2012 6 months and II quarter unaudited interim report

Estonia, Tallinn, 2012-08-30 15:30 CEST (GLOBE NEWSWIRE) --

MANAGEMENT REPORT

General information

The company was formed after the demerger from AS Järvevana (former AS Merko Ehitus), as a result of which the complete set of assets related to the business activities of the construction company was separated and transferred to the new AS Merko Ehitus, including all concluded construction contracts, subcontracts and supply contracts, machinery, equipment and employees, all professional know-how and cash flows from uninterrupted, continuous economic activities, except for liabilities arising from the criminal case no. 05913000055, including compensations for damage, penalties and other payables, legal expenses and liquid assets to cover potential liabilities arising from the criminal proceedings in the amount of EUR 16.0 million. The company does not have ordinary economic activities and the only objective of its activities is to protect the interests of the company and shareholders in the long-lasting criminal proceedings related to the land swap. As of 30 June 2012, one person was employed by AS Järvevana, its Director Toomas Annus. The company’s activities do not have a seasonal or cyclical nature.

Operating activities

At 3 April 2009, the Public Prosecutor’s Office submitted a statement of charges (dated 31.03.2009) against AS Järvevana and Toomas Annus in criminal case no. 05913000055 concerning the land swap (http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=232810).

At 12 November 2009, the judicial proceedings concerning the land swap case commenced at Harju County Court.

An overview of the proceedings: http://www.nasdaqomxbaltic.com/market/?pg=details&instrument=EE3100003559&list=3&tab=news&news_id=238437. In the statement of charges AS Järvevana was charged with five counts of giving a bribe pursuant to § 298 of the Penitentiary Code, and the proceedings in the case were conducted by the Harju County Court, being the court of the first instance. The subject of proof concerning a bribery charge comprises three elements, while the absence of even one of divests the charge of the necessary elements of a criminal offence, namely: (i) promising or giving an official a material reward; (ii) unlawful act committed by an official for the benefit of the person giving the bribe; (iii) equivalence relation between the first and the second elements, i.e. a reward is offered for a beneficial act. Moreover, with regard to AS Järvevana it is necessary to prove that (i) the act was committed by a senior executive of a legal entity, and (ii) that the act was committed in the interest of the legal entity. AS Järvevana has participated in no land swap transactions described in the statement of charges. Such transactions were concluded, and hypothetical benefits might have been received by independent subsidiaries being legal entities, who have not been charged. AS Järvevana, however, has never swapped any land, even in accordance with the statement of charges. Furthermore, it is obvious, that such acts could not have been unlawful, inasmuch as they were permissible under § 19 of the Nature Conservation Act, which rules out the qualification of such act as a bribery. It has been proven, and ascertained by the judgement of the court of the first instance, that more than 180 similar legitimate transactions have been concluded on the same grounds and applying the same procedure by a number of various persons. The statement of charges and the judgement established the absence of damages and the [cause for] a civil action.

On 19 June 2012 the Harju County Court held the last hearing in the criminal case involving the land swap deals; during this hearing the court fully acquitted AS Järvevana and Toomas Annus in the criminal case No.1-09-4486, and ordered the State to indemnify AS Järvevana’s legal expenses in the amount of EUR 611 810.

The court categorically established that AS Järvevana and Toomas Annus have not committed the offences, all the relevant land swap transactions have been legitimate, and also established that the Security Police Board and the Public Prosecutor’s Office have committed a fundamental breach of the law, the Constitution, and the European Convention for the Protection of Human Rights and Fundamental Freedoms. This carefully deliberated judgement was a result of three years of comprehensive and first-hand proceedings, which involved, inter alia, questioning of about 120 persons. The judgement of acquittal was unanimous, and it was also supported by the lay judges.

The Public Prosecutor’s Office has filed an appeal against the judgement of acquittal to the Tallinn Circuit court, and therefore the judgement of the court of the first instance has not entered into effect yet. AS Järvevana and Toomas Annus have filed a comprehensive rebuttal to the appeal on 374 pages. The application of AS Järvevana and Toomas Annus for granting them access to the surveillance files to review the same, and to guarantee their right of defence, which is supported, inter alia, by the judgement rendered by the European Court of Human Rights in the case Leas v Estonia, is still pending. The Harju County Court established that the respective application of the defence counsel as such is legitimate, however the court annulled its lawful permissive ruling because the judge was threatened by criminal prosecution: “After the court ruling in question was published in the Court’s information system the chairperson of the Court received a telephone call from the Public Prosecutor’s Office, and was asked to verify whether or not the judge has already presented the documents referred to in the ruling to the accused. Since the judge had not yet presented the documents to the accused, the criminal prosecution against the judge concerning the breach of a confidentiality obligation was abandoned”; “Taking into consideration the information received from the Public Prosecutor’s Office the Court, by its ruling of 16.04.2010, partially annulled the former court ruling.” In the same judgement the court of the first instance established, relying on the Court’s full conviction, that by this act AS Järvevana and Toomas Annus were not guaranteed a fair trial, which the latter are entitled to pursuant to the law, the Constitution and the European Convention for the Protection of Human Rights and Fundamental Freedoms.

The Tallinn Circuit Court set the dates for hearing the case on 14-17.01.2013, 21-23.01.2013, 04-07.02.2013. So far it is unclear whether or not additional days are needed to hold the hearing.

Taking into consideration the extraordinary volume and the complexity of the matter, and the three-tier structure of the court system, one cannot be confident that the final decision will be reached within 2013.

In the case that the persons are found guilty, and are entered in the punishment register, the legal risks include a pecuniary punishment, which under the Value Added Tax Act is subject to income tax, as well as constraints with regard to participation in public procurements.

AS Järvevana points out that the principle of first-hand participation is fully applicable only at courts of the first instance. As a result of long-term, comprehensive and first-hand proceedings the court reached an unambiguous conviction that AS Järvevana and Toomas Annus are not guilty, thereby casting doubt to the charges as a whole. We deem important that the court rendered the judgement of acquittal in spite of the extra-procedural pressure in disregard for judicial independence, and in a situation where as a result of a threat the court was unable to guarantee the accused the equal procedural rights deemed necessary by the court. The supervisory board and the management board of AS Järvevana are convinced that the acts of the company and its management bodies have been appropriate and are in line with the legislation of the Republic of Estonia, and it can be once again substantiated before the court of the second instance.

Share and shareholders

The main shareholders of AS Järvevana as of 30.06.2012

From 15.09.2009, the shares of AS Järvevana are included in the secondary list of NASDAQ OMX Tallinn Stock Exchange. During the demerger of AS Merko Ehitus, the company’s business name was changed to AS Järvevana and from 04.08.2008, the shares of AS Järvevana are traded under the symbol of JRV1T. In 2012 6 months, 257 transactions were performed with the shares of AS Järvevana in the course of which 395,477 shares were traded and the total monetary value of transactions was EUR 169,023. The lowest transaction price was EUR 0.35 and the highest transaction price was EUR 0.51 per share. The closing price of the shares as of 30.06.2012 was EUR 0.46.

STATEMENT OF COMPREHENSIVE INCOME
unaudited, in thousand euros

STATEMENT OF COMPREHENSIVE INCOME
unaudited, in thousand euros

STATEMENT OF FINANCIAL POSITION
unaudited, in thousand euros

Toomas Annus
Member of Management Board
+372 6 805 400
toomas.annus@merko.ee