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EX-99.2 - EXHIBIT 99.2 - ITOCO INC. | ex992.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8- K/A
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): December 31,
2009
CARIBBEAN
VILLA CATERING CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
|
333-151840
|
45-0557179
|
(State
or Other Jurisdiction of Incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification Number)
|
25 Jenna
Lane
Staten
Island, New York 10304
(Address
of principal executive offices) (zip code)
(917)
684-2442
(Registrant's
telephone number, including area code)
Copies
to:
Andrea
Cataneo, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway
New York,
New York 10006
Phone:
(212) 930-9700
Fax:
(212) 930-9725
38 Playa
Laguna
Sosua,
Dominican Republic
(Former
address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
1
Item
1.01 Entry into a Material Definitive Agreement
On
December 31, 2009, Caribbean Villa Catering Corporation , a Nevada
corporation (“Caribbean ” or the “Company”), entered into an
Agreement and Plan of Merger (the “Merger Agreement”) with Caribbean Villa
Acquisition Corp. , a Nevada corporation and wholly-owned subsidiary of the
Company (the “Subsidiary”) and CJSC Globotek., a Russian corporation
(“Globotek”).
Pursuant
to the Merger Agreement, on December 31, 2009 (the “Closing Date”), the
Subsidiary merged with and into Globotek resulting in Globotek becoming a
wholly-owned subsidiary of the Company (the “Merger”). Pursuant to the Merger
Agreement, the Company issued approximately 40,000,000 shares of its common
stock (the “Acquisition Shares”) to the shareholders of Globotek, representing
approximately 61.73% of the issued and outstanding common stock following the
closing of the Merger. Pursuant to the Merger Agreement, the outstanding shares
of common stock of Globotek were cancelled.
In
connection with the Merger, in addition to the foregoing:
(i)
Effective on the Closing Date, Robert Seeley, Virgilio Santana Ripoll and Stuart
Wayne Jones resigned from all officer and director positions held with the
Company and the following executive officers and directors of Globotek were
appointed as executive officers and directors of the Company:
Name
|
Title
|
|
Dmitry
Viktorovich Lukin
|
Director
and Chief Executive Officer
|
|
Alexandr
Nikolaevich Lapkin
|
Director
and Chief Science Officer
|
|
Sergey
Alexandrovich Lapkin
|
Director
and Chief Technology Officer - Chief
Designer
|
|
Axandr
Viktorovich Lukin
|
Director
and Chief Production Officer
|
|
Sergey
Viktorovich Lukin
|
Director
and Chief Financial Officer
|
|
Vladislav
Feliksovich Tenenbaum
|
Director
(Chairman of the Board) and President
|
|
Alexandr
Vladimirivich Auxtin
|
Director
|
|
Elena
Alexandrova Lapkina
|
Director
|
|
Veronika
Palterovich*
|
Director
|
*Ms. Palterovich was appointed to the
board of directors effective January 25, 2010.
(ii)
The Company intends to change its name to Globotek Holdings, Inc. or a similar
derivation, as soon as practicable.
Item
2.01 Completion of Acquisition or Disposition of Assets
Information
in response to this Item 2.01 is keyed to the Item numbers of Form
10.
Item
1. Description of Business
Effective
on the Closing Date, pursuant to the Merger Agreement, Globotek became a
wholly-owned subsidiary of the Company. The acquisition of Globotek is treated
as a reverse acquisition, and the business of Globotek became the business of
the Company. At the time of the reverse acquisition, Caribbean was not engaged
in any active business.
References
to “Globotek”, “we”, “us”, “our” and similar words refer to the Company and its
wholly-owned subsidiary, Globotek, unless the context otherwise requires, and
prior to the effectiveness of the reverse acquisition, these terms refer to
Globotek. References to “Caribbean” refer to the Company and its
business prior to the reverse acquisition.
Summary
Globotek was
incorporated as a closed joint-stock company on November 23, 2005 in accordance
with the Civil Code of the Russian Federation and Federal Law of the Russian
Federation The manner of the incorporation of the company, contents of its
constituent documents, formation of the charter capital, placement and State
registration of shares, structure and competence of the governing bodies in
general conform to the requirements of the effective legislation.
Globotek
and its affiliates represent a group of enterprises that have developed a unique
and patented technology specializing in the treatment of Associated Petroleum
Gas (“APG”) via a modular processing plant (the “Globotek APG System”). The
Globotek APG System can be used in operations in the Russian Federation as well
as other parts of the world.
2
The
treatment of APG continues to be one of the most contentious issues in the Oil
& Gas industry today. APG is a byproduct of oil extraction and many oil
fields around the world still treat APG as a waste product resulting in this
surplus gas being flared or vented directly into the atmosphere, which is not
only a waste of resources and income through loss of hydro carbon reserves but
also a practice which has a significant impact on the environment, public health
and the economy. It is estimated that over 400 million tons of greenhouse
gases including carbon dioxide, sulfur and active soot are released into the
atmosphere every year as a result of APG flaring practices. In Russia the
utilization of APG has always been treated as an expenditure of the producer – a
sunk cost with little or no investment return. Until now the absence of a means
of economically handling APG has forced companies to flare the
APG. Traditionally APG handling involves the transport of the gas via
pipelines from the field via a booster station to processing plants, which are
usually unprofitable, because of the extremely high capital costs needed for the
construction of the processing plants and pipeline. Furthermore, over one-half
of the end products (propane, butane and gasoline) are lost due to the
difficulties in transporting these gases to end users. In some cases it is
necessary to construct additional pipe lines, which
is slow and expensive. Additionally, once a field’s oil reserves are
depleted, these pipe lines and processing plants are redundant. The construction
of a plant of this type can take in excess of thirty months at a minimum cost of
approximately $30 million, which is three times longer and three times more
expensive than the manufacture and installation of a Globotek APG
System.
Globotek
has developed the Globotek APG system as an affordable solution to the APG
utilization issue for all oil producers. By installing a modular mobile complex
at the production site itself, the need for capital intensive pipelines and
plant production is negated. The process used is the separation of the gas
mixture by use of low temperature condensation resulting in
production of Gasoline (Gas Stable Grade) Natural Combustible Gas and
Propane/Butane in an automobile grade fuel. A secondary product from the process
is Methanol. In April 2008, the Globotek APG System was approved by
The Russian Federal Service for Ecological Technical and Atomic Supervision.
Later that year, Globotek was awarded the prestigious “Ecological Project of the
Year” title by the Russian government for its work and contribution to solving
the APG utilization issue.
In
summary the Globotek APG System has several advantages:
a)
|
Deployment
at the source of the APG
|
b)
|
Easy
redeployment when the field is worked
out
|
c)
|
Stand
alone self sufficiency
|
d)
|
Low
relative costs
|
e)
|
Savings
on environmental fees
|
f)
|
Low
construction costs
|
g)
|
Short
time frame from application to construction (8 – 10
Months)
|
BUSINESS
STRUCTURE AND STRATEGY
We are
currently acting as a developer and producer of the Globotek APG System for the
processing of APG. To date the sale of the Globotek APG System has
been exclusively in Russia. The Russian Government has imposed new
regulations on oil and gas companies which are effective in January
2012. These regulations require that 95% of APG must be processed.
Producing companies that fail to comply could lose their licenses and/or face
heavy fines. By passing this legislation, a natural market has evolved for the
Globotek APG System. Our management estimates that new total investment in APG
processing is between US $25 to US $27 billion.
We intend
to become a fully vertically integrated company with a production line from
processing APG to the sale of the end products ranging from liquefied petroleum
gas (“LPG”), propane/butane, autogas and electricity. We believe that our
business and products are of great interest not only to oil and gas companies as
well as refineries worldwide, but also electricity generating and distributing
companies. Therefore, we see great potential for expanding and growing by
way of merger or acquisitions.
Globotek’s
executive offices are located at 22, Sevemaya Street, Togliatti, Samara
region, Russia and its telephone number at such address is 7 8482
319999. Its US representative office is located at 25 Jenna Lane,
Staten Island, New York 10304 and its telephone number at such address is (917)
684-2442.
Item
1A. RISK FACTORS
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of our common
stock could decline and investors could lose all or part of their
investment.
Risks
Related to our Business
3
Our
business is difficult to evaluate because we have a limited operating history
and an uncertain future.
We have a
limited operating history upon which you can evaluate our present business and
future prospects. We face risks and uncertainties relating to our
ability to implement our business plan successfully. Our operations
are subject to all of the risks inherent in the establishment of a new business
enterprise generally. The likelihood of our success must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the formation of a new
business, the commencement of operations and the competitive environment in
which we operate. If we are unsuccessful in addressing these risks
and uncertainties, our business, results of operations, financial condition and
prospects will be materially harmed.
We
will need significant additional capital, which we may be unable to
obtain.
As of
September 30, 2009, we had no limited cash available. We also expect to
experience negative cash flow for the forseeable future as we fund our operating
losses and capital expenditures. Accordingly we need significant
additional capital to fund our operations. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at
all. If we are unable to raise substantial capital, investors will
lose their entire investment.
If
our strategy is unsuccessful, we will not be profitable and our stockholders
could lose their investment.
We are
not aware of any other companies pursuing our strategy, and there is no
guarantee that our strategy will be successful or profitable. If our strategy is
unsuccessful, we will fail to meet our objectives and not realize the revenues
or profits from the business we pursue, which would cause the price of our
common stock to decrease, thereby potentially causing in all likelihood, our
stockholders to lose their investment.
We
may be unable to successfully execute any of our identified business
opportunities or other business opportunities that we determine to
pursue.
We
currently have a limited corporate infrastructure. In order to pursue business
opportunities, we will need to continue to build our infrastructure and
operational capabilities. Our ability to do any of these successfully could be
affected by any one or more of the following factors:
·
|
our
ability to raise substantial additional capital to fund the implementation
of our business plan;
|
·
|
our
ability to execute our business
strategy;
|
·
|
the
ability of our products and services to achieve acceptance in new
markets;
|
·
|
our
ability to manage the expansion of our operations and any acquisitions we
may make, which could result in increased costs, high employee turnover or
damage to customer relationships;
|
·
|
our
ability to attract and retain qualified
personnel;
|
·
|
our
ability to manage our third party relationships effectively;
and
|
·
|
our
ability to accurately predict and respond to the rapid technological
changes in our industry and the evolving demands of the markets we
serve.
|
Our
failure to adequately address any one or more of the above factors could have a
significant impact on our ability to implement our business plan and our ability
to pursue other opportunities that arise.
4
If
we are unable to manage our intended growth, our prospects for future
profitability will be adversely affected.
We intend
to aggressively expand our marketing and sales program. Rapid
expansion may strain our managerial, financial and other
resources. If we are unable to manage our growth, our business,
operating results and financial condition could be adversely
affected. Our systems, procedures, controls and management resources
also may not be adequate to support our future operations. We will
need to continually improve our operational, financial and other internal
systems to manage our growth effectively, and any failure to do so may lead to
inefficiencies and redundancies, and result in reduced growth prospects and
profitability.
We
face competition and may not be able to successfully compete.
We
currently do not believe we have direct competitors in the capacity range we
target. However, there can be no assurance that we will not have direct
competition in the future that such competitors will not substantially increase
the resources devoted to the development and marketing of products and services
that compete with our products or that new or existing competitors will not
enter the market in which we are active.
We
rely on key personnel and, if we are unable to retain or motivate key personnel
or hire qualified personnel, we may not be able to grow effectively
Our
success depends in large part upon the abilities and continued service of our
executive officers and other key employees, particularly Dmitry Lukin, our
Chief Executive Officer and Vladisav Tenenbaum, our
President. There can be no assurance that we will be able to retain
the services of such officers and employees. Our failure to retain
the services of our key personnel could have a material adverse effect on
us. In order to support our projected growth, we will be
required to effectively recruit, hire, train and retain additional qualified
management personnel. Our inability to attract and retain the
necessary personnel could have a material adverse effect on us. We
have no “key man” insurance on any of our key employees.
Our
independent registered auditors have expressed doubt about our ability to
continue as a going concern.
Our
auditors included in their report for the year ended December 31, 2008, an
emphasis of matter paragraph in its independent auditors’ report dated December
31, 2009 stating that there is significant doubt about our ability to continue
operating as a going concern. Our ability to continue as a going concern is
subject to our ability to generate a profit and/or obtain necessary funding from
outside sources, including by the sale of our securities, or obtaining loans
from financial institutions, where possible. Our continued net operating losses
and our auditors’ doubts increase the difficulty of our meeting such goals and
our efforts to continue as a going concern may not prove
successful.
Risks
Related to our Industry and Doing Business in Russia
Currency
fluctuations may adversely affect our operating results.
We
generate revenues and incur expenses and liabilities in rubles, the currency of
the Russian Federation. However, we will report our financial results in
the United States in U.S. Dollars. As a result, the Company’s financial
results will be subject to the effects of exchange rate fluctuations between
these currencies. From time to time, the government of Russia may take
action to stimulate the Russian economy that will have the effect of reducing
the value of the ruble. In addition, international currency markets may cause
significant adjustments to occur in the value of the ruble. Any such
events that result in a devaluation of the ruble versus the U.S. Dollar will
have an adverse effect on our reported results. hawse have not entered into
agreements or purchased instruments to hedge our exchange rate
risks.
Government
regulation may hinder our ability to function efficiently.
The
Federation of Russia is supportive of its oil and gas exploration industry.
Nevertheless, the government of Russia is highly bureaucratic, and the
day-to-day operations of our business require frequent interaction with
representatives of the Russian government institutions. There can be
no assurance that the Russian government will continue its support of our
Company, operations and strategy.
It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in Russia.
Substantially
all of our assets will be located in the Russian Federation and our officers and
substantially all of our present directors reside outside of the United States.
As a result, it may not be possible for United States investors to enforce
their legal rights, to effect service of process upon our directors or officers
or to enforce judgments of United States courts predicated upon civil
liabilities and criminal penalties of our directors and officers under Federal
securities laws.
5
We may have difficulty establishing
adequate management, legal and financial controls in China, which could impair
our planning processes and make it difficult to provide accurate reports of our
operating results.
The
Russian Federation historically has not followed Western style management and
financial reporting concepts and practices, and its access to modern banking,
computer and other control systems has been limited. Although we will be
required to implement internal controls, we may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in the Russia
Federation in these areas. As a result of these factors, we may experience
difficulty in establishing the required controls and instituting business
practices that meet Western standards, making it difficult for management to
forecast its needs and to present the results of our operations accurately at
all times. If we are unable to establish the required controls, market makers
may be reluctant to make a market in our stock and investors may be reluctant to
purchase our stock, which would make it difficult for you to sell any shares of
common stock that you may own or acquire.
Capital
outflow policies in Russia may hamper our ability to pay dividends to
shareholders in the United States.
The
Federation of Russia has adopted currency and capital transfer regulations.
These regulations require that we comply with complex regulations for the
movement of capital. The current regulations require notification to the Russian
Government of all significant currency transactions.
Russian
tax, currency and customs legislation is subject to varying interpretations and
changes, which may occur frequently and have detrimental effects on our
business.
Management’s
interpretation of applicable legislation may be challenged by the relevant
regional and federal authorities. Recent events within the Russian Federation
suggest that the tax authorities may be taking a more assertive position in
their interpretation of the legislation and assessments, and it is possible that
transactions and activities that have not been challenged in the past may be
challenged. As a result, significant additional taxes, penalties and interest
may be assessed. Fiscal periods remain open to review by the authorities in
respect of taxes for three calendar years preceding the year of review. Under
certain circumstances reviews may cover longer periods. As at December 31, 2008,
management believes that its interpretation of the relevant legislation is
appropriate and our tax, currency and customs positions will be
sustained
Risks
Related to our Organization and Common Stock
As
a result of the Merger, Globotek became a subsidiary of ours and since we are
subject to the reporting requirements of federal securities laws, this can be
expensive and may divert resources from other projects, thus impairing its
ability grow.
As a
result of the Merger, Globotek became a subsidiary of ours and, accordingly, is
subject to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and other federal securities laws,
including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”). The costs of preparing and filing annual and quarterly
reports, proxy statements and other information with the SEC (including
reporting of the Merger) and furnishing audited reports to stockholders will
cause our expenses to be higher than they would have been if Globotek had
remained privately held and did not consummate the
Merger.
It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley
Act. We will need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures. If we are
unable to comply with the internal controls requirements of the Sarbanes-Oxley
Act, then we may not be able to obtain the independent accountant certifications
required by such act, which may preclude us from keeping our filings with the
SEC current and interfere with the ability of investors to trade our securities
and for our shares to continue to be quoted on the OTC Bulletin Board or to list
on any national securities exchange.
If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent
fraud. Any inability to report and file our financial results
accurately and timely could harm our reputation and adversely impact the trading
price of our common stock.
Effective
internal control is necessary for us to provide reliable financial reports and
prevent fraud. If we cannot provide reliable financial reports or
prevent fraud, we may not be able to manage our business as effectively as we
would if an effective control environment existed, and our business and
reputation with investors may be harmed. As a result, our small size
and any current internal control deficiencies may adversely affect our financial
condition, results of operation and access to capital. We have not
performed an in-depth analysis to determine if historical un-discovered failures
of internal controls exist, and may in the future discover areas of our internal
control that need improvement.
6
There
is a limited trading market for the Common Stock.
To date
there has been a very limited public trading market for the Common Stock, and we
cannot give an assurance that an active trading market will develop. The lack of
an active, or any, trading market will impair a stockholder’s ability to sell
his shares at the time he wishes to sell them or at a price that he considers
reasonable. An inactive market will also impair our ability to raise
capital by selling shares of our capital stock and will impair our ability to
acquire other companies or assets by using common stock as
consideration.
The
market price of our Common Stock is likely to be highly volatile and subject to
wide fluctuations.
Dramatic
fluctuations in the price of our Common Stock may make it difficult to sell our
Common Stock. The market price of our Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to a number of
factors that are beyond our control, including:
·
|
dilution
caused by our issuance of additional shares of common stock and other
forms of equity securities, in connection with future capital financings
to fund our operations and growth, to attract and retain valuable
personnel and in connection with future strategic partnerships with other
companies;
|
·
|
variations
in our quarterly operating results;
|
·
|
announcements
that our revenue or income are below or that costs or losses are greater
than analysts’ expectations;
|
·
|
the
general economic conditions;
|
·
|
sales
of large blocks of our common
stock;
|
·
|
announcements
by us or our competitors of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
and
|
·
|
fluctuations
in stock market prices and volumes;
|
These and
other factors are largely beyond our control, and the impact of these risks,
singly or in the aggregate, may result in material adverse changes to the market
price of our Common Stock and/or our results of operations and financial
condition.
The
ownership of our Common Stock is highly concentrated in our
officers.
Based on
the 64,800,000 shares of Common Stock outstanding as of December 31,
2009, our directors and executive officers beneficially own 61.73% of our
outstanding Common Stock. As a result, our directors and executive officers have
the ability to exercise control over our business by, among other items, their
voting power with respect to the election of directors and all other matters
requiring action by stockholders. Such concentration of share ownership may have
the effect of discouraging, delaying or preventing, among other items, a change
in control of the Company.
7
The
Common Stock will be subject to the “penny stock” rules of the SEC, which may
make it more difficult for stockholders to sell the Common Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require:
· that
a broker or dealer approve a person's account for transactions in penny stocks;
and
· the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
· obtain
financial information and investment experience objectives of the person;
and
· make
a reasonable determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions in penny
stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
· sets
forth the basis on which the broker or dealer made the suitability
determination; and
· that
the broker or dealer received a signed, written agreement from the investor
prior to the transaction.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The
regulations applicable to penny stocks may severely affect the market liquidity
for the Common Stock and could limit an investor’s ability to sell the Common
Stock in the secondary market.
The
Company has not paid dividends in the past and does not expect to pay dividends
for the foreseeable future. Any return on investment may be limited
to the value of the Common Stock.
No cash
dividends have been paid on the Common Stock. We expect that any income received
from operations will be devoted to our future operations and growth. The Company
does not expect to pay cash dividends in the near future. Payment of dividends
would depend upon our profitability at the time, cash available for those
dividends, and other factors as the Company’s board of directors may consider
relevant.
8
Item
2. Financial Information
FORWARD-LOOKING
STATEMENTS
Statements
in this current report on Form 8-K may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that
express our intentions, beliefs, expectations, strategies, predictions or any
other statements relating to our future activities or other future events or
conditions. These statements are based on current expectations, estimates and
projections about our business based, in part, on assumptions made by
management. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may, and are likely to, differ materially
from what is expressed or forecasted in the forward-looking statements due to
numerous factors, including those described above and those risks discussed from
time to time in this prospectus, including the risks described under “Risk
Factors,” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this current report and in other documents which we
file with the Securities and Exchange Commission. In addition, such statements
could be affected by risks and uncertainties related to our ability to raise any
financing which we may require for our operations, competition, government
regulations and requirements, pricing and development difficulties, our ability
to make acquisitions and successfully integrate those acquisitions with our
business, as well as general industry and market conditions and growth rates,
and general economic conditions. Any forward-looking statements speak only as of
the date on which they are made, and we do not undertake any obligation to
update any forward-looking statement to reflect events or circumstances after
the date of this current report.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
We were
incorporated as a closed joint-stock company on November 23, 2005 in accordance
with the Civil Code of the Russian Federation and Federal Law of the Russian
Federation The manner of the incorporation of the Company, contents of its
constituent documents, formation of the charter capital, placement and State
registration of shares, structure and competence of the governing bodies in
general conform to the requirements of the effective legislation. The Globotek
APG System can be used in operations in the Russian Federation as well as other
parts of the world.
We intend
to become a fully vertically integrated company with a production line from
processing APG to the sale of the end products ranging from liquefied petroleum
gas (“LPG”), propane/butane, autogas and electricity. We believe that our
business and products are of great interest not only to oil and gas companies as
well as refineries worldwide, but also electricity generating and distributing
companies. Therefore, we see great potential for expanding and growing by
way of merger or acquisitions.
Results
of Operations
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
Our
revenues for the year ended December 31, 2008 were $6,774,519 as compared to
$3,355,232 for the year ended December 31, 2007. The increase in
revenues was due primarily to major ramp up of production which began in the
latter part of 2007 and continued through 2008.
Our
income from operating activities for the year ended December 31, 2008 were
$4,325,570 as compared to a loss from operations of $2,393,841 for the year
ended December 31, 2007. The increase resulted primarily due to the fact that we
ramped up production in the latter part of 2007 which continued through
2008.
Distribution
expense for year ended December 31, 2008 were $97,037 as compared to $18,408 for
the year ended December 31, 2007. Administrative expenses were $ 834,703 for the
year ended December 31, 2008 as compared to $ 210,082 for the year ended
December 31, 2007. Other operation expense was $
168,701 for the year ended December 31, 2008 as compared to $3,282
for the year ended December 31, 2007. Bad debt expenses of $128,682 in December
31, 2008 as compared to $0 in December 31, 2007. All of these higher
expenses are directly related to the ramp up in production which began in the
latter part of 2007 and continued through 2008.
VAT
expenses for the year ended December 31, 2008 was $ 1,041,993 as compared to $
511,728 for the same period in 2007. This increase can be
primarily attributed to higher production activities in the year
2008.
9
Other
Income for the year ended December 31, 2008 was $70,797 as compared to $3,282
for the same period in 2007. This increase resulted from receipt of
penalty payments and late payment charges from contractors in
2008. Finance Income for the year ended December 31, 2008 was $6,651
compared to $ 0 for the year ended December 31, 2007 and finance expense
for the year ended December 31, 2008 was $130,410 as compared to $35,617 for the
year ended December 31, 200. This increase can be attributed to
interest payments for borrowings obtained during the year
2008.
Income
Tax for the year ended December 31, 2008 was $ 672,601 as compared to $
(660,774) for the same period in 2007 due to adjustment as required under US
GAAP deferred tax accounting in the current year.
The
Company’s net income for the year ended December 31, 2008 was $1,324,240 as
compared to a net loss of $2,520,493 for year ended December 31, 2007, for the
reasons explained in the above paragraphs.
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Our
revenues for the nine month ended September 30, 2009 were $1,325,593 as compared
to $6,729,796 for the nine months ended September 30, 2008. The
decreases in revenues were due to the temporary shutdown of the Globotek NV
subsidiary which consisted of an APG processing plant. This facility
was located in Siberia and additional investment of approximately $700,000 is
needed to complete its relocation. We are in the process of moving equipment
from Siberia to the Samaria Region, which we expect will be more stable and
profitable for our shareholders. In addition, management estimates
that additional investment of $1,500,000 will be required to re-fabricate
certain equipment to adjust to the capacity requirements in the Samara
region.
Our
income from operating activities for the nine months ended September 30, 2009
were $269,275 as compared to $4,459,453 for the nine months ended September 30,
2008. The decrease resulted primarily due to the fact that we produced no LPG in
the nine months ended September 30, 2009.
Distribution
expense for the nine month ended September 30, 2009 were zero as compared to
$87,317_ for the nine months ended September 30, 2008 due to the LPG facility
being temporarily shut down. Administrative expenses were $469,731 for the nine
months ended September 30, 2009 as compared to $611,916 for the nine months
ended September 30, 2008 due to the less staff and cost in relation to a
slowdown in production. Other operation expense was $54,342 for the
nine months ended September 30, 2009 as compared to $150,954 for the nine months
ended September 30, 2008 due to staffing requirements and maintenance of the
facilities that would be needed if there were in full
operations.
VAT
expenses for the nine month period ended September 30, 2009 was $202,209 as
compared to $1,026,579 for the same period in 2008. This decrease was
primarily due to the decrease in LPG gas production done by Globotek
NV.
Other
Income for the nine month period ended September 30, 2009 was $16,072 as
compared to $59,092 for the same period in 2008. This decrease
resulted from there being no penalties from late payments or contractors in
2009. Finance Income for the nine months ended September 30, 2009 was
$2,035 compared to $1,200 for the nine months ended September 30,
2008. Finance expense for the nine month period ended September 30, 2009
was $154,036 as compared to $75,953 for the nine month ended September 30, 2008
as a result of increased borrowing from our Chief Executive Officer, Dimitry
Lukin and Rusvest-Finance.
Income
Tax Cap for the nine month period ended September 30, 2009 was $194 as compared
to $670,896 for the same period in 2008 due to change in deferred
taxes.
The
Company’s net loss for the nine months ended September 30, 2009 was $593,130 as
compared to a gain of $1,896,131 for nine months ended September 30, 2008 as a
result of our decreased revenues coupled with the temporary shutdown of the
Globotek NV subsidiary.
Off-Balance
Sheet Arrangements
We do not
have any relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements. As such, we are not exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
relationships.
Liquidity
and Capital Resources
Historically,
we have financed our operations and capital expenditures primarily with cash
on-hand and the proceeds from sales of our common stock. The primary source of
the Company’s capital resources has been from lines of credit with it
stockholders and other related entities.
10
Cash
Flow
We incurred
a net loss of $593,130 for nine months ended September 30, 2009 as compared to a
net income of $1,896,131 for the nine months ended September 30,
2008.
As of
September 30, 2009, we had working capital deficit of $3,079,286. We
believe that we will continue to incur net losses and negative cash flow from
operating activities into 2009. We have met our cash requirements to date
through the private placement of common stock and from borrowings and capital
leases.
Our
current cash flow is not adequate to satisfy our working capital requirements
and debt service. We will be able to utilize loans from affiliates for the
beginning stages of our development plan. However the capital spending
required by us to remain competitive and operate efficiently coupled with the
funds needed by us to continue existence will likely result in an increase in
the Company’s debt.
In the
past few months, concerns about the capitalization of a number of major banks
has led to a significant worldwide reduction in the availability of credit.
One result of this situation has been a sharp reduction in the price of
oil on the world market. If the current global financial crisis were to
continue for an extended period, it could have a significant unfavorable impact
on us.
We will
continue our efforts to obtain the funds needed to meet our future capital
requirements. We will continue to evaluate ways to maximize the value of its
assets, including possibly retiring or refinancing our existing debt. Although
discussions have taken place, no commitment for further financing has been
received at this time.
Critical
Accounting Policies and Estimates
Those
material accounting policies that we believe are the most critical to an
investor’s understanding of our financial results and condition are discussed
below. Four of these policies, discussed immediately below, are particularly
important to the portrayal of our financial position and results of operations
and require the application of significant judgment by our management to
determine the appropriate assumptions to be used in the determination of certain
estimates.
Revenue
Recognition
For
revenue from product sales and services, the Company recognizes revenue in
accordance with Staff Accounting Bulletin No. 104, Revenue Recognition
("SAB104"), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB101"). SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered; (3) the
selling price is fixed and determinable; and (4) collectibility is reasonably
assured. Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the products
delivered and the collectibility of those amounts. Provisions for discounts and
rebates to customers, estimated returns and allowances, and other adjustments
are provided for in the same period the related sales are recorded. The Company
defers any revenue for which the product has not been delivered or is subject to
refund until such time that the Company and the customer jointly determine that
the product has been delivered or no refund will be required. SAB 104
incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"), Multiple-Deliverable Revenue
Arrangements. EITF 00-21 addresses accounting for arrangements that may
involve the delivery or performance of multiple products, services and/or rights
to use assets. The effect of implementing EITF 00-21 on the Company's financial
position and results of operations was not significant.
All types
of revenue received in advance are recognized as deferred income in the balance
sheet. All other income and expense items are generally recorded on an accruals
basis by reference to completion of the specific transaction assessed on the
basis of the actual service provided as a proportion of the total services to be
provided.
Services
are provided subject to customer acceptance provisions. Customer acceptance
provisions and the related accounting take the following form: It is based on
customer-specified objective criteria. The Company does not recognize revenue
until it can demonstrate that the customer-specified objective criteria have
been satisfied. The Company recognizes revenue upon receipt of the act of
acceptance for services provided signed and stamped by the
customer.
The
Company uses the sales method of accounting for APG revenues. Under this method,
revenues are recognized based on actual volumes of APG and sold to purchasers.
The volumes sold may differ from the volumes to which the Company is entitled
based on its interests in the properties. These differences create imbalances
that are recognized as a liability only when the estimated remaining reserves
will not be sufficient to enable the under produced owner to recoup its entitled
share through production. There are no significant balancing arrangements or
obligations related to the Company’s operations.
11
Use of
Estimates
The
preparation of financial statements in accordance with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and revenue and expenses during the periods
reported. Estimates are used when accounting for certain items such as
allowances for doubtful accounts; depreciation and amortization
lives; asset retirement obligations; legal and tax contingencies; inventory
values; goodwill. Estimates are based on historical experience, where applicable
and other assumptions that management believes are reasonable under the
circumstances. Actual results may differ from those estimates under different
assumptions or conditions
Impairment
of long lived assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SF AS No. 144 also requires assets to be disposed of is reported at
the lower of the carrying amount or the fair value less costs to
sell.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess of
the FDIC insurance limit. The allowance for doubtful accounts was $107,170 and
$0 at December 31, 2008 and December 31, 2007, respectively.
Trade
receivables are presented in the balance sheet net of the allowance for doubtful
accounts and are written off when they are determined to be uncollectible. The
allowance for doubtful accounts is estimated based on the Company’s historical
losses, the existing economic conditions in the industry, and the financial
stability of its customers.
Recent
accounting pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited. The Company does not expect the adoption of SFAS No. 141R in 2009
will have a material effect on its combined financial position, results of
operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the combined balance sheets. SFAS
No. 160 is effective as of the beginning of the first fiscal year beginning on
or after December 15, 2008. Earlier adoption is prohibited. The Company
does not expect the adoption of SFAS No. 160 in 2009 to have a material effect
on its combined financial position, results of operations or cash
flows.
In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged. The Company does not expect the
adoption of SFAS No. 161 to have a material effect on its combined financial
position, results of operations or cash flows.
In April
2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. The Company is required to adopt FSP 142-3 on January
1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3
for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after adoption, and the
disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption. The Company does not expect
the adoption of FSP No. FAS 142-3 to have a material effect on its combined
financial position, results of operations or cash flows.
12
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162"). SFAS No.
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles." The Company does not
expect the adoption of SFAS No. 162 to have a material effect on its
combined financial position, results of operations or cash flows.
In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial
Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60,
“Accounting and Reporting by Insurance Enterprises”, applies to financial
guarantee insurance contracts issued by insurance enterprises.
The standard is effective for financial statements issued for fiscal
years beginning after December 15, 2008, including interim periods in that year.
The Company does not expect the adoption of SFAS 163 to have a material effect
on its combined financial statements.
Item
3. Properties
Our
executive offices are located at 22, Sevemaya Street, Togliatti, Samara
region, Russia and its telephone number at such address is 7 8482 319999.
Our US representative office is located at 25 Jenna Lane, Staten Island, New
York 10304.
Item
4. Security Ownership of Certain Beneficial Owners and
Management
The
following table sets forth certain information, as of December 31, 2009 with
respect to the beneficial ownership of the outstanding Common Stock by (i) any
holder of more than five (5%) percent; (ii) each of the Company’s executive
officers and directors; and (iii) the Company’s directors and executive officers
as a group. Except as otherwise indicated, each of the stockholders listed below
has sole voting and investment power over the shares beneficially
owned.
13
Name
of Beneficial Owner (1)
|
Common
Stock
Beneficially
Owned
|
Percentage
of
Common
Stock (2)
|
||||||
Directors
and Officers:
|
||||||||
Dmitry
Viktorovich Lukin
|
5,600,000
|
8.64%
|
||||||
Alexander
Nikolaevich Lapkin
|
5,600,000
|
8.64%
|
||||||
Sergey
Alexandrovich Lapkin
|
5,600,000
|
8.64%
|
||||||
Alexander
Viktorovich Lukin
|
5,600,000
|
8.64%
|
||||||
Alexander
Vladimirovich Akustin
|
800,000
|
1.23%
|
||||||
Vladislav
Feliksovich Tenenbaum
|
5,600,000
|
8.64%
|
||||||
Sergey
Viktorovich Lukin
|
5,600,000
|
8.64%
|
||||||
Elena
Alexandrovna Lapkina
|
5,600,000
|
8.64%
|
||||||
Veronika
Palterovich
|
300,000
|
*
|
||||||
All
officers and directors as a group (9 persons)
|
40,300,000
|
62.19 %
|
||||||
Beneficial
owners of more than 5%:
|
||||||||
Stuart
Wayne Jones
38
Playa Laguna
Sosua,
Dominican Republic
|
7,200,000
|
11.11%
|
||||||
Virgilio
Santana Ripoll
38
Playa Laguna
Sosua,
Dominican Republic
|
3,600,000
|
5.56%
|
||||||
Robert
Seeley
38
Playa Laguna
Sosua,
Dominican Republic
|
7,200,000
|
11.11%
|
*Less
than 1%
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is 22,
Sevemaya Street, Togliatti, Samara
region, Russia.
|
(2)
|
Applicable
percentage ownership is based on 64,800,000 shares of Common Stock
outstanding as of December 31, 2009 together with securities exercisable
or convertible into shares of Common Stock within 60 days of December 31,
2009 for each stockholder. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to
securities.
|
14
Item
5. Directors and Executive Officers
Below are
the names and certain information regarding the Company’s executive officers and
directors following the acquisition of Globotek.
Name
|
Age
|
Position
|
Vladisav
Feliksovich Tenenbaum
|
45
|
President
and Chairman
|
Dmitry
Viktorovich Lukin
|
37
|
Chief
Executive Officer and Director
|
Alexandr
Nikolaevich Lapkin
|
54
|
Chief
Science Officer and Director
|
Sergey
Alexandrovich Lapkin
|
30
|
Chief
Technology Officer and Director
|
Alexander
Viktorovich Lukin
|
35
|
Chief
Production Officer and Director
|
Sergey
Viktorovich Lukin
|
33
|
Chief
Financial Officer and Director
|
Alexandr
Vladimirivich Axutin
|
35
|
Director
|
Elena
Alexandrovna Lapkina
|
28
|
Director
|
Veronica
Palterovich
|
42
|
Director
|
Directors
serve until the next annual meeting of stockholders or until their successors
are elected and qualified. Officers serve at the discretion of the
board of directors.
Vladisav
Feliksovich Tenenbaum – President and Chairman
Vladisav
Tenenbaum has served as Director for Foreign Affairs, Director for Strategic
Planning and Chairman of the Board for Globotek since 2006. He has
also served as Chairman of the Board of Directors for International Affairs for
JSC Neftechim, a Russian company engaged in crude oil exporting from November
2006 to December 2009 and as a Director for Sindikat Oil, an oil
refinery.
Dmitry
Viktorovich Lukin – Chief Executive Officer and Director
Dmitry
Lukin has served as Chief Executive Officer of Globotek since
2005. He also served as a Director of Samit LLC, a Russian company
which supplies electronic equipment to auto manufacturers, from 2001 through
2007. Dmitry Lukin is the brother of Alexander Lukin, our Chief
Production Officer and Director and Sergey Lukin, our Chief Technology Officer
and a member of our board of directors.
Alexandr
Nikolaevich Lapkin – Chief Science Officer and Director
Alexandr
Lapkin has served as Principal Engineer of Globotek since 2005. Prior
to joining Globotek, he served as a Director and Principal Engineer at OJSC
Togliattiazot, a Russian chemical company from 1985 through 2005. He
received his engineering degree from Kuybyshew Polytechnic
Institute. Alexandr Lapkin is the father of Sergey Lapkin, our Chief
Technology Officer and a member of our board of directors.
Sergey
Alexandrovich Lapkin – Chief Technology Officer and Director
Sergey
Lapkin has served as Technical Director – Principal Engineer of Globotek since
2006. Prior to joining Globotek, he served as Principal Engineer of
CJSC SPA Ecologicheskiyesistemy, a Russian engineering company from 2003 through
2005. He received his engineering degree from the Polytechnic Institute of
Tolyatti. Sergey Lapkin is the son of Alexandr Lapkin, our Chief
Science Officer and a member of our board of directors.
Alexander
Viktorovich Lukin – Chief Production Officer and Director
Alexander
Lukin has served as Director of Producing and Construction of Globotek since
2007. Prior to joining Globotek, he served as Deputy Director of
Samit LLC, a Russian company which supplies electronic equipment to auto
manufacturers from 2001 through 2007. Alexander is the
brother of Sergey Lukin, our Chief Technology Officr and Director and Dmitry
Lukin, our Chief Executive Officer and Director.
Sergey
Viktorovich Lukin - Chief Financial Officer and
Director
Sergey
Vikrovich served as theChief Financial Officer of Globotek since 2005 and as a
director of the Company since 2009. Prior to joining Globotek, he
served as Director of Samit LLC, a Russian company which supplies electronic
equipment to auto manufacturers from 2001 through 2007. He also served as the
head of the marketing and sales department of CJSC Polad, a Russian company
specializing in the production of automotive parts, metal components and
painting materials from 1997 through 2000. Sergey Lukin is the brother of
Alexander Lukin, our Chief Production Officer and Director and Dmitry Lukin, our
Chief Technology Officer and Director.
15
Alexandr
Vladimirivich Axutin - Director
Alexandr
Axutin has served as a director of the Company since December 2009 and Director
of Corporate Management and Relations Director of Globotek since July
2009. Prior to joining Globotek, he served as President of Resource
Management at an autoparts production company from December 2006 through June
2009. He also previously served as a General Director of Pokrov, a
Russian autoparts production company from June 2004 through December
2006.
Elena
Alexandrovna Lapkina - Director
Elena
Lapkina has served as the head of the project department of Globotek since
January 2006 and as a director of the Company since December
2009. Prior to joining Globotek, she served as a design engineer at
CJSC SPA Ecologicheskive, a Russian engineering company from November 2003
through December 2005..
Veronica
Palterovich – Director
Veronica
Palterovich was appointed to our board of directors on January 25,
2010. Ms. Palterovich has served as a consultant to Green Planet
Energy Solutions, Inc. since 2008. Prior to joining Green Planet
Energy Solutions, she was Director of Business Development for Eastern European
markets for Phoenix Energy Systems, Inc. Ms. Palterovich also served
as a member of the board of directors of Fortiz Finanz SA from 2007 through 2009
and as Project Manager at First International Monetary Agency of London Ltd.
from 1998 through 2004. Ms. Palterovich received her MBA from
University of the West of Scotland and her degree in applied mathematics from
the State Academy of Oil and Gas in Moscow, Russia.
16
Item
6. Executive Compensation
No
executive officer of the Company received compensation in excess of $100,000 per
year for each of the last three fiscal years.
Employment
Agreements
We
currently have no formal employment or consulting agreements with our executive
officers.
Director
Compensation
Veronica
Palterovich is our sole independent director as that term is defined under the
Nasdaq Marketplace Rules.
Item
7. Certain Relationships and Related Transactions, and Director
Independence
Certain
Relationships and Related Transactions
During
the years ended December 31, 2008 and 2007, the Company entered into
transactions with related parties. The outstanding balances at the year end and
the income and expense for the year with related parties are as
follows:
Shareholders
|
Accounts
|
December
31, 2008
|
December
31, 2007
|
||||||
Lukin
D.
|
Borrowings
(сurrent liabilities)
|
$
|
104,000
|
$
|
1,162,000
|
||||
Borrowings
(non-сurrent liabilities)
|
870,000
|
-
|
|||||||
Lukin
A.
|
Trade
payable
|
4,897
|
16,000
|
||||||
Advance
paid
|
4,897
|
-
|
|||||||
Other
costs for the year
|
89,210
|
107,113
|
|||||||
Rent
and rates for the year
|
5,000
|
6,000
|
|||||||
Lukin
S.
|
Trade
receivable
|
2,103
|
-
|
||||||
Sales
of assets
|
1
648
|
-
|
|||||||
Lapkin
A.
|
Trade
payable
|
40,919
|
-
|
||||||
Intangible
Assets (patent)
|
46,000
|
-
|
|||||||
Lapkin
S.
|
Trade
payable
|
40,919
|
-
|
||||||
Intangible
Assets (patent)
|
46,000
|
-
|
|||||||
Also, the
Company buys and sells goods from related parties- the entities controlled or
managed by the stockholders of the Company. The Company purchased goods totaling
to $1,941,000 and $412,000 for the year ended December 31, 2008 and 2007,
respectively. The Company sold goods totaling to $3,243,000 and $2,480,000 for
the year ended December 31, 2008 and 2007, respectively.
The Group
received a loan from Dmitry Lapkin As of December 31, 2008, the balance of this
loan was $974,000, the current portion of which was $870,000 and the non-current
portion of which was $104,000.The loan is interest-free.
During
the year ended December 31, 2008, Sergey Lapkin and Alexander Lapkin assigned
certain patents to the Company.
Director
Independence
None of
our directors are independent as that term is defined under the Nasdaq
Marketplace Rules.
Item
8. Legal Proceedings
Golobtek
is a party to the following proceedings in the Russian Federation:
In proceedings of the
Arbitrage Court of Samara Region there is case No. А9595/2009
initiated under the claim of Government institution – General Office of Pension
Fund of RF in Syzran City and Oktyabrsk City, Syzran and Shigon District of
Samara Region against Globotek ZAO concerning recovery of obligatory
payments and penalties. As of December 31, 2008, the Company has accrued $8,000
as liability in the books.
In
accordance with information placed on the site of the Arbitrage Court of Samara
Region this suit has been satisfied. The amount to be recovered is not
indicated.
17
In proceedings of the
Arbitrage Court of Samara Region there is case No А55-15744/2009 initiated under
the claim of the Ministry of Industry, Power engineering and Technologies of
Samara Region against Globotek ZAO:1) On recovery of money in the aggregate
amount of approximately $55,000(RUB 1,652,508) On termination
of government contract No. 5 dated 28 May 2008. The Company is defending against
this case and expects a favorable outcome. The Court declined the contract
termination, but ruled that JSC Globotek to pay approximately $14 000. The
Company has applied to another court to recover from the Ministry of Industry,
Power Engineering and Technologies of Samara Region in the amount
of $100 000
No.
24592/2009 initiated based on the action brought by Lapkin Alexander
Nikolaevich against CJSC “Globotek” and CJSC “VAZINTERSERVICE” to recognize
surety agreement № 2956 dated 28 November 2006 to be invalid; No. A55-23415/2009
initiated based on the writ brought by creditor CJSC “VAZINTERSERVICE” to
initiate bankruptcy proceedings against CJSC “Globotek”. The Company guaranteed
the loan by Vazinterservice to Aksutin Alexander. Aksutin Alexander lent these
funds, in turn, to the Company. The loan is shown under note payable- related
parties and as of December 31, 2008, outstanding balance was $804,000. The
Company does not expect to pay more than this loan balance offset in settlement
of this estimated liability. (refer to note 8) The Court determined that the
guarantee was valid and declined its cancellation.
Item
9. Market Price of and Dividends on Common Equity and Related Stockholder
Matters
The
Common Stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“CBBV.OB”. As of the date of the filing of this report, there has
been limited trading in the Common Stock.
18
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions. All per share amounts below have been adjusted to reflect
the 20:1 forward split effected be the Company on June 16, 2009.
Year
Ended December 31, 2010
High
|
Low
|
|||||||
First
Quarter ended March 31, 2010 (through 1/29/10)
|
$
|
0.53
|
$
|
0.145
|
Year
Ended December 31, 2009
High
|
Low
|
|||||||
Second
Quarter ended June 30, 2009
|
$
|
0.175
|
$
|
0.05
|
||||
Third
Quarter ended September 30, 2009
|
$
|
0.375
|
$
|
0.20
|
||||
Fourth
Quarter ended December 31, 2009
|
$
|
0.53
|
$
|
0.26
|
Dividends
We have
never declared or paid any cash dividends on its Common Stock. We currently
intend to retain future earnings, if any, to finance the expansion of its
business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
19
Securities
Authorized for Issuance Under Equity Compensation Plans
We have
not adopted any equity compensation plan as of December 31, 2009.
Item
10. Recent Sales of Unregistered Securities
None.
Item
11 Description of Securities
Our
authorized capital stock consists of 125,000,000 shares of Common Stock at
a par value of $0.001 per share. As of December 31, 2009,
there were 64,800,000 shares of Common Stock issued and
outstanding.
The
holders of our common stock (i) have equal ratable rights to dividends from
funds legally available therefore, when, as and if declared by our Board of
Directors; (ii) are entitled to share in all of our assets available for
distribution to holders of common stock upon liquidation, dissolution or winding
up of our affairs; (iii) do not have preemptive, subscription or conversion
rights and there are no redemption or sinking fund provisions or rights; and
(iv) are entitled to one non-cumulative vote per share
on all
matters on which stockholders may vote.
NON-CUMULATIVE
VOTING
Holders
of shares of our common stock do not have cumulative voting rights, which means
that the holders of more than 50% of the outstanding shares, voting for the
election of directors, can elect all of the directors to be elected, if they so
choose, and, in such event, the holders of the remaining shares will not be able
to elect any of our directors.
Item
12. Indemnification of Directors and Officers
Our
By-Laws allow for the indemnification of the officers and directors in regard to
their carrying out the duties of their offices. The board of directors will make
determination regarding the indemnification of the director, officer or employee
as is proper under the circumstances if he/she has met the applicable standard
of conduct set forth in the Nevada General Corporation Law.
As to
indemnification for liabilities arising under the Securities Act of 1933for
directors, officers or persons controlling us, we have been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy and unenforceable.
Item
13. Financial Statements and Supplementary Data
.
The
financial statements of CJSC Globotek begin on Page F-1 to this Form
8-K.
20
Item
14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item
5.01 Changes in Control of Registrant.
See Item
2.01.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
Veronica
Palterovich was appointed to our board of directors on January 25,
2010. Ms. Palterovich has served as a consultant to Green Planet
Energy Solutions, Inc. since 2008. Prior to joining Green Planet
Energy Solutions, she was Director of Business Development for Eastern European
markets for Phoenix Energy Systems, Inc. Ms. Palterovich also served
as a member of the board of directors of Fortiz Finanz SA from 2007 through 2009
and as Project Manager at First International Monetary Agency of London Ltd.
from 1998 through 2004. Ms. Palterovich received her MBA from
University of the West of Scotland and her degree in applied mathematics from
the State Academy of Oil and Gas in Moscow, Russia.
Item
5.06 Change in Shell Company Status.
See Item
1.01.
Item
9.01 Financial Statements and Exhibits.
(a) Financial
statements of CJSC Globotek. See Page F-1.
(b) Pro
forma financial information. See Exhibit 99.2.
(c) Shell
Company Transactions. See (a) and (b) of this Item 9.01.
(d)
Exhibits
Exhibit
Number
|
Description
|
|
99.1
|
Agreement
and Plan of Merger, dated December 22, 2009, among Caribbean Villa
Catering, Inc. CJSC Globotek and Caribbean Villa Acquisition
Corp(1).
|
|
99.2
|
Proforma
financial information
|
(1)
|
Incorporated
by reference to the Current Report on Form 8-K filed with the SEC on
December 31, 2009
|
21
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARIBBEAN
VILLA CATERING CORPORATION
|
|||
Dated: February 2,
2010
|
By:
|
/s/ Dmitry Viktorovich Lukin | |
Name: Dmitry
Viktorovich Lukin
Title:
Chief Executive Officer
|
|||
22
JSC
GLOBOTEK
COMBINED
FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
WITH
AUDIT REPORT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
F-1
JSC
GLOBOTEK
Index to
Combined Financial Statements
Page
|
||
Report
of Independent Registered Public Accounting
Firm
|
F-3
|
|
Combined
Balance Sheets As Of December 31, 2008 and 2007
|
F-4
|
|
Combined
Statement Of Operations For The Years Ended December 31, 2008 and
2007
|
F-5
|
|
Combined
Statement Of Deficiency In Stockholders’ Equity For The Two Years Ended
December 31, 2008
|
F-6
|
|
Combined
Statement Of Cash Flows For The Year Ended December 31, 2008 and
2007
|
F-7
|
|
Notes
To Combined Financial Statements
|
F-8
~F-20
|
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors
JSC
Globotek
Tolyatti,
Russia
We have
audited the accompanying combined balance sheets of JSC Globotek and affiliates
(the “Company”) as of December 31, 2008 and 2007 and the related combined
statements of operations, deficiency in stockholders’ equity, and cash flows for
each of the two years in the period ended December 31, 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these combined financial statements
based upon our audits.
We have
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the combined financial statements are free of material misstatements. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe our audits provide a reasonable basis for
our opinion.
In our
opinion, the combined financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2008 and 2007, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying combined financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 14 to the
combined financial statements, at December 31, 2008, the Company had a working
capital deficiency of $2,410,613 and deficiency in stockholders’ equity of
$632,925. This raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 14. The combined financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
By:
|
/s/ RBSM
LLP
|
||
New York,
New York
December
31, 2009
F-3
JSC
GLOBOTEK
COMBINED
BALANCE SHEETS
December
31, 2008 and 2007
2008
|
2007
|
|||||||
Assets
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$
|
2,015
|
$
|
9,273
|
||||
Trade
receivable, net of allowance for doubtful accounts $107,170 and $0 as of
December 31, 2008 and 2007, respectively
|
49,765
|
599
|
||||||
Inventories
|
660,397
|
25,490
|
||||||
Advances
to suppliers
|
193,024
|
1,194,380
|
||||||
VAT
recoverable
|
488,321
|
88,037
|
||||||
Other
current assets
|
360,690
|
575,416
|
||||||
Total
Current Assets
|
1,754,213
|
1,893,196
|
||||||
Property
and Equipment, net of accumulated depreciation of $396,153 and $6,337,
respectively
|
3,800,360
|
186,906
|
||||||
Other
Assets:
|
||||||||
Intangible
Assets
|
142,669
|
163
|
||||||
Deferred
income tax assets
|
-
|
670,798
|
||||||
Total
Other Assets
|
142,669
|
670,961
|
||||||
Total
Assets
|
$
|
5,697,242
|
$
|
2,751,063
|
||||
(Deficiency
in) Stockholders' equity and Liabilities
|
||||||||
Current
Liabilities:
|
||||||||
Advances
received from customers
|
$
|
506,486
|
$
|
1,554,157
|
||||
Trade
payable
|
1,540,117
|
2,056,928
|
||||||
Notes
payable – current – related parties
|
1,075,127
|
1,658,419
|
||||||
Capital
lease payable – current
|
910,177
|
64,550
|
||||||
Other
current liabilities
|
132,920
|
47,751
|
||||||
Total
Current Liabilities
|
4,164,826
|
5,381,804
|
||||||
Long-term
Liabilities:
|
||||||||
Notes
payable – long term – related parties
|
1,069,366
|
-
|
||||||
Capital
lease payable – long term
|
1,095,975
|
122,323
|
||||||
Total
Long-term Liabilities
|
2,165,341
|
122,323
|
||||||
(Deficiency
in) Stockholders' Equity:
|
||||||||
Common
Stock, no par value; 100 shares authorized; 100 shares issued and
outstanding at December 31, 2008 and
2007
|
100
|
100
|
||||||
Additional
paid-in capital
|
1,059
|
632
|
||||||
Accumulated
deficit
|
(1,285,587
|
)
|
(2,609,827
|
)
|
||||
Accumulated
other comprehensive income / loss
|
651,503
|
(143,968
|
)
|
|||||
Total
(Deficiency in) Stockholders' Equity
|
(632,925
|
)
|
(2,753,065
|
)
|
||||
Total
(Deficiency in) Stockholders’ Equity and Liabilities
|
$
|
5,697,242
|
$
|
2,751,063
|
The
accompanying notes are an integral part of these combined financial
statements
F-4
JSC
GLOBOTEK
COMBINED
STATEMENT OF OPERATIONS
FOR THE
YEARS ENDED
DECEMBER
31, 2008 AND 2007
2008
|
2007
|
|||||||
Revenues:
|
||||||||
Sale
of productive output
|
$
|
4,360,076
|
$
|
306,764
|
||||
Sale
of goods
|
2,340,345
|
3,006,893
|
||||||
Other
revenue
|
74,098
|
41,574
|
||||||
Total
Revenue
|
6,774,519
|
3,355,232
|
||||||
Cost
of Sales
|
2,448,949
|
5,749,073
|
||||||
Gross
Profit (Loss)
|
4,325,570
|
(2,393,841
|
)
|
|||||
Operating
Expenses:
|
||||||||
Depreciation
and amortization
|
399,098
|
7,059
|
||||||
Value
added taxes (VAT)
|
1,041,993
|
511,728
|
||||||
Selling,
general and administrative
|
828,025
|
236,303
|
||||||
Total
Operating Expenses
|
2,269,116
|
755,090
|
||||||
Income
(Loss) from Operations
|
2,056,454
|
(3,148,931
|
)
|
|||||
Other
Income (Expenses):
|
||||||||
Interest
expense, net
|
(130,410
|
)
|
(35,617
|
)
|
||||
Miscellaneous
income
|
70,797
|
3,282
|
||||||
Total
Other Income (Expenses)
|
(59,613
|
)
|
(32,335
|
)
|
||||
Income
(Loss) before Taxes
|
1,996,841
|
(3,181,267
|
)
|
|||||
Income
tax expenses (benefit)
|
672,601
|
(660,774
|
)
|
|||||
Net
Income (Loss)
|
$
|
1,324,240
|
$
|
(2,520,493
|
)
|
The
accompanying notes are an integral part of these combined financial
statements
F-5
JSC
GLOBOTEK
COMBINED
STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE
TWO YEARS ENDED DECEMBER 31, 2008
Common
Stock
|
||||||||||||||||||||||||
Common
Shares
|
Amount
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income / (Loss)
|
Total
(Deficiency in) Shareholders' Equity
|
|||||||||||||||||||
Balance
at December 31, 2006
|
100
|
$
|
100
|
$
|
632
|
$
|
(89,336
|
)
|
$
|
(56
|
)
|
$
|
(88,660
|
)
|
||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
(143,912
|
)
|
(143,912
|
)
|
||||||||||||||||
Net
loss
|
-
|
-
|
-
|
(2,520,493
|
)
|
-
|
(2,520,493
|
)
|
||||||||||||||||
Balance
at December 31, 2007
|
100
|
$
|
100
|
$
|
632
|
$
|
(2,609,827
|
)
|
$
|
(143,968
|
)
|
$
|
(2,753,064
|
)
|
||||||||||
Cumulative
translation adjustment
|
-
|
-
|
427
|
-
|
795,471
|
795,898
|
||||||||||||||||||
Net
income
|
-
|
-
|
-
|
1,324,240
|
-
|
1,324,240
|
||||||||||||||||||
Balance
as at 31 December 2008
|
1,00
|
$
|
100
|
$
|
1,059
|
$
|
(1,285,587
|
)
|
$
|
651,503
|
$
|
(632,925
|
)
|
The
accompanying notes are an integral part of these combined financial
statements
F-6
JSC
GLOBOTEK
COMBINED
STATEMENT OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
income (loss) from operations
|
$
|
1,324,240
|
$
|
(2,520,493
|
)
|
|||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
-
|
|||||||
Depreciation
and amortization
|
399,098
|
6,337
|
||||||
Bad
debts
|
126,682
|
-
|
||||||
(Increase)
/ decrease in:
|
||||||||
Trade
receivables
|
(175,848
|
)
|
(599
|
)
|
||||
Inventories
|
(634,907
|
)
|
(11,255
|
)
|
||||
Advances
to suppliers
|
1,001,356
|
(903,698
|
)
|
|||||
VAT
recoverable
|
(400,284
|
)
|
(79,247
|
)
|
||||
Deferred
tax assets
|
670,798
|
(662,425
|
)
|
|||||
Other
current assets
|
145,833
|
(484,010
|
)
|
|||||
Increase
/ (decrease) in:
|
||||||||
Advances
received from customers
|
(1,047,671
|
)
|
1,554,157
|
|||||
Trade
payables
|
(516,811
|
)
|
2,053,056
|
|||||
Other
current liabilities
|
85,169
|
39,363
|
||||||
Net
Cash Provided by (Used in) Operating Activities
|
977,655
|
(1,008,814
|
)
|
|||||
Cash
Flows from Investing Activities:
|
||||||||
Repayments
of notes receivable
|
68,893
|
316,160
|
||||||
Payments
for purchase of property, plant and equipments and intangible
assets
|
(3,462,548
|
)
|
(192,771
|
)
|
||||
Net
Cash (Used in) Provided by Investing Activities
|
(3,393,655
|
)
|
123,389
|
|||||
Cash
Flows from Financing Activities:
|
||||||||
Net
proceeds from capital leases
|
1,516,066
|
193,000
|
||||||
Proceeds
from note payable – related parties
|
759,116
|
846,012
|
||||||
Net
Cash Provided by Financing Activities
|
2,275,182
|
1,039,012
|
||||||
Exchange
differences
|
133,560
|
(150,039
|
)
|
|||||
Net
Decrease in Cash and Cash Equivalents
|
(7,258
|
)
|
3,549
|
|||||
Cash
and Cash Equivalents at the beginning of the Year
|
9,273
|
5,725
|
||||||
Cash
and Cash Equivalents at The End of the Year
|
$
|
2,015
|
$
|
9,273
|
||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during the year for interest
|
$
|
(130,410
|
)
|
$
|
(33,717
|
)
|
||
Cash
paid during the year for taxes
|
$
|
(7,246
|
)
|
$
|
-
|
|||
The
accompanying notes are an integral part of these combined financial
statements
F-7
JSC GLOBOTEK
NOTES TO
COMBINED FINANCIAL STATEMENTS
DECMBER
31, 2008 AND 2007
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows:
Business
and Basis of Presentation
The
Company was incorporated as a closed joint stock company in accordance with the
Civil Code of the Russian Federation and Federal Law of the Russian
Federation.
The
Company and its affiliates (together – the “Group”) represent a group of
enterprises that have developed a unique and patented technology specializing in
the treatment of Associated Petroleum Gas (“APG”) via a modular processing plant
(the “Globotek APG System”). The Globotek APG System can be used in
the Russian Federation as well as other parts of the world.
The
Group’s main operations are currently in the Samara region
(Tolyatti). Thr Group’s operations were formerly principally located
on the Mohtikovsky deposit (Nizhnevartovsk area, Hunts-Mansijsky independent
district-Jugra). Currently, the Company is in the process of transporting this
mobile complex to another location in the Samara region. (see Note
15)
The
Company also buys and sell industrial equipment to some of it client base and
acts as a distributor of equipment for some national electric
companies. The company receives payment after the product is received
from the third party. The Company has resale agreements with these
vendors.
Globotek
NV
Globotek
NV was founded in 2007 in the Nizhnevartovsk region., Although the Group does
not owns the voting interest in this subsidiary, it maintains control through
its common ownership and management. The principal activity of this company is
complex operation on processing OPG.
Globotek
Samara
Globotek
Samara was founded in 2008 in the Samara region and it is an affiliate of the
Group. The Group’s main operations are in the Samara region (Tolyatti), The
industrial modular mobile complex on processing OPG is established on the
Mohtikovsky deposit (Nizhnevartovsk area, Hunts-Mansijsky independent
district-Jugra).
The
combined financial statements include the financial statements of Globotek JSC,
Globotek NV and Globotek Samara, which are related through common ownership and
management. All significant intercompany balances and transactions have been
eliminated in combination.
F-8
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
For
revenue from product sales and services, the Company recognizes revenue in
accordance with Staff Accounting Bulletin No. 104, Revenue Recognition
("SAB104"), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB101"). SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered; (3) the
selling price is fixed and determinable; and (4) collectibility is reasonably
assured. Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the products
delivered and the collectibility of those amounts. Provisions for discounts and
rebates to customers, estimated returns and allowances, and other adjustments
are provided for in the same period the related sales are recorded. The Company
defers any revenue for which the product has not been delivered or is subject to
refund until such time that the Company and the customer jointly determine that
the product has been delivered or no refund will be required. SAB 104
incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"), Multiple-Deliverable Revenue
Arrangements. EITF 00-21 addresses accounting for arrangements that may
involve the delivery or performance of multiple products, services and/or rights
to use assets. The effect of implementing EITF 00-21 on the Company's financial
position and results of operations was not significant.
All types
of revenue received in advance are recognized as deferred income in the balance
sheet. All other income and expense items are generally recorded on an accruals
basis by reference to completion of the specific transaction assessed on the
basis of the actual service provided as a proportion of the total services to be
provided.
Services
are provided subject to customer acceptance provisions. Customer acceptance
provisions and the related accounting take the following form: It is based on
customer-specified objective criteria. The Company does not recognize revenue
until it can demonstrate that the customer-specified objective criteria have
been satisfied. The Company recognizes revenue upon receipt of the act of
acceptance for services provided signed and stamped by the
customer.
The
Company uses the sales method of accounting for APG revenues. Under this method,
revenues are recognized based on actual volumes of APG and sold to purchasers.
The volumes sold may differ from the volumes to which the Company is entitled
based on its interests in the properties. These differences create imbalances
that are recognized as a liability only when the estimated remaining reserves
will not be sufficient to enable the under produced owner to recoup its entitled
share through production. There are no significant balancing arrangements or
obligations related to the Company’s operations.
Use of
Estimates
The
preparation of financial statements in accordance with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and revenue and expenses during the periods
reported. Estimates are used when accounting for certain items such as
allowances for doubtful accounts; depreciation and amortization
lives; asset retirement obligations; legal and tax contingencies; inventory
values; goodwill. Estimates are based on historical experience, where applicable
and other assumptions that management believes are reasonable under the
circumstances. Actual results may differ from those estimates under different
assumptions or conditions
Property
and Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. The cost of self-constructed assets
includes the cost of materials, direct labor and an appropriate portion of
production overheads directly related to construction of assets. Property, plant
and equipment also include assets under construction and plant and equipment
awaiting installation. Capitalized costs include cost of transporting plant to
the site for use. At the time of relocation, the Company reevaluates capitalized
transportation and site specific structural costs and writes off related book
value. Where an item of property, plant and equipment comprises major components
having different useful lives, they are accounted for as separate items of
property, plant and equipment. Depreciation is charged on a straight-line basis
over the estimated remaining useful lives of the individual assets. Plant and
equipment under capital leases and subsequent capitalized expenses are
depreciated on a straight-line basis over the estimated remaining useful life of
the individual assets. Depreciation commences from the time an asset is put into
operation. Depreciation is not charged on assets to be disposed of and land. The
range of the estimated useful lives is as follows:
Furniture and Equipment | 2-5 years | ||
Plant | 8 years | ||
Vehicles | 3-5 years |
Maintenance
and repairs to vehicles, machinery and equipment is expensed as
incurred. There is no reevaluation of useful life as most of the
assets are short term in nature and the repairs or maintenance are in the normal
course of the operating life of the asset.
F-9
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories
as of December 31, 2008 and 2007 relate to industrial equipment resale and raw
material for APG conversion. Inventories are carried at cost or market,
whichever is less. Cost is calculated based on cost relating to specific
identification of batch of equipment for resale.
Value
Added Tax
The tax
authorities permit the settlement of value added tax (“VAT”) on a net
basis. The net value added tax related to sales and purchases which
has not been settled at the balance sheet date is recognized in the balance
sheet and disclosed separately as a liability, or as an asset to the extent that
management expect to recover these amounts. Related cash flows are
recorded as part of operating activities in the cash flow statement According to
the Russian law the VAT is The VAT rate constitutes 18 percent of gross
cost.
Advertising
Costs
The
Company expenses advertising costs as incurred. Advertising expense was $0 and
$0 for the years ended December 31, 2008 and 2007, respectively.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
Intangible
Assets and Goodwill
Under
SFAS No. 142, Goodwill and Other Intangible Assets, ("SFAS No. 142") intangible
assets with indefinite useful lives are subject to impairment test at least
annually and on an interim basis when an event occurs or circumstances change
between annual tests that would more-likely-than-not result in impairment. The
Group performs the required annual intangible assets impairment test at the end
of each calendar year. Intangible assets that have limited useful lives are
amortized on a straight-line basis over the shorter of their useful or legal
lives. In accordance with SFAS No. 142, the Company tests its intangible assets
for impairment on an annual basis and when there is reason to suspect that their
values have been diminished or impaired. Any write-downs will be included in
results from operations.
Impairment
of long lived assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SF AS No. 144 also requires assets to be disposed of is reported at
the lower of the carrying amount or the fair value less costs to
sell.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess of
the FDIC insurance limit. The allowance for doubtful accounts was $107,170 and
$0 at December 31, 2008 and December 31, 2007, respectively.
Trade
receivables are presented in the balance sheet net of the allowance for doubtful
accounts and are written off when they are determined to be uncollectible. The
allowance for doubtful accounts is estimated based on the Company’s historical
losses, the existing economic conditions in the industry, and the financial
stability of its customers.
F-10
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research
and Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.”
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. Total expenditures on
research and product development for 2008 and 2007 were $0 and $0,
respectively.
Deferred
Financing Costs
The
company amortizes deferred financing costs under the straight-line method over
the terms of the related indebtedness, which approximates the effective interest
method and is included in interest expense in the accompanying combined
statements of operations. Deferred financing expense was $0 and $0 for the years
ended December 31, 2008 and 2007, respectively.
Income
taxes
The
Company follows Statement of Financial Accounting Standard No.109, Accounting
for Income Taxes (SFAS No.109) for recording the provision for income taxes.
Deferred tax assets and liabilities are computed based upon the difference
between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or
liability is expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability during each period.
If available evidence suggests that it is more likely than not that some portion
or all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of change. Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
Comprehensive
Income (Loss)
The
Company adopted Statement of Financial Accounting Standards No. 130; “Reporting
Comprehensive Income” (SFAS) No. 130 establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owners sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available for sale securities.
Segment
Information
The
Company adopted Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding
operating segments in annual combined financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. SFAS 131 also establishes standards for
related disclosures about products and services and geographic
areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents
all of the financial information related to the Company's principal operating
segments.
F-11
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Liquidity
As shown
in the accompanying combined financial statements, the Company generated profit
of $1,324,240 for the year ended December 31, 2008. The Company's current
liabilities exceeded its current assets by $2,410,613 as of December 31,
2008.
Basic and
diluted earnings per share
In
accordance with SFAS No. 128 – “Earnings Per Share”, the basic and diluted
earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted net earnings per share is computed similar to basic earnings per share
except that the denominator is adjusted for the potential dilution that could
occur if stock options, warrants, and other convertible securities were
exercised or converted into common stock. The Company does not have any
common stock equivalents at December 31, 2008 and 2007.
Cash and
Cash Equivalents
For
purposes of the statement of cash flows, cash includes demand deposits, saving
accounts and money market accounts. The Company considers all highly liquid debt
instruments with maturities of three months or less when purchased to be cash
equivalents. The Company also purchases bonds from banks and other companies in
lieu of cash for payment. These bonds are written by local banks and
secured with cash from the originator. These are fully transferable
bond that accrue interest.
Fair
Value of Financial Instruments
In
January 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value
Measurements”, (“FAS 157”) which defines fair value for accounting purposes,
establishes a framework for measuring fair value and expands disclosure
requirements regarding fair value measurements. The Company’s adoption of FAS
157 did not have a material impact on its combined financial statements. Fair
value is defined as an exit price, which is the price that would be received
upon sale of an asset or paid upon transfer of a liability in an orderly
transaction between market participants at the measurement date. The degree of
judgment utilized in measuring the fair value of assets and liabilities
generally correlates to the level of pricing observability. Financial assets and
liabilities with readily available, actively quoted prices or for which fair
value can be measured from actively quoted prices in active markets generally
have more pricing observability and require less judgment in measuring fair
value. Conversely, financial assets and liabilities that are rarely traded or
not quoted have less price observability and are generally measured at fair
value using valuation models that require more judgment. These valuation
techniques involve some level of management estimation and judgment, the degree
of which is dependent on the price transparency of the asset, liability or
market and the nature of the asset or liability. At December 31, 2008 and 2007,
the Company did not have any financial assets measured at fair value on a
recurring basis.
Stock
Based Compensation
The
Company has adopted the fair value provisions of SFAS No. 123(R) "Share-Based
Payment" which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors including
employee stock options and employee stock purchases related to a Employee Stock
Purchase Plan based on the estimated fair values. There were no employee stock
options and employee stock purchases granted to employees and directors through
December 31, 2008. There were no unvested options outstanding as of the date of
adoption of SFAS No. 123(R).
F-12
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited. The Company does not expect the adoption of SFAS No. 141R in 2009
will have a material effect on its combined financial position, results of
operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the combined balance sheets. SFAS
No. 160 is effective as of the beginning of the first fiscal year beginning on
or after December 15, 2008. Earlier adoption is prohibited. The Company
does not expect the adoption of SFAS No. 160 in 2009 to have a material effect
on its combined financial position, results of operations or cash
flows.
In
December 2007, the FASB ratified the consensus in Emerging Issues Task Force
(EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”
(EITF 07-1). EITF 07-1 defines collaborative arrangements and requires
collaborators to present the result of activities for which they act as the
principal on a gross basis and report any payments received from (made to) the
other collaborators based on other applicable authoritative accounting
literature, and in the absence of other applicable authoritative literature, on
a reasonable, rational and consistent accounting policy is to be elected.
EITF 07-1 also provides for disclosures regarding the nature and purpose of
the arrangement, the entity’s rights and obligations, the accounting policy for
the arrangement and the income statement classification and amounts arising from
the agreement. EITF 07-1 will be effective for fiscal years beginning after
December 15, 2008, which will be the Company’s fiscal year 2009, and will
be applied as a change in accounting principle retrospectively for all
collaborative arrangements existing as of the effective date. The Company does
not expect the adoption of EITF 07-1in 2009 to have a material effect on its
combined financial position, results of operations or cash flows.
In
June 2008, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature)
is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in paragraph 11(a) of SFAS No. 133, for
purposes of determining whether the instrument should be classified as an equity
instrument or accounted for as a derivative instrument. The provisions of EITF
Issue No. 07-5 are effective for financial statements issued for fiscal
years beginning after December 15, 2008 and will be applied retrospectively
through a cumulative effect adjustment to retained earnings for outstanding
instruments as of that date. The Company does not expect the adoption of EITF
07-05 to have a material effect on its combined financial position, results of
operations or cash flows.
In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged. The Company does not expect the
adoption of SFAS No. 161 to have a material effect on its combined financial
position, results of operations or cash flows.
In April
2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. The Company is required to adopt FSP 142-3 on January
1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3
for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after adoption, and the
disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption. The Company does not expect
the adoption of FSP No. FAS 142-3 to have a material effect on its combined
financial position, results of operations or cash flows.
F-13
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162"). SFAS No.
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles." The Company does not
expect the adoption of SFAS No. 162 to have a material effect on its
combined financial position, results of operations or cash flows.
In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) " ("FSP APB 14-1"). FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate. FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis. The Company is currently evaluating the
potential impact, if any, of the adoption of FSP APB 14-1 on its combined
financial position, results of operations or cash flows.
In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial
Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60,
“Accounting and Reporting by Insurance Enterprises”, applies to financial
guarantee insurance contracts issued by insurance enterprises.
The standard is effective for financial statements issued for fiscal
years beginning after December 15, 2008, including interim periods in that year.
The Company does not expect the adoption of SFAS 163 to have a material effect
on its combined financial statements.
In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive non-forfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does
not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on
its combined financial position, results of operations or cash
flows.
In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active.”
This position clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active. It also reaffirms the notion of fair value as an
exit price as of the measurement date. This position was effective upon
issuance, including prior periods for which financial statements have not been
issued. The adoption had no impact on the Company’s combined financial
statements.
In
December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, which is effective for fiscal years ending
after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value
measurements of plan assets that would be similar to the disclosures about fair
value measurements required by SFAS 157. The Company is assessing the potential
effect of the adoption of FSP 132(R)-1 on its combined financial
statements.
In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8,
Disclosures about Transfers of Financial Assets and Interests in Variable
Interest Entities. The FSP requires extensive additional disclosure by public
entities with continuing involvement in transfers of financial assets to
special-purpose entities and with variable interest entities (VIEs), including
sponsors that have a variable interest in a VIE. This FSP became effective for
the first reporting period ending after December 15, 2008 and did not have
any material impact on the Company's combined financial statements.
In
January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue
No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue
No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends
the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest
Income and Impairment on Purchased Beneficial Interests and Beneficial Interests
that Continue to be Held by a Transferor in Securitized Financial Assets” to
achieve more consistent determination of whether an other-than-temporary
impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it
did not have a material impact on the combined financial
statements.
F-14
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly , provides
guidelines for making fair value measurements more consistent with the
principles presented in FASB Statement No. 157 (“SFAS 157”), Fair Value
Measurements . FSP FAS 157-4 reaffirms what SFAS 157 states is the
objective of fair value measurement, to reflect how much an asset would be sold
for in an orderly transaction at the date of the financial statements under
current market conditions. Specifically, it reaffirms the need to use judgment
to ascertain if a formerly active market has become inactive and in determining
fair values when markets have become inactive. The Company does not expect this
pronouncement to have a material impact on its combined results of operations,
financial position, or cash flows.
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, enhances consistency in financial
reporting by increasing the frequency of fair value disclosures. This relates to
fair value disclosures for any financial instruments that are not currently
reflected on the combined balance sheet at fair value. FSP FAS 107-1 and APB
28-1 now require that fair value disclosures be made on a quarterly basis,
providing qualitative and quantitative information about fair value estimates
for all those financial instruments not measured on the balance sheet at fair
value. The Company does not expect this pronouncement to have a material impact
on its combined results of operations, financial position, or cash
flows.
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed
to create greater clarity and consistency in accounting for and presenting
impairment losses on securities. This FSP is intended to bring greater
consistency to the timing of impairment recognition and to provide greater
clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. This FSP also requires increased
and timelier disclosures sought by investors regarding expected cash flows,
credit losses, and an aging of securities with unrealized losses. The Company
does not expect this pronouncement to have a material impact on its combined
results of operations, financial position, or cash flows.
FASB ASC
855, Subsequent Events (“ASC 855” and formerly referred to as FAS-165), modified
the subsequent event guidance. The three modifications to the subsequent events
guidance are: 1) To name the two types of subsequent events either as recognized
or non-recognized subsequent events, 2) To modify the definition of subsequent
events to refer to events or transactions that occur after the balance sheet
date, but before the financial statement are issued or available to be issued
and 3) To require entities to disclose the date through which an entity has
evaluated subsequent events and the basis for that date, i.e. whether that date
represents the date the financial statements were issued or were available to be
issued. This guidance is effective for interim or annual financial periods
ending after June 15, 2009, and should be applied prospectively.
FASB ASC
105, Generally Accepted Accounting Principles (“ASC 105” and formerly referred
to as FAS 168) establishes the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. ASC 105 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
combined financial statements.
2. PROPERTY
AND EQUIPMENT
The
Company’s property and equipment at December31, 2008 and 2007 consist of the
following:
|
2008
|
2007
|
||||||
Machinery
|
$
|
3,259,856
|
$
|
173,384
|
||||
Motor
vehicles
|
121,852
|
-
|
||||||
Furniture
|
14,688
|
1,173
|
||||||
Office
equipment
|
68,984
|
18,685
|
||||||
Construction
in progress
|
731,132
|
-
|
||||||
4,196,513
|
193,243
|
|||||||
Less
accumulated depreciation
|
(396,153)
|
(6,337)
|
||||||
$
|
3,800,360
|
$
|
186,906
|
Depreciation
expense charged to operations amounted to $389,816 and $6,337 for the year ended
December 31, 2008 and 2007 respectively.
F-15
3. INVENTORY
Inventory
at December 31, 2008 and 2007 consist of the following:
2008
|
2007
|
|||||||
Raw
materials
|
$
|
97,165
|
$
|
24,613
|
||||
Finished
goods and goods for resale
|
563,233
|
878
|
||||||
Total
|
$
|
660,397
|
$
|
25,491
|
4. OTHER CURRENT
ASSETS
Other
current assets consist of the following:
2008
|
2007
|
|||||||
Debt
assigned – receivable
|
$
|
38,582
|
$
|
-
|
||||
Claim
receivable
|
42,298
|
-
|
||||||
Miscellaneous
receivable from suppliers
|
259,284
|
236,845
|
||||||
Loans
receivable
|
14,880
|
90,887
|
||||||
Miscellaneous
receivables
|
5,646
|
247,684
|
||||||
Total
|
$
|
360,690
|
$
|
575,416
|
5. INTANGIBLE
ASSETS
Intangible
Assets at December 31, 2008 and 2007 consist of the following:
2008
|
2007
|
|||||||
Patents
|
$
|
150,438
|
$
|
-
|
||||
Trade
mark
|
1,513
|
163
|
||||||
Accumulated
amortization
|
(9,282
|
)
|
-
|
|||||
Total
|
$
|
142,669
|
$
|
163
|
Total
amortization expense charged to operations for the year ended December 31,
2008 and 2007 was $9,282 and $0, respectively. Estimated amortization expense as
of December 31, 2008 is as follows:
Years
Ended December 31,
|
||||
2009
|
$
|
15,444
|
||
2010
|
15,444
|
|||
2011
|
15,444
|
|||
2012
|
15,444
|
|||
2013
and after
|
80,893
|
|||
Total
|
$
|
142,669
|
6. TRADE
PAYABLE
Accounts
payable and accrued liabilities consisted of the following at December 31, 2008
and 2007:
|
2008
|
2007
|
||||||
Accounts
payable
|
$
|
1,540,117
|
$
|
2,056,928
|
||||
Accrued
payroll
|
63,388
|
23,181
|
||||||
Accrued
taxes payable
|
58,180
|
21,746
|
||||||
Other
accounts payable
|
10,948
|
2,382
|
||||||
Income
taxes payable
|
405
|
441
|
||||||
Total
|
$
|
1,673,038
|
$
|
2,104,678
|
7 – NOTES
PAYABLE-RELATED PARTY
Notes
payable-related party consists of the following at December 31, 2008 and
2007:
2008
|
2007
|
|||||||
Unsecured
loan payable to a company Proekt Rosta due in monthly installments with
interest at 21% per year
|
$
|
804,000
|
$
|
203,698
|
||||
Unsecured
loan payable to a company Sammit without interest due on
demand
|
120,000
|
27,703
|
||||||
Unsecured
loan payable to a company Rusvest-Finance due in monthly installments with
interest at 18 % per year
|
199,000
|
264,806
|
||||||
Unsecured
loan payable to a shareholder Lukin D
without interest due on demand. This loan is subject to
collateral of the Company’s guarantee to a the third party
under litigation (refer to Note 11)
|
974,000
|
1,162,212
|
||||||
Miscellaneous
loans
|
47,492
|
-
|
||||||
Total
notes payable
|
2,144,492
|
1,658,419
|
||||||
Less
current portion
|
(1,075,127
|
)
|
(1,658,419
|
)
|
||||
Notes
payable – long-term
|
$
|
1,069,366
|
$
|
-
|
F-16
8. RELATED
PARTY TRANSACTIONS
Parties
are considered to be related if one party has the ability to control the other
party, is under common control, or can exercise significant influence over the
other party in making financial or operational decisions. In
considering each possible related party relationship, attention is directed to
the substance of the relationship, not merely the legal form. During
the year the Company entered into transactions with related parties. The
outstanding balances at the year end and the income and expense for the year
with related parties are as follows:
Shareholders
|
Accounts
|
December
31, 2008
|
December
31, 2007
|
||||||
Lukin
D.
|
Borrowings
(сurrent liabilities)
|
$
|
104,000
|
$
|
1,162,000
|
||||
Borrowings
(non-сurrent liabilities)
|
870,000
|
-
|
|||||||
Lukin
A.
|
Trade
payable
|
4,897
|
16,000
|
||||||
Advance
paid
|
4,897
|
-
|
|||||||
Other
costs for the year
|
89,210
|
107,113
|
|||||||
Rent
and rates for the year
|
5,000
|
6,000
|
|||||||
Lukin
S.
|
Trade
receivable
|
2,103
|
-
|
||||||
Sales
of assets
|
1
648
|
-
|
|||||||
Lapkin
A.
|
Trade
payable
|
40,919
|
-
|
||||||
Intangible
Assets (patent)
|
46,000
|
-
|
|||||||
Lapkin
S.
|
Trade
payable
|
40,919
|
-
|
||||||
Intangible
Assets (patent)
|
46,000
|
-
|
|||||||
Also, the
Company buys and sells goods from related parties- the entities controlled or
managed by the stockholders of the Company. The Company purchased goods totaling
to $1,941,000 and $412,000 for the year ended December 31, 2008 and 2007,
respectively. The Company sold goods totaling to $3,243,000 and $2,480,000 for
the year ended December 31, 2008 and 2007, respectively.
The Group
received a loan from Dmitry Lapkin As of December 31, 2008, the balance of this
loan was $974,00, the current portion of whci was $870,000 and the non-current
portion of which was $104,000.The loan is interest-free.
During
the year ended December 31, 2008, Sergey Lapkin and Alexander Lapkin assigned
certain patents to the Company
9. CAPITAL
LEASE COMMITMENTS
During
the year ended December 31, 2008, the Group acquired equipment and vehicles
under capital lease arrangements with the right to buy out leased assets upon
completion of the underlying agreements. The amount of capital lease liabilities
incurred during the years ended December 31, 2008, was $2,006,152.
Capital
lease obligations consist the following as of December 31, 2008 and
2007:
2008
|
2007
|
|||||||
Capital
lease- related party
|
$
|
120,121
|
186,873
|
|||||
Capital
leases – others
|
1,886,031
|
-
|
||||||
Total
|
2,006,152
|
186,873
|
||||||
Less:
current maturities
|
(910,177
|
)
|
(64,550
|
)
|
||||
Capital
leases payable –long term
|
$
|
1,095,975
|
122,323
|
F-17
At
December 31, 2008 net book value of the machinery, equipment and vehicles held
under the capital lease arrangements was:
2008
|
2007
|
|||||||
Production
machinery
|
$
|
3,087,302
|
$
|
186,873
|
||||
Motor
vehicles
|
121,020
|
-
|
||||||
3,208,322
|
186,873
|
|||||||
Less:
accumulated depreciation
|
(365,963
|
)
|
(4,326
|
)
|
||||
Net
value of property, plant and equipment obtained under capital lease
arrangements
|
$
|
2,842,359
|
$
|
182,547
|
Following
is a schedule of the Company's future minimum capital lease
obligations:
Period
Ending December 31,
|
||||
2009
|
$
|
1,948,861
|
||
2010
|
1,384,664
|
|||
2011
|
503,625
|
|||
2012
|
-
|
|||
Total
minimum payments
|
$
|
3,837,150
|
||
Less:
amount representing interest
|
(1,830,998
|
)
|
||
Present
value of net minimum payments
|
$
|
2,006,152
|
The
present value of minimum capital lease obligations amounts to $2,006,152
Interest ranging from 30% -36%.
10.
CAPITAL STOCK
As at
December 31, 2008, 2007, CJSC Globotek's share capital consisted of 100 issued
common shares, with a par value of 100 Russian rubles each. For each common
share held, the stockholder has the right to one vote at the annual
stockholders' meeting.
11. COMMITMENTS
AND CONTINGENCIES
Operating
Lease Commitments
The
Company leases office space under non-cancelable operating leases that expire
through June 2010 with option to renew
contract. The Company also leases warehouse under non-cancelable operating
leases from related party expiring through December 2009 with option to renew
contract.
For the
years ended December 31, 2008 and 2007, rent expense was $21,667 and $7,277,
respectively.
Litigation
In
proceedings of the Arbitrage Court of Samara Region there is case
No. А9595/2009 initiated under the claim of Government institution –
General Office of Pension Fund of RF in Syzran City and Oktyabrsk City, Syzran
and Shigon District
of Samara Region against Globotek ZAO concerning recovery of obligatory payments
and penalties. As of December 31, 2008, the Company has accrued $8,000 as
liability in the books.
In
accordance with information placed on the site of the Arbitrage Court of Samara
Region this suit has been satisfied. The amount to be recovered is not
indicated.
In proceedings of the
Arbitrage Court of Samara Region there is case No А55-15744/2009 initiated under
the claim of the Ministry of Industry, Power engineering and Technologies of
Samara Region against Globotek ZAO:1) On recovery of money in the aggregate
amount of approximately $55,000 (RUB 1,652,508). On termination of
government contract No. 5 dated 28 May 2008. The Company is defending against
this case and expects a favorable outcome. The Court declined the contract
termination, but ruled that JSC Globotek to pay approximately $14,000. The
Company has applied to another court to recover from the Ministry of Industry,
Power Engineering and Technologies of Samara Region in the amount
of $100 000
F-18
No.
24592/2009 initiated
based on the action brought by Lapkin Alexander Nikolaevich against CJSC
“Globotek” and CJSC “VAZINTERSERVICE” to recognize surety agreement № 2956 dated
28 November 2006 to be invalid; No. A55-23415/2009 initiated based on the writ
brought by creditor CJSC “VAZINTERSERVICE” to initiate bankruptcy
proceedings against CJSC “Globotek”. The Company guaranteed the loan by
Vazinterservice to Aksutin Alexander. Aksutin Alexander lent these funds, in
turn, to the Company. The loan is shown under note payable- related parties and
as of December 31, 2008, outstanding balance was $804,000. The Company does not
expect to pay more than this loan balance offset in settlement of this estimated
liability. (refer to note 8) The Court determined that the guarantee was valid
and declined its cancellation.
Tax
contingencies
Russian
tax, currency and customs legislation is subject to varying interpretations and
changes, which can occur frequently. Management’s interpretation of such
legislation as applied to the transactions and activity of the Group may be
challenged by the relevant regional and federal authorities. Recent events
within the Russian Federation suggest that the tax authorities may be taking a
more assertive position in their interpretation of the legislation and
assessments, and it is possible that transactions and activities that have not
been challenged in the past may be challenged. As a result, significant
additional taxes, penalties and interest may be assessed. Fiscal periods remain
open to review by the authorities in respect of taxes for three calendar years
preceding the year of review. Under certain circumstances reviews may cover
longer periods. As at December 31, 2008, management believes that its
interpretation of the relevant legislation is appropriate and the Group’s tax,
currency and customs positions will be sustained.
12. INCOME
TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
Income
tax expense (benefit) comprises the following:
December
31, 2008
|
December
31, 2007
|
|||||||
Current
income tax expenses
|
$
|
1,802
|
$
|
1,652
|
||||
Deferred
income tax expenses (benefit)
|
670,799
|
(662
425
|
)
|
|||||
Total
income tax expenses (benefit)
|
$
|
672,601
|
$
|
(660
774
|
)
|
As of
December 31, 2007, the Company recorded deferred tax liability of $662,425
mainly relating to net operating loss carryforwards of approximately
$2,500,000.
For
income tax reporting purposes, as of December 31, 2008, the Company’s estimated
aggregate unused net operating losses approximate $1,200,000, which expire in
future. The deferred tax asset related to the carryforward is approximately
$240,000. The Company has provided a valuation reserve against the
full amount of the net operating loss benefit, since in the opinion of
management based upon the earnings history and projections of the Company; it is
more likely than not that the benefits will not be realized. Due to significant
changes in the Company’s ownership, the Company’s future use of its existing net
operating losses may be limited.
Components
of deferred tax assets as of December 31, 2008 are as follows:
Non
Current:
|
||||
Net
operating loss carryforward
|
$
|
240,000
|
||
Valuation
allowance
|
(240,000
|
)
|
||
Net
deferred tax asset
|
$
|
-
|
On
November 26, 2008, the Russian Federation reduced the standard corporate income
tax rate from 24% to 20% with effect from January 1, 2009. The impact of the
change in tax rate presented above represents the effect of applying the reduced
20% tax rate to the deferred tax balance at 31 December 2008.
Differences
between US GAAP and statutory taxation regulations in Russia give rise to
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and their tax bases. The tax effect of the
movements in these temporary differences is detailed below and is recorded at
the rate of 20% (2007: 24%).
13 -
BUSINESS CONCENTRATION
Revenue
from two (2) major customer approximated $2,480,000 or 37% of total
revenues for the year ending December 31, 2008. Revenue from one (1) major
customer approximated $3,048,467 or 91% of total revenues for the year ending
December 31, 2007. Total accounts receivable of $0 of total accounts receivable,
was due from these customers as of December 31, 2008. Total accounts
receivable of $0, of total accounts receivable, was due from these customers as
of December 31, 2007.
Purchases
from two (2) major suppliers approximated $3,345,118 of purchases and
$3,619,000 or 63%of purchases for the years ended December 31, 2008 and 2007,
respectively. Total accounts payable of approximately $38,018 was due to these
suppliers as of December 31, 2008, and $0 of total accounts payable was due to
these suppliers as of December 31, 2007.
F-19
14. GOING
CONCERN MATTERS
The
Company’s combined financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company had a working capital deficiency of $2,410,613 and
reserves in stockholders’ equity of $632,925 at December 31, 2008, which raises
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying combined financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result from the outcome
of this uncertainty.
Continuation
as a going concern is dependent upon obtaining additional capital and upon the
Company’s attaining profitable operations. The Company will require a
substantial amount of additional funds to complete the development of its
products, to build a sales and marketing organization, and to fund additional
losses which the Company expects to incur over the next few years. The
management of the Company intends to seek additional funding through a Private
Placement Offering which will be utilized to fund product development and
continue operations. The Company recognizes that, if it is unable to raise
additional capital, it may find it necessary to substantially reduce or cease
operations.
15. SUBSEQUENT
EVENTS
a)
Management has made decision to transfer a complex carrying over on processing
of passing oil gas from Mohtikovsky deposit (Nizhnevartovsk area,
Hunts-Mansijsky independent district-Jugra) to Samara (Samara
region). The company expects that the relocation of the complex will
result in more effective utilization. The complex was shut down
in January 2009. Additional investment of approximately $700,000 is needed to
complete its relocation. In addition, management estimates that additional
investment of $1,500,000 will be required to re-fabricate certain equipment to
adjust to the capacity requirements in the Samara region.
b) On
November, 26, 2009, JCSC Globotek entered into a contract for the performance of
pre-design work on two deposits of passing oil gas. The pre-design work was
completed in December 2009
F-20
JSC
Globotek
Index to
Unaudited Condensed Combined Financial Statements
Page
|
||
Unaudited
Condensed Combined Balance Sheets As Of September 30, 2009 and
2008
|
F-22
|
|
Unaudited
Condensed Combined Statement Of Operations For The Nine months Ended
September 30, 2009 and 2008
|
F-23
|
|
Unaudited
Condensed Combined Statement Of Deficiency In Stockholders’
Equity For The Nine Months Ended September 30, 2009 and
2008
|
F-24
|
|
Unaudited
Condensed Combined Statement of Cash Flows For The Nine Months
Ended September 30, 2009 and 2008
|
F-25
|
|
Notes
To Unaudited Condensed Combined Financial
Statements
|
F-26
|
F-21
JSC
GLOBOTEK
CONDENSED
COMBINED BALANCE SHEETS
SEPTEMBER
30, 2009 and 2008
(UNAUDITED)
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
75
|
$
|
4,307
|
||||
Trade
receivable, net of allowance for doubtful accounts $0 as of
September 30, 2009 and 2008
|
209,098
|
191,351
|
||||||
Inventories
|
106,255
|
814,644
|
||||||
Advance
paid to suppliers
|
112,079
|
910,690
|
||||||
VAT
recoverable
|
513,095
|
628,847
|
||||||
Other
current assets
|
191,191
|
324,375
|
||||||
Total
Current Assets
|
1,131,793
|
2,874,214
|
||||||
Property
and Equipment, net of accumulated depreciation of $385,913 and 261,256,
respectively
|
3,485,241
|
4,092,733
|
||||||
Other
Assets:
|
||||||||
Intangible
Assets
|
145,794
|
122,430
|
||||||
Total
Assets
|
$
|
4,762,829
|
$
|
7,089,379
|
||||
(Deficiency
in) Stockholders' equity and Liabilities
|
||||||||
Current
Liabilities:
|
||||||||
Advances
received from customers
|
$
|
155,436
|
$
|
399,189
|
||||
Trade
payable
|
1,218,179
|
2,563,745
|
||||||
Notes
payable – current
|
1,062,023
|
1,076,140
|
||||||
Capital
lease payable – current
|
1,650,266
|
990,134
|
||||||
Other
current liabilities
|
125,177
|
94,842
|
||||||
Total
Current Liabilities
|
4,211,079
|
5,124,049
|
||||||
Long-term
Liabilities:
|
||||||||
Notes
payable – long term
|
1,045,635
|
1,235,592
|
||||||
Capital
lease payable – long term
|
564,840
|
1,449,549
|
||||||
Total
Long-term Liabilities
|
1,610,476
|
2,685,141
|
||||||
(Deficiency
in) Stockholders' Equity:
|
||||||||
Common
Stock, no par value; 100 shares authorized; 100 shares issued and
outstanding at September 30, 2009 & 2008
|
100
|
100
|
||||||
Additional
paid-in capital
|
1,059
|
1,059
|
||||||
Accumulated
deficit
|
(1,878,716
|
)
|
(713,696
|
)
|
||||
Accumulated
other comprehensive income / loss
|
818,831
|
(7,274
|
)
|
|||||
Total
(Deficiency in) Stockholders' Equity
|
(1,058,726
|
)
|
(719,811
|
)
|
||||
Total
(Deficiency in) Stockholders’ Equity and Liabilities
|
$
|
4,762,829
|
$
|
7,089,379
|
The
accompanying notes are an integral part of these unaudited condensed combined
financial statements
F-22
JSC
GLOBOTEK
CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
2009
|
2008
|
|||||||
Revenues
|
||||||||
Sale
of productive output
|
$
|
23,064
|
$
|
4,280,672
|
||||
Sale
of goods
|
865,453
|
2,416,097
|
||||||
Other
revenue
|
437,076
|
33,027
|
||||||
Total
Revenue
|
1,325,593
|
6,729,796
|
||||||
Cost
of Sales
|
(1,056,318
|
)
|
(2,270,342
|
)
|
||||
Gross
profit
|
269,275
|
4,459,453
|
||||||
Operating
Expenses:
|
||||||||
VAT
|
202,209
|
1,026,579
|
||||||
Selling,
general and administrative
|
524,073
|
850,186
|
||||||
Total
Operating Expenses
|
726,282
|
1,876,765
|
||||||
Income
(Loss) from Operations
|
(457,007
|
)
|
2,582,688
|
|||||
Other
Income (Expenses):
|
||||||||
Interest
income
|
2,035
|
1,200
|
||||||
Interest
expense
|
(154,036
|
)
|
(75,953
|
)
|
||||
Miscellaneous
income
|
16,072
|
59,092
|
||||||
Total
Other Income (Expenses)
|
(135,929
|
)
|
(15,661
|
)
|
||||
Income
(Loss) before Taxes
|
(592,936
|
)
|
2,567,027
|
|||||
Income
tax (expenses) benefit
|
(194
|
)
|
(670,896
|
)
|
||||
Net
Income (Loss)
|
$
|
(593,130
|
)
|
$
|
1,896,131
|
The
accompanying notes are an integral part of these unaudited condensed combined
financial statements
F-23
JSC
GLOBOTEK
CONDENSED
COMBINED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
Common
Stock
|
Additional
Paid -in
|
Accumulated
|
Accumulated
Other
Comprehensive
|
Total
(Deficiency
in)Shareholders'
|
||||||||||||||||||||
Common
Shares
|
Amount
|
Capital
|
Deficit
|
Income
/ (Loss)
|
Equity
|
|||||||||||||||||||
Balance
as at 31, December 2008
|
100
|
$
|
100
|
$
|
1,059
|
$
|
(1,285,587
|
)
|
$
|
651,503
|
$
|
(632,925
|
)
|
|||||||||||
Cumulative
translation adjustment
|
-
|
-
|
-
|
-
|
167,328
|
167,328
|
||||||||||||||||||
Net
loss
|
-
|
-
|
(593,130
|
)
|
-
|
(593,130
|
)
|
|||||||||||||||||
Balance
as at 30, September 2009
|
100
|
$
|
100
|
$
|
1,059
|
$
|
(1,878,716
|
)
|
$
|
818,831
|
$
|
(1,058,726
|
)
|
The
accompanying notes are an integral part of these unaudited condensed combined
financial statements
F-24
JSC
GLOBOTEK
CONDENSED
COMBINED STATEMENT OF CASH FLOWS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
income (loss) from operations
|
$
|
(593,130
|
)
|
$
|
1,896,131
|
|||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
315,119
|
254,919
|
||||||
(Increase)
/ decrease in:
|
||||||||
Trade
receivables
|
(159,333
|
)
|
(190,752
|
)
|
||||
Inventories
|
554,142
|
(789,154
|
)
|
|||||
Advances
to suppliers
|
80,945
|
283,690
|
||||||
VAT
recoverable
|
(24,774
|
)
|
(540,810
|
)
|
||||
Deferred
tax assets
|
-
|
670,798
|
||||||
Other
current assets
|
169,693
|
251,041
|
||||||
Increase
/ (decrease) in:
|
||||||||
Advances
received from customers
|
(351,050
|
)
|
(1,154,968
|
)
|
||||
Trade
payables
|
(321,938
|
)
|
506,817
|
|||||
Other
current liabilities
|
(7,743
|
)
|
202,295
|
|||||
Net
Cash Provided by (Used in) Operating Activities
|
(338,069
|
)
|
1,390,004
|
|||||
Cash
Flows from Investing Activities:
|
||||||||
Repayments
of notes receivable
|
(13,104
|
)
|
-
|
|||||
Payment
for purchase of Fixed assets
|
-
|
(3,037,543
|
)
|
|||||
Payment
for intangible assets
|
(3,125
|
)
|
(122,267
|
)
|
||||
Net
Cash (Used in) Provided by Investing Activities
|
(16,229
|
)
|
(3,159,810
|
)
|
||||
Cash
Flows from Financing Activities:
|
||||||||
Net
proceeds from capital leases
|
208,954
|
1,800,980
|
||||||
Repayment
to note payable – related parties
|
(23,731
|
)
|
(582,279
|
)
|
||||
Net
Cash Provided by Financing Activities
|
185,223
|
1,218,701
|
||||||
Exchange
differences
|
167,135
|
546,139
|
||||||
Net
Decrease in Cash and Cash Equivalents
|
(1,940
|
)
|
(4,966
|
)
|
||||
Cash
and Cash Equivalents at the beginning of the Year
|
2,015
|
9,273
|
||||||
Cash
and Cash Equivalents at The End of the Year
|
$
|
75
|
$
|
4,307
|
||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
paid during the year for interest
|
$
|
-
|
130,410
|
|||||
Cash
paid during the year for taxes
|
$
|
-
|
7,246
|
The
accompanying notes are an integral part of these unaudited condensed combined
financial statements
F-25
JSC GLOBOTEK
NOTES TO
COMBINED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009 AND 2008
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
The
unaudited condensed financial statements are prepared on a combined basis. All
significant intercompany transactions and balances have been eliminated in
combination. The financial statements include JSC Globotek, Globotek NV and
Globotek Samara.
The
unaudited condensed combined financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Accordingly, the results from operations
for the nine months period ended September 30, 2009, are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2009. These unaudited condensed combined financial statements
should be read in conjunction with the December 31, 2008 financial
statements and footnotes thereto included elsewhere in this report.
2. PROPERTY
AND EQUIPMENT
The
Company’s property and equipment at September 30, 2009 and 2008 consist of the
following:
|
2009
|
2008
|
||||||
Machinery
|
$
|
3,259,856
|
$
|
3,241,416
|
||||
Motor
vehicles
|
121,852
|
121,852
|
||||||
Furniture
|
14,688
|
14,688
|
||||||
Office
equipment
|
68,984
|
65,032
|
||||||
Construction
in progress
|
801,925
|
911,002
|
||||||
4,267,307
|
4,353,989
|
|||||||
Less
accumulated depreciation
|
(782,066)
|
(261,256)
|
||||||
$
|
3,485,241
|
$
|
4,092,733
|
Depreciation
expense charged to operations amounted to $385,913 and $251,506 for the period
ended September 30, 2009 and 2008 respectively.
3. INVENTORY
Inventory
at September 30, 2009 and 2008 consist of the following:
2009
|
2008
|
|||||||
Raw
materials
|
$
|
59,596
|
$
|
81,867
|
||||
Finished
goods and goods for resale
|
46,660
|
732,778
|
||||||
Total
|
$
|
106,255
|
$
|
814,644
|
F-26
4. TRADE
PAYABLE
Accounts
payable and accrued liabilities consisted of the following at September 30, 2009
and 2008:
|
2009
|
2008
|
||||||
Accounts
payable
|
$
|
1,218,179
|
$
|
2,563,745
|
||||
Accrued
payroll
|
29,280
|
33,430
|
||||||
Accrued
taxes payable
|
73,457
|
45,013
|
||||||
Other
accounts payable
|
22,441
|
16,398
|
||||||
Total
|
$
|
1,343,356
|
$
|
2,658,586
|
5. RELATED
PARTY TRANSACTIONS
Parties
are considered to be related if one party has the ability to control the other
party, is under common control, or can exercise significant influence over the
other party in making financial or operational decisions. In
considering each possible related party relationship, attention is directed to
the substance of the relationship, not merely the legal form. During
the year the Company entered into transactions with related parties. The
outstanding balances at the period end and the income and expense for the period
with related parties are as follows:
Shareholders
|
Accounts
|
2009
|
2008
|
||||||
Lukin
D.
|
Borrowings
(сurrent liabilities)
|
$
|
1,226
|
$
|
-
|
||||
Borrowings
(non-сurrent liabilities)
|
843,002
|
1,017,754
|
|||||||
Interest
expenses
|
8,382
|
-
|
|||||||
Lukin
A.
|
Trade
payable
|
759
|
19,298
|
||||||
Other
costs
|
51,295
|
69,291
|
|||||||
Rent
and rates
|
3,097
|
4,183
|
|||||||
Lukin
S.
|
Trade
receivable
|
||||||||
Sales
of assets
|
1,648
|
||||||||
Lapkin
A.
|
Trade
payable
|
40,204
|
47,921
|
||||||
Intangible
Assets (patent)
|
42,109
|
47,109
|
|||||||
Lapkin
S.
|
Trade
payable
|
40,204
|
47,921
|
||||||
Intangible
Assets (patent)
|
42,109
|
47,109
|
Also, the
Company buys and sells goods from related parties- entities which are controlled
or managed by the stockholders of the Company. The Company sold goods totaling
to $596,000 and $3,243,000 for the nine months ended September 30, 2009 and
2008, respectively. The Company purchased goods totaling to
$0 and $1,941,000 for the nine months ended September 30, 2009
and 2008, respectively.
6. SUBSEQUENT
EVENTS
a)
Management has made decision to transfer a complex carrying over on processing
of passing oil gas from Mohtikovsky deposit (Nizhnevartovsk area,
Hunts-Mansijsky independent district-Jugra) to Samara (Samara
region).
b) On
November, 26, 2009, JCSC Globotek entered into a contract for the performance of
pre-design work on two deposits of passing oil gas. The pre-design work was
completed in December, 2009.
F-27