However, consolidation of portfolio investments is not made, even if the owner's share exceeds 50%. When consolidating, elimination of intercompany income and expenses, shareholdings and intercompany balances between the consolidated companies are made. Investments in affiliated companies are balanced with the parent company's share of the affiliated companies' book value at the time of establishment of the group structure (the past equity method). FOREIGN CURRENCY TRANSLATION Transactions in foreign currencies are converted into Danish kroner according to the exchange rate on the date of the transaction. Currency gains and losses are included in the statement of income under financial income and losses. Receivables, liabilities and other monetary items in foreign currencies are converted into Danish kroner according to the exchange rate on the date of the transaction. The difference between the exchange rate at year-end and the exchange rate on the day of transaction or last year-end is included in the statement of income under financial income and losses. In connection with the foreign affiliated companies, which are legal entities, the statement of income is converted into Danish kroner according to the average exchange rate for the month and the balance sheets are converted according to closing rates. An exchange rate adjustment of the foreign affiliated companies' shareholders' equity at the beginning of the year and an exchange rate adjustment of the statement of income from the exchange rate on the transaction date to the exchange rate at year-end are made over the shareholders' equity. Exchange rate adjustments of intercompany accounts with foreign affiliated companies, which are considered part of the total investment in the affiliated company, are made over the shareholders' equity. 20 ACCOUNTING POLICIES (CONTINUED) STATEMENT OF INCOME REVALUATION OF PORTFOLIO COMPANIES Revaluation of portfolio companies includes write-ups and write-downs of the portfolio companies' market value and recorded gains/losses on disinvestments. INCOME FROM INVESTMENTS IN AFFILIATED COMPANIES Income before tax in affiliated companies includes the pro rata share of the income before tax in affiliated companies. The pro rata share of income tax in affiliated companies is included in the item "income tax". ADMINISTRATIVE EXPENSES Included in administrative expenses are expenses incurred during the year in connection with management and administration of the Group, including expenses in connection with the office staff, the management, premises and office costs and depreciation. OTHER OPERATING INCOME AND EXPENSES Other operating income and expenses include secondary items compared to the Company's primary activities. FINANCIAL INCOME AND EXPENSES Financial income and expenses include interest, losses and gains from exchange rate adjustments and amortization of financial assets. INCOME FROM SALE OF ACTIVITIES Income from sale of company activities has been recognized as income reduced by expenses related to the transactions. INCOME TAXES The Company accounts for income taxes by the liability method. BALANCE SHEET DATA TANGIBLE FIXED ASSETS/DEPRECIATION Fixed assets are carried at cost less accumulated depreciation. Depreciation is charged on a straight-line basis to costs and expenses over the expected useful lives of the assets. Equipment etc. is depreciated over the expected useful life. Leasehold improvements are amortized over the shorter of their estimated lives or non-cancelable term of the lease. Assets with purchase/cost prices less than DKK 10,100 per unit are charged in the acquisition year. Tangible assets are written down to the recovery cost if this is lower than the amortized value. Annual write-down tests of each asset and group of assets are made. 21 ACCOUNTING POLICIES (CONTINUED) Losses and gains from sale of tangible assets are calculated as the difference between the sales price with deduction of sales costs and the book value at the time of the sale. Losses or gains are included in the statement of income under administrative expenses. INVESTMENT IN AFFILIATED COMPANIES The Company's investments in affiliated companies are accounted for by the equity method of accounting at the pro rata share of the companies' equities. Affiliated companies with negative equity are valued at DKK zero and any receivables from these companies are adjusted by the Company's pro rata share of the negative equity to the extent that such receivables are considered non-collectible. If the negative equity exceeds the receivables, the remaining amount is accrued if the Company has a legal or de facto obligation to cover the affiliated company's negative equity. Net appreciation of investments in affiliated companies is booked to the reserve for net appreciation as part of the equity in accordance with the equity method to the extent that the book value exceeds the cost of the investment. INVESTMENTS IN PORTFOLIO COMPANIES The Company's investments in portfolio companies are measured at the estimated market value, measured as the cost of investment, and adjusted by subsequent write-downs and write-ups. Write-downs are made in cases where the development in the portfolio company has not been as expected, and the change in expectation is not considered to be temporary. Write-ups are made in cases where the development of the portfolio company exceeds expectations and the change is not considered to be temporary. Write-downs and write-ups are recognized in the statement of income. Write-ups, deducted by the deferred tax assets, are transferred to nondistributable reserves under the equity through distribution of profits. SUBORDINATED LOAN Subordinated loans are measured at cost price. The value is continuously estimated and a write-down is made if necessary in order to avoid loss. RECEIVABLES Receivables are measured at amortized cost price. Write-downs are made to meet expected losses. PREPAID EXPENSES Prepaid expenses under assets include expenses regarding the subsequent financial year. INCOME TAX AND DEFERRED TAX Actual tax liabilities and actual tax assets are included in the balance sheet as calculated income tax, adjusted by income tax from prior years' income corrected for paid tax on account. 22 ACCOUNTING POLICIES (CONTINUED) Deferred tax is measured according to the liability method of all temporary differences between receivables and the valuation of assets and liabilities for tax purposes. However, deferred tax of temporary differences between non-taxable goodwill entitled to depreciation, block of offices and other items where temporary differences - apart from buyouts - have occurred at the time of acquisition without affecting the income or the taxable income, is not included. In cases where the tax valuation can be made on basis of alternative tax rules, the deferred tax is measured based on the planned use of assets or the winding up of the liability. Deferred tax assets including the tax value of carry-over taxes, are taken into account at the value at which they are expected to be used or set off in future income tax. Adjustment of deferred tax is made regarding elimination of unrealized intercompany profits or losses. Deferred tax is measured on the basis of the tax rules and tax cases of the respective countries, which will be in force on the day of the balance sheet, when the deferred tax is expected to become an actual tax. The change in deferred tax as a result of changes in tax rates is made in the statement of income. TREASURY SHARES The holding of treasury shares is included in the balance sheet without value. Write-off is booked directly to shareholders' equity. PROVISION FOR RESERVES Provision for reserves includes restructuring charges, etc. Provision for reserves is accounted when the Company as a consequence of a previous event has a judicial or actual liability, and it seems probable that the liability will involve use of the Company's financial resources. CASH FLOW STATEMENT The cash flow statement shows the Group's cash flow for the year distributed on operating activities, investing activities and financing activities for the year, net increase/decrease in cash and the Group's cash at the beginning and at the end of the year. Cash flow from investments in companies or sale of companies is shown separately in the cash flow statement from investing activities. Cash flow regarding investments in companies is measured at the time of investment and cash flow regarding sale of companies from the time of sale. CASH FLOW FROM OPERATIONS Cash flow from operations is calculated as the Group's share of the net income adjusted for non-cash operating entries, change in working capital and paid income taxes. CASH FLOW FROM INVESTMENT ACTIVITIES Cash flow from investments includes payment in connection with the acquisition and sale of companies and activities and acquisition and sale of intangible, tangible and financial fixed assets. 23 ACCOUNTING POLICIES (CONTINUED) CASH FLOW FROM FINANCING ACTIVITIES Cash flow from financing activities includes changes in the amount or the structure of the Group's share capital or cost in this connection and the raising of loan and repayment on interest-bearing loans. CASH Cash includes amounts in cash and cash in banks with a period of notice of 3 months or less. SEGMENT INFORMATION The Company solely operates on one segment, for which reason breakdown will not be relevant. INCENTIVE PROGRAMS The Board of Directors, the Executive Management, top employees and other employees are included in a stock option program. The material conditions of the program are described under Shareholder Information and do not affect the statement of income. KEY FIGURES Key figures have been prepared in accordance with the Association of Danish Financial Analysts' "Recommendations and key figures 1997". The key figures in the selected financial data are calculated as follows: Result for analysis purposes Income after tax Book value at year-end Shareholders' equity at year-end -------------------------------- Shares outstanding at year-end Return on equity Result for analysis purposes x 100 ---------------------------------- Average shareholders' equity Earnings Per Share (EPS) Result for analysis purposes ---------------------------- Weighted average shares outstanding 24 THE GROUP STATEMENT OF INCOME JANUARY 1 - DECEMBER 31 2002
2001 2002 NOTE DKK 1,000 DKK 1,000 Revaluation of portfolio companies ......................... (27,739) (22,790) Administrative expenses .................................... 1 17,249 16,733 ------------ ------------ INCOME FROM PRIMARY OPERATIONS ............................. (44,988) (39,523) Other operating income ..................................... 810 593 Other operating expenses ................................... 796 598 ------------ ------------ INCOME BEFORE TAX .......................................... (44,974) (39,528) Financial income ........................................... 8,365 7,464 Financial expenses ......................................... 1,545 1,084 Foreign currency gains (losses), net ....................... 101 (113) ------------ ------------ INCOME BEFORE TAX .......................................... (38,053) (33,261) Income tax ................................................. 2 0 0 ------------ ------------ INCOME FROM CONTINUING BUSINESS OPERATIONS ...................................... (38,053) (33,261) ------------ ------------ Income before tax from discontinued business operations .... 3 41,786 14,074 Income tax of discontinued business operations ............. 2 (1,186) (951) ------------ ------------ INCOME FROM DISCONTINUED BUSINESS OPERATIONS ...................................... 42,972 15,025 ------------ ------------ NET INCOME (LOSS) .......................................... 4,919 (18,236) ============ ============
25 THE GROUP BALANCE SHEET AT DECEMBER 31, 2002
2001 2002 NOTE DKK 1,000 DKK 1,000 ASSETS Leasehold improvements ................................. 0 0 Equipment .............................................. 969 167 ------------ ------------ TANGIBLE FIXED ASSETS .................................. 4 969 167 ------------ ------------ Outstanding amounts, portfolio companies ............... 0 10,000 Investments in portfolio companies ..................... 5 58,291 97,663 ------------ ------------ FINANCIAL FIXED ASSETS ................................. 58,291 107,663 ------------ ------------ TOTAL FIXED ASSETS ..................................... 59,260 107,830 ------------ ------------ Long-term receivables .................................. 6 3,677 2,302 ------------ ------------ LONG-TERM RECEIVABLES .................................. 3,677 2,302 ------------ ------------ Outstanding amounts, portfolio companies ............... 24,589 37,835 Accounts receivable .................................... 638 996 Other outstanding amounts .............................. 2,082 1,856 Outstanding amounts, tax ............................... 2 2,231 26 Deposits and prepaid expenses .......................... 3,254 2,712 Outstanding amounts relating to Olicom's demand for refund of customs duty ............................... 21,200 0 ------------ ------------ RECEIVABLES ............................................ 53,994 43,425 ------------ ------------ CASH AND CASH EQUIVALENTS .............................. 7 169,967 95,161 ------------ ------------ TOTAL CURRENT ASSETS ................................... 227,638 140,888 ------------ ------------ TOTAL ASSETS ........................................... 286,898 248,718 ============ ============
26 THE GROUP BALANCE SHEET AT DECEMBER 31, 2002
2001 2002 NOTE DKK 1,000 DKK 1,000 LIABILITIES Share capital .............................. 4,339 4,339 Treasury shares ............................ (7,937) (9,534) Retained earnings .......................... 247,945 232,229 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY ................. 244,347 227,034 ------------ ------------ Restructuring charges ...................... 8 30,118 13,686 ------------ ------------ PROVISIONS ................................. 30,118 13,686 ------------ ------------ Accounts payable ........................... 7,088 3,175 Income taxes payable ....................... 2 194 157 Other accrued expenses ..................... 5,151 4,666 ------------ ------------ CURRENT LIABILITIES ........................ 12,433 7,998 ------------ ------------ TOTAL CURRENT LIABILITIES .................. 12,433 7,998 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. 286,898 248,718 ============ ============ CONTINGENT LIABILITIES ..................... 9 AUDITORS' FEE .............................. 11
27 THE GROUP STATEMENT OF EQUITY
ADDITIONAL COMMONS PAID-IN TREASURY RETAINED SHARES CAPITAL SHARES EARNINGS TOTAL Balance at Jan. 1, 2001 ................ 4,641 620,828 (124,986) (258,410) 242,073 Adjustment beg. of year ................ (58,156) 58,156 0 Change of accounting policy ............ 1,027 1,027 ------------ ------------ ------------ ------------ ------------ Adjusted balance at Jan. 1, 2001 ....... 4,641 562,672 (124,986) (199,227) 243,100 Acquisition of 287,300 treasury shares ...................... (2,719) (2,719) Decrease of share capital .............. (302) (119,466) 119,768 0 Currency losses/gains .................. (953) (953) Income brought forward ................. (443,206) 443,206 0 Net income (loss) ...................... 4,919 4,919 ------------ ------------ ------------ ------------ ------------ Balance at Jan. 1, 2002 ................ 4,339 0 (7,937) 247,945 244,347 Acquisition of 218,958 treasury shares ...................... (1,597) (1,597) Currency losses/gains .................. 2,520 2,520 Net income (loss) ...................... (18,236) (18,236) ------------ ------------ ------------ ------------ ------------ Balance at Dec. 31, 2002 ............... 4,339 0 (9,534) 232,229 227,034 ============ ============ ============ ============ ============
The share capital consists of 17,357,295 shares at DKK 0.25 each, DKK 4,339,324 in total. During the year the Group has acquired 218,958 treasury shares (1.3%) after which the Group holds 418,969 treasury shares in total (2.4%), nominal value DKK 104,742.25, purchase price tDKK 9,534. Treasury shares are acquired with a view to including them in the established incentive program for the Company's Board of Directors, Executive Management and employees. 28 THE GROUP STATEMENT OF CASH FLOW
2001 2002 NOTE DKK 1,000 DKK 1,000 Net income before minority interest ...................... 4,919 (18,236) Adjustments .............................................. 10 14,466 2,571 Changes in working capital: Changes in accounts receivable, etc ................. (18,575) 21,610 Changes in accounts payable and other payables ...... (17,001) (4,398) Changes in long-term receivables .................... (3,677) 1,375 ------------ ------------ Cash flow from operations before financial items ......... (19,868) 2,922 Interest, etc., net ...................................... 6,006 8,226 ------------ ------------ Cash flow from ordinary operating activities ............. (13,862) 11,148 Income taxes paid during the year ........................ (1,901) 3,018 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ...... (15,763) 14,166 ------------ ------------ Investments, net ......................................... (64,194) (52,954) Loans to portfolio companies ............................. (24,577) (32,455) Purchase of property and equipment ....................... (1,361) (22) Sale of property and equipment ........................... 33 15 ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...... (90,099) (85,416) ------------ ------------ Purchase of treasury shares .............................. (2,719) (1,597) ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ...... (2,719) (1,597) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... (108,581) (72,847) Cash and cash equivalents at beginning of year ........... 277,635 169,967 Effects of exchange rates on cash ........................ 913 (1,959) ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR ................. 169,967 95,161 ------------ ------------ CASH AND CASH EQUIVALENTS AT DECEMBER 31 ACCORDING TO BALANCE SHEET ............................. 169,967 95,161 ------------ ------------
29 THE GROUP NOTES NOTE 1. ADMINISTRATIVE EXPENSES Administrative expenses include "employee expenses" and "depreciations" as specified below: EMPLOYEE EXPENSES: The Group has had an average personnel headcount of 10 employees (2001: 11). At the end of 2002, the personnel headcount was 10 employees (2001: 10).
2001 2002 DKK 1,000 DKK 1,000 Payroll costs ............................................................. 5,513 5,615 Pensions and social security costs ........................................ 226 301 ------------ ------------ 5,739 5,916 ------------ ------------ Salaries and remuneration to the Management and the Board of Directors represent: Management ................................................................ 1,668 1,636 Board of Directors ........................................................ 900 780 ------------ ------------ 2,568 2,416 ------------ ------------ Total ..................................................................... 8,307 8,332 ============ ============
Staff costs are distributed as follows:
2001 2002 DKK 1,000 DKK 1,000 Administrative costs ...................................................... 8,307 8,332 ------------ ------------ 8,307 8,332 ============ ============ DEPRECIATION: Operating equipment ....................................................... 580 728 Loss/gain on sale of fixed assets ......................................... (33) 66 ------------ ------------ Total ..................................................................... 547 794 ============ ============
30 THE GROUP NOTES NOTE 2. INCOME TAX
INCOME TAX DEFERRED PAYABLE INCOME TAX EXPENSED Balance at January 1 .................................. (2,037) 0 0 Adjustment of income tax from prior years ............. (850) 0 (951) Paid income tax ....................................... 3,018 0 0 Tax on net income ..................................... 0 0 0 ------------ ------------ ------------ Balance at December 31 ................................ 131 0 (951) ============ ============ ============
The Group has deferred tax assets of approximately DKK 306 million (2001: Approximately DKK 345 million), which does not correspond to the Group's criteria for capitalization. The estimated tax assets are distributed as follows:
DENMARK USA DKK MILL. DKK MILL. Temporary differences ...................... 21.8 3.2 Loss carryover ............................. 92.0 169.8 United States taxes net of credits ......... 0 7.4 Tax credit carryforwards ................... 0 12.1 ------------ ------------ Total ...................................... 113.8 192.5 ============ ============
A total of DKK 63.1 million of the American tax assets is subject to limitation under the US Internal Revenue Code, causing a realization hereof having to be effected over a pre-defined time frame. NOTE 3. INCOME FROM DISCONTINUED BUSINESS OPERATIONS
2001 2002 DKK 1,000 DKK 1,000 DISCONTINUED BUSINESS OPERATIONS Sale of activities ............................................... 2,919 250 Refund of customs duty ........................................... 29,014 5,908 Refund of VAT, canteen ........................................... 3,055 0 Provisions, accounts receivable .................................. 1,130 1,112 Adjustment of restructuring provisions, previous years ........... 5,668 6,804 ------------ ------------ 41,786 14,074 ============ ============
31 THE GROUP NOTES NOTE 4. TANGIBLE FIXED ASSETS
LEASEHOLD IMPROVEMENTS EQUIPMENT Cost at January 1 .......................... 874 5,364 Additions .................................. 0 22 Disposals .................................. 0 (710) ------------ ------------ Cost at December 31 ........................ 874 4,676 ------------ ------------ Depreciation at January 1 .................. 874 4,395 Depreciation ............................... 0 728 Depreciation on disposals .................. 0 (614) ------------ ------------ Depreciation at December 31 ................ 874 4,509 ------------ ------------ Balance at December 31, 2002 ............... 0 167 ============ ============ Depreciation period ........................ 2 to 4 years ------------
NOTE 5. INVESTMENTS IN PORTFOLIO COMPANIES
DKK 1,000 Acquisition price at January 1 .............................................. 70,452 Acquisitions ................................................................ 52,954 Disposals ................................................................... (21,994) ------------ Acquisition price at December 31 ............................................ 101,412 ------------ Revaluation at January 1 .................................................... (28,460) Adjustment, change of accounting policy ..................................... 16,299 ------------ Corrected revaluation at beginning of year .................................. (12,161) Revaluation/write-down ...................................................... (13,582) Reversed prior year revaluation/write-down .................................. 21,994 ------------ Revaluation at December 31 .................................................. (3,749) ------------ BOOK VALUE AT DECEMBER 31 ................................................... 97,663 ============
32 THE GROUP NOTES NOTE 5. INVESTMENTS IN PORTFOLIO COMPANIES (CONTINUED) Investments in portfolio companies are as follows: 57.2% of the share capital of Sifira ApS (CVR No. 25 37 92 25) with registered office in the Copenhagen municipality. The share capital is DKK 695,694. 100% of the share capital of ITE ApS (CVR No. 14 72 47 88) with registered office in the Copenhagen municipality. The share capital is DKK 1,500,000. 22.5% of the share capital of Comlog A/S (CVR No. 20 17 32 89) with registered office in Aabybro municipality. The share capital is DKK 2,000.000. 37.3% of the share capital of Scalado AB with registered office in Lund, Sweden. The share capital is SEK 211,900. 19.3% of the share capital of Hymite A/S (CVR No. 21 82 58 40) with registered office in Lyngby-Taarbaek municipality. The share capital is DKK 924,984. 14.1% of the share capital of Decuma AB with registered office in Lund, Sweden. The share capital is SEK 954,494,31. 16.7% of the share capital of Danacell A/S (CVR No. 17 28 69 43) with registered office in Soelleroed municipality. The share capital is DKK 500,000. 21.3% of the share capital of Tpack A/S (CVR No. 26 20 67 23) with registered office in Ballerup municipality. The share capital is DKK 1,757,961. NOTE 6. LONG-TERM RECEIVABLES Leasing contracts for various IT equipment with a 2-year term. NOTE 7. LIQUIDITY AND CAPITAL RESOURCES Of the total cash position amounting to DKK 95,161,000, the Company has at its disposal DKK 91,970,000, which are callable within three months. The remaining amount of DKK 3,191,000 represents restricted cash, which the Company does not have at its disposal within three months. 33 THE GROUP NOTES NOTE 8. RESTRUCTURING CHARGES
BALANCE BALANCE JAN. 1 REVERSAL ADDITIONS PAID DEC. 31 Staff termination cost .......... 2,789 64 0 0 2,725 Legal and other assistance ...... 1,522 791 1,238 1,075 Lease cancellation cost ......... 10,475 6,601 0 2,097 1,777 Other ........................... 15,332 418 0 6,805 8,109 ------------ ------------ ------------ ------------ ------------ 30,118 7,083 791 10,140 13,686 ============ ============ ============ ============ ============
NOTE 9. CONTINGENT LIABILITIES The Company has entered into non-cancellable operating leases with the possibility to sublease, which expire during 2006, with a net lease commitment as at December 31, 2002 of minimum DKK 1,628,000 (2001: DKK 56,615,000), distributed as follows:
HEAD OFFICE OTHER TOTAL 2003 .............................. 437 34 471 2004 .............................. 397 0 397 2005 .............................. 409 0 409 2006 .............................. 351 0 351 Remaining ......................... 0 0 0 ------------ ------------ ------------ Net minimum lease commitments ..... 1,594 34 1,628 ============ ============ ============
The Company is involved in litigation relating to claims regarding the Company's former activities, but it is the management's opinion, that in case of judgment against the Company, these claims would not have material adverse effect on the Company's result of operations or its financial position. The Company has provided Nordea Bank Denmark with a guarantee of DKK 2,000,000 for a credit facility against invoices granted to a portfolio company. 34 THE GROUP NOTES NOTE 10. ADJUSTMENTS TO CASH FLOW
2001 2002 DKK 1,000 DKK 1,000 Depreciation and write-down fixed assets ........................ 547 794 Changes in restructuring provisions/provisions for warranty ..... (5,062) (16,432) Revaluation of portfolio companies .............................. 27,739 22,790 Interest receivable and similar income, net ..................... (6,919) (6,267) Income tax of net income ........................................ (1,186) (951) Other adjustments ............................................... (653) 2,637 ------------ ------------ TOTAL ADJUSTMENTS ............................................... 14,466 2,571 ============ ============
NOTE 11. FEE TO AUDITORS
2001 2002 DKK 1,000 DKK 1,000 Fee for statutory audit, Ernst & Young ................ 400 310 Fee for statutory audit, KPMG C. Jespersen ............ 97 85 Fee for other services than statutory audit, Ernst & Young ....................................... 2,184 960 Fee for other services than statutory audit, KPMG C. Jespersen ................................... 192 175 ------------ ------------ 2,873 1,530 ============ ============
35 THE PARENT COMPANY STATEMENT OF INCOME JANUARY 1ST - DECEMBER 31, 2002
2001 2002 NOTE DKK 1,000 DKK 1,000 Value adjustment of portfolio companies .................... (19,502) (22,790) Income (loss) from affiliated companies, continuing business operations ........................... 18,859 3,003 Administrative expenses .................................... 1 14,698 14,698 ------------ ------------ INCOME FROM PRIMARY OPERATIONS ............................. (15,341) (34,485) Other operating income ..................................... 810 593 Other operating expenses ................................... 795 598 ------------ ------------ INCOME BEFORE INTEREST ..................................... (15,326) (34,490) Financial income ........................................... 2,999 7,273 Financial expenses, affiliated companies ................... 19,536 4,592 Financial expenses ......................................... 1,212 1,063 Foreign currency gains (losses), net ....................... (4,978) (389) ------------ ------------ INCOME BEFORE TAX .......................................... (38,053) (33,261) Income tax ................................................. 2 0 22 ------------ ------------ INCOME FROM CONTINUING BUSINESS OPERATIONS ............................................... (38,053) (33,283) ------------ ------------ Income before tax from discontinued business operations .... 3 38,995 8,262 Income from affiliated companies, discontinued business operations ......................... 3 2,791 5,812 Income tax of discontinued business operations ............. 2 (1,186) (973) ------------ ------------ INCOME FROM DISCONTINUED BUSINESS OPERATIONS ............................................... 42,972 15,047 ------------ ------------ NET INCOME (LOSS) .......................................... 4,919 (18,236) ============ ============ PROPOSED DISTRIBUTION OF THE RESULT FOR THE YEAR Carried forward ............................................ 4,919 (18,236) ------------ ------------
36 THE PARENT COMPANY BALANCE SHEET AT DECEMBER 31, 2002
2001 2002 NOTE DKK 1,000 DKK 1,000 ASSETS Leasehold improvements ................................. 0 0 Equipment .............................................. 969 167 ------------ ------------ TANGIBLE FIXED ASSETS .................................. 4 969 167 ------------ ------------ Investments in portfolio companies ..................... 5 58,291 97,663 Outstanding amounts, portfolio companies ............... 0 10,000 Investments in affiliated companies .................... 6 671,194 362,700 ------------ ------------ FINANCIAL FIXED ASSETS ................................. 729,485 470,363 ------------ ------------ FIXED ASSETS ........................................... 730,454 470,530 ------------ ------------ Long-term receivables .................................. 7 3,677 2,302 ------------ ------------ LONG-TERM RECEIVABLES .................................. 3,677 2,302 ------------ ------------ Accounts receivable .................................... 60 995 Outstanding amounts, affiliated companies .............. 745 0 Outstanding amounts, portfolio companies ............... 24,589 37,835 Other outstanding amounts .............................. 1,584 1,787 Deposits and prepaid expenses .......................... 3,070 2,708 Outstanding amounts relating to Olicom's demand for refund of customs duty ............................... 21,200 0 ------------ ------------ RECEIVABLES ............................................ 51,248 43,325 ------------ ------------ CASH AND CASH EQUIVALENTS .............................. 8 58,041 95,059 ------------ ------------ CURRENT ASSETS ......................................... 112,966 140,686 ------------ ------------ TOTAL ASSETS ........................................... 843,420 611,216 ============ ============
37 THE PARENT COMPANY BALANCE SHEET AT DECEMBER 31, 2002
2001 2002 NOTE DKK 1,000 DKK 1,000 LIABILITIES Share capital ......................................... 4,339 4,339 Revaluation surplus ................................... 244,416 3,464 Treasury shares ....................................... (1,736) (1,736) Retained earnings ..................................... (2,672) 220,967 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY ............................ 244,347 227,034 ------------ ------------ Restructuring charges ................................. 9 3,811 1,232 Negative investments, affiliated companies ............ 6 0 322 ------------ ------------ PROVISIONS FOR RESERVES ............................... 3,811 1,554 ------------ ------------ Liabilities to affiliated companies ................... 586,735 377,249 Accounts payable ...................................... 5,293 1,673 Income tax ............................................ 2 0 0 Other accrued expenses ................................ 3,234 3,706 ------------ ------------ CURRENT LIABILITIES ................................... 595,262 382,628 ------------ ------------ TOTAL CURRENT LIABILITIES ............................. 595,262 382,628 ------------ ------------ TOTAL LIABILITIES ..................................... 843,420 611,216 ============ ============ AUDITORS' FEE ......................................... 10 CONTINGENT LIABILITIES ................................ 11
38 THE PARENT COMPANY STATEMENT OF EQUITY
ADDITIONAL COMMON PAID-IN REVALUATION TREASURY RETAINED SHARES CAPITAL SURPLUS SHARES EARNINGS TOTAL Balance Jan. 1, 2001 .................... 4,641 562,672 214,268 (118,785) (420,723) 242,073 Adjustment beg. 2001 .................... (6,421) 6,421 0 Change of accounting policy ............. 1,027 1,027 ---------- ---------- ---------- ---------- ---------- ---------- Adj. balance at Jan. 1, 2001 ............ 4,641 562,672 207,847 (118,785) (413,275) 243,100 Decrease of share capital ............... (302) (119,466) 119,768 0 Acquisition of 287,300 treasury shares .. (2,719) (2,719) Revaluation/write-down of affiliated companies .......................... (953) (953) Unrealized currency losses/gains ........ 20,318 (20,318) 0 Income brought forward .................. (443,206) 443,206 0 Net income (loss) ....................... 17,204 (12,285) 4,919 ---------- ---------- ---------- ---------- ---------- ---------- Balance at January 1, 2002 .............. 4,339 0 244,416 (1,736) (2,672) 244,347 Adjustment beg. 2002 .................... (181,593) 181,593 0 Revaluation/write-down of affiliated companies .......................... 923 923 Unrealized currency losses/gains ........ (70,048) 70,048 0 Net income (loss) ....................... 9,766 (28,002) (18,236) ---------- ---------- ---------- ---------- ---------- ---------- Balance at Dec. 31, 2002 ................ 4,339 0 3,464 (1,736) 220,967 227,034 ========== ========== ========== ========== ========== ==========
39 THE PARENT COMPANY STATEMENT OF EQUITY (CONTINUED) DEVELOPMENT IN THE COMPANY'S SHARE CAPITAL
DKK 1,000 Balance at January 1, 1998 ...................................... 4,624 Capital increase, exploit of warrants ........................... 25 ------------ Balance at January 1, 1999 ...................................... 4,649 Adjustment beg. of year ......................................... (8) ------------ Balance at January 1, 2000 ...................................... 4,641 Capital increase ................................................ 0 ------------ Balance at January 1, 2001 ...................................... 4,641 Capital decrease, cancellation of treasury shares ............... (302) ------------ Balance at January 1, 2002 ...................................... 4,339 Capital increase ................................................ 0 ------------ Balance at December 31, 2002 .................................... 4,339 ============
The share capital of the Company is DKK 4,339,324 divided into 17,357,295 shares of DKK 0.25 each. The Company holds a total of 200,011 treasury shares, nominally DKK 50,002.75, cost DKK 1,736,000. Granted options entitle the owner to acquire or subscribe for 2,184,400 shares of DKK 0.25. Of this number, 915,500 options are granted at a subscription price of USD 10.00, 350,000 options are granted at a subscription price of USD 5.00, the remaining number is granted at a subscription price of the market/intrinsic value at the time the options were granted. 40 THE PARENT COMPANY NOTES NOTE 1. ADMINISTRATIVE EXPENSES Administrative expenses include "employee expenses" and "depreciations" as specified below: EMPLOYEE EXPENSES: The Company has had an average personnel headcount of 9 employees in financial year 2002 (2001: 10).
2001 2002 DKK 1,000 DKK 1,000 Payroll costs ................................................................ 3,823 4,037 Pensions and social security costs ........................................... 226 301 ------------ ------------ 4,049 4,338 ------------ ------------ Salaries and fees to the Management and the Board of Directors represent: Management ................................................................... 1,668 1,636 Bord of Directors ............................................................ 900 780 ------------ ------------ 2,568 2,416 ------------ ------------ Total ........................................................................ 6,617 6,754 ============ ============
Employee expenses are included as follows:
2001 2002 DKK 1,000 DKK 1,000 Administrative expenses .................................... 6,617 6,754 Income before tax of discontinued business operations ...... 0 0 ------------ ------------ 6,617 6,754 ============ ============ DEPRECIATION: Equipment .................................................. 580 728 Loss (gain) on sale of fixed assets ........................ (33) 66 ------------ ------------ Total ...................................................... 547 794 ============ ============
41 THE PARENT COMPANY NOTES NOTE 2. INCOME TAX
INCOME TAX PAYABLE EXPENSED Balance at January 1 ....................................... 0 0 Paid income tax ............................................ 0 0 Income tax of net income ................................... 0 22 ------------ ------------ Balance before affiliated companies at December 31 ......... 0 22 Income tax, affiliated companies discontinued business ..... 0 (973) ------------ ------------ Balance at December 31 ..................................... 0 (951) ============ ============
NOTE 3. INCOME FROM DISCONTINUED BUSINESS OPERATIONS
2001 2002 DKK 1,000 DKK 1,000 DISCONTINUED BUSINESS OPERATIONS Sale of activities .................................... 2,920 250 Refund of customs duty ................................ 29,014 5,908 Refund of VAT, canteen ................................ 3,055 0 Provisions, accounts receivable ....................... 1,130 1,112 Provisions, other restructuring charges prior years ... 5,667 6,804 ------------ ------------ Total ................................................. 41,786 14,074 ============ ============
42 THE PARENT COMPANY NOTES NOTE 4. TANGIBLE FIXED ASSETS
LEASEHOLD PROPERTY AND IMPROVEMENTS EQUIMENT Cost price at January 1 .................... 874 5,364 Additions .................................. 0 22 Disposals .................................. 0 (710) ------------ ------------ Cost price at December 31 ................. 874 4,676 ------------ ------------ Depreciation at January 1 .................. 874 4,395 Depreciation ............................... 0 728 Depreciation/write-down of disposals ....... 0 (614) ------------ ------------ Depreciation at December 31 ............... 874 4,509 ------------ ------------ BALANCE AT DECEMBER 31 ..................... 0 167 ============ ============ Useful life ................................ 2 to 4 years ------------
43 THE PARENT COMPANY NOTES NOTE 5. INVESTMENTS IN PORTFOLIO COMPANIES
DKK 1,000 Cost price at January 1 .............................. 70,452 Acquisitions ......................................... 52,954 Disposals ............................................ (21,994) ------------ Cost price at December 31 ............................ 101,412 ------------ Revaluation at January 1 ............................. (28,460) Regulation, change of accounting policy .............. 16,299 ------------ Corrected revaluation at January 1 ................... (12,161) Revalutation/write-down .............................. (13,582) Reversed prior year revalutation/write-down .......... 21,994 ------------ Revaluation at December 31 ........................... (3,749) ------------ BOOK VALUE AT DECEMBER 31 ............................ 97,663 ============
Investments in portfolio companies are as follows: 57.2% of the share capital of Sifira ApS (CVR No. 25 37 92 25) with registered office in the Copenhagen municipality. The share capital is DKK 695,694. 100% of the share capital of ITE ApS (CVR No. 14 72 47 88) with registered office in the Copenhagen municipality. The share capital is DKK 1,500,000. 22.5% of the share capital of Comlog A/S (CVR No. 20 17 32 89) with registered office in the Aabybro municipality. The share capital is DKK 2,000,000. 37.3% of the share capital of Scalado AB with registered office in Lund, Sweden. The share capital is SEK 211,900. 19.3% of the share capital of Hymite A/S (CVR No. 21 82 58 40) with registered office in Lyngby-Taarbaek municipality. The share capital is DKK 924,984. 14.1% of the share capital of Decuma AB with registered office in Lund, Sweden. The share capital is SEK 954,494.31. 44 THE PARENT COMPANY NOTES NOTE 5. INVESTMENTS IN PORTFOLIO COMPANIES (CONTINUED) 16.7% of the share capital of Danacell A/S (CVR No. 17 28 69 43) with registered office in the Soelleroed municipality. The share capital is DKK 500,000. 21.3% of the share capital of Tpack A/S (CVR No. 26 20 67 23) with registered office in the Ballerup municipality. The share capital is DKK 1,757,961. NOTE 6. INVESTMENTS IN AFFILIATED COMPANIES
OLICOM OLICOM OLICOM TRANSFERRED INC. UK LTD. GMBH NEXT PAGE Cost price at January 1 ................ 362,041 2 191 362,234 Additions and disposals ................ 0 0 0 0 ------------ ------------ ------------ ------------ Cost price at December 31 .............. 362,041 2 191 362,234 ------------ ------------ ------------ ------------ Revaluation at January 1 ............... 126,400 (6,764) 297 119,933 Net income before tax .................. 5,197 3,493 175 8,865 Net income tax ......................... 465 0 526 991 Net revaluation/write-down ............. (69,125) 0 0 (69,125) Reversed prior years revaluations/ write-down ........................... 0 0 0 0 Revalutation at December 31 ............ 62,937 (3,271) 998 60,664 ------------ ------------ ------------ ------------ Depreciation at January 1 .............. 63,769 0 0 63,769 Depreciation ........................... 0 0 0 0 ------------ ------------ ------------ ------------ Depreciation at December 31 ............ 63,769 0 0 63,769 ------------ ------------ ------------ ------------ Offset in other outstanding amounts .... 0 2,947 0 2,947 Transferred to negative investments .... 0 322 0 322 ------------ ------------ ------------ ------------ BOOK VALUE AT DECEMBER 31 .............. 361,209 0 1,189 362,398 ============ ============ ============ ============
45 THE PARENT COMPANY NOTES NOTE 6. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
TRANSFERRED FROM OLICOM OLICOM PREVIOUS PAGE AUSTRIA JAPAN TOTAL Cost price at January 1 ................ 362,234 271 489 362,994 Additions and disposals ................ 0 0 (489) (489) ------------ ------------ ------------ ------------ Cost price at December 31 .............. 362,234 271 0 362,505 ------------ ------------ ------------ ------------ Revaluation at January 1 ............... 119,933 115 204 120,252 Net income before tax .................. 8,865 (71) 21 8,815 Net income tax ......................... 991 (13) (5) 973 Net revaluation/write-down ............. (69,125) 0 (69,125) Reversed prior years revaluations/ write-down ........................... 0 0 (220) (220) Revalutation at December 31 ............ 60,664 31 0 60,695 ------------ ------------ ------------ ------------ Depreciation at January 1 .............. 63,769 0 0 63,769 Depreciation ........................... 0 0 0 0 ------------ ------------ ------------ ------------ Depreciation at December 31 ............ 63,769 0 0 63,769 ------------ ------------ ------------ ------------ Offset in other outstanding amounts .... 2,947 0 0 2,947 Transferred to negative investments .... 322 0 0 322 ------------ ------------ ------------ ------------ BOOK VALUE AT DECEMBER 31 .............. 362,398 302 0 362,700 ============ ============ ============ ============
Shares in affiliated companies relate to: 100% of the share capital of Olicom Inc. with registered office in Texas, USA. 100% of the share capital of Olicom UK Ltd. with registered office in High Wycombe, England, under liquidation. 100% of share capital of Olicom GmbH with registered office in Frankfurt, Germany, under liquidation. 100% of share capital of Olicom Austria with registered office in Vienna, Austria, under liquidation. 100% of share capital of Olicom Japan, with registered office in Tokyo, Japan. The company has been liquidated during the year. 46 THE PARENT COMPANY NOTES NOTE 7. LONG-TERM RECEIVABLES Leasing contracts for various IT equipment with a 2-year term. NOTE 8. LIQUIDITY AND CAPITAL RESOURCES Of the total cash position amounting to DKK 95,059,000, Olicom has at its disposal DKK 91,869,000, which is callable within three months. The remaining amount of DKK 3,190,000 represents restricted cash, which Olicom does not have at its disposal within three months. NOTE 9. RESTRUCTURING CHARGES
BALANCE BALANCE JAN. 1 REVERSAL ADDITIONS PAID DEC. 31 Staff termination cost ....... 37 0 0 0 37 Legal and other assistance ... 942 0 757 957 742 Lease cancellation cost ...... 1,915 1,719 0 35 161 Other ........................ 917 149 0 476 292 ------------ ------------ ------------ ------------ ------------ 3,811 1,868 757 1,468 1,232 ============ ============ ============ ============ ============
NOTE 10. FEE TO AUDITORS
2001 2002 DKK 1,000 DKK 1,000 Fee for statutory audit, Ernst & Young ........... 400 310 Fee for statutory audit, KPMG C. Jespersen ....... 97 85 Fee for other services than statutory audit, Ernst & Young .................................. 737 225 Fee for other services than statutory audit, KPMG C. Jespersen .............................. 192 175 ------------ ------------ 1,426 795 ============ ============
47 THE PARENT COMPANY NOTES NOTE 11. CONTINGENT LIABILITIES The Company has entered into non-cancellable operating leases with the possibility to sublease, which expire during 2006, with a net lease commitment as at December 31, 2002 of minimum DKK 1,594,000. The Company is involved in litigation relating to claims regarding the Company's former activities, but it is the management's opinion, that in case of judgement against the Company, these claims would not have material adverse effect on the Company's result of operations or financial position. The Company has provided Nordea Bank Denmark with a guarantee of DKK 2,000,000 for a credit facility against invoices granted to a portfolio company.