Item 1 Description of the Business
THE COMPANY
Euro Group of Companies, Inc., formerly ICT Technologies, Inc., (the "Company" or "Euro Group") was organized as a Delaware corporation on May 27, 1999, and is the successor by merger to a New York corporation formed on February 8, 1994. On November 5, 2007 the name of the Company was officially changed to "Euro Group of Companies, Inc.," and on November 9, 2007 the Company's stock symbol was changed to "EGCO".
BACKGROUND
The Company was originally incorporated under New York law in 1994, and became a Delaware corporation on May 27, 1999. In 2002 the Company acquired the business interests of Europhone, Inc., Eurokool, Inc., and Eurospeed, Inc. from an individual who owned 100% of the stock in these companies in an exchange of stock (the 2002 transaction). The terms of the 2002 Transaction were amended in April 2003 to include the contribution by this individual to the Company of 100% ownership interest in Europhone USA. Neither Eurospeed, Inc. nor Eurokool, Inc. had significant business operations at the time of the transaction. At the time of the 2002 Transaction, the acquired subsidiaries were subject to various distribution agreements relating to the sale of long distance and internet services and to the manufacture and distribution of air conditioners, motorcycles and mobile telephone services, which are described more fully below.
Certain of these distribution arrangements have since been terminated as the Company decided to shift its focus to the sale of calling card services and sim chips and to establishing manufacturing arrangements for the sale of motor scooters - a segment of the business that is currently inactive.
As a result of the 2002 transaction and subsequent contribution of Europhone USA, Inc., the seller of the acquired businesses was issued 78,000,000 shares of the Company's common stock and became Chief Executive Officer and Chairman of the Board of Directors of the Company.
The Company's principal executive office is located at 10 Midland Avenue, Port Chester, New York 10573 and its telephone number is (914) 937-3900. Information about Euro Group of Companies, Inc. (formerly ICT Technologies, Inc.) May be found on its website at "www.eugro.com." Information found on the Euro Group of Companies, Inc. (formerly ICT Technologies) website should not be considered part of this annual report on Form 10-K and should not be relied upon in evaluating the Company.
Euro Group of Companies is a holding company whose subsidiary companies market and sell the "Euro", "Eurospeed" and "Eugro" families of products. The Company operates in three separate and distinct business areas - telecommunications products and services, transportation products, and consumer electronics.
PRODUCTS
TELECOMMUNICATIONS
The Company's Europhone subsidiary (Europhone USA LLC) is an MVNO (Mobile Virtual Network Operator) involved in the wholesale marketing of wireless hand sets, domestic and international prepaid cellular services, domestic and international prepaid calling cards, Mobile handsets and mobile air-time services: The Company's "Eugro" Mobile segment is a reseller of prepaid airtime on both GSM and CDMA mobile phones utilizing the Cingular and Verizon networks. Eugro Mobile offers 30 to 90 day calling plans covering local, domestic long distance and international calls. The Company also offers Dual Sim Chip handsets, which are unique GSM phones that provide access for two sims in one phone.
International Wireless Services: The Company's Eugro World Sim allows any tri-band GSM phone to be utilized in over 100 countries at low per minute rates.
Prepaid calling cards: The "Eugro” prepaid calling card is a USA outbound calling card, marketed as $2.00, $5.00 and $10.00 cards. The Company offers rates as low as $0.01 per minute. The Company's unlimited calling plan provides service to approximately 40 countries for a defined time period (typically one week or one month) at a fixed price, no matter how many calls are made.
TRANSPORTATION PRODUCTS
The Company's Eurospeed subsidiary was organized to import and market, to customers in the United States, South America, Europe and the Middle East, scooters, motorcycles, all-terrain vehicles (ATVs) and related products from contract manufacturers in the Peoples' Republic of China (China). The products we imported to the United States had received DOT (Department of Transportation) and EPA (Environmental Protection Agency) certifications.
In September, 2008 Eurospeed Inc. received an order from American Motor Sports, LLC, our exclusive distributor for $1,036,601, accompanied by a deposit of $292,239 (or 28%) in cash. The Company agreed to extend payment terms for the balance, and commenced shipment in September of that product for which we received payment. We believe that the worldwide credit crisis in Fourth Quarter 2008 and the resulting curtailing of credit facilities, and the inability of our exclusive distributor and his dealers to access existing floor-planning lines of credit contributed to the distributor's failure to fulfill the terms of sale for the September invoice.
In November 2008 the Distributor signed an "anticipatory breach" letter and agreed to relinquish all marketing rights to the product and allow its sale to any customer. As a result of this action, Eurospeed has re-assumed ownership of the inventory and reversed that portion of the sale transaction for which payment was not received.
In July 2009, after the term of the distribution agreement, and a contractual sixty day cure period, had expired, the Company terminated the exclusive distribution agreement for failure to meet certain pre-established unit sales quotas.
In Second quarter 2010 the former exclusive distributor filed for protection from his creditors and was subsequently declared by the court to be bankrupt. As a consequence of the exclusive distributor’s failure to perform, the Company was obliged to write off accounts receivable and transportation products inventory in the aggregate amount of approximately $1.1 million.
The Company is not now actively involved in the marketing and sale of transportation products.
CONSUMER ELECTRONICS
The Company's Eurokool subsidiary was established to import and market split-wall air conditioners, electric power generators, laptop computers, MP-4 players, and Bluetooth communication devices from China, and Full High Definition flat-screen LCD televisions in sizes ranging from 22" to 52" to be purchased from manufacturers in Taiwan, China and Korea. To date the Company has not had access to the financial resources necessary to implement its marketing plan.
MANUFACTURING
To date the Company has owned and operated no manufacturing operations. Europhone purchases cellular phones from various mobile phone manufacturers approved by the carriers the Company utilizes. As an MVNO (Mobile Virtual Network Operator), Europhone is an authorized agent for AT&T and Verizon telephone calling service products.
The Eugro "World Sim" card is supplied by a contract manufacturer in Europe, and the worldwide calling services are provided by selected telecommunications carriers in Europe, such as Telefonica. Europhone is an authorized agent that purchases time in bulk from wholesale providers who own and operate "switches". The Company markets private label prepaid air time for home and mobile telephone use.
While the Company believes that there is a market for split-system air conditioners, the Company made no air-conditioner sales in 2009 or 2010. Depending on market conditions the Company may decide to commence the marketing and sale of air-conditioner products in 2011.
COMPETITION
The Company faces competition from large, well-established, and well-funded companies in each of our product and service areas. Euro Group of Companies and it’s subsidiaries must rely on innovation and prompt response to changing market needs to obtain market share.
The Europhone business segment competes with many of the large telecommunications providers, including ATT, Cingular, Verizon and Sprint. The Company competes with them for both cellular time and prepaid calling services. The Company also competes with Virgin Mobile, Inc., Locus Communications, Inc., and Tracfone Wireless, Inc. and others with significant resources for sales of prepaid calling telephone time. The Company believes that it’s long-distance and prepaid calling services are competitive based on price, although an
across-the-board decrease in telecommunication rates charged by the major carriers may increase pressure on operating margins.
The Eurokool subsidiary will compete with such major competitors as GE, LG, Motorola, Samsung and Dell. For each of our consumer electronic products the Company expects to compete based on price and by being first to the market with innovative, new products.
MARKETING AND SALES
The Company currently has two employees (other than executive staff) involved in sales and marketing. The Company is aggressively seeking independent distributors to represent the sale of certain of its telecommunications products under exclusive and non-exclusive distribution arrangements.
SEASONALITY
The Company has experienced no seasonality in the marketing of telecommunications products.
EMPLOYEES
The Company has six employees in the United States and has access to factory technical staff at an office in Shanghai, China. None of the Company's employees are represented by labor unions, and the Company considers its employee relations to be very good.
GOVERNMENT REGULATION
Motorcycles and Scooters
The motorcycles and scooters that were distributed by our Eurospeed subsidiary for sale in the United States were subject to certification by the U.S. Environmental Protection Agency ("EPA") for compliance with applicable emissions and noise standards, and by California regulatory authorities with respect to emissions, tailpipe, and evaporative emissions standards. Our motorcycle products were EPA certified to comply with these standards, which certifications had to be renewed regularly. It was the responsibility of American Motor Sports LLC, our exclusive distributor in the United States, to be registered in all states that require registration to distribute motor vehicles. The Company believes that these registrations were secured for all states other than California, Alaska and Hawaii. The Company was granted a "VIN number" designation by the United States Department of Transportation to manufacture our motorcycles and scooters for all-road use, with a unique Eurospeed "VIN number," designated for all products. During the time that we marketed transportation products in the United States we required USEPA certification of our products for products manufactured in China under our manufacturing license.
Certain states have minimum product and general liability and casualty insurance liability requirements before they grant authorization or certification to distributors, such as American Motor Sports LLC., to sell motor vehicles and scooters. Without this insurance neither our exclusive distributor, nor we, or any other distributor, is permitted to sell these vehicles to motor vehicle dealers in certain states. The Company had a products liability policy of $2 million with umbrella coverage of up to an additional $3 million at a cost of
approximately $50,000 per year.
Air Conditioners
Approvals have been secured by our supplying manufacturers for the sale of all air conditioners in Europe (CE approval) and the Company has been granted Underwriter Laboratories (UL Listing) approvals for the sale of five models of air conditioners in the United States. See also "Environmental Regulation" below.
Reliance on Third Party Telecommunications Providers
When we resell long distance telephone services, and prepaid mobile airtime, we rely on third party carriers to comply with applicable laws and regulations. We have no control over the manner in which these companies operate. Domestic or foreign regulatory, judicial, legislative or political entities may raise issues regarding the compliance of these companies with
applicable laws or regulations, or limit their ability to provide the services Euro Group of Companies (formerly ICT Technologies) resells.
Environmental Regulation
Federal, state and local authorities have environmental control requirements relating to both the motorcycle and air conditioner businesses. For instance, the EU regulates the types of refrigerants that are used in air conditioning units. The Company strives to ensure that its products comply with all applicable environmental regulations and standards.
Euro Group subcontracted manufacturing of both our motorcycle/scooter and electronic refrigeration and television products to companies in China and Korea. To the best of our knowledge, we believe that these manufacturing facilities were in compliance with applicable environmental regulations in the countries in which they are located. However, if such entities were not in compliance, or are unable to indemnify us, we may be subject to liability.
Environmental contingencies are not expected to have a material adverse effect on our results of operations.
State and Foreign Laws
Our products and services are distributed and/or accessible worldwide, which requires compliance with the laws of different jurisdictions. Because certain of our services are distributed and/or accessible worldwide, many jurisdictions may claim that we are required to comply with their laws. The Company believes that it has taken all appropriate regulatory actions required to conduct it’s business to date. Our failure to qualify to do business (or to have any of our subsidiaries qualify to do business) in a jurisdiction where we are required to do so could subject us to taxes and penalties and could result in the inability of Euro Group of Companies to enforce contracts in such jurisdictions.
Intellectual Property and Other Proprietary Rights
We (or our respective subsidiaries, as the case may be) own registered trademarks for our Eurokool and Eurospeed and Europhone brands. Our "Eugro" mark has been in use by our Europhone subsidiary since 2006 and is owned by an independent third party, is trademarked and is copyright registered. Our success depends in part upon our ability to protect our trademarks, service mark, and trade secrets. Effective trademark, service mark, and trade secret protection may not be available in every country in which our products and services are made available, and thus, the steps that we take may be inadequate to protect our rights. In addition, no assurance can be made that our marks will not conflict with marks already used
by others. If we are unable to use our marks we will be adversely affected. We currently hold the Internet domain names "www.icttechnologies.com", "www.EurophoneUSA.com", “www.GoEurospeed.com”, and "www.Eurokool.com". Euro Group also has the right to use the "www.Eugro.com" domain name which is owned by the aforementioned independent third party.
We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or otherwise decrease the value of its trademarks and other proprietary rights. In addition, no assurance can be made that we will be granted trademark or trade name rights to the "Eugro World Sim" marks or, that such mark will not conflict with existing marks of other persons.
We have entered into confidentiality and assignment agreements with our employees and contractors, and non-disclosure agreements with parties with whom the Company conducts business. In addition, we negotiate confidentiality and non-circumvent provisions in our distribution agreements to the extent possible. We do this in order to limit access to, and prevent disclosure of, our proprietary information, or to prevent overlap of rights among our distributors and future distributors and with ourselves. There can be no assurance that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient.
Insurance
The Company maintained a general commercial and products liability policy in the amount of $2,000,000, and an umbrella policy in the amount of $3,000,000. The policy has lapsed and will be renewed if, and when, the Company resumes marketing of transportation products and air-conditioners
Item 2.
Item 2. Description of Property
We occupy 5,008 square feet of office space at 10 Midland Avenue, Port Chester, New York 10573 which we lease from Strobe Development Company of White Plains, New York. The lease is a five-year lease, commencing on May 12, 2008 and expiring on May 31, 2013. Rent for the first year was $26,292 and increases at the rate of 3% per year thereafter. Rent for the year ended May 2010 was $27,081. Under the terms of the lease Euro Group is also responsible for its pro-rata share of the real estate taxes, operating expenses and utilities. At lease expiration, the Company has an option to renew for an additional five years at 95% of Fair Market Value. We do not currently have renters or casualty insurance on this property, but do not believe that it is necessary as we do not maintain valuable assets at this location and do not own the property itself. We have no present plans to lease additional space unless, and until, our operations increase.
Item 3.
Item 3. Legal Proceedings
In the ordinary course of business, we are periodically a party to lawsuits and claims. At this time we cannot predict whether any pending litigation will, or may, have any effect on our results of operations or our future financial condition.
In October 2010 the Company, as Judgment Debtor in the amount of $100,851.08, was served with an order to Show Cause and a Restraining Order arising from a judgment against the Company in favor of Plaintiffs, the Magna Group, Inc. and Magna Productions, LLC. The Company has retained counsel and is in negotiations to settle the case.
In October 2010 the Company was served notice of a Breach of Contract suit initiated By Plaintiff, The Barberino Brothers, in the State of Connecticut. The Company retained
Counsel to appear on its behalf to have the complaint dismissed on legal grounds.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART 11
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters
Euro Group of Companies (formerly ICT Technologies) common stock trades on the "Pink Sheets" under the symbol "EGCO" (formerly ICTT). Our securities are thinly traded and previous prices are not necessarily indicative of future prices or reflect future sales. Trading in the common stock in the pink sheets has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual broker bids or offer prices and market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, mark- down, or commission, and may not necessarily reflect actual transactions. Accordingly, a public market for these securities may not be deemed to exist at all times. The following table sets forth the per share range of high and low sales prices of our Common Stock for the periods indicated:
Fiscal Years:
As of December 31, 2010 there were approximately 356 record owners of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and management anticipates that the Company will retain its future earnings, if any, to finance the growth of our business.
Shares eligible for future sale could depress the price of our common stock, thus lowering the value of a buyer's investment. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for shares of our common stock.
Our revenues and operating results may fluctuate significantly from quarter to quarter, which can lead to significant volatility in the price and volume of our stock. In addition stock markets have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons unrelated or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price
of our common stock.
1) We do not have any equity compensation plans approved by the security holders.
2) We do not have any equity compensation plans not approved by the security holders.
Recent Sales of Unregistered Securities
During the three months ended December 31, 2010 the Company made no sales of unregistered securities.
During the twelve months ended December 31, 2010 the Company sold a total of 1,847,000 shares of unregistered common stock for $124,700, and issued 50,000 Shares for consulting services valued at $5,000.
In addition, in second quarter 2010 the Company issued 273,000 shares of unregistered common stock to nine stockholders of 546,000 shares subject to a “put” provision for their continued “forbearance”.
Management believes that these sales were exempt from registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) and Regulation D. No sales commissions or finders fees were paid in connection with such sales.
Item 6.
Item 6. Management's Discussion and Analysis or Plan of Operations
This Annual Report on Form 10-K contains forward-looking statements made as of the date hereof. We assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our Reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, including our reports on Forms
10-QSB and Current Reports on Form 8-K, each as amended. See "Forward Looking Statements" in the forepart of this Report for a non-exclusive list of risks and uncertainties that relate to the forward looking statements herein.
The following discussion relates to the results of our operations to date, and our financial condition:
General
In 2002 the Company acquired the assets and the business of Europhone USA, Inc. and Europhone, Inc., Eurokool, and Eurospeed, and assumed the manufacturing and distribution agreements for long distance calling cards and related activities, and for air-conditioners and scooters. The Company has since expanded the product offering to include prepaid calling cards and sim chips, cell phones, other transportation products, such as motorcycles and ATVs, and consumer electronics products. The Company's goal is, and has been, to build its "Eugro", "Eurospeed" and "Euro" brand names.
The Company is currently located in Port Chester, New York. The Company is an operating company whose subsidiaries operate its core business units: Europhone, Eurospeed and Eurokool.
To satisfy future sales of transportation products we plan to purchase motorcycles and scooters from contract manufacturers located in the Peoples' Republic of China ("PRC") with whom we have contracted to produce Eurospeed-branded products. The Company relies upon the continued ability of the Chinese manufacturers to provide such pricing, payment terms, product quality, and certification with USDOT and EPA to remain competitive.
Business Activities
For the twelve months ended December 31, 2010 the Company recognized revenues of $176,382 compared to revenues of $236,712 for the twelve months ended December 31, 2009, a decrease of $60,330, or 25%. The decrease in revenues year over year is primarily attributable to the lack of any transportation product sales in 2010, and the expiration of the contract with Verizon FiOS that yielded commission income in 2009.
The Company recognized no revenues from the sale of motor scooters in 2010 compared to sales of $95,015 in 2009, and revenues from the sale of telecommunications services of $176,362 in 2010 compared to sales of $112,652 in 2009.
Cost of sales for the twelve months ended December 31, 2010 was $73,599 compared to cost of sales of $199,991 for the twelve months ended December 31, 2009, a decrease of
$126,392, or 63%.
The Company experienced a gross profit of $105,763 for the twelve month period ended December 31, 2010 compared to gross profit of $64,749 for the twelve month period ended December 31, 2009.
For the twelve months ended December 31, 2010 selling, general and administrative expenses were $1,596,907 compared to $1,085,169 for the twelve months ended December 31, 2009, an increase of $511,738
The increase in selling, general and administrative expenses was primarily due to the write-off of Eurospeed accounts receivable and inventory value after the bankruptcy filing of our exclusive distributor of transportation products, offset in part by lower salary related expenses and professional fees in 2010.
In 2008, as earlier stated, the exclusive distributor for Eurospeed, Inc. failed to make payment in full for product ordered in September 2008. The Company exercised its contractual right to retake possession of that product for which it did not receive payment in full. As a result of this action the Company incurred freight and demurrage charges, which the exclusive distributor has agreed to pay, which was recorded as Other Income of approximately $232,000 as of December 31, 2008. In July 2009 the Company exercised its right under the contract
and terminated the exclusive distributor agreement. In 2010 the former exclusive distributor sought protection from his creditors in bankruptcy court, and was subsequently declared to be bankrupt.
Euro Group of Companies, Inc. generated a net loss of $1,842,302 for the twelve month period ended December 31, 2010 compared to a net loss of $1,140,968 for calendar year 2009.
Liquidity and Capital Resources
At December 31, 2010 the Company had a working capital deficiency of $1,879,546 and a stockholders' deficiency of $5,266,011. In addition the Company has suffered recurring losses from operations and has an accumulated deficit of approximately $11,632,783. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters include
restructuring its existing debt, raising additional capital through future issuances of stock and/or equity, and finding profitable markets for its products to generate sufficient cash to meet its business obligations. There can be no assurance, however, that the Company will be able to raise additional capital or to generate sufficient funds to continue the development of its product marketing plan and distribution network. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable
to continue as a going concern.
At December 31, 2010 loans payable to related parties were $3,018,014. These loans have been classified as Long-Term Liabilities at the request of the Chief Executive Officer who has agreed that repayment will not be demanded before 2012.
As of December 31, 2010 the Company was in default of the payment terms of bank overdraft facilities aggregating $34,293. The CEO has negotiated a suspension of interest on the amounts due, and has provided a personal guarantee of repayment.
During 2010 the Company raised a total of $124,700 through the sale of a total of 1,847,000 unregistered shares of common stock, and issued 50,000 unregistered shares of common stock in lieu of cash for legal services valued at $5,000. In 2009 the Company raised a total of $164,500 through the sale of 733,501 shares of common stock. Of this total number of shares, three shareholders purchased a total of 50,000 shares with a “put” feature in first quarter 2009, and the $25,000 of appreciation promised was expensed as “additional interest” in 2009.
In 2009 the Company also issued 1,060,000 shares of common stock for consulting services valued at $95,000
In 2010 the Company issued 273,000 to those shareholders who purchased shares with a “put” feature for their continued forbearance until such time as the Company had the ability to repurchase their share.
EURO GROUP OF COMPANIES, INC.
The attached Financial Statements and the accompanying Notes to Financial Statements have not been audited.
Item 7
Item 7 - Financial Statements
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See notes to consolidated financial statements
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
See notes to consolidated financial statements.
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR YEARS ENDED DECEMBER 31, 2009 and 2010
(Unaudited)
See notes to consolidated financial statements.
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
1. Organization and Business Operations
Euro Group of Companies, Inc.(EGCO), (formerly ICT Technologies, Inc. ("ICTT") was incorporated in Delaware on May 27, 1999. Euro Group has five wholly owned subsidiaries; Europhone USA, Inc. ("FONE1"), a New York corporation incorporated on March 17, 2000; Europhone Inc. ("FONE2"), a New York corporation incorporated on May 24, 2001; Eurospeed, Inc. ("EUROSPEED"), a New York corporation incorporated on November 19, 2001, Eurokool, Inc. ("EUROKOOL"), a New York corporation incorporated on February 21, 2002; and Europhone USA, LLC ("EUROFONE"), a New York limited liability company formed on August 2, 2002.
Euro Group of Companies, Inc. (formerly ICT Technologies, Inc.) and its subsidiaries (collectively, the "Company") operate from their offices in Port Chester, New York. Euro Group of Companies acts as a holding company and its subsidiaries were formed to engage in the distribution of various products manufactured by unrelated third parties. In 2010 the Company had sales of prepaid calling services, cell phones, and related telecommunications services. In 2009 the Company had sales of motor scooters to buyer for Latin America and to an account in Greece, and sales of telecommunications products.
2. Summary of Significant Accounting Policies
Principles of consolidation -- The consolidated financial statements include the accounts of EGCO and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Basis of presentation -- The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has experienced net losses since inception of $11,632,783 and, at December 31, 2010, the Company had a working capital deficiency of $1,879,546 and a stockholders' deficiency of $5,266,011. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company is seeking additional financing through sales of its common stock and/or debt, and has entered into certain supply and distribution agreements (see note (10)) to generate profitable operations. However, there is no assurance that the Company will be successful in achieving these objectives. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Use of estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition -- The Company recognizes revenues in the period in which products are shipped to customers under a fixed and determinable amount arrangement with collectability reasonably assured.
Fair value of financial instruments -- The carrying value of the Company's financial instruments, consisting of cash in banks, accounts receivable, bank overdrafts, bank lines of credit, accounts payable and accrued expenses, payroll taxes and withholdings, customer deposits, and loans payable to related parties, approximate their fair values considering their short term nature and respective interest rates.
Cash and cash equivalents -- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Inventories -- Inventories are carried at the lower of cost (first-in, first-out method) or market.
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
Property and equipment -- Property and equipment are stated at cost and consist of computers and equipment, computer software, furniture and fixtures, and leasehold improvements. These assets are depreciated on a straight-linebasis over the estimated useful lives of the assets, ranging up to five years. Leasehold improvements are amortized over the estimated useful life of the assets or the term of the lease, whichever is shorter. Maintenance and repairs are expensed as incurred, expenditures for major renewals, replacements and
improvements are capitalized.
Impairment of long-lived assets -- The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the assets will not be recoverable based on the expected undiscounted net cash flows of the related asset, an impairment loss is recognized and the asset's carrying value is reduced to fair value.
Stock-based compensation -- Shares issued for services are expensed at the estimated fair value of the shares issued at the date of issuance. No stock options have been issued or are outstanding.
Income taxes -- Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to reduce deferred income tax assets when management has not yet determined that future realization is more likely than not.
Earnings (loss) per common share -- Basic and diluted earnings (loss) per common share is calculated based upon the weighted average number of common shares outstanding. The Company did not have any common stock equivalents (such as stock options or convertible securities) outstanding during the periods presented.
3. Inventory
Inventory consisted of:
4. Bank Overdrafts
At December 31, 2010 and 2009, bank overdrafts (inactive status) consisted of:
The overdraft facilities provide for interest at a rate of 9%. Repayment is past due and the bank has ceased accruing interest on the balances. The loans are personally guaranteed by the Company's chief executive officer.
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
5. Payroll Taxes and Withholdings
The balances represent unpaid payroll taxes and withholdings for certain periods from October 2002 to December 2010 and estimated interest and penalties to December 31, 2010.
6. Loans Payable to Related Parties
The loans payable to related parties do not bear interest and were due on demand. In the three months ended December 31, 2010, the related parties agreed not to demand repayment of these loans until 2012 and, accordingly, the Company has classified these loans as long term liabilities at December 31, 2010.
7. Common Stock
In 2010 the Company sold a total of 1,847,000 restricted shares of its common stock in private placements at prices ranging from $0.06 to $0.10 per share resulting in gross proceeds of $124,700. In addition the Company issued 50,000 restricted shares of common stock in lieu of cash for legal consulting services valued at $5,000, and issued 273,000 restricted shares of common stock to certain shareholders of common stock with a “put’ option for their continued forbearance (Note 8).
In 2009 the Company sold a total of 733,501 restricted shares of its common stock in private placements at prices ranging from $0.15 to $1.00 per share resulting in gross proceeds of $164,500. In addition the Company issued 1,060,000 shares of its common stock for consulting services valued at $95,000.
8. Common Stock Subject to Put Feature
Six shareholders who purchased 496,000 shares of common stock at a price per share of $0.25 in the fourth quarter 2008 have the right to "put" those shares of common stock back to the Company at a price per share of $0.50, at any time six months after the date of purchase. Accordingly, the Company has classified the proceeds from these sales as a current liability, and has excluded these shares from stockholders' equity(deficiency). The $124,000 potential increase in the amount to be paid has been expensed as interest expense. In first quarter 2009 an additional three shareholders purchased a total of 50,000 shares of common stock at a price of $1.00 per share and have the right to “put” these shares back to the Company at a price of $1.50 per share. The proceeds from these sales have been classified as a current liability and the potential increase in the amount to be paid of $25,000 has been expensed as interest expense.
In 2010 these shareholders received an additional 273,000 shares of common stock as “forbearance” shares due to the Company’s inability to repurchase their shares as agreed.
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
9. Income Taxes
EGCO files consolidated income tax returns with its subsidiaries for federal and state reporting purposes.
For the years ended December 31, 2010 and 2009, the provision for (benefit from) income taxes consisted of:
A reconciliation of the U.S. federal statutory tax rate to the effective rates for the years ended December 31, 2010 and 2009 follows:
10. Commitments and Contingencies
Lease
EGCO rents its office facilities in Port Chester, New York under a five-year lease Agreement expiring May 31, 2013 with Strobe Development Company of White Plains, New York. The lease agreement expiring May 31, 2013 provides for fixed minimum monthly rents ranging from $ 2,191 in the first year to $2,466 in year five. In addition to the fixed minimum monthly rent the Company is also responsible for its pro-rata share of real estate taxes payable, operating expenses and electric usage. In May 2008 the Company vacated its previous corporate office space at 181 Westchester Avenue and moved to new space at 10 Midland Avenue, Port Chester, New York. The previous space was occupied under a sub-lease agreement with OTI, a company owned by the Company's chief executive officer.
Rent expense for the years ended December 31, 2010 and 2009 was $84,252 and $80,498 respectively. At December 31, 2010, future minimum annual rent payments under non-cancellable operating leases are:
EURO GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
Exclusive Distribution Agreement
Pursuant to an agreement dated May 19, 2006, EUROSPEED appointed an Exclusive Distributor in North America and Israel of motorcycles and other transportation vehicles under the trade names "EuroSpeed" and "EuroStrada." The term of the agreement was five years from May 19, 2006 to May 18, 2011. The agreement was replaced by an agreement between EUROSPEED and American Motor Sports LLC, doing business as Eurospeed USA, dated March 3, 2008, that requires that the Exclusive Distributor purchase 10,000 transportation vehicles in Year 1, 20,000 vehicles in year 2, and 35,000 vehicles in Year 3. The exclusive distributor did not sell the minimum number of vehicles required by the agreement and the exclusive distribution agreement was terminated in July 2009. In 2010 the former exclusive distributor filed for protection from his creditors and was declared by the court to be bankrupt.
11. Segment Information
The determination of the Company's business segments is based on how the company monitors and manages the performance of its operations. The Company's operating segments are strategic business units that offer different products and services. They are managed separately because each requires different marketing strategies, personnel skill sets and technology.
The Company allocates revenues, expenses, assets and liabilities to segments only where directly attributable. The unallocated corporate administration amounts are costs attributed to finance, corporate administration, human resources, legal and corporate services. Reconciling items represent elimination of inter-segment income and expense items, and are included to reconcile segment data to the consolidated financial statements.
A summary of the Company's segments for the years ended December 31, 2010 and 2009 was as follows:
[End of Financial Statements]
Item 8a - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the fiscal quarter ended December 31, 2010, an evaluation was performed under the supervision of and with the participation of the Company's Principal Executive Officer, and the Company's Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures.
Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15e of the Securities Exchange Act of 1934, as amended) and as required by paragraph (b) of Rule 13-a-15 or Rule 15d-15e as of December 31, 2010, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commissions rules and forms. Our Principal Executive Officer and Principal Financial Officer also concluded that as of December 31, 2010 our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure. Our disclosure controls are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met.
Management Report on Internal Control over Financial Reporting
Company management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with the authorization of the management and Board of Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.
Under the supervision and with the participation of management, we have assessed our internal control over financial reporting as of December 31, 2009, which was the end of our fiscal year. Management based its assessment on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, segmentation of responsibilities, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed by our finance
organization.
Based on their assessment, despite the inherent issue of segregation of duties in a small company, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year ended December 31, 2010 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Changes in Internal Controls
During the three month period ended December 31, 2010 there were no changes that occurred in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15-e that has materially affected, or is reasonably likely to materially affect our internal controls over financial reporting.
Item 8b. Other Information
On April 28, 2010 Vasilios Koutsobinas, the Company’s Chairman and Chief Executive Officer, suffered a severe heart attack and subsequently underwent coronary bypass surgery. After a lengthy recovery, Mr. Koutsobinas returned to his duties on a part-time basis in late third quarter 2010, and then on a full-time basis in fourth quarter 2010. Mr. Koutsobinas is now fully recovered.
Part III
Item 9
Item 9 - Directors, Executive Officers, Promoters and Control Persons'Compliance with Section 16(a) of the Exchange Act.
The names, ages, positions and offices held by each of our officers anddirectors are shown on the following table.
* Mr. Kotrotsios and Ms. Dumas resigned as members of the Board effective November 30, 2010.
Vasilios Koutsobinas has served as the Chairman and Chief Executive Officer of ICT Technologies, Inc. since May 2002. Prior to joining ICT Technologies (and simultaneously with his service to ICT Technologies), Mr. Koutsobinas had served as chief executive officer of the Eurogroup of Companies, which included several subsidiaries contributed to ICT Technologies in the 2002 Transaction as well as Europhone USA, since March 17, 2000. Mr. Koutsobinas has over 25 years of experience in the import/export field which he engaged in through private companies of his own. In addition, he served as President of Uncle Bill's, Inc., a private corporation in the restaurant business from approximately 1997 to 2001.
Andrew Eracleous has served as the Chief Financial Officer of Euro Group of Companies, since November 2002. For the past 50 years, Mr. Eracleous has been an accountant in private practice.
Paul Kotrotsios is the founder and publisher of Hellenic News of America, a monthly Greek-American publication. He holds a Bachelor of Science degree in Economics from the Graduate Industrial School of Thessaloniki University, Greece and a Master's Degree in Business Administration from Saint Joseph's University in Philadelphia, Pennsylvania. Mr. Kotrotsios resigned from the Board effective November 30, 2010
Georgia Dumas is presently the Director of Operations of Global Star LLC of Hasbrouck Heights in New Jersey. She manages all functions related to business development, operations, production, marketing and distribution of Greek television and radio services. She studied at New York University and obtained her Bachelor of Science degree in International Marketing and Economics from William Paterson University of New Jersey. Ms. Dumas resigned from the Board effective November 30, 2010
Anna Aspras joined the Board in 2008, and previously served as President of Operations of Euro Group. She holds a Degree in Administrative Assistance from Westchester College, and has extensive experience as a business owner. She joined Europhone in 1994, and has managed all functions related to business development, operations, marketing and distribution of Europhone telecommunication products and services.
Kenneth Downey joined the Board in 2008. He is one of the founders and serves as Chief Executive Officer of Westwood Associates/ Parcel Port. Mr. Downey holds a Bachelor of Science in Marketing from Villanova University.
Stehen R. Bellis joined the Board in 2008. Mr. Bellis is an attorney and Partner at The Pellegrino Law Firm, one of the oldest law firms in New Haven, Connecticut. He leads the firm's trial practice group, handling products liabilities lawsuits, wrongful death actions, commercial litigation, and medical malpractice cases. He tries jury cases throughout the State of Connecticut, and has argued cases at the Connecticut Appellate and Supreme Court, as well as the United States District Court and United States Court of Appeals. He is admitted as qualified as an attorney and counselor of the Supreme Court of the United States. Mr. Bellis is a member of the Connecticut and American Bar Associations, the Connecticut Trial Lawyers Association, and the Association of Trial Lawyers of America. Attorney Bellis graduated from Boston University in 1981, and from the Catholic University Law School in Washington, DC in 1984. He was a member of the Law Review and was commencement Speaker.
Board of Directors Committees
The Company does not currently have a standing audit, nominating or compensation committee of the Board. Vasilios Koutsobinas, and the other directors, perform the functions of audit, nominating and compensation committees and also participate in the consideration of Director nominees. When additional independent members of the Board of Directors are appointed or elected, and the size of the Company requires that its financials be audited, the Board will once again consider creating audit, compensation and nominating committees. In addition, because Euro Group is not an issuer listed on a national securities exchange or listed in an automated inter-dealer quotation system of a national securities association, we are not required to have an audit committee.
Since we have not established such a committee, we have not identified any member of such a committee as a financial expert.
Advisory Board
The Company does not currently have an Advisory Board.
Director Independence
Our current directors are not considered independent directors as defined by any national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934 or by any national securities association registered pursuant to Section 15A(a) of the Securities Exchange Act of 1934.
Meetings of the Board of Directors
The Board of Directors of Euro Group of Companies held four regular meetings during 2010.
Involvement in Certain Legal Proceedings
Except as set forth herein, no officer or director of the Company has, during the last five years: (i) been convicted in or is currently subject to a pending a criminal proceeding; (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any federal or state securities or banking laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law, nor (iii) has any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy of for the two years prior thereto.
Code of Ethics
The Board of Directors of Euro Group of Companies, Inc. adopted a Code of Ethics as described in Item 406 of Regulation S-B in 2009, and is incorporated by Reference. The Code of Ethics applies to each of our directors and officers, including the chief financial officer and chief executive officer, and all of the Company's other employees and consultants.
Section 16(a) Beneficial Ownership Reporting Compliance
Since January 1, 2010, no reports under Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") were not filed or were not timely filed by officers, directors or beneficial owners of more than ten percent of any class of the Company's equity securities registered pursuant to Section 12 of the Exchange Act: To the Company's knowledge, no officer, director or beneficial owner of more than ten percent of any class of the Company's equity securities registered pursuant to Section 12 of the Exchange Act or any other person subject to Section 16 of the Exchange Act with respect to the Company, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act subsequent to January 1, 2008.
Item 10.
Item 10. Executive Compensation
The following Summary Compensation Table sets forth, for the three years ended December 31, 2009, the compensation for services in all capacities earned by all persons serving as the Company's Chief Executive Officer during the past three years and any other executive officer whose total annual salary, bonus and other annual compensation may have exceeded $100,000 during that time (the "Named Executive Officers").
Euro Group of Companies, Inc. does not maintain a stock option program, has granted no restricted stock awards and maintains no long-term incentive programs.
None of the named Executive Officers has a written employment contract with Euro Group of Companies.
DIRECTOR COMPENSATION
There were no payments made to "outside" directors in 2010 due the financial condition of the Company. Outside directors normally receive $2,000 for each board meeting they attend, and employee directors receive no compensation for their board service.
Item 11.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of December 31, 2010, with respect to the beneficial ownership of shares of Common Stock by (i) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) the Named Executive Officer and (iv) all executive officers and directors of the
Company as a group.
(1) Beneficial ownership has been determined pursuant to Rule 13-d of the Exchange Act.
Item 12.
Item 12. Certain Relationships and Related Transactions
Since the close of the 2002 Transaction, the working capital requirements of the Company have been largely satisfied through the sale of restricted common stock through private placement and loans to the Company from the chief executive officer and principal stockholder of Euro Group of Companies, Inc. (formerly ICT Technologies, Inc.) This indebtedness, for which repayment cannot be demanded until 2012, totaled $3,018,014 at December 31, 2010 and does not bear interest.
Item 13.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
* Incorporated by reference to Exhibit 3(iii) from the Company's Form 10-KSB for the annual period ended December 31, 2001, filed on April 29, 2002.
** Incorporated by reference from the Company's Form 10-SB12G, filed with the Securities and Exchange Commission on March 6, 2000.
*** Incorporated by reference to Exhibit 10.1 from the Company's Form 8-K/A, dated May 9, 2002.
**** Incorporated by reference to Exhibit 10.1 from the Company's Form 8-K, dated April 23, 2007.
(a) Reports on Form 8-K
None
Number Description of Filings
8.01 Other Matters
Item 14
Item 14 Principal Accounting Fees and Services
The Company incurred no fees for external accounting services in 2010.
Audit Committee Approval
We do not have an audit committee of our board of directors. We believe that each member of our board has the expertise and experience to adequately serve our stockholders' interests while serving as directors. Since we are not required to maintain an audit committee and our full board acts in the capacity of an audit committee, we have not elected to designate any member of our board as an "audit committee financial expert."
Board of Directors Approval of Financial Reporting
Management is responsible for the preparation and integrity of our financial statements, as well as establishing appropriate internal controls and financial reporting processes. Our board of directors' responsibility is to monitor and oversee these processes. The Company’s market capitalization and number of shareholders no longer requires the preparation of audited financial statements.
Our board reviewed the unaudited financial statements of our company for the year ended December 31, 2010 and met with members of management to discuss such financial statements. Based upon these reviews and discussions, our board authorized and directed that the unaudited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Audit-Related Fees
There were no audit-related fees in 2010 and 2009.
Tax Fees
There were no fees paid for tax services relating to the years ended December 31, 2010 and 2009.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly appointed.
Euro Group of Companies, Inc.
June 8, 2011
/s/ Vasilios Koutsobinas
Vasilios Koutsobinas
Chief Executive Officer
Director
(Principal Executive Officer)
June 8, 2011
/s/ Andrew Eracleous
Andrew Eracleous
Chief Financial Officer
Director
(Principal Financial and Accounting Officer)
June 8, 2011
/s/ Anna Aspras
Anna Aspras
Director
June 8, 2011
/s/ Stephen Bellis
Stephen Bellis
Director
June 8, 2011
/s/ Kenneth Downey
Kenneth Downey
Director