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EX-32 - EXHIBIT 32.2 - Africa Growth Corp | exh32_2.htm |
EX-32 - EXHIBIT 32.1 - Africa Growth Corp | exh32_1.htm |
EX-31 - EXHIBIT 31.2 - Africa Growth Corp | exh31_2.htm |
EX-31 - EXHIBIT 31.1 - Africa Growth Corp | exh31_1.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-K
___________________________________
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission file number 333-169507
(Exact Name Of Registrant As Specified In Its Charter)
Nevada | 27-2413875 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
41 Cedar Avenue, 5th Floor, Hamilton, Bermuda | HM 12 |
(Address of Principal Executive Offices) | (ZIP Code) |
Registrant's Telephone Number, Including Area Code: +44 (0) 203 862 2922
Securities Registered Pursuant to Section 12(g) of The Act: Common Stock, $0.0001
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the
registrant's knowledge, in the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
On June 30, 2016, the aggregate market value of the 28,690,699 common stock held by non-affiliates of the Registrant was approximately $860,720 based on the closing price of $0.03 of the Registrants common stock on June 30, 2016. On March 31, 2017, the Registrant had 199,237,528 or 996,188 post-reverse shares of common stock outstanding.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company
Large accelerated filer ¨ | Accelerated filer ¨ | Non-Accelerated filer ¨ | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Cautionary Statement regarding Forward-Looking Statements This Annual Report on Form 10-K of African Growth
Corporation (formerly known as Brenham Oil & Gas Corp.), a Nevada
corporation (hereinafter the "Company", the "Registrant", or "AGC") includes
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. However based upon the Registrant's
current stock price it is not eligible to rely upon the traditional safe
harbors within Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934. The Registrant has made
certain forward-looking statements in good faith based upon on its current
expectations and projections about future events. These forward-looking
statements are not guarantees but rather are projections based upon current
facts subject to known and unknown risks, uncertainties and assumptions
about the Registrant that may cause its actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "would," "expect," "plan," "anticipate," "believe," "estimate,"
"continue," or the negative of such terms or other similar expressions.
Factors that might cause or contribute to such a discrepancy include, but
are not limited to, those described in this Annual Report on Form 10-K and
in the Registrant's other Securities and Exchange Commission filings. Should
one or more of these risks or uncertainties materialize, or should any of
our assumptions prove incorrect, actual results may vary in material
respects from those projected in the forward-looking statements. For a more
detailed discussion of the foregoing risks and uncertainties, see "Risk
Factors". PART I
ITEM 1. DESCRIPTION OF BUSINESS
Back to Table of Contents General Background of the Company Africa Growth Corporation (formerly known as Brenham Oil
& Gas Corp. and hereinafter the "Company", the "Registrant", or "AGC"), a
Nevada corporation, was incorporated on April 21, 2010. On April 29, 2016, the Company filed a Form 8-K reporting
that it had entered into an Agreement and Plan of Merger (the "Merger
Agreement" or the "Merger") with Africa International Capital Ltd., a
Bermuda corporation ("AIC") pursuant to which a wholly-owned subsidiary of
the Registrant will be merged with and into AIC which will be the surviving
entity and will become a subsidiary of the Registrant. A copy of the Merger
Agreement was filed as Exhibit 2.1 to that Form 8-K. The Registrant also
reported in the same 8-K that it had also entered into a Contribution
Agreement with its corporate parent and principal shareholder, American
International Industries, Inc., a Nevada corporation ("AIII"), a copy of
which was filed as Exhibit 2.2 to this same Form 8-K. On November 9, 2016, the Company filed an amended
Preliminary Information Statement on Schedule 14C with full disclosure
required by Items 11 through 14 of Schedule 14A, including but not limited
to the audited financial statements of the Registrant and AIC as well as the
pro forma consolidated financial statements of the Registrant and AIC as
required by Schedule 14A together with additional disclosure regarding the
business of AIC. Further, in connection with the Closing the Registrant's
Board of Directors effected the change of control of the Registrant. On December 12, 2016, the Company filed the Definitive
Preliminary Information Statement on Schedule 14C.
In December 2016, the Company issued 71,206,464 shares of common stock to Crescat Ventures Ltd, as a part
issuance in connection with the Merger. As of December 31, 2016, the Company discontinued its
former operations and AIII
assumed all of the Company's existing liabilities in consideration and
exchange for the Company assigning to a nominee of AIII all of the Company's
existing developed and undeveloped oil and gas assets. On January 30, 2017, pursuant to the authority granted by
the Joint Written Consent, a copy of which was attached as an exhibit to the
DEF14C, the Company implemented a one-for-two hundred (1:200) reverse split
of its 199,500,000 shares of issued and outstanding Common Stock (the
"Reverse Split"). Further on this date the Company's name was changed to
Africa Growth Corporation. On February 21, 2017, the Company paid $5,000 to
AIII for merger related expenses incurred by AIII. Business Plan Since commencing operations and until closure of the
Merger, the Company was an exploration and production company focused on
acquiring a portfolio of assets in the United States and international
locations. The Company's focus for United States production was Texas,
including both conventional and unconventional resources, seeking to
identify existing oil fields where technology can be applied to increase the
percentage of oil that can be recovered from such fields. Our Properties During 2016, the Company held oil and gas lease interests
in Texas, as follows:
Gillock Field - Galveston County, Texas; As of December 31, 2016, the Company discontinued its
former operations and these oil and gas properties were assigned to AIII as of
January 17, 2017 pursuant to the contribution agreement discussed above. As a result, the post-merger plans of the Company include
the acquisition of property interests
of three properties (comprising a total of 64 apartments and
commercial space) and a further property interest nearing construction
completion (comprising 40 additional apartments). The following properties
are located in Luanda, the capital and largest city in Angola:
Isha 1 and 2 (Ilha do Cabo, Luanda): ownership and control of a
three-story residential apartment building with 24 apartments and of a
four-story residential apartment building with 24 apartments; and Competition As the Company will exit the oil and gas industry and
will focus on the sub-Saharan real estate and food markets the competition
section will focus on the Angolan Real estate market where the business
post-merger currently has assets.
a basic need for infrastructure; Historically, the real estate markets in Luanda and the
other provinces were dominated by substandard construction. Recently,
however, there has been a supply of new prime construction capabilities for
medium and medium-high market sectors, both in Luanda, and nationwide
according to a study released by Zenki Real Estate, Angola Property Market
Overview, Outlook. Environmental Matters and Regulation Historically the company was subject to the environmental
and general regulations of the oil and gas industry. Any potential claims in
relation to the oil and gas assets that the company previously held have
been assigned to and assumed by AIII under the Contribution Agreement and
the Merger Agreement. Real Estate Property Law Framework in Angola The legal regime governing land ownership in Angola is
based on the premise that, as a general rule, land is ultimately owned by
the Government. Depending on the legal designation of the relevant plot,
more or less restricted real property rights may be conveyed to natural or
legal persons - with the aim of ensuring the relevant property right's full
and rational use and enjoyment. Tenancy Law Framework in Angola The Angolan legal framework as to lease agreements
provides several mandatory and/or default rules. For example, to ensure the
temporary nature of the lease, the framework provides default rules in order
to overcome a situation whereby parties do not stipulate any term for the
contract. Foreign Investment Regulation in Angola Generally, foreign private investments are regulated by
the Private Investment Law ("PIL"). Only certain regulated industries (e.g.,
oil and gas, banking) are subject to other specific rules and regulations.
Although the PIL is not a mandatory framework, in practice foreign private
investment cannot be made or carried out without complying with the PIL.
Furthermore, investments not approved under the PIL do not qualify for a
repatriation of dividends (see below). The new PIL also provides that
investments under $1 million are generally allowed and only subject to the
general framework of the PIL.
Draft Private Investment Contract, as a basis for the negotiations; Approval of investment projects exceeding an amount in
Kwanzas equivalent to $10 million falls on the Angolan President and can be
delegated to the Minister responsible for the sector of the dominant
activity of the project. These projects must be submitted with the Unidade
Tecnica para o Investimento Privado ("UTIP"). Investment projects up to an
amount in Kwanzas equivalent to $10 million are subject to the approval of
the Minister responsible for the sector of the dominant activity of the
project. These projects must be submitted with the Unidade Tecnica de Apoio
ao Investimento Privado ("UTAIP") of the relevant Ministry responsible for
the sector of the dominant activity of the project.
creation of new jobs for national workers and raising of the
qualification level of the Angolan workforce; Also, the geographic area where the investment is located
plays a major role. In this regard, the country is divided up into two Zones
(A and B), with Zone A including, among others, Luanda and Zone B including,
in particular, regions in the interior of Angola, namely Bie. Cabinda, Zair,
Bengo, among others. Investments in Zone A are considered "less necessary"
than those made in Zone B. Restrictions on Repatriation of Dividends from Angola Investment projects approved by the competent authority
under the PIL are entitled to benefit from the right to repatriate dividends
once the investment project has been implemented and upon proof of its
execution, always subject to the control of the BNA. Repatriation is
normally requested on an annual basis and is subject to prior
approval/confirmation from the BNA. Further, dividends and distributed
profits shall now be subject to surtax on capital investment, on the
exceeding part of the investors' equity. The new PIL also provides that
investments under $1 million will also enable repatriation of dividends,
albeit without any tax incentives.
in Zone A, projects with an external investment of less than $10
million allow for repatriation after three years, projects between $10
million and $50 million allow for repatriation after two years, and projects
exceeding $50 million allow for an immediate repatriation after full project
implementation; and Foreign Exchange Regulation in Angola The BNA controls and supervises cross-border payments and
ensures strict compliance with all applicable legal statutes and regulations
by commercial banks and/or individuals/companies. Recourse to the BNA is
required in relation to most payments to be made outside Angola; it usually
entails prior or final BNA approval, without prejudice to special and more
favorable regimes applicable to some regulated sectors (e.g., oil and gas
industry).
Transactions relating to invisible items of trade (e.g., payment of
services) are usually subject to prior BNA authorization depending on the
nature and the amounts involved (any contract exceeding $1 million annually
is subject to prior approval). These operations include, for example, costs
associated with transport, insurance, travel, trade commissions, patents and
trademarks, salaries or payments for services in general. Service agreements
could also be affected by Presidential Decree No. 273/11, of October 27,
2011, notably those relating to foreign technical assistance and management.
If this statute applies, the entity that approves the contract will not be
the BNA but rather the Ministry of Economy; Tax Law and Social Security Contributions in Angola
The main taxes and contributions that could be relevant
to us are: industrial tax, industrial tax withholding, investment income
tax, consumption tax, property transfer tax, urban property tax and social
security contributions. Industrial Tax Industrial tax is the applicable corporate income tax in
Angola that is due on income obtained in the exercise of any commercial or
business activity, either on a permanent or occasional basis. The standard
rate is 30 percent, which was already in force for the year 2014, even
though the Industrial Tax Code only entered in force on January 1, 2015. Industrial Withholding Tax The new Industrial Tax Code revoked Law 7/97 and
established a withholding tax mechanism according to which services rendered
by resident and non-resident entities to entities resident in Angola are
subject to a unique 6.5 per cent withholding tax rate applicable to the
rendering of services. This regime came into force on January 1, 2015. For
the 2014 exercise, the 3.5 percent reduced rate and the 5.25 percent
standard rate continued to apply, respectively, to contracts for the
construction, improvement, repair or preservation of immovable property and
to all other contracts for the rendering of services.
teaching and medical and healthcare services;
teaching and medical and health services; Investment Income Tax Investment income tax applies mainly to income generated
by the application of capital. The Investment Income Tax Code is divided
into two sections:
Section A covers interest on loans, credit facilities and credit
lines as well as default interest. The tax rate applicable to income
qualified under Section A is 15 percent. Real Estate Transfer Tax Property transfer tax is due on any transaction that
involves the transfer of rights over real estate property located in Angola,
either on a perpetual or temporary basis, irrespective of the value, nature
or denomination of the relevant right.
transfer of immovable property and similar transactions (for example,
long-term lease for a period exceeding 20 years); Property transfer tax is levied at the rate of 2 percent
and is due by the acquirer of the property on the higher of the value of
sale or the value of the property. Urban Property Tax Urban property tax is levied over the income derived from
the rental of urban property and in situations of mere ownership of
property. Environmental Damage and Contamination The main Angolan statutes as to environmental
responsibility are the Environmental Base Law - Law No. 5/98, of June 19,
1998 - and Presidential Decree No. 194/11, of July 7, 2011 ("Presidential
Decree 194/11"), on liability for environmental damages. Employees As at December 31, 2016, we had two employees. All
employees are currently located outside the U.S. None of these employees are
represented by labor unions or covered by any collective bargaining
agreement. We believe that relations with our employees are satisfactory. Offices During the year the Company utilized approximately 1,500
square feet of office space at the offices of AIII located at 601 Cien
Street, Suite 235, Kemah, TX 77565-3077, which are provided to the Company
by AIII on a rent-free basis. Post-merger the company is in the process of
relocating the offices to Bermuda which will be completed imminently. TEM 1A. RISK FACTORS Back to Table of Contents While investing in our Common Stock will provide an
investor with an equity ownership interest in the Company, our stockholders
will be subject to risks inherent in investing in the highly competitive oil
and gas industry, generally, and in AGC, specifically, which has very
limited operating history and limited resources. The performance of our
shares will reflect the performance of our business relative to, among other
things, general economic and industry conditions, market conditions and
competition. The value of the investment may increase or decrease and could
result in a loss in any investment in our shares. An investor should
carefully consider the following factors as well as other information
contained in this annual report on Form 10-K. Risks Related to the Business of the Company The Company has only recently commenced its business operations Upon completion of the Merger Agreement AIC will become a
wholly owned subsidiary of the Company with AIC representing the succeeding
business. As a result, discussion of the risks and uncertainties related to
the Business of the Company represent those of the AIC business.
defects in free and clear title; Risk Factors Relating to our Target Market Investing in securities involving frontier markets
generally involves a higher degree of risk than investing in securities in
more developed markets
inconsistencies between various laws, presidential decrees,
governmental, ministerial and local orders, decisions, resolutions and other
acts; Risks Related to Registrant's Common Stock The availability of a large number of authorized but
unissued shares of Common Stock may lead to dilution of existing
stockholders
changes in our costs, and our transaction losses; ITEM 1B. UNRESOLVED STAFF
COMMENTS Back to Table of Contents
As of the filing of this annual report on Form 10-K, there were no unresolved
comments from the staff of the Securities and Exchange Commission ("SEC").
ITEM 2. DESCRIPTION OF PROPERTY Back to Table of Contents Our correspondence office is located at
12 Hay Hill, Mayfair, London, W1I 8NR. Our telephone number
in the UK is +44 (0) 203 862 2922. We believe that this space is adequate for our current and immediately foreseeable
operating needs. ITEM 3. LEGAL PROCEEDING Back to Table of Contents From
time
to time, we may become involved in various lawsuits and legal
proceedings, which arise, in the ordinary course of business.
We are currently not aware of any legal proceedings or claims that we
believe will have a material adverse effect on our business,
financial condition or operating results. ITEM 4. MINE SAFETY DISCLOSURES
Back to Table of Contents Not Applicable.
ITEM 5.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER Back to Table of Contents Market Information Our
common stock is quoted on the OTCQB under the symbol AFGC.
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock as reported by
the OTCQB. The prices below, adjusted for a one-for-two hundred (1:200)
reverse split effective January 30, 2017 represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions. As of March 31, 2017, our shares of Common Stock were held
by approximately 528 stockholders of record. The transfer agent for our common
stock is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598. We
have no securities authorized for issuance under equity compensation plans. During
the past three years, the Company has sold the following securities which were not registered under the Securities Act of 1933,
as amended: The Company has not issued unregistered securities during the last three years. In connection the
merger of the Registrant's wholly-owned subsidiary with and into Africa International Capital Ltd., a Bermuda corporation pursuant to which AIC will be the surviving company,
we issued 74,706,464 shares of our Common Stock to the designees of AIC.
The issuance shall take place in April 2017.
TEM 6. SELECTED FINANCIAL DATA
Back to Table of Contents None. The
following
discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our results
of operations and financial condition. You should read this analysis in
conjunction with our audited consolidated financial statements
and related notes. This discussion and analysis contains
statements of a forward-looking nature relating to future events or our
future financial performance. These statements are only
predictions, and actual events or results may differ materially. In
evaluating such statements, you should carefully consider
the various factors identified in this annual report, which could cause
actual results to differ materially from those expressed
in, or implied by, any forward-looking statements, including those set
forth in "Risk Factors" in this annual report.
See "Cautionary Note Regarding Forward-Looking Statements." The following disclosure in Management's Discussion and Analysis
of Financial Condition and Results of Operations ("MD&A") is intended to
help you understand our historical results of operations during the periods
presented and our financial condition for the years December 31, 2016 and
2015. This MD&A should be read in conjunction with our consolidated
financial statements and the accompanying notes to consolidated financial
statements for the years ended December 31, 2016 and 2015. See section entitled "Forward-Looking Statements" above.
It should be understood that as a result of the expected Closing of the Merger
Agreement with AIC in April 2017 our historical results are not
expected to be indicative of our future results. Recent Developments
On April 25, 2016, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Africa International Capital Ltd., a Bermuda
corporation ("AIC") pursuant to which a wholly-owned subsidiary of the
Registrant will be merged into AIC which will be the surviving entity and
will become a subsidiary of the Registrant. The Registrant expects the
Merger Agreement to close in the second quarter of 2017.
In addition, on April 25, 2016, the Registrant also entered into a
Contribution Agreement with its corporate parent and principal shareholder,
American International Industries, Inc., a Nevada corporation ("AIII"),
pursuant to which, at the closing of the Merger, AIII will assume all of
Brenham's existing liabilities and working capital at the Closing in
consideration and exchange for Brenham assigning to AIII all of Brenham's
existing developed and undeveloped oil and gas assets. Results of Operations during the year ended
December 31, 2016 as compared to the year
ended December 31, 2015
Net income for the twelve months ended December 31, 2016 was $637,647,
compared to a net loss of $351,240 for the twelve months ended December 31,
2015. Net income was generated as a result of the assignment of all the
Company's existing net developed and undeveloped oil and gas assets to a
nominee of AIII in exchange for AIII assuming $773,387 of the Company's
existing related party liabilities as consideration resulting in a gain of
discontinued operations during the year 2016 of $775,335.
Due to the discontinuation of the operation of the oil and gas leases in
2016, there were no oil and gas revenues or operating expenses recorded for
the twelve months ended December 31, 2016. General and administrative
expenses for the twelve months ended December 31, 2016 were $137,688, and
consisted primarily of executive compensation and legal and professional
expenses. General and administrative expenses for the twelve months
ended December 31, 2015 were $145,231, and consisted of executive
compensation, travel, and legal and professional expenses. Liquidity and Capital
Resources
The reason
for entering into the Merger Agreement is due to the continuing low oil
prices that have had a material adverse effect on the Company's business
prospects related to the development and commercial exploitation of the
Company's oil and gas assets and the likelihood that such assets would
continue to underperform and not produce adequate returns.
The
Company's then Board of Directors determined that rather than waiting for a
commodity price recovery, it will use the Company's valuable African
experience obtained pursuing petroleum concessions in African nations
including Togo and Equatorial Guinea to pursue the growth opportunities
presented by AIC's business model which has focused on real estate
acquisitions and long-term housing for middle-income families in Sub-Saharan
Africa.
Upon final completion of the Merger AIC will become a wholly
owned subsidiary of the Company. However, for financial reporting purposes
AIC on a go forward basis will represent the succeeding business. The Merger
Agreement will be accounted for as a reverse recapitalization.
The
current subsidiaries of AIC operate three income producing rental properties
in Luanda, Angola (acquired on January 23, 2015). The Angolan assets were
built in 2012 and were operated by the developer and vendor prior to
acquisition by AIC.
Going forward the Company will target
acquisition, development and operation of housing and food related
businesses, including developing and providing finance solutions, in
Sub-Saharan Africa, notably in regions it has identified as offering growth
opportunity combined with positive investment climates. AIC has started its
Namibia business; formed a local company, Namibia International Capital
Ltd., identified initial local management and, most notably, local joint
venture and cooperation international partners. AIC is in advanced stages
with respect to negotiations with an established local mortgage provider and
other providers of funding for a long-term cooperation in the administration
of a future Namibia real estate related portfolio. To date, an initial
acquisition pilot project of numerous houses has been identified. These
activities are intended to be financed on an ongoing basis through equity or
debt issuance based on our cost of capital requirements.
Pierce Junction Field - Houston, Texas; and
Washington County, Texas.
Pina (Ilha do Cabo, Luanda): ownership and control of the lease of a
modern complex with 16 residential apartments and approximately 134 square
meters of commercial space.
Angola has one of the world's most
expensive real estate markets and Luanda ranked second as a city according
to Mercer's 2016 Cost of Living survey for expatriates. Angola's property
market is still in its infancy with most properties being bought new or off
plan and little turnover of real estate. The real estate sector has
historically been overly focused on high-end housing developments because of
the ready market created by oil companies amid record prices and oil exports
in 2007 and 2008. This has changed with the recent economic downturn, and
developers are realizing the potential for more affordable housing,
targeting the middle to lower middle income earners in the country's urban
centers.
The Angolan real estate market has witnessed rapid growth
both in the residential and commercial/industrial market segments driven
mainly by the country's economic development. Luanda continues to be the
focus of Angola's main growth, although other provinces such as Lobito/Benguela,
Soyo and Cabinda are all seeing an increase in real estate development.
Despite concerted efforts by the Angolan government to encourage and
engage in direct infrastructure investments in the country, the Angolan
property market can be characterized as having:
a scarcity of properties readily available for purchase with a
registered colonial deed (full possession);
a lack of town planning and city master plans;
a lack of licensed city center development plots; and
a complex planning and licensing environment that is overly
bureaucratic.
The residential real estate sector in Angola
continues to be characterized by demand from expatriates working in the
corporate sector as well as the rise in the upper and upper-middle class of
Angolans. Whilst there has been an exponential growth in this sector in
recent years, the market is still under-developed. The growth in the
corporate sector has resulted in an increase in employment of expatriate
professionals due to an insufficient supply of Angolan graduates. Expatriate
professionals are demanding higher quality residential lodgings paid for by
their companies - who are not as price sensitive as local Angolans. This has
created an environment where the demand for both residential and commercial
real estate is set to continue for the foreseeable future (Source: Abacus
Jones Lang La Salle, Real Estate Market Report 2014 - Angola).
Property prices in Luanda remain high but below their peak of 2008, when a
fall in oil prices caused an economic crisis in Angola. The demand for
high-end, quality housing in secure developments, with the reliable
provision of utilities, means rental and sale prices are among the most
expensive in Africa and in the world. Development Workshop Angola, with the
support of the World Bank, carried out the first comprehensive study of
Luanda's urban land markets in 2011. It demonstrated that there was a
thriving land market but that it operated mainly in the informal sector,
with less than 10 per cent of land parcels outside the urban core having
legal titles. What should develop in the future is a more active housing
market, catering for middle income earners, as developers and the government
shift their interest to this segment.
Luanda's real estate market is
characterized by a shortage of supply for the Angolan middle classes in the
center of the city, and a lack of available funds for property investment to
support both national and international business demand. The lack of a
mortgage market, coupled with increased demand has created strong market
dynamics for residential lettings.
Typically, residential lettings in
Luanda require up-front payment of significant portions of rent with an
average contract duration of one year. It is common for the tenant to be
responsible for any payments relating to improvement and renovation works,
with these amounts being deducted from future rental payments. This
practice, as well as a desire to mitigate local currency inflation risk
versus the US Dollar, has led to property owners seeking short-term lets in
order to place the properties back on the market at a higher rate.
The areas with the highest demand, known as the "zonas nobres" or upscale
areas include Miramar, Bairro Azul, Alvalade, Cruzeiro, Vila Alice, Cidade
Alta and Baixa da Luanda. Ilha do Cabo ("Ilha"), an isthmus connected to the
central business district, is believed by the Company's management team to
represent a high growth opportunity due to its proximity to the central
business district. In addition, a major development project (Baia de Luanda)
has begun in Ilha, where extensive land reclamation is underway in order to
develop residential, office, retail and hotel projects. The Company's
initial acquisitions, namely Isha 1, Isha 2 and Pina, are located on Ilha.
Areas such as Talatona/Luanda South have a demonstrated demand for
residential properties centered on condominiums for the upper and
upper-middle classes and apartment complexes more favored by expatriates. In
Camama, Viana and Benfica, areas on the outskirts of Luanda, the real estate
primarily houses the Angolan middle class - with prices typically lower than
in Talatona.
For the next three or four years, fewer apartments are
expected to come on to the market, presenting potential opportunities for
the Company to invest in a sector where demand is forecasted to outstrip
known supply for the foreseeable future.
The regulations it is expected that the company
will be subject to in AIC's business are:
Surface rights: are the most
commonly conveyed types of property right in Angola, and are granted on the
basis of a concession agreement which entitles the owner of the right to
carry out construction works and to own and explore what is being built on
the relevant plot. The term of the surface right is typically 60 years and
is customarily subject to an automatic renewal if not otherwise agreed.
Usufruct: is the right to enjoy temporarily and to its full
extent an object or another person's property right, without changing its
form or substance. Generally, the term of the usufruct may not exceed the
life of the beneficial owner. If the beneficial owner is a company, the
maximum duration is 30 years.
Also with regard to a specific real
estate a leasehold can be granted that entitles the other party to occupy
and/or otherwise make use of the property in a specific way. Like in other
jurisdictions, the leasehold does not qualify as a property right but rather
constitutes a contractual arrangement between the entitled person and, for
example, the surface right owner. It is limited in time as stipulated in the
individual agreement.
Where a concession framework is granted, the
underlying right granted is directly linked to and dependent on the use of
the concession. In other words, should the concession be revoked the land
right granted under the concession is terminated and reverts to the granting
authority.
It is the Company's strategy not to focus only on
acquisitions of the strongest-possible property right position, with regard
to potential developments. Instead, the Company may also accept
qualitatively and/or timely limited property and contractual rights in its
portfolio if the potential returns are attractive.
In Angola, a lease may be terminated through agreement,
rescission (termination of the agreement by one party for default or breach
of the contract or law by the other party), rejection of the automatic
renewal of an agreement or expiration.
The rescission is the
termination of the lease relationship based on the law or the contract and
requires, generally, a statement to the counterparty or a judicial
declaration. Furthermore, a notice for termination must meet the time limits
agreed between the parties, which in general cannot be less than those
provided for in the Angolan Civil Code or the Tenancy Law.
The tenant
has the right to rescind the contract if the landlord breaches any clause
validly agreed between the parties. In addition, the tenant may also
terminate it, regardless of the responsibility of the landlord, if for some
reason beyond the tenant's control or that of the tenant's family members,
the tenant is deprived of enjoying the leased premises, even if only
temporarily, or if serious defects affect or exist in the leased premises
that pose a serious danger to the health of the tenant and/or the tenant's
family.
Rescission of the contract by the landlord, based on lack of
compliance by the tenant, can only be ruled by the competent court as part
of an eviction process and may occur only under specific conditions set out
in the law, such as non-payment of rent, non-authorized use of the leased
premises by a third party, use of the leased premises for other purposes
than those permitted, or closure of the leased premises for more than one
consecutive year if such premises are intended for trade or industry, except
in cases of force majeure or the tenant's forced absence. The landlord may
also terminate the lease if he or she needs to occupy the leased premises,
either for his or her own habitation or to install a business which he or
she will have to run exclusively.
Rejection of the automatic renewal
of an agreement is the termination of the agreement at the end of the
agreement period and requires notification to the counterparty, which must
meet the time limits agreed between the parties, which in general cannot be
less than those provided for in the Angolan Civil Code or the Tenancy Law.
Such rejection by a landlord is subject to the circumstances laid down in
the Angolan Civil Code and the Tenancy Law while the opposition by the
tenant is not subject to any requirements.
Expiration is the
automatic termination of the contract as a result of the occurrence of a
pre-agreed or pre-determined fact. This could be the expiration of a certain
period of time or the demolition of the leased premises by decision of the
competent authority.
We have sufficient licenses for the relevant
wholly-owned subsidiaries (AGPV and Illico) to conduct the business
regarding the Isha and Pina properties, as described herein, which currently
consist primarily of the habitation licenses for each property as per the
underlying lease and services agreements.
Compliance with the PIL includes, in
particular, the filing of a project application and, after an initial
assessment to confirm that the application is complete, the negotiation of
an investment contract. Among other documents, the application must include
the following:
Timeline of execution of the project;
Training Plan, documenting the investor's undertaking regarding
training of the national workforce;
Gradual Replacement Plan, setting out a timeline whereby the investor
will replace foreign employees with national employees;
Technical, Economical and Financial Feasibility Study, divided into
four sections: presentation of the investor; characterization of the
project; financial assessment of the project and economic and social
assessment of the project;
Environmental study of the project, describing the environmental
impact of the project; and
any other documents deemed necessary for the success of the
submission.
Foreign
investments relating to (i) electricity and water, (ii) hotels and tourism,
(iii) transport and logistics, (iv) civil construction, (v)
telecommunications and IT and (vi) media requires local partnership with
Angolan citizens, state-owned companies or Angolan private companies and
additionally requires that the Angolan investor holds at least 35% of the
share capital and has effective participation in the management as per the
shareholders' agreement.
Incentives and benefits under the PIL are
not automatic but have to be negotiated with a committee created for each
private investment application. The PIL defines a number of criteria, the
fulfilment of which will improve the investor's position during
negotiations, including:
contribution to the growth of the economy;
promotion of underprivileged regions, particularly in the interior of
the country;
increase of national productive capacity and raising of the added
value of the goods produced in Angola;
creation of partnerships between national and foreign undertakings;
technology transfers and raising of the national production
efficiency;
increase of domestic exports and reduction of imports;
increase of the foreign exchange amounts and improvement of the
balance of payments;
promotion and support of technological development, business
efficiency and product quality;
update and expansion of the infrastructures used for domestic trading
activities; and
creation of a strong national company, able to secure and provide
high-level services.
At the date of this filing, all assets of
the Group in Angola are located in Zone A.When the investment project is
approved, the investor receives a CRIP (registration certificate) that sets
out the main elements of the investment project, including the investment
amount agreed, the location, the identification of the
shareholders/investors and the purpose of the investor. After the CRIP
(registration certificate) is issued, the investor can import the relevant
amounts necessary to execute the investment operations. Most investment
operations can only be implemented after the relevant investment amounts are
imported into Angola. If any equipment is to be imported under the
investment project, the investors will have to request approval from the
Customs Authorities.
Under the previous PIL, which was
in force at the time of the acquisition by the Group of AGPV Lda. and which
still applies to that investment, there are certain dividend repatriation
caps, as follows:
in Zone B, projects with an external investment amount of less than
$5 million allow for repatriation after two years, and projects exceeding
this amount allow for an immediate repatriation after full project
implementation.
The investment made by the Company in Angola as
described in this filing is subject to a three-year cap of dividend payments
as of its completion of investment operations i.e. upon acquisition of AGPV
Lda. and importation of cash and equipment.
An external investment
could be made through: transfer of own funds from abroad; investment of
current assets in foreign currency in bank accounts opened in Angola by
non-residents and which would be able to be re-exported; investment of funds
in the national territory within the scope of foreign reinvestment;
importation of machinery, equipment, accessories and other fixed tangible
assets; incorporation of technologies and expertise (provided that they are
quantifiable). On the other hand, loans generally do not qualify as external
investments, even if they are obtained abroad.
The Foreign Exchange Law (FEL) establishes three main
categories of foreign exchange operations: invisible items of trade, capital
operations and goods transactions, as detailed below:
Capital operations require prior BNA authorization. These operations
include various financial transactions such as the issue and redemption of
government securities and bonds, acquisition of participations, setting up a
business, acquisition of businesses or property, granting and repayment of
loans and other receivables, issuance and execution of guarantees, purchase
or sale of shares, or personal acts such as donations and inheritances, as
well as some other operations; and
The settlement of goods transactions may only be processed through
the purchase of foreign currency from a bank domiciled in Angola. To achieve
this, the commercial bank involved in the process requires a certification
of import or an evidence of shipment. The settlement of export and re-export
of goods generally requires the intermediation of a bank authorized to
conduct foreign exchange business in Angola.
What these three main
types of foreign exchange operations have in common is that they are based
on acts, operations, contracts and/or transactions between residents and
non-residents and/or capital movements between Angola and abroad.
A major tax reform is currently taking place
in Angola.
The industrial tax applies to national or foreign companies that carry
out activities in Angola, regardless of their place of incorporation and
whether or not they have a permanent establishment or any other kind of
corporate presence in Angola. As such, both resident and non-resident
companies that perform activities in Angola fall under the scope of the
industrial tax.
Companies that are resident for tax purposes in
Angola are subject to industrial tax on their worldwide income. As such, all
income obtained by any company incorporated in Angola, either obtained
abroad or in Angola, is subject to taxation in this territory.
Companies not incorporated in Angola are generally taxed on the profits
attributable to a permanent establishment located in Angola. An entity is
considered to have such establishment in any of the following situations:
management office in Angola; branch in Angola; office in Angola; plant or
repair shop in Angola; oil well or any other location where mining or
drilling activities occur in Angola; construction establishment or an
assembly, or the existence of inspection activities therein, if it has a
duration that exceeds 90 calendar days during any given 12-month period;
rendering of services in Angola through employees or other individuals for a
period of more than 90 days in a given 12-month period; dependent agent in
Angola.
If a non-resident company does not wish to hold a permanent
establishment in Angola but renders services in the country through a
company or an individual, such agent should be independent from the company.
This means the agent needs to be independent at an economic and legal level,
despite performing activities on behalf of the company. Companies that do
not hold a permanent establishment in Angola are taxed on their "isolated
acts of commerce or industry".
The new Industrial Tax Code is also
now applicable to the (i) mere management of a real estate portfolio, of
social participations or of titles; (ii) activities that are subject to the
regulation of the Insurance Supervision Institute, the Gambling Supervision
Institute and by the Angolan National Bank; and (iii) activities developed
by foundations, autonomous funds, cooperatives and charities.
The
industrial tax regime distinguishes between two groups of taxation, A and B.
Group A includes the majority of taxpayers, including Angolan companies
with a share capital equal to or greater than AOA Kwanza 2,000,000 ($18,400
as of March 31, 2014) or with an annual income equal to or greater than AOA
Kwanza 500,000,000 ($4,600,000 as of March 31, 2014), branches of foreign
companies, associations, foundations, cooperatives which activity generates
additional profits to the endowments and subsidies received from its
associates, cooperatives and benefactors. A company incorporated by the
Group could fall within this group. In addition, any taxpayers may opt to
qualify as Group A taxpayers, as long as such option is exercised by the end
of the month of February during the year to which the Industrial Tax
relates. Such option must be requested in writing to the taxpayer's
competent tax office.
The taxable income of Group A taxpayers is
determined in accordance with the tax return submitted and corresponds to
the net income of the fiscal year, based on the financial statements of the
company. As such, Group A taxpayers will be subject to taxation on a net
accounting basis and must maintain organized accounting books. If no tax
return is submitted, the tax authorities may determine the taxable amount.
The amount of industrial tax is to be calculated by the taxpayer and payable
as soon as the tax return is filed.
In relation to transfer pricing
rules, the Industrial Tax Code establishes a rule according to which the
arm's length principle shall apply to transactions between related parties.
In such a scenario, the transactions must be performed at the market-value
price foreseen for independent entities. If the transaction does not take
place as referred, the tax authorities are entitled to adjust the taxable
income.
The entity to
which the service is rendered is responsible for withholding and delivering
the tax due until the end of the following month. In case of services
rendered by resident companies in Angola upon the payment of the service,
the amounts withheld qualify as provisional payments and may be deducted at
the end of the year. Nevertheless, if upon finalization of the Industrial
Tax payable it is determined that an amount lower than the tax provisionally
paid during the course of the exercise is in fact payable, such credit shall
be deducted from the tax collection of the following exercise and also
consecutively in further exercises. On the other hand, the industrial tax
amounts withheld upon the payment for services to non-resident companies,
with no permanent establishment in Angola correspond to their final tax
liability in the Angolan territory.
The following services are not
subject to withholding tax if rendered by resident entities:
passenger transport services;
leasing of machinery or equipment subject to the Investment Income
Tax;
financial intermediation and insurance services;
hotel and similar services and telecommunications services; and
any services valued at less than AKZ 20,000.
However, the
following are not liable to Industrial Tax withholding:
passenger transport services;
leasing of machinery or equipment subject to Investment Income Tax;
and
any services valued at less than AKZ 20,000.
Section B comprises dividends, interest on bonds, interest paid under
shareholders loans, royalties, capital gains from the sale of shares,
interest from current and time deposits placed with financial institutions
and any other investment income not specifically listed. The general
(withholding) tax rate in Section B is 10 percent. A withholding tax rate of
5 percent applies to interest from securities of the central bank, in case
of interest paid on securities with a maturity equal or superior to three
years; and a withholding tax rate of 15 percent applies to any other
investment income not specifically listed.
With regard to dividends,
an exemption from investment income tax applies to profits distributed by an
entity with its head office or place of effective management in Angola to a
parent company also located in Angola, holding at least 25 percent of the
shares of the subsidiary for a minimum period of one year.
In
addition, under the Investment Income Tax Code, the repatriation of profits
imputable to permanent establishments of non-resident companies in Angola is
now subject to Investment Income Tax withholding at the rate of 10 percent.
The tax must be withheld and delivered to the Angolan Tax Authorities by the
paying entity (i.e. the permanent establishment).
The new PIL also
created a supplementary rate applicable to dividends and profits distributed
which exceed the participation of the shareholder of own funds in the
company. The new rate applies as follows to the value in excess of the own
funds: 15 percent if the excess is up to 20 percent, 30 percent if the
excess is between 20 percent and 50 percent, and 50 percent if the value
exceeds 50 percent. This rate does not apply however if the amounts are
reinvested.
Property transfer tax is also
due, among others, on the following transactions:
incorporation of immovable property in a company's share capital; and
the acquisition of participations in any company that holds immovable
property if, as a consequence of the acquisition, some of the shareholders
will hold 50 percent or more of the Company's share capital and it is proved
that the acquisition of the participations was performed to acquire the
immovable property.
In the sale and purchase of
immovable property, stamp duty shall apply at the rate of 0.3 percent plus
0.4 percent on active lease transfers.
In the case of mere ownership, the tax is levied over the
patrimonial value of property. The patrimonial value corresponds to the
value attributed to the property by the tax authorities in accordance with
the rules for valuation or re-valuation of urban properties or the value for
which the property has been sold, whichever is the higher.
In the
case of rented property, the tax is levied over the amount of rental income.
The tax is payable by whoever has the right to receive the rental income
from the property while, in cases of mere ownership, the tax is payable by
the owner, beneficiary or holder of the surface rights to the property.
Rents charged over urban property are subject to the net urban property
tax at a rate of 15 percent. This rate is determined considering the
application of the general 25 percent rate levied over the rent net of
expenses, equivalent to 60 percent of the amount of the rent. Taxpayers
having "organized accounting" in Angola, either companies or individuals,
are required to withhold the 15 percent tax amount upon payment of the rents
to the landlord. The withheld amounts must be delivered by the 30th day of
the month following the withholding of the tax due to the relevant tax
office where the property is located.
With regards to rented property
when the tax is not assessed based on the withholding, the urban property
tax must be paid in two installments, respectively in January and July. The
tax may also be paid in four installments in the months of January, April,
July and October, if so declared by the taxpayer. In case of non-rented
property, the urban property tax must be paid in two equal installments, in
July and October.
Liability
generally arises if (i) the "incident" and/or consequential damage arise
from an act or omission which causes or allows to cause an incident
resulting in pollution and/or (ii) any environmental law or rule was
breached in connection with the relevant activity leading to pollution and
damage. In this case, the entity is liable to the state and individuals or
entities suffering the damage.
Presidential Decree 194/11 sets strict
liability (i.e. without fault) in relation to damage caused to a third party
resulting from the breach of environmental rules and whilst engaged in any
given activity. Presidential Decree 194/11 is also based on the
"polluter-pays principle", and allows and enables recourse to international
conventions and domestic law when available to limit liability.
In
addition, under the Civil Code, responsibility for the damage may give rise
to compensation for the damage caused and/or compensation profits not
received as a result of the incident (subject to the terms of the claim).
Moreover, the Environmental Base Law also provides that any individual
or entity that causes damage to the Angolan environment is liable and
responsible before the Angolan state, irrespective of fault (i.e., strict
liability).
Another relevant statute is the Presidential Decree No.
190/12, of 24 August 2012, which approved the Regulation on Waste
Management. Companies engaged in construction activities are generally
required to comply with the rules and regulations set forth in this statute
and they apply to any activity able to generate waste or related with waste
management. The cornerstone of the framework is based on a waste management
plan that the relevant company must file with the Ministry of Environment
and licensing of the facilities that will be engaged in the relevant waste
management activities.
Penalties for breach of the above framework
include compensation for damage sustained by third parties, seizure of
equipment and/or machinery, public tenders, fines and/or license
suspension/cancellation. Fines may range from $1,000 to $1,000,000.
This annual report on
Form 10-K also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of many factors,
including the risk factors described below and the other factors described
elsewhere in this Form 10-K.
The Company has only recently commenced its business operations
The business was acquired by AIC on January 23, 2015. The Company therefore
lacks an operating history in operating its assets in the sub-Saharan real
estate market and the ability to demonstrate the merits of its business
strategy. In addition, the Company's management team do not share a history
of collaborating together in a business venture prior to the establishment
of the Company and have only gained experience in the Sub-Saharan real
estate market individually and/or in other corporate organizations. The
Company may be unable to successfully execute its business strategy as
expected and may at any time be forced to reassess and make adjustments to
its strategy. Any such implementation issues and/or changes in strategy may
have an adverse effect on the financial condition, results of operations
and/or prospects of the Company.
The Company may not be able to
implement its acquisition strategy
A key aspect of the Company's
strategy is to grow the business through the selective acquisition of
further real estate assets. The successful implementation of this strategy
requires, besides the availability of sufficiently attractive and reasonably
priced properties and real estate rights, that the Company is able to obtain
access to the necessary financing for such acquisitions. In order to realize
continuing acquisition opportunities, the Company will need to raise
additional equity and/or debt finance in the future and/or find vendors
willing to accept equity in the Company as part or full payment for such
real estate. Sufficient funds required to finance contemplated acquisitions
may not be available at terms and conditions satisfactory to the Company, if
at all. The Company's access to third-party sources of finance depends on a
number of factors, including the market's perception of the Company's growth
potential, the Company's current and potential future earnings, the
Sub-Saharan real estate market and related country risk generally and, with
respect to the Company's current assets, Angolan risk in particular. Any
inability to acquire properties or real estate rights due to a lack of
sufficient financing would limit the Company's growth strategy, and
accordingly could have a material adverse effect on the Company's prospects.
The Company is dependent on raising capital, which may not be
available
The Company's strategy contemplates expenditures, for
the purposes of financing property investments. The Company intends to rely
on raising capital from third-party sources for such purposes. There can be
no assurances that third-party sources of finance will be available when
required, on favorable terms or at all. The Company's access to third-party
sources of finance depends on a number of factors, including the market's
perception of the Company's growth potential, the Company's current and
potential future earnings, the relevant real estate markets and country
risks generally.
In addition, the Sub Saharan domestic debt markets
remains significantly underdeveloped, even compared to many other emerging
market countries. Financing from domestic banks and the syndicated loan
markets is not readily available, and for the foreseeable future the Company
expects to be reliant on raising debt or equity finance for the purposes of
pursuing its strategy. There can be no assurances that the Company will be
able to successfully raise additional debt or equity as and when required.
If the Company is not able to obtain third-party sources of capital
and/or any other forms of financing on favorable terms, its prospects could
be materially adversely affected. Moreover, additional debt financing, if
indeed available, may substantially increase the Company's leverage.
Real estate investments are relatively illiquid
Investments
in real estate assets can be relatively illiquid due to the unique nature of
each asset, the specialist nature of the market participants, significant
acquisition prices and the potential time and cost implications of
acquiring/disposing of such assets. In addition, real estate assets can be
relatively illiquid for reasons including, but not limited to, the potential
nature of leases, commercial properties being tailored to tenants' specific
requirements and varying demand for real estate assets. Such illiquidity,
especially during periods of financial stress or political or social unrest,
may affect the Company's ability to vary its real estate portfolio or
dispose of assets in a timely fashion and/or at satisfactory prices in
response to changes in economic, political, real estate market and/or other
conditions. These risks may be more pronounced where there is a small number
of properties owned, such as is the case for the Company.
Any
inability of the Company to dispose of its investments or to do so at a
gain, or any losses on the disposal of the Company's investments, may affect
the Company's ability to achieve its targeted returns, and may have a
material adverse effect on the Company's financial condition, prospects and
results of operations.
The Company relies on key personnel
The Company strategy depends to a significant degree upon the efforts
and abilities of certain key personnel. In addition, the Company benefits
from the extensive contacts and relationships of its management team. The
Company currently employs a relatively small international and local
management team. The Company's intention is to recruit further personnel
over the coming 12 months relating to the expansion of the operations of the
business. The loss of key personnel and/or any unavailability of working
visas for expatriate directors or employees could adversely affect the
financial condition, results of operations and/or prospects of the Company.
Property valuation reports which could impact the value of the
Company's properties are subject to measurement uncertainty
The
property valuation reports used by the Company to determine the fair value
of its properties and real estate rights relating to currently owned
properties in Angola were prepared by the valuer Zenki Real Estate Lda. ("Zenki"),
a member of the CBRE (CBRE Company, Inc.) affiliate network. The property
valuation reports were based on standard valuation principles and
represented the professional opinion of Zenki as of the relevant valuation
date. The property valuation reports were based on several assumptions that,
with the benefit of hindsight, may turn out to be incorrect. Additionally,
the valuation of real estate and real estate rights has been based on the
subjective estimations of Zenki and a multitude of external factors such as,
for example, the general market environment, interest rate levels, the
creditworthiness of tenants, the rental market, the development of the
location and tax considerations. Therefore, the valuations of real estate
and real estate rights provided to the Company by the valuer are subject to
numerous uncertainties. Accordingly, the values indicated in the property
valuation reports (and, accordingly, in the Company's financial statements)
may not represent achievable sales prices of the Company's individual
properties and real estate rights and/or of the Company's real estate and
real estate rights portfolio as a whole.
A change in the factors
underlying the Zenki appraisal and/or its assumptions may also cause the
fair value determined on the relevant valuation date to decline to a level
below the book value of a property or a real estate right, which could
result in an impairment charge if the recoverable amount is less than the
carrying value of the investment property. Under these circumstances, the
Company would be required immediately to recognize the negative change in
value as an impairment loss resulting from the fair value adjustment of
investment properties or real estate rights for the relevant accounting
period. Further, under these circumstances the company may be required to
recognize an impairment of goodwill for any goodwill recognized on
acquisition. Any such losses may have a material adverse effect on the
financial condition, results of operations and/or prospects of the Company.
The Company's real estate assets are based on real estate rights in
a frontier market
Titles to property and real estate rights in
Sub-Saharan Africa may be inherently of higher risk than in countries where
stronger property legislation is effective. Acquisition and possession of
title may be more open to risk than in many other countries, irrespective of
any additional due diligence that may be conducted by the Company.
The legal regime governing land ownership in Angola, where the Company's
current assets are located, is based on the premise that, as a general rule,
land is ultimately owned by the Angolan government. Depending on the legal
designation of the relevant plot by the government, more or less restricted
real property rights may be conveyed to natural or legal persons - with the
aim of ensuring the relevant property right's full and free use and
enjoyment. (See "Government Regulations" below for further information
relating to Angolan real estate laws)
The Company's real estate
assets are classed as either 'surface rights' or 'usufruct'. Surface rights
are the most commonly conveyed types of property right in Angola, and are
granted on the basis of a concession agreement which entitles the owner to
the right to carry out construction works and to own and exploit what is
being built on the relevant plot. The term of the surface right is typically
60 years and is customarily subject to an automatic renewal if not otherwise
agreed.
Usufruct means the right to enjoy temporarily and to its
full extent an object or another person's property right, without changing
its form or substance. Generally, the term of the usufruct may not exceed
the life of the beneficial owner. If the beneficial owner is a company, the
maximum duration is 30 years.
Therefore, the Company is not and does
not become the legal owner of the relevant plots indefinitely, and the
respective property rights will be subject to the abovementioned risks and
limitations, with details depending on the respective object and type and
term of the respective property right.
The Company's due
diligence may not identify all risks and liabilities in respect of an
acquisition
Prior to entering into an agreement to acquire any
real estate asset, the Company's management team performs customary due
diligence on the proposed investment. In doing so, it typically relies in
part on third parties to conduct a significant portion of this due diligence
(including providing legal reports on title and property valuations). There
can be no assurance that any due diligence examinations carried out by the
Company's management team or by third parties on behalf of the Company in
connection with any assets that the Company may acquire will reveal all of
the risks associated with that asset, or the full extent of such risks.
Assets that the Company acquires may be subject to hidden material defects
that were not apparent at the time of acquisition. To the extent that the
Company's management team or other third parties underestimate or fail to
identify risks and liabilities associated with an investment, the Company
may be subject to one or more of the following risks (inter alia):
environmental, structural or operational defects or liabilities
requiring remediation and/or not covered by indemnities or insurance;
an inability to obtain permits enabling it to use the asset as
intended; and/or
acquiring assets that fail to perform in accordance with
expectations.
Any of these consequences of a due diligence failure
may have a material adverse effect on the Company's financial condition,
results of operations and/or prospects.
Property investments may
require significant maintenance, repair, modernization or refurbishment
works
In order to attract and to meet the expectations of
targeted tenants the Company expects that it will be required to deliver
high service standards. Maintenance and modernization measures may be
required in order to meet changing legal, environmental or market
requirements (e.g., with regard to health and safety requirements and fire
protection). Failure to maintain the properties could pose a risk to the
health and safety of the Company's tenants as well as its employees or
others. The costs associated with these maintenance and modernization
measures are borne by the Company, which may therefore be burdened with
substantial expenses. Additional costs may have to be incurred if the actual
costs of maintaining or modernizing the properties exceed current estimates,
if defects not covered by insurance or contractual warranties are discovered
and/or if additional measures are required for other reasons. Any failure to
undertake appropriate maintenance, repair and modernization measures, as
well as any additional costs for such measures, could adversely affect the
Company's rental income and potentially entitle tenants to withhold or
reduce rental payments or even to terminate existing lease agreements. This
could have a material adverse effect on the Company's financial condition,
results of operations and/or prospects.
Where the Company undertakes
maintenance, repair, modernization or refurbishment, the Company will
typically be dependent on the performance of third party contractors which
may expose the Company to various risks, including, but not limited to
delays in the timely completion of projects; failure by third-party
contractors in performing their contractual obligations or poor quality
workmanship from such contractors; and/or insolvency of third-party
contractors.
While the Company seeks to make contractual
arrangements with third party providers to mitigate customary risks, there
can be no certainty of effectively mitigating all risks. Failure to execute
such projects in a timely and cost effective fashion, whether due to
failures in the performance of the Company's third-party contractors,
failures by the Company in properly supervising such third party contractors
or otherwise, may have a material adverse effect on the Company's financial
condition, results of operations and/or prospects.
The Company
may be subject to the effects of exchange rate fluctuations
The
Company's and certain of its subsidiary's functional currency is USD. While
rental monies may be receivables in local currencies, such as AOA Kwanza in
Angola, amounts payable by the Company's tenants in respect of rental income
on the real estate assets may in some cases be calculated by reference to
the preliminary USD conversion rate at the time of payment. On the other
hand, the Company expects to pay certain expenses and liabilities, and
receive and conduct its operational payments in local currencies. Exchange
rate fluctuation could thus have an adverse effect on the Company's
financial condition, results of operations and/or prospects.
The
insurance coverage obtained by the Company for its business operations may
turn out to be insufficient and may not cover all relevant damages, losses
or liabilities
The Company believes that the insurance coverage
obtained by the Company for its business operations is in line with market
standards in the relevant commercial real estate industry and covers
adequately the risks to which the operations of the Company are exposed.
Nevertheless, it may turn out that the insurance coverage the Company has
obtained does not cover all risks to which it is exposed and/or that the
amounts of coverage fall short of the actual amount of damage, loss or
liability. Any deficiency in insurance coverage may have a material adverse
effect on the Company's financial condition, results of operations and/or
prospects.
Environmental and health and safety laws, regulations
and standards may expose the Company to the risk of substantial costs and
liabilities
Although there is no current impact on the
company, laws and regulations, as these may be amended over time, may impose
environmental liabilities associated with real estate assets (including
environmental liabilities that were incurred or that arose prior to the
Company's acquisition of such real estate assets). Such liabilities may
result in significant investigation, removal, or remediation costs
regardless of whether the Company originally caused a contamination or other
environmental hazard. In addition, environmental liabilities could adversely
affect the Company's ability to sell, lease or redevelop a property, or to
borrow using a property as security and may in certain circumstances (such
as the release of certain hazardous materials) form the basis for liability
to third persons for personal injury or other damages. The Company's
investments may, in the future, include properties historically used for
commercial, industrial and/or manufacturing uses. Such real estate assets
could contain, or could have contained, storage tanks for the storage of
hazardous or toxic substances. Leasing properties, such as those containing
warehouses, to tenants that engage in industrial, manufacturing and other
commercial activities could cause the Company to be subject to increased
risk of liabilities under environmental laws and regulations. If the Company
were to be exposed to environmental liabilities or increased costs or
limitations on its use or disposal of properties as a result of changes to
environmental laws and regulations, this may have a material adverse effect
on the Company's financial condition, results of operations and/or
prospects.
New and more stringent environmental laws, regulations
and permit requirements or stricter interpretations of current laws or
regulations could, in the future, impose substantial additional costs on the
Company's investments. Compliance with such current or future environmental
requirements does not ensure that the Company will not be required to incur
additional unforeseen environmental expenditures.
Investing in securities involving
frontier markets, such as Angola, generally involves a higher degree of risk
than investing in securities of corporate or sovereign issuers from more
developed countries. These higher risks include, but are not limited to,
higher volatility and limited liquidity, as well as risks relating to the
relevant country itself, including but not limited to narrow economic growth
base and instability and changes in the social, political and economic
environment. Frontier markets can also experience corruption of government
officials and misuse of public funds more often than more mature markets,
which could undermine or adversely affect that country's economic growth as
well as that of the companies operating there. As a consequence, an
investment in securities issued by a company operating primarily in that
market carries risks that are not typically associated with investing in
securities issued in more mature markets.
Angola's economy is
susceptible to adverse developments similar to those suffered by other
frontier market countries. Investors should exercise particular care in
evaluating the risks involved, should take appropriate advice and must
decide for themselves whether, in light of those risks, their investment is
appropriate. Investment in companies operating in frontier markets, such as
Angola, is only suitable for sophisticated investors who fully appreciate
the significance of the risks involved.
Frontier markets have been
and may continue to be significantly affected by the current global
financial and economic crisis. As a consequence, some have experienced a
dramatic economic downturn, which may continue in the foreseeable future.
Challenges in the implementation of economic and financial reforms,
and the lack of available financing, may have a negative effect on the
performance of the Angolan economy
In order to ensure
sustainable growth of Angola's economy, the Angolan Government has been
implementing a wide range of economic, financial and banking system reforms,
and improvements of the legal and regulatory environment. The Angolan
Government is pursuing these measures to promote private sector investments,
diversify the economy away from the oil sector and facilitate access to
credit to further foster private investment in Angola by both local and
foreign investors. Although the Angolan Government intends to continue
implementing these reforms, any challenges or delay in their implementation
may materially and adversely affect Angola's economic, political and/or
financial condition.
Continued pursuit of long-term objectives,
including those set forth in the Angolan Government National Development
Plan 2013-2017, will depend on a number of factors including continued
political support in Angola and across multiple government ministries,
adequate funding, the outcome of policy reviews, improved security, power
sector reform, availability of human capital and significant coordination.
In order to fund these plans, the Angolan Government budgeted capital
expenditure of $5.6 billion in 2015, $10.3 billion in 2016 and $11.2 billion
in 2017. The significant funding requirements for these plans may prove
difficult to meet, and the funding requirements for these initiatives may
lead to an increase in Angola's outstanding debt.
The economic and
other assumptions underlying the objectives set forth in these plans
including with respect to oil prices and production, GDP growth, inflation,
external debt and the fiscal deficit may not be met, which would undermine
Angola's ability to achieve the stated objectives, which could result in an
adverse effect on the economy of Angola.
Failure to adequately
address actual and perceived risks of corruption may adversely affect a
country's economy
Corruption has many implications for a
country, including increasing the risk of political instability, distorting
decision-making processes and adversely affecting its international
reputation. Failure to address these issues, corruption, and any future
allegations of or perceived risk of corruption could have an adverse effect
on the political stability of the country, on the country's ability to
attract foreign investment and on the country's economy. Corruption
continues to be a significant problem in the Sub-Saharan markets and Angola
in particular.
According to Transparency International, an
international non-governmental organization that monitors and publicizes
corporate and political corruption, Angola currently ranks in the top 15
most corrupt countries of those surveyed. In addition, independent
international organizations have identified corruption and misuse of funds
by public officials as significant challenges facing Angola. Specifically,
there have been allegations of corruption in Angola relating to senior
public officials having business interests in sectors for which they have
responsibility or can otherwise exert influence or using Government
influence to channel lucrative business opportunities to a relatively small
political elite.
In response to this, Angola has recently introduced
a series of laws and regulations to deal with corruption. However, there is
currently no data on how effective these measures have been in preventing
corruption in Angola and there can be no assurances that they will be
effective in the future. Further, in 2010 Angola introduced a law to govern
public procurement processes and established a body overseen by the Ministry
of Finance to oversee public procurement processes. However, the President
of the Republic is entitled to approve contract tenders of any value in
certain limited circumstances. Depending on the value of the contract, other
public authorities are entitled to approve contract tenders under delegation
of the President of the Republic. When a contract is approved by the
President or by a public official with delegated authority, the awarding of
such contract is not subject to Angola's usual public procurement procedures
and laws, which do not prohibit the awarding of contracts to companies where
public officials have an interest.
Challenges in diversifying its
economy may constrain Angola's economic growth
In recent years,
Angola has been diversifying its economy away from the oil sector to other
economic sectors, such as agriculture, construction, financial services and
mining, and is currently planning a number of economic and fiscal measures
to further progress this economic diversification strategy. However, in 2014
the oil sector represented more than 97.4% of Angola's exports and accounted
for 35.4% of its GDP. Deficiencies in infrastructure levels, lack of private
investment, shortages of skilled labor, a developing financial sector and a
challenging business environment, including but not limited to the length of
time required to start and close a business and difficulties in enforcing
contracts present challenges to the implementation by Angola of an economic
diversification strategy. No assurances can be given that Angola will
succeed in continuing to diversify its economy on a timely basis or at all.
If Angola does not successfully further diversify its economy, its economic
growth may be limited.
Challenge in ensuring smooth governmental
succession could lead to political and social instability
Angola
presently shows signs of relative political stability. In August, President
Jose Eduardo dos Santos won re-election as the People's Movement for the
Liberation of Angola ("MPLA") party's leader. He had indicated earlier this
year his intention to stand for another term in 2017's elections and to step
down a year later. This would give him and the MPLA the opportunity to
manage the succession.
The MPLA has been the ruling party in Angola
since Angola obtained independence in 1975 and the current administration
has been in power since 1979. The MPLA was elected by a large margin in
Angola's 2008 general elections, the first such elections after the end of
Civil War. In 2012, the MPLA was re-elected by a large margin, in an
electoral process that was considered fair by international organizations.
However, given that Angola has not had a change in the majority
government since 1979, there can be no assurance that the handing over of
power to a new president and/or a new political party will be smooth.
Whatever the outcome of the election, the next administration may pursue
policies and have priorities which differ from those of the current
administration and may alter or reverse certain reforms or take actions that
make domestic and foreign investment in Angola less attractive. If the
political climate in Angola were to change significantly, it could lead to
political and social instability, which may materially and adversely affect
the Angolan economy.
The MPLA has a majority that allows it to
pass legislation with limited opposition
The MPLA has more than
a two-thirds majority in the National Assembly. As a result of the current
constitutional system which allows the majority of laws to be passed by a
simple majority, and constitutional changes to be affected by a two-thirds
majority, the President may rely on the MPLA to ensure that a high
proportion of any new laws proposed to Parliament will be passed. If the
MPLA were to abuse these powers, despite a history of low levels of popular
unrest in Angola, the opposition parties and the disaffected population may
rally against the President and the MPLA. In addition, public disaffection
with the MPLA concerning its parliamentary majority could result in a degree
of political instability, which could have an adverse effect on Angola's
economy.
Angola is located in a region that has been subject to
ongoing political and security concerns
Angola is located in a
region which has, at times, experienced political instability. Wars,
political instability, social unrest, epidemics and/or increased fragility
in other countries bordering or close to Angola are common. In particular,
the ongoing civil war in the Democratic Republic of Congo poses a threat to
stability in the region. Such regional threats and fragility among Angola's
neighboring countries may have a material adverse effect on Angola's
economy.
Devaluation in the value of the Kwanza could have a
material adverse effect on Angola's economy
The Angolan central
bank (BNA) devalued the Kwanza three times since June 2015. The devaluations
were aimed at stimulating foreign currency inflows (through both Foreign
Direct Investment (FDI) and exports) that have decreased as a result of
continuing low oil prices. The Kwanza lost 24% versus the USD in 2015 and is
down around 18% this year to date. To date, the BNA's devaluations have not
resulted in a decrease in the parallel rate (a market-determined exchange
rate that coexists with the pegged exchange rate), which remains at
approximately AOA 180-200 per US dollar. The possibility exists for the
Kwanza to continue to depreciate modestly against the US dollar as a result
of a decline in Angola's current-account surplus and the rate increase by
the U.S. Federal Reserve, which is may strengthen the US dollar.
The
recent devaluation of the Kwanza, and any further devaluations in the
future, could have a material adverse effect on Angola's rate of inflation
as a result of higher import prices and rising demand for exports.
High inflation could have a material adverse effect on Angola's economy
Consumer inflation has declined from 15.3% in 2010 to 7.5% in 2014. As
at 30 September 2015, inflation over the previous 12 months was 11.7%. In
the past, Angola has experienced very high levels of inflation due to
economic instability caused by the Civil War. For example, in 2000 Angola's
inflation rate reached 268%.
Although Angola has recently
experienced growth in the agricultural sector, with improved harvests, it
continues to rely heavily on food imports as well as imports of components
necessary for use in the construction and manufacturing sectors. A major
factor affecting Angola's inflation relates to the exchange rate flexibility
affecting those imported goods on which Angola relies heavily.
Although Angola's monetary policies are aimed at containing inflation, there
can be no assurance that the inflation rate will not rise in the future.
Significant inflation could have a material adverse effect on Angola's
economy.
There can be no certainty that real estate values will
continue to rise, and they may, in fact, fall
The Angolan real
estate market is neither mature nor transparent; the number of participants
is limited and property valuations are predicated on the continued growth
and development of the Angolan economy. Angola's economy has grown
significantly since 2002, and real estate valuations have increased
commensurately. There can be no certainty, however, that valuations will
continue to rise. Depending on various factors outside of the Company's
control, particularly the continued development of Angola's economy, real
estate valuations in Angola may plateau or even decline in the future.
Deficiencies in Angola's comparably underdeveloped and unreliable
infrastructure may pose risks to the Company
Despite major
efforts to improve infrastructure, Angola's road, railway and energy
infrastructure is still deficient. To the extent that current and future
economic factors require a functioning infrastructure, these deficiencies
may cause a slowdown and/or instability of Angola's development and economic
growth, resulting in a decrease in the number of potential tenants who,
directly or indirectly, participate in the Angolan or regional market.
Deficiencies in Angola's infrastructure may in particular interfere with the
business operations of international companies, which directly or indirectly
constitute a significant part of the Company's current and potential tenant
base. Therefore, infrastructure-related shortcomings could have a material
adverse effect on the assets, cash flows and/or results of operations of the
Company.
Furthermore, given high temperatures and humidity and
infrastructure deficits, and in order to maintain appropriate health and
safety standards of its properties, the Company operates certain technical
equipment (such as power generators, diesel tanks, water purification tanks,
septic tanks and air-conditioning systems). The supply chain necessary to
purchase and maintain this equipment itself depends to a significant degree
on the functioning of Angolan infrastructure as well as on the importation
of equipment and parts. Any infrastructure deficiencies, therefore, may
increase operating expenses. Any such increase, e.g., due to shortages in
the supply of energy or important equipment, goods and services, could have
a material adverse effect on the financial condition, results of operations
and/or prospects of the Company.
The activities of the Company
are highly dependent on Angola and the Angolan market
The
business of operating residential compounds and commercial and
light-industrial/logistics real estate is dependent to a significant degree
on Angola's political and legal stability, and the Company's strategy is
formed on the assumption that the Angolan economy will develop positively.
If Angola's current political and/or legal stability deteriorates in the
future (for example due to a problematic presidential transition; an
economic downturn; a continuously low oil price and/or a decrease in oil
production), such events could have a material impact on the Company's
investments and its business plan in Angola and elsewhere.
The
Company may face increasing competition
The Company's real
estate strategy focuses on residential compounds and commercial and
light-industrial/logistics real estate in perceived growth regions. The
Company's acquisition criteria include that a potential property be located
in a target geographical location and be reasonably priced. The number of
available properties that match the criteria at any time may be limited.
Members of the Company's management believe that the Sub-Saharan real estate
markets, and the Angolan market in particular, currently offer attractive
investment opportunities, and management expects investment activity to
increase in the future. Some of the Company's competitors, both domestic and
from abroad (e.g., Chinese investors and state agencies), may have an
acquisition strategy similar to that of the Company; may possess greater
financial resources and/or lower costs of capital than the Company; and may
be able or willing to offer higher prices. As a result, the Company's
strategy of growth through acquisitions could become more expensive or
entirely implausible at certain times or generally in the future, in which
case the Company may be forced to reconsider its strategy.
The
Company may also face increasing competition when marketing its owned
properties to potential tenants. Other real estate projects also targeting
international companies and their employees have recently been developed in
the vicinity of the Company's properties and are offering a high quality
product. Similar projects on other plots are currently being developed by
competitors. If the supply of good quality real estate options available
to international companies continues to increase, rental rates and the value
of the Company's properties and of related services may fall. The Company
may not be able to continue to secure new tenants on such attractive rental
terms.
These factors could have a material adverse effect on the
financial condition, results of operations and/or prospects of the Company.
Weaknesses relating to the legal system and legislation may create an
uncertain environment for investment and business activity
Angola's legal system remains subject to greater risks and uncertainties
than more mature legal systems. In particular, risks associated with the
Angolan legal system include:
provisions in the laws and regulations that are ambiguously worded or
lack specificity and thereby raise difficulties when implemented or
interpreted;
inefficiencies, from a timing and costs perspective, and delays in
judicial process;
the fact that it is not unusual in Angola for laws (including tax
laws) to be enacted with retroactive effect or to be published sometime
after their enactment;
the rarity of authority or guidance for interpreting provisions of
Angolan legislation;
foreign exchange limitations due essentially to difficult access to
foreign currency in Angola, which hinders and delays payments outside
Angola;
difficulty in predicting the outcome of judicial application of
Angolan legislation due to, among other factors, a general inconsistency in
the judicial interpretation of such legislation in the same or similar
cases; and
the fact that not all Angolan resolutions, orders, decrees, decisions
and similar governmental, regulatory and judicial acts are readily available
to the public or available in a comprehensibly organized form.
The
judiciary's lack of independence and overall inexperience, the difficulty in
enforcing court decisions and governmental discretion in enforcing claims
could prevent the Company from obtaining effective redress in any court
proceeding in Angola.
Enforcement of laws in Angola will depend on
and be subject to the interpretation by relevant authorities which may adopt
an interpretation of an aspect of local law which differs from that of the
Company. Any contracts or other legal agreements that contain governing law
and/or jurisdiction clauses implementing non-Angolan law or jurisdiction may
not be enforceable under local law. In certain cases, the commitment of
government officials and agencies and the judicial system to abide by legal
requirements and negotiated agreements may be more uncertain and may be
susceptible to revision or cancellation and legal redress may be uncertain
or delayed. Any adverse interpretation or action with respect to the
Company's legal arrangements could have a material adverse effect on the
Company, its financial condition, results of operations and/or prospects.
The government of Angola exercises significant influence over domestic
natural resource industries as well as many other aspects of the economy.
Any action by the government of Angola concerning the economy could have a
material adverse effect on the Company.
Furthermore, in a changing
political and/or legal environment, the Company, as well as foreign
commodity extracting companies (i.e. companies/businesses that the Company's
tenants are typically connected to, directly or indirectly), may, in extreme
cases, face the risk of being expropriated by the Angolan authorities (e.g.,
by nationalization) and may therefore lose ownership of some or all of their
respective assets and/or real estate or other contractual rights without
being compensated adequately. If any such deterioration or expropriation
were to occur, it could have a material adverse effect on the financial
condition, results of operations and/or prospects of the Company.
Enforcement of judgments may be difficult in Angola
The
enforcement of foreign awards depends on their revision and confirmation by
a local court, under the Angolan Civil Procedure Code. The requirements for
a foreign award to be confirmed are, therefore, that: (i) no doubts exist as
to the authenticity of the document that contains the judgment or as to the
intelligibility of the decision; (ii) it has the force of res judicata
according to the law of the country where it was rendered; (iii) it was
rendered by a foreign court, the jurisdiction of which was not invoked by
fraud and does not concern a subject matter for which the Angolan courts
have exclusive jurisdiction; (iv) the same case is not pending before or has
not been tried by an Angolan court, except if it was first brought before a
foreign court; (v) the respondent was duly summoned, according to the law of
the country of origin and that in the proceedings the adversary system and
the principle of equity have been observed; (vi) it contains no decisions
the recognition of which leads to a result manifestly incompatible with the
principles of Angolan international public policy; and (vii) if it has ruled
against an Angolan citizen or company, it does not offend Angolan private
laws, when, according to Angolan conflict of laws rules, the dispute should
have been resolved according to Angolan law.
Following the request
for recognition of a foreign award, the party against which the enforcement
of the award is requested has ten days to contest the confirmation of the
award. The party requesting confirmation may answer within the eight days of
the end of the period for the submission of the objection. Once the creditor
holds a valid foreign award already recognized by the Angolan courts, the
award can be enforced through enforcement proceedings. Once the enforcement
is requested, the judge briefly analyses the enforcement application and the
debtor is notified. The enforcement application may be refused, if the judge
finds that the dispute could not be committed to arbitration. The debtor
against whom enforcement is sought may lodge an opposition arguing any of
the general legal grounds for opposition to enforcement, as long as there is
no previous decision rejecting an application for the annulment of the award
on the same grounds. According to the Angolan law, there are several grounds
to present an opposition to enforcement, in particular: (i) the uncertainty,
unenforceability or illiquidity of the obligation; (ii) res judicata prior
to the enforcement title; and (iii) the holding of a credit against the
enforcement creditor in order to obtain a set-off. It is important, however,
to take into account that the opposition only suspends the enforcement when
the debtor pays a security. If the enforcement is not suspended, it will
continue with the seizure, where an enforcement agent will proceed to
determine and seize debtor's credits and assets. Predicting the timeline for
a decision by Angolan courts regarding enforcement of an award against a
foreign state or a state-owned entity in not possible at this stage due to
the fact that there are no published court decisions to this effect. Taking
into account the abovementioned, it should be concluded that the enforcement
of judgments in Angola may be very difficult.
The Angolan Civil
Procedure Code determines the same rules for recognition of a foreign
judicial decision and a foreign arbitral award. However, on August 12, 2016
the Resolution no. 38/16 was published in the Official Gazette, by which the
National Assembly approved the accession to the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, executed on 10 June
1958, in New York, best known as the "New York Convention" ("NYC"). With 157
Contracting States, the NYC has contributed very significantly to the
simplification and harmonization of recognition procedures and enforcement
of foreign arbitral awards in these signatory countries. Membership to the
NYC will provide more predictability to the process of recognition and
enforcement of foreign judgments in Angola, since the NYC provides that each
Contracting State shall recognize arbitral awards as binding and enforce
them in accordance with the arbitration rules of the seat of arbitration,
not owing to substantially more onerous conditions than those established
for the recognition and enforcement of imposed domestic arbitral awards.
Among the main differences that are anticipated in relation to the current
regime, we underline the future inapplicability of Article 1096 of the
Angolan Civil Procedure Code regarding the requirements for foreign award
confirmation which will be replaced by Articles IV and V of the NYC when
encountered with an arbitral award handed down in another Contracting State
to the NYC.
However, it should be noted that the process of joining
the NYC is not yet completed. In order for the NYC to enter into force in
Angola, ratification is required by the President of the Republic and the
guarantee of such instrument of ratification with the Secretary-General of
the United States, as provided in the Constitution of the Republic of Angola
and in the NYC.
Repatriation of money from the Company's Angolan
Subsidiaries to the Company may require government approvals
The
Company's ability to repatriate dividends follows from its private
investment contract with the relevant authorities (Ministries or UTIP),
under which it has been authorized to make its investments in Angola and
import capital. Individual dividend payments, like any other significant
foreign currency movements will require authorization by the National Bank
on a case by case basis. The Company is required to fulfil certain
requirements before being able to repatriate dividends. Any failure by the
Company to comply with applicable legal requirements could thus have a
material adverse effect on the Company's financial condition, results of
operations and/or prospects. Due to the current foreign exchange situation
in Angola, access to foreign currency is limited and payments outside Angola
can be subject to delays.
The Company depends on the availability
of sufficient funds being distributed by its operating subsidiaries in
Angola
As the Company currently conducts its entire business
operations through its subsidiaries, it may make payments only to the extent
that it receives sufficient distributions from its Angolan operating
subsidiaries.
There may be a lack of sufficient distributable funds
available at the level of the Company at any particular time for various
reasons; including a lack of available liquid funds at the Angolan operating
companies that are available to be distributed, legal limitations in respect
of the amounts that could be distributed by the Angolan operating companies,
exchange controls that prevent the Angolan operating companies from
transferring funds to the Company (as to which, see "- Exchange rate risks
and exchange controls" below), withholding taxes on profit distributions and
other reasons that may cause the Angolan operating companies to refrain or
otherwise be restricted from distributing funds to the Company.
If
the relevant subsidiaries are unable to distribute dividends, or otherwise
transfer amounts outside of Angola, for any reason, this could materially
affect the ability of the Company to pay amounts owing.
Possible
impact of exchange controls; availability of USD
In 2016 the
government of Angola continued foreign exchange rate limitations relating to
the availability of USD for purchase by local companies. The limitation is
in the form of local companies obtaining government approval in order to
repatriate USD out of the country. The lifting these limitations are not
immediately predictable, thus potentially impacting the timing of
repatriation of funds. Although the Company has taken measures to enable its
Angolan operating subsidiaries to transfer funds to the Company, there can
be no assurance that they will continue to be able to do so. Angolan
currency controls and practice are subject to change, with the National Bank
of Angola exercising considerable autonomy in interpretation and practice.
Varying interpretations may complicate the process of determining whether a
license is needed or make certain payments from the Company's Angolan
operating subsidiaries out of the country, as well as the process of
obtaining such license. If the relevant subsidiaries are unable to
distribute dividends, or otherwise transfer amounts outside of Angola, for
any reason, this could materially affect the ability of the Company to pay
amounts owing.
Tax-related risks relating to repatriation of
funds and profits
Dividends paid by an Angolan resident company
to a non-resident company (including non-resident parent companies) are
subject to an Angolan Investment Income Tax, currently at a rate of 10 per
cent. Amounts payable in respect of this tax are to be withheld at source.
Additionally, certain countries may have tax regimes that may impose
withholding or similar taxes on the profits or other returns derived from
the projects in which the Company invests. This tax may be non-recoverable,
namely considering that Angola has not entered into any double tax treaty
with any other country. Nevertheless, the Angolan State Budget for 2016
granted a legislative authorization to the Angolan President to adapt and
harmonize the Angolan legislation, in order to establish mechanisms for the
exchange of information under policies and cooperation agreements on the
exchange of tax information.
It is anticipated that the rates of
withholding tax will vary across jurisdictions and will change from time to
time, which could have a material and adverse effect on the Company's
financial condition, results of operations and/or prospects.
The tax
regimes applying in Angola, Bermuda and the British Virgin Islands may
change, thereby affecting the Company's and/or its subsidiaries' tax
treatments.
The Company is authorized to issue 200,000,000
shares of Common Stock at $0.001 par value per share. As of March 31, 2017,
the Company has 199,003,812 shares of Common Stock available for issuance. Additional shares may be issued by our Board of Directors
without further stockholder approval. The issuance of large numbers of
shares is likely to result in substantial dilution to the interests of other
stockholders. In addition, issuances of large numbers of shares may
adversely affect the market price of our Common Stock.
Upon the
Closing of the Merger, the Company shall issue to the stockholders of AlC a
total of 7,362,421 shares of Common Stock Series A and 100,000 shares of
Common Stock Series C having 5,000 votes per share. As a result, the AIC
stockholders will own 7,462,421 shares having the collective voting rights
equal to 507,462,421 shares of Common Stock, on all matters submitted to the
vote of holders of the Company's common stock. After the Closing, the
existing stockholders of the Company will have the right to vote 641,411
shares of Common Stock Series A representing 7.92% of the Company's economic
value of the common series A.
Our Certificate of Incorporation, as
amended, will authorize the board of directors to issue 29,000,000 shares of
preferred stock at $0.001 par value per share of which 29,000,000 will
remain authorized and not issued after the closing of Merger Agreement.
In addition, the Board of Directors is authorized to provide for the
issuance of these unissued shares of preferred stock in one or more series,
and to fix the number of shares and to determine the rights, preferences and
privileges thereof. Accordingly, the Board of Directors may issue preferred
stock which may convert into large numbers of shares of Common Stock and
consequently lead to further dilution of other shareholders.
In the
event that Isha 2.5 is settled in exchange for the issuance of shares future
common stock dilution may occur.
Cash dividends have never been
paid
We have never declared or paid cash dividends on our common
shares. We currently plan to retain any earnings to finance the growth of
our business rather than to pay cash dividends. Payments of any cash
dividends in the future will depend on our financial condition, results of
operations and capital requirements, as well as other factors deemed
relevant by our Board of Directors.
Our Common Stock is subject
to the "Penny Stock" rules of the SEC and the trading market in our stock is
limited, which makes transactions in our stock cumbersome and may reduce the
value of an investment
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 or with an exercise 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 receives 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.
Generally, brokers may be
less willing to execute transactions in securities subject to the "penny
stock" rules. This may make it more difficult for investors to dispose of
our Common Stock and cause a decline in the market value of our stock.
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.
Financial Industry Regulatory Authority, Inc. ("FINRA")
sales practice requirements may limit a shareholder's ability to trade our
Common Stock
In addition to the "penny stock" rules described
above, FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low-priced securities will not
be suitable for some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our Shares, which
may limit your ability to buy and sell our stock and have an adverse effect
on the market for our Shares.
Our stock is thinly traded, sale of
your holding may take a considerable amount of time
The shares
of our Common Stock are thinly-traded on the OTCPK Market, meaning that the
number of persons interested in purchasing our Common Stock at or near bid
prices may be relatively small or non-existent. As a consequence, there may
be periods of several days or more when trading activity in our shares is
minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. There can be no assurance
that a broader or more active public trading market for our Common Stock
will develop or be sustained. Due to these conditions, we can give you no
assurance that you will be able to sell your shares at or near bid prices or
at all if you need money or otherwise desire to liquidate your shares.
Shares eligible for future sale may adversely affect the market
From time to time, certain of our stockholders may be eligible to sell all
or some of their shares of Common Stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144 promulgated under the
Securities Act, subject to certain limitations. In general, pursuant to
amended Rule 144, non-affiliate stockholders may sell freely after six
months subject only to the current public information requirement.
Affiliates may sell after six-months subject to the Rule 144 volume, manner
of sale (for equity securities), current public information and notice
requirements. Any substantial sales of our Common Stock pursuant to Rule 144
may have a material adverse effect on the market price of our Common Stock.
If we fail to maintain effective internal controls over financial
reporting, the price of our Common Stock may be adversely affected
As measured against the COSO 2013 framework, our internal control over
financial reporting has material weaknesses and conditions that require
correction or remediation, the disclosure of which may have an adverse
impact on the price of our Common Stock. The Group will in due course be
required to comply with certain provisions of Section 404 of the
Sarbanes-Oxley Act of 2002 as a US listed company. Failure to establish
those controls, or any failure of those controls once established, could
adversely affect our public disclosures regarding our business, financial
condition or results of operations. In addition, management's assessment of
internal controls over financial reporting has identified material
weaknesses and conditions that need to be addressed in our internal controls
over financial reporting or other matters that may raise concerns for
investors.
Under the standards established by the PCAOB, a material
weakness is a deficiency, or a combination of deficiencies, that creates a
reasonable possibility that a material misstatement of a company's annual or
interim financial statements will not be prevented or detected on a timely
basis. The material weaknesses identified by us relate to our existing
processes to assess risk and to design and implement effective control
activities over financial reporting. In particular, we do not have
formalized risk assessment, oversight and compliance processes or formalized
control descriptions for all of our key controls. Where control descriptions
do exist, they do not necessarily include all relevant information to enable
the operating effectiveness of such controls. Where control activities are
dependent on certain information, we currently do not perform or have
documented controls to assess the completeness and accuracy of such
information. As measured against the COSO 2013 framework, we do not
currently monitor all control activities and identified control
deficiencies; thus, we are unable to evaluate whether other deficiencies,
individually or in combination, result in a reasonable possibility that a
material misstatement of our annual or interim financial statements will not
be prevented or detected on a timely basis.
Actual or perceived
material weaknesses that need to be addressed in our internal control over
financial reporting or disclosure of management's assessment of our internal
controls over financial reporting may have an adverse impact on the price of
our common stock.
Our share price could be volatile and our
trading volume may fluctuate substantially
The price of our
Common Shares has been and may in the future continue to be extremely
volatile, with the sale price fluctuating from a low of $0.01 to a high of
$1.20 since 2013. Many factors could have a significant impact on the future
price of our Common Shares, including:
our inability to raise additional capital to fund our operations;
our failure to successfully implement our business objectives and
strategic growth plans;
compliance with ongoing regulatory requirements;
market acceptance of our product;
changes in government regulations;
actual or anticipated fluctuations in our quarterly financial and
operating results; and the degree of trading liquidity in our Common Shares.
Nevada law contains provisions that could discourage, delay or
prevent a change in control of our Company, prevent attempts to replace or
remove current management and reduce the market price of our stock
Provisions in our certificate of incorporation and bylaws may discourage,
delay or prevent a merger or acquisition involving us that our stockholders
may consider favorable. For example, our certificate of incorporation
authorizes. As a result, without further stockholder approval, the Board of
Directors has the authority to attach special rights, including voting and
dividend rights, to this preferred stock. With these rights, preferred
stockholders could make it more difficult for a third party to acquire us.
We are also subject to the anti-takeover provisions of the NRS. Under
these provisions, if anyone becomes an "interested stockholder," we may not
enter into a "business combination" with that person for three years without
special approval, which could discourage a third party from making a
takeover offer and could delay or prevent a change in control of us.
Our quarterly operating results fluctuate and may not predict our future
performance accurately. Variability in our future performance could cause
our stock price to fluctuate and decline
We expect our quarterly
results will fluctuate in the future as a result of a variety of factors,
many of which are beyond our control. These factors include:
changes in our pricing policies or those of our competitors;
relative rates of acquisition of new customers;
changes in foreign exchange rates;
seasonal patterns, including increases during the holiday season;
delays in the introduction of new or enhanced services, software and
related products by us or our competitors or market acceptance of these
products and services; and
other changes in operating expenses, personnel and general economic
conditions.
As a result, period-to-period comparisons of our
operating results may not be meaningful, and you should not rely on them as
an indication of our future performance.
Price
Range
Period
Low
High
Year Ended December 31, 2015:
First Quarter
$
2.00
$
6.00
Second Quarter
$ 2.00
$ 8.00
Third Quarter
$
4.00
$
8.00
Fourth Quarter
$ 4.00
$ 5.00
Year Ending December 31, 2016:
First Quarter
$ 1.00
$ 5.00
Second Quarter
$ 1.20
$
8.00
Third Quarter
$
2.00
$
8.00
Fourth Quarter
$ 2.40
$ 3.00
Cash flow used in operations was $139,778 during the twelve months ended December 31, 2016, principally due to a net loss from continuing operations of $137,668. Cash used in operations was $151,737 during the twelve months ended December 31, 2015 principally due to a net loss from continuing operations of $145,231.
For the twelve months ended December 31 2016 and 2015, we
had no cash flows from investing activities.
For the twelve months
ended December 31, 2016 and 2015, cash provided by financing activities was
$139,737 in advances from related parties related to discontinued
operations. For the year ended December 31, 2015, cash provided by financing
activities was $145,788, consisting of $146,055 in advances from related
parties related to discontinued operations, offset by $267 for the
repurchase of 11,000 shares of Brenham's common stock for treasury.
Please refer to the Definitive Information Statement on Schedule 14C filed
on December 12, 2016 for discussion on the Company's post-merger financial
condition and liquidity.
Off-Balance Sheet Arrangements
As of December 31, 2016 and 2015, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Contractual Obligations and Commitments
As of December 31, 2016 and 2015, we did not have any contractual obligations.
Critical Accounting Policies
Our significant accounting policies are described in the notes to our financial statements for the years ended December 31, 2016 and 2015, and are included elsewhere in this annual report.
New Accounting Pronouncements
During the year the Company adopted an ASU issued by the FASB requiring, when applicable the following disclosures regarding uncertainties about an entity's ability to continue as a going concern.
The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
Prior to the execution of the merger agreement the Company was loss generating with negligible revenues and did not anticipate generating any revenues in the near-term, which raised substantial doubt about the Company's ability to continue to operate as a going concern.
As at 31 December 2016 there remains substantial doubt about the Company's ability to continue to operate as a going concern for the twelve months following the filing of these financial statements. The Company has transferred the Oil and Gas assets to a nominee of AII under the Contribution and Merger Agreements and is in the process of finalizing of the merger with AIC.
Post-merger the Company intends to continue as a going concern through the underlying operating and revenue generating business of AIC and external financing, should it be required and available. These financials do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Back to Table of Contents
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Back to Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Back to Table of Contents
To the Shareholders
Africa Growth Corporation
(formerly
Brenham Oil & Gas Corp.)
We have audited the accompanying consolidated balance sheets of Africa Growth Corporation as of December 31, 2016 and 2015 and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of Africa Growth Corporation as of December 31, 2016 and 2015 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has no source of recurring revenue, has incurred a loss from operations in 2016 and has financial commitments in excess of current capital resources, together which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
March 31, 2017
(formerly Brenham Oil & Gas Corp.) |
|||||
Consolidated Balance Sheets |
|||||
Back to Table of Contents | |||||
December 31, |
|||||
2016 |
2015 |
||||
ASSETS |
|||||
Current assets: | |||||
Cash and cash equivalents |
$ | 10 | $ | 51 | |
Net assets attributable to discontinued operations |
- | 6,000 | |||
Total assets |
$ | 10 | $ | 6,051 | |
LIABILITIES AND STOCKHOLDER'S DEFICIT |
|||||
Current liabilities : |
|||||
Accounts payable and accrued expenses | $ | 20,880 | $ | 23,518 | |
Accounts payable - related party | 18,100 | - | |||
Net liabilities attributable to discontinued operations |
- | 659,150 | |||
Total liabilities |
38,980 | 682,668 | |||
Stockholder's equity: |
|||||
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding |
- | - | |||
Common stock, $0.0001 par value, 200,000,000 shares authorized, |
|||||
199,500,000 and 128,293,536 shares issued and outstanding |
19,950 | 12,830 | |||
Less: treasury stock, at cost; 262,472 |
(4,728) | (4,728) | |||
Additional paid-in capital |
985,861 | 992,981 | |||
Accumulated deficit |
(1,040,053) | (1,677,700) | |||
Total stockholder's deficit |
(38,970) | (676,617) | |||
Total liabilities and stockholder's deficit |
$ | 10 | $ | 6,051 | |
See accompanying notes to the consolidated financial statements. |
(formerly Brenham Oil & Gas Corp.) |
|||||
Consolidated Statements of Operations |
|||||
For the Years Ended December 31, 2016 and 2015 |
|||||
Back to Table of Contents | |||||
For the Years Ended December 31, |
|||||
2016 |
2015 |
||||
Operating expenses: |
|||||
General and administrative |
$ | 137,688 | $ | 145,231 | |
Total operating expenses |
137,688 | 145,231 | |||
Gain (loss) from discontinued operations | 775,335 | (206,009) | |||
Net income (loss) |
$ | 637,647 | $ | (351,240) | |
Net loss per common share - basic and diluted from continuing operations |
$ | (0.00) | $ | (0.00) | |
Net income (loss) per common share - basic and diluted from discontinued operations |
$ | 0.01 | $ | (0.00) | |
Net income (loss) per common share - basic and dilute d |
$ | 0.00 | $ | (0.00) | |
Weighted average number of common shares outstanding - basic and diluted |
138,410,301 | 128,293,094 | |||
See accompanying notes to the consolidated financial statements. |
(Formerly Brenham Oil & Gas Corp.) |
||||||||||||||||||
Consolidated Statements of Changes in Stockholders' Deficit |
||||||||||||||||||
For the Years Ended December 31, 2016 and 2015 |
||||||||||||||||||
Back to Table of Contents | ||||||||||||||||||
Additional |
||||||||||||||||||
Common Stock |
Paid-in |
Accumulated |
||||||||||||||||
Shares |
Amount |
Treasury Stock |
Capital |
Deficit |
Total |
|||||||||||||
Balance at December 31, 2014 |
128,293,536 | $ | 12,830 | $ | (4,461) | $ | 992,981 | $ | (1,326,460) | $ | (325,110) | |||||||
Acquisition of treasury shares | - | - | (267) | - | - | (267) | ||||||||||||
Net loss |
- | - | - | - | (351,240) | (351,240) | ||||||||||||
Balance at December 31, 2015 |
128,293,536 | 12,830 | (4,728) | 992,981 | (1,677,700) | (676,617) | ||||||||||||
Issuance of common stock related to the Merger | 71,206,464 | 7,120 | - | (7,120) | - | - | ||||||||||||
Net income |
- | - | - | - | 637,647 | 637,324 | ||||||||||||
Balance at December 31, 2016 |
199,500,000 | $ | 19,950 | $ | (4,728) | $ | 985,861 | $ | (1,040,053) | $ | (38,970) | |||||||
See accompanying notes to the consolidated financial statements. |
(formerly Brenham Oil & Gas Corp.) |
|||||
Consolidated Statements of Cash Flows |
|||||
For the Years Ended December 31, 2016 and 2015 |
|||||
Back to Table of Contents | |||||
For the Years Ended December 31, |
|||||
2016 |
2015 |
||||
Cash flows from operating activities: |
|||||
Net income (loss) |
$ | 637,647 | $ | (351,240) | |
(Gain) loss from discontinued operations | (775,335) | 206,009 | |||
Loss from continuing operations | (137,688) | (145,231) | |||
Adjustments to reconcile net loss to cash used in operating activities: | |||||
Changes in operating assets and liabilities: | |||||
Accounts payable and accrued expenses | (2,090) | (506) | |||
Net cash used in operating activities - continuing operations |
(139,778) | (145,737) | |||
Net cash used in operating activities - discontinued operations | - | (6,000) | |||
Net cash used in operating activities | (139,778) | (151,737) | |||
Cash flows from financing activities : |
|||||
Advances from related party, net | (18,100) | - | |||
Payments for acquisition of treasury stock |
- | (267) | |||
Net cash used in financing activities - continuing operations |
(18,100) | (267) | |||
Net cash (used in) provided by financing activities - discontinued operations | (121,637) | 146,055 | |||
Net cash (used in) provided by financing activities | (139,737) | 145,788 | |||
Net increase (decrease) in cash |
41 | (5,949) | |||
Cash and cash equivalents, beginning of year |
51 | 6,000 | |||
Cash and cash equivalents, end of year |
$ | 10 | $ | 51 | |
Supplemental disclosures: |
|||||
Interest paid |
$ | - | $ | - | |
Income taxes paid |
$ | - | $ | - | |
Non-cash investing and financing transactions: |
|||||
Change in estimate of asset retirement cost s |
$ | - | $ | 143 | |
Issuance of common stock related to the Merger | $ | 7,120 | $ | - | |
See accompanying notes to the consolidated financial statements. |
(Formerly Brenham Oil & Gas Corp.)
Notes to Consolidated Financial Statements
Back to
Table of Contents
Note 1. Summary of Significant Accounting Policies
Organization, Ownership and Business
Africa Growth Corporation (formerly known as Brenham Oil & Gas Corp. (hereinafter the "Company", the "Registrant", or "AGC"), a Nevada corporation, was incorporated on April 21, 2010.
On April 29, 2016, the Company filed a Form 8-K reporting that it had entered into an Agreement and Plan of Merger (the "Merger Agreement") with Africa International Capital Ltd., a Bermuda corporation ("AIC") pursuant to which a wholly-owned subsidiary of the Registrant will be merged with and into AIC which will be the surviving entity and will become a subsidiary of the Registrant. A copy of the Merger Agreement was filed as Exhibit 2.1 to that Form 8-K. The Registrant also reported in the same 8-K that it had also entered into a Contribution Agreement with its corporate parent and principal shareholder, American International Industries, Inc., a Nevada corporation ("AIII"), a copy of which was filed as Exhibit 2.2 to this same Form 8-K.
On November 9, 2016, the Company filed an amended Preliminary Information Statement on Schedule 14C with full disclosure required by Items 11 through 14 of Schedule 14A, including but not limited to the audited financial statements of the Registrant and AIC as well as the pro forma consolidated financial statements of the Registrant and AIC as required by Schedule 14A together with additional disclosure regarding the business of AIC. Further, in connection with the Closing the Registrant's Board of Directors effected the change of control of the Registrant.
On December 12, 2016, the Company filed the Definitive Preliminary Information Statement on Schedule 14C.
In December 2016, the Company issued 71,206,464 shares of common stock to Crescat Ventures Ltd, as a part issuance in connection with the Merger.
On January 17, 2017, pursuant to the Contribution Agreement filed as Exhibit 2.2 of the Merger Agreement form 8-K, AIII assumed all of the Company's existing liabilities in consideration and exchange for the Company assigning to a nominee of AIII all of the Company's existing developed and undeveloped oil and gas assets. As of December 31, 2016, the Company's oil and gas operations as well as the related liabilities were considered discontinued operations as described in Note 2.
On January 30, 2017, pursuant to the authority granted by the Joint Written Consent, a copy of which was attached as an exhibit to the DEF14C, the Company implemented a one-for-two hundred (1:200) reverse split of its 199,500,000 shares of issued and outstanding Common Stock (the "Reverse Split"). Further on this date the Company's name was changed to Africa Growth Capital.
On February 21, 2017, the Company paid $5,000 to AIII for merger related expenses incurred by AIII.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Going Concern
The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
Prior to the execution of the merger agreement the Company generated losses with negligible revenues and did not anticipate generating any revenues in the near-term, which raised substantial doubt about the Company's ability to continue to operate as a going concern.
As at 31 December 2016 there remains substantial doubt about the Company's ability to continue to operate as a going concern for the twelve months following the filing of these financial statements. The Company has transferred the oil and gas assets to a nominee of AII under the Contribution and Merger Agreements and is in the process of finalizing of the merger with AIC.
Post-merger the Company intends to continue as a going concern through the underlying operating and revenue generating business of AIC and external financing, should it be required and available. These financials do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.
Cash and Cash Equivalents
The Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest and penalties associated with income taxes are included in selling, general and administrative expense.
The Company has adopted ASC 740-10 "Accounting for Uncertainty in Income Taxes," which prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. ASC 740-10 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of December 31, 2016, the Company had not recorded any tax benefits from uncertain tax positions.
Net Loss per Common Share
Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during a period. The weighted average number of common shares was calculated by taking the number of common shares outstanding and weighting them by the amount of time that they were outstanding.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation including adjusted footnotes to reflect the presentation of discontinued operations as further discussed in Note 2.
Subsequent Events
The Company has evaluated all transactions from December 31, 2016 through the financial statement issuance date for subsequent event disclosure consideration.
Recent Accounting Pronouncements
During the current year the Company adopted an ASU issued by the FASB requiring, when applicable, disclosures regarding uncertainties about an entity's ability to continue as a going concern. During the preparation of quarterly and annual financial statements, management should evaluate whether conditions or events exist that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued. If this evaluation indicates that it is probable that an entity will be unable to meet its obligations when they become due within one year of the financial statement issuance date, management must evaluate whether its mitigation plans will alleviate the substantial doubt of continuing as a going concern. If substantial doubt exists, regardless of whether the mitigation plan alleviates the concern, additional disclosures are required in the financial statements addressing the conditions or events that raise substantial doubt, management's evaluation of the significance of those conditions or events, and management's mitigation plans.
Note 2. Discontinued Operations
On January 17, 2017, the Company entered into contribution pursuant to which AIII assumed all of the Company's existing related party liabilities in consideration for the Company assigning to a nominee of AIII all of the Company's existing net developed and undeveloped oil and gas assets. As of December 31, 2016, the Company accounted for this transaction as a discontinued operation.
The amounts of the net assets and liabilities related to the discounted operations related to the Company's oil and gas properties for all periods presented are as follows:
December 31, 2016 |
December 31, 2015 |
|||||
Assets : |
||||||
Cash |
$ | 6,000 | $ | 6,000 | ||
Total assets |
$ | 6,000 | $ | 6,000 |
December 31, 2016 |
December 31, 2015 |
|||||
Liabilities : |
||||||
Accounts payable - related parties | $ | (773,387) | $ | (651,750) | ||
Asset retirement obligation |
(7,625) | $ | (7,400) | |||
Total liabilities |
$ | (781,012) | $ | (659,150) | ||
Income (loss) from continued operations | $ | 775,335 | $ | (206,009) |
Related party accounts payable described above as at December 31, 2016 consisted of $614,892 owed to AII, $21,394 owed to AITP for the funding of the Company's operations and $131,100 owed to KDT and Daniel Dror II Trust of 2012 for the prior year acquisition of mineral rights for the Gillock Field.
The amounts of income and expenses related to the discontinued operations related to the Company's oil and gas properties for all periods presented are as follows:
December 31, 2016 |
December 31, 2015 |
|||||
Oil an gas revenue |
$ | 548 | $ | 5,902 | ||
Costs and expenses: | ||||||
Lease operating expenses | - | 9,073 | ||||
Depletion and accretion | 225 | 2,685 | ||||
Impairment of oil and properties | - | 200,153 | ||||
Total costs and expenses |
225 | 211,153 | ||||
Operating income (loss ) |
323 | (206,009) | ||||
Income (loss) from continued operation |
$ | 775,335 | $ | (206,009) |
Note 3. Accounts Payable - Related Party
Related party accounts payable at December 31, 2016 consists of $18,100 owed to AIC for the funding of the Company's operations.
The advances to the Company are non-interest bearing and due on demand.
Note 4. Equity
Common Stock
During the year ended December 31, 2015, the Company paid $267 to repurchase 11,000 shares of its common stock for treasury. During the year ended December 31, 2016, the Company issued 71,206,464 shares of common stock to Crescat Ventures Ltd, in connection with the Merger.
Stock Options
A summary of the Company's stock option activities for the years ended December 31, 2016 and 2015 is presented below:
Shares | Weighted
Average Exercise Price ($) |
Intrinsic Value ($) | |||
Outstanding and exercisable as of January 1, 2015 | 3,000,000 | 0.035 | - | ||
Granted | - | N/A | - | ||
Exercised | - | N/A | - | ||
Expired | (3,000,000) | N/A | - | ||
Outstanding and exercisable as of December 31, 2015 | - | 0.035 | - |
Shares | Weighted
Average Exercise Price ($) |
Intrinsic Value ($) | |||
Outstanding and exercisable as of January 1, 2016 | - | - | - | ||
Granted | - | N/A | - | ||
Exercised | - | N/A | - | ||
Expired | - | N/A | - | ||
Outstanding and exercisable as of December 31, 2016 | - | - | - |
Note 5. Income Taxes
The components of the income tax provision (benefit) for each of the periods presented below are as follows:
Year Ended December 31, |
|||||||
2016 |
2015 |
||||||
Current |
$ | - | $ | - | |||
Deferred |
- | - | |||||
Total income tax provision (benefit) |
$ | - | $ | - |
The effective income tax expense differed from the computed "expected" federal income tax expense on earnings before income taxes for the following reasons:
Year Ended December 31, |
|||||||
2016 |
2015 |
||||||
Computed federal income tax provision (benefit) |
$ | 216,800 | $ | (119,422) | |||
Meals and entertainment |
- | 111 | |||||
Share-based compensation |
- | - | |||||
Increase in valuation allowance |
(216,800) | 119,311 | |||||
Total |
$ | - | $ | - |
Deferred income taxes are provided to reflect temporary differences in the basis of net assets for income tax and financial reporting purposes. The tax-effected temporary differences and tax loss carryforwards which comprise deferred taxes are as follows:
Year Ended December 31, |
|||||||
2016 |
2015 |
||||||
Deferred tax assets : |
|||||||
Net operating loss carryforwards |
$ | 273,544 | $ | 490,344 | |||
Valuation allowance |
(273,544) | (490,344) | |||||
Total deferred tax assets |
$ | - | $ | - |
At December 31, 2016 and 2015, the Company had a federal income tax net operating loss ("NOL") carryforwards of approximately $804,542 and $1,442,000, respectively. The NOL carryforward begins to expire in 2031. The value of this carryforward depends on our ability to generate taxable income. A change in ownership, as defined by federal income tax regulations, could significantly limit our ability to utilize our net operating loss carryforward. Additionally, because federal tax laws limit the time during which the net operating loss carryforward may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates, the Company may not be able to fully utilize the net operating loss carryforward to reduce future income taxes. The Company has had cumulative losses and there is no assurance of future taxable income, therefore, a valuation allowance has been recorded to fully offset the deferred tax assets at December 31, 2016 and 2015.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Back to Table of Contents
N/A.
ITEM 9A. CONTROLS AND PROCEDURES Back to Table of Contents
Evaluation of Disclosure Controls and Procedures
As of December 31, 2016, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ineffective as of the end of the fiscal year 2016 under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
Management's Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. Internal control over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act as a process designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company's internal control over financial reporting as of December 31, 2016 based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that, as of December 31, 2016, the Company's internal control over financial reporting was not effective based on those criteria. Management has identified corrective actions for the weakness and plans to begin implementation during the second quarter of 2017.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management's report in this annual report.
Changes in Internal Control Over Financial Reporting
There were changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 due to a change and management that occurred during the fourth quarter ended December 3, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION Back to Table of Contents
None.
The table below contains information regarding the current members of the Board of Directors and executive officers.
Names |
Position Held Since |
Function |
Christopher Darnell |
Since November 2016 | Chairman and Chief Executive Officer |
Brenton Kuss | Since November 2016 | Chief Financial Officer |
S. Scott Gaille | July 2010 | Director |
Christopher Darnell - Chief Executive Officer and Chairman
Christopher Darnell is an Executive Director of AIC and also Chief Executive Officer of AIC. Mr. Darnell began his career in 1992 at the Southern Company, a New York Stock Exchange listed company with approximately US$17 billion in revenue, where he worked until 2002. During this time, Mr. Darnell was appointed or elected to the corporate boards of directors of four energy companies, both privately held and publicly traded, in South America. Mr. Darnell worked at Microsoft Corporation from 2003 to 2013, where he served as a member of multiple senior leadership teams for strategic technology businesses. Mr. Darnell oversaw investments in start-up, high-growth turn-around businesses. Mr. Darnell holds a bachelor degree in economics from The University of Chicago, having served as Vice President of the Alumni Board. He is an executive in residence at the Chicago Booth School of Business and has an international MBA (IBEAR) from the University of Southern California. In 2013, Mr. Darnell became involved with AIC in its conceptual stages, and became Executive Director and Chief Executive Officer at the time of its incorporation.
Brenton Kuss - Chief Financial Officer
Mr. Kuss serves as CFO since November 2016. He was a Manager at KPMG with a primary specialism in Infrastructure and secondary in Energy and Natural Resources. A member of the Institute of Chartered Accountants (Australia), he is also a graduate of The University of Queensland, holding both a Bachelors Degree of Commerce and a Bachelors Degree of Economics. Further, he is an alumnus of both The University of Chicago and SDA Bocconi through the completion of his MBA in 2013.
S. Scott Gaille - Director
S. Scott Gaille has been a Director since July 2010. Mr. Gaille is a lawyer and academic, teaching at Rice University's Graduate School of Business and the University of Chicago Law School. From October 2015 to the present, Scott has managed his law firm, GAILLE PLLC. Between February 2012 and October 2015, he served as the Chief Compliance Officer, General Counsel & Corporate Secretary for ZaZa Energy Corporation (NASDAQ: ZaZa). Mr. Gaille has extensive experience in Africa, including as President of West & East Africa Development, LLC (which acquired petroleum interests in Madagascar, Cameroon, and South Africa) and as Director - Business Development for Occidental Oil & Gas Corporation (where he worked to acquire a portfolio of assets in Angola, Nigeria, Guinea Bissau, and South Africa). Scott was an Olin Fellow in Law and Economics at The University of Chicago, where he received his Doctor of Law Degree with High Honors in 1995 and earned a Bachelor of Arts degree in Government at the University of Texas at Austin.
Director Independence
Mr. Darnell is not "independent" as such term is defined by the applicable listing standards of The NASDAQ Stock Market LLC.
Committees of the Board of Directors
Our Board of Directors does not have any committees because our corporate financial affairs and corporate governance are simple in nature at this stage of development and each financial transaction is approved by our sole director.
Code of Ethics
We plan to adopt a Code of Ethics in 2017.
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent Directors, the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our sole director is also the chief executive officer and has the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.
Board's Role in Risk Oversight
The Board assesses on an ongoing basis the risks faced by the Company. These risks include financial, technological, competitive, and operational risks. In addition, since we does not have an audit committee, the Board is also responsible for the assessment and oversight of the Company's financial risk exposures.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and named Executive Officers, and anyone who beneficially owns ten percent (10%) or more of our Company's Common Stock, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of Common Stock. Persons required to file such reports also need to provide us with copies of all Section 16(a) forms they file.
Based solely upon a review of (i) copies of the Section 16(a) filings received during or with respect to 2016 and (ii) certain written representations of our officers and directors, we believe that the following filings for our current officers and directors required to be made pursuant to Section 16(a) of the Exchange Act during and with respect to 2016 were not filed in a timely manner: Mr. Darnell, Mr. Kuss and Mr. Gaille have not filed their Form 3's and Form 5's.
ITEM 11. EXECUTIVE COMPENSATION Back to Table of Contents
Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.
For the three fiscal years ended December 31, 2016, 2015 and 2014, we did not pay any compensation to our executive officers, nor did any other person receive a total annual salary and bonus exceeding $100,000.
We do not currently have any formal employment salary arrangement with any of or new officers. All of our current officers have agreed to defer their compensation until such time as we are cash flow positive; therefore, none of our officers have received any compensation as of the date of this Annual Report. No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company's employees.
Director's Compensation
Our directors are not entitled to receive compensation for service rendered to us or for meeting(s) attended except for reimbursement of out-of-pocket expenses. There is no formal or informal arrangements or agreements to compensate employee directors for service provided as a director; however, compensation for new non-employee directors is determined on an ad hoc basis by the existing members of the board of directors at the time a director is elected.
Compensation Policies and Practices as They Relate to the Company's Risk Management
We believe that our compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on us.
Employment Contracts
We do not have any formal employment agreement with any of our officers. Any future compensation will be determined by the Board of Directors, and, as appropriate, an employment agreement will be executed. We do not currently have plans to pay any compensation until such time as the Company maintains a positive cash flow.
Outstanding Equity Awards
There were no equity awards outstanding as of the end the year ended December 31, 2016.
Option Grants
There were no individual grants of stock options to purchase our Common Stock made to our executive officers
Aggregated Option Exercises and Fiscal Year-End Option Value
There were no stock options exercised during the year ending December 31, 2016 and 2015 by our executive officers.
Long-Term Incentive Plan ("LTIP") Awards
There were no awards made to a named executive officers in the last completed fiscal year under any LTIP.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Back to Table of Contents
The following table sets forth information regarding the beneficial ownership of our Common Stock after the Closing. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our Common Stock; each of our directors; each of our executive officers; and our executive officers and directors as a group. Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.
Name of Beneficial Owner |
Common Stock Beneficially Owned | Percentage of Common Stock Owned (1) |
Cresent Venture Ltd. (2) |
57,365,171 |
28.72% |
American International Industries, Inc. (3) |
65,346,390 |
32.71% |
601 Cien Street, Suite 235 |
||
Kemah, TX 77565 |
||
|
||
S. Scott Gaille, Director |
21,200,000 |
10.61% |
601 Cien Street, Suite 235 |
||
Kemah, TX 77565 |
||
|
||
Christopher Darnell, CEO and Chairman |
14,341,293 |
7.18% |
c/o Cohort Limited |
||
Cedar House, 41 Cedar Street | ||
Hamilton HM 12, Bermuda |
||
|
|
|
Bryant M. Mook |
12,050,127 |
6.03% |
601 Cien Street, Suite 235 |
|
|
Kemah, TX 77565 |
|
|
Directors and Officers (2 people) |
35,541,293 |
17.79% |
(1)
Applicable percentage ownership is based on 199,237,528 shares of common
stock outstanding as of March 31, 2017. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission, and
generally includes voting or investment power with respect to securities.
Shares of common stock that are currently exercisable or exercisable within
60 days of March 31, 2017 are deemed to be beneficially owned by the person
holding such securities for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.
(2) 28,293,537
limited voting proxy to a designee to
Crescat Venture Ltd.
(3) Faiwuszewicz is the brother of Mr. Dror.
International Diversified Corporation, Ltd. ("IDCL") is owned by Elkana
Faiwuszewicz. Mr. Dror disclaims beneficial ownership of IDCL. IDCL is an
affiliate of American by virtue of the size of its stock ownership of
American.
Upon the Closing of the Merger, we issued the stockholders of AIC a total of 7,362,421 shares of Common Stock Series A and 100,000 shares of Common Stock Series C having 5,000 votes per share. As a result, the AIC stockholders own 7,462,421 shares of Common Stock with collective voting rights equal to 507,462,421 shares of Common Stock, on all matters submitted to the vote of holders of the Company's common stock.
Name of Beneficial Owner |
|
Common Stock Series A and C Beneficially Owned |
|
Percentage of Common Stock Series A and C Owned (2) |
Crescat Venture Ltd. (1) |
|
5,889,937 Series A and 80,000 Series C |
|
79.90% |
Christopher Darnell, Executive Officer and Director |
|
1,472,484 Series A and 20,000 Series C |
|
19.97% |
S. Scott Gaille, Director |
|
106,000 Series A |
|
0.02% |
Director and Officer (2 persons) |
|
1,578,484 Series A and 20,000 Series C |
|
20.00% |
(1)
Crescat Ventures Ltd. is beneficially owned by The Chicago Trust, created in
Ireland, solely for the purpose of supporting programs and fellows related to
The University of Chicago.
(2) Applicable percentage ownership is based on 508,002,632 voting shares issued and outstanding post - merger.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS INDEPENDENCE Back to Table of Contents
During the last two fiscal years there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer of the Company or executive officer of AFGC, or beneficial holder of more than 5% of the outstanding common stock , or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.
Related party payables at December 31, 2016 consists of $654,387 owed to American as advances to assist with the Company's operating expenses, and $131,100 owed to KDT and Daniel Dror II Trust of 2012 for the prior year acquisition of mineral rights for the Gillock Field.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Back to Table of Contents
The Registrant's Board of Directors has appointed M&K CPAS, PLLC ("MK") as independent public accountant for the fiscal year ended December 31, 2016 and 2015.
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by GBH CPAs, PC for the audit of the Registrant's annual financial statements for the years ended December 31, 2016 and 2015, and fees billed for other services rendered by GBH CPAs, PC during those years. All of the services described below were approved by the Board of Directors.
Year Ended | Year Ended | ||||
December 31, 2016 | December 31, 2015 | ||||
Audit fees (1) |
$ | 21,750 | $ | 21,000 | |
Audit-related fees (2) |
--- | --- | |||
Tax fees (3) |
3,300 | 3,185 | |||
Total fees |
25,050 | 24,185 | |||
(1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC. | |||||
(2) Audit-related fees consist of assistance and discussion concerning financial accounting and reporting standards and other accounting issues. | |||||
(3) Tax fees consist of preparation of federal and state tax returns, review of quarterly estimated tax payments, and consultation concerning tax compliance issues. |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Back to Table of Contents
(a) The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
Exh. No. | Description |
31.1 | Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 20, filed herewith. |
31.2 | Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 20, filed herewith. |
32.1 | Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
32.2 | Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
Africa Growth Corporation
By: /s/
Christopher Darnell
Christopher Darnell
Chief Executive Officer and Chairman
(Principal Executive Officer)
Date: March 31, 2017
By: /s/
Brenton Kuss
Brenton Kuss
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
Date:
March 31, 2017
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by
the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/
Christopher Darnell
Christopher Darnell
Chairman
Date:
March 31, 2017
By: /s/
S. Scott Gaille
S. Scott Gaille
Director
Date: March 31,
2017