UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 000-52136
Aegean Earth & Marine Corporation
(Exact name of Registrant as specified in its charter)
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Cayman Islands | N/A |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
71, El. Venizelou Ave. 176 71
Kallithea Athens, Greece
(Address of principal executive offices) (Zip Code)
30-210-960-0200
(Registrant’s telephone number, including area code)
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o
(Do not check if a smaller reporting company) | 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 [X] NO [ ]
At November 18, 2009, 2009, there were 7,053,033 shares of Registrant’s ordinary shares outstanding.
GENERAL INDEX
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Page Number |
PART I. FINANCIAL INFORMATION |
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ITEM 1. | FINANCIAL STATEMENTS | 3 |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 17 |
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ITEM 4. | CONTROLS AND PROCEDURES | 17 |
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PART II. OTHER INFORMATION |
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ITEM 1. | LEGAL PROCEEDINGS | 18 |
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ITEM 1A. | RISK FACTORS | 18 |
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 18 |
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 18 |
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ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 18 |
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ITEM 5. | OTHER INFORMATION | 18 |
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ITEM 6. | EXHIBITS | 18 |
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SIGNATURES | | 18 |
2
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Aegean Earth and Marine Corporation
(A Development Stage Company)
Consolidated Condensed Balance Sheets
| | | | | |
| September 30, 2009 | | December 31, 2008 |
ASSETS | (unaudited) | | (audited) |
CURRENT ASSETS | | | | | |
Cash and cash equivalents | $ | 1,634,142 | | $ | 1,998,884 |
Other assets | | 89,313 | | | 60,809 |
| | | | | |
Total current assets | | 1,723,455 | | | 2,059,693 |
LONG TERM ASSETS | | | | | |
Property, plant & equipment, net of accumulated depreciation | | 9,337 | | | -- |
Goodwill | | 144,113 | | | 144,113 |
Total long term assets | | 153,450 | | | 144,113 |
| | | | | |
Total assets | $ | 1,876,905 | | $ | 2,203,806 |
| | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
CURRENT LIABILITIES | | | | | |
Payable to affiliate | $ | -- | | $ | 9,866 |
Accounts payable and accrued liabilities | | 190,114 | | | 78,952 |
| | | | | |
Total current liabilities | | 190,114 | | | 88,818 |
| | | | | |
Commitments and contingencies (Note 9) | | -- | | | -- |
| | | | | |
SHAREHOLDERS’ EQUITY | | | | | |
Preference shares, $0.00064 par value, 20,000,000 shares authorized, 975,001 issued and outstanding as of September 30, 2009 and December 31, 2008 | | 624 | | | 624 |
Ordinary shares, $0.00064 par value; 78,125,000 shares authorized;
7,053,033 issued and outstanding as of September 30, 2009
and December 31, 2008 | | 4,514 | | | 4,514 |
Additional paid in capital | | 3,324,631 | | | 3,324,631 |
Cumulative translation adjustment | | 32,395 | | | 52,033 |
Deficit accumulated during development stage | | (1,675,373) | | | (1,266,814) |
Total shareholders’ equity | | 1,686,791 | | | 2,114,988 |
Total liabilities and shareholders’ equity | $ | 1,876,905 | | $ | 2,203,806 |
See accompanying notes to consolidated condensed financial statements.
3
Aegean Earth & Marine Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Operations
(Unaudited)
| | | | | | | | |
| Nine Months Ended
September 30, 2009 | | Nine Months Ended
September 30, 2008 | | Cumulative During
Development Stage
(March 10, 2006 to
September 30, 2009) |
| | | | | |
Revenues | $ | -- | | $ | -- | | $ | -- |
| | | | | | | | |
Expenses | | | | | | | | |
Formation, general and administrative expenses | | 466,967 | | | 591,102 | | | 1,422,108 |
Total operating expenses | | 466,967 | | | 591,102 | | | 1,422,108 |
| | | | | | | | |
Operating loss | | (466,967) | | | (591,102 ) | | | (1,422,108) |
| | | | | | | | |
Other income (expense) | | | | | | | | |
Foreign exchange gain (loss) | | 55,232 | | | (346,372) | | | (350,665) |
Interest, dividend and other income | | 3,176 | | | 46,063 | | | 97,400 |
Total other income (expense) | | 58,408 | | | (300,309) | | | (253,265) |
| | | | | | | | |
Net loss | | (408,559) | | | (891,411) | | | (1,675,373) |
| | | | | | | | |
Preference shares dividends | | (131,625) | | | (328,831) | | | (515,798) |
Net loss attributable to ordinary shares | $ | (540,184) | | $ | (1,220,242) | | $ | (2,191,171) |
| | | | | | | | |
Basic and diluted loss per share | $ | (0.08) | | $ | (0.22) | | $ | (0.53) |
Weighted average ordinary shares outstanding
– basic and diluted | | 7,053,033 | | | 5,435,349 | | | 4,148,017 |
See accompanying notes to consolidated condensed financial statements.
4
Aegean Earth & Marine Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Operations
(Unaudited)
| | | | | |
| Three Months Ended
September 30, 2009 | | Three Months Ended
September 30, 2008 |
| | | |
Revenues | $ | -- | | $ | -- |
| | | | | |
Expenses | | | | | |
Formation, general and administrative expenses | | 100,616 | | | 102,642 |
Total operating expenses | | 100,616 | | | 102,642 |
| | | | | |
Operating loss | | (100,616) | | | (102,642) |
| | | | | |
Other income | | | | | |
Foreign exchange gain (loss) | | 36,857 | | | (383,215) |
Interest, dividend and other income (expense) | | 43 | | | (9,678) |
Total other income | | 36,900 | | | (392,893) |
| | | | | |
Net loss | | (63,716) | | | (495,535) |
| | | | | |
Preference shares dividends | | (43,875) | | | (210,552) |
Net loss attributable to ordinary shares | $ | (107,591) | | $ | (706,087) |
| | | | | |
Basic and diluted loss per share | $ | (0.02) | | $ | (0.10) |
Weighted average ordinary shares outstanding
– basic and diluted | | 7,053,033 | | | 7,047,055 |
See accompanying notes to consolidated condensed financial statements.
5
Aegean Earth & Marine Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
| | | | | | | | |
| Nine Months Ended
September 30, 2009 | |
Nine Months Ended
September 30, 2008 | | Cumulative During Development Stage (March 10, 2006 to September 30, 2009) |
Cash flows from operating activities | | | | | |
Net loss | $ | (408,559) | | $ | (891,411) | | $ | (1,675,373) |
Adjustments to reconcile net loss to cash used in
operating activities: | | | | | | | | |
Shares issued to Founder for payment of formation costs | | -- | | | -- | | | 1,050 |
Depreciation and amortization | | 1,478 | | | -- | | | 1,478 |
Non-cash interest expense | | -- | | | 4,500 | | | 7,410 |
Changes in operating assets and liabilities | | | | | | | | |
Other assets | | (28,504) | | | (40,373) | | | (84,487) |
�� Payable to affiliate | | (9,866) | | | (59,645) | | | (63,014) |
Accounts payable | | 111,162 | | | 81,283 | | | 188,658 |
Net cash used in operating activities | | (334,289) | | | (905,646) | | | (1,624,278) |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Net cash acquired of Aegean Earth S.A. | | -- | | | 51,452 | | | 51,452 |
Purchase of property, plant, & equipment | | (10,815) | | | -- | | | (10,815) |
Notes receivable-affiliate | | -- | | | -- | | | (85,025) |
Net cash provided by (used in) investing activities | | (10,815) | | | 51,452 | | | 44,388) |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Proceeds from issuance of equity | | -- | | | 6,151,026 | | | 6,197,326 |
Redemption of preference shares | | -- | | | (2,976,016) | | | (3,226,016) |
Proceeds from note payable-affiliate | | -- | | | -- | | | 300,000 |
Net cash provided by financing activities | | -- | | | 3,175,010 | | | 3,271,310 |
| | | | | | | | |
Effect of exchange rates on cash and cash equivalents | | (19,638) | | | 48,717 | | | 31,498 |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | (364,742) | | | 2,369,533 | | | 1,634,142 |
| | | | | | | | |
Cash and cash equivalents at beginning of the period | | 1,998,884 | | | 152,789 | | | -- |
Cash and cash equivalents at end of the period | $ | 1,634,142 | | $ | 2,522,322 | | $ | 1,634,142 |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
Interest paid | $ | -- | | $ | - | | $ | -- |
Income taxes paid | $ | -- | | $ | - | | $ | -- |
Stock issued in acquisition of Aegean Earth, S.A. | $ | -- | | | 50,000 | | $ | 50,000 |
Stock issued in exchange for accrued interest and note payable – affiliate | $ | -- | | $ | 307,410 | | $ | 307,410 |
See accompanying notes to consolidated condensed financial statements.
6
Aegean Earth & Marine Corporation
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
NOTE 1 - Organization, Business and Operations
On March 10, 2006, Aegean Earth and Marine Corporation, formerly Tiger Growth Corporation (“we”, “us”, “our” or the "Company"), was formed in the Cayman Islands with the objective to acquire, or merge with, a foreign operating business. On February 29, 2008, the Company acquired Aegean Earth S.A., a Greek company formed with the intention of operating in the construction and development sectors in Greece and the surrounding areas.
Through our wholly owned subsidiary, Aegean Earth S.A., we intend to engage in the business of construction and development of real estate projects, roads, utility structures, commercial buildings, and other related facilities in Greece, the Mediterranean and Balkan countries and other parts of Southern and Eastern Europe, either alone or by forming joint ventures with other companies. We also intend to actively pursue the acquisition of complimentary construction companies to increase construction project opportunities and revenue. We are actively pursuing construction opportunities both in the private and public sectors throughout the Mediterranean, Middle East, and Northern Africa regions. We are also currently pursuing acquisitions of other complimentary companies, provided, however, that no assurance can be given that any such acquisition will be completed.
On January 8, 2008, the Company amended its Memorandum and Articles of Association to increase its authorized share capital from 50,000,000 Ordinary Shares and 1,000,000 Preference Shares to 78,125,000 Ordinary Shares and 20,000,000 Preference Shares. In addition, our issued and outstanding Ordinary Shares increased from 1,281,500 Ordinary Shares immediately prior to the stock split to 2,002,691 Ordinary Shares immediately after the stock split. All share and per share data give effect to this split applied retroactively as if it occurred at the date of inception. The Company also changed its corporate name in January 2008 to Aegean Earth and Marine Corporation in anticipation of a proposed transaction.
On January 15, 2008, the Company designated 5 million of our Preference Shares as Series A Preference Shares. The Series A Preference Shares shall rank senior as to the payment of dividends and in liquidation as to the Ordinary Shares. The Series A Preference Shares have a stated value of $3.00 per share, which is subject to adjustment (the “Stated Value”). The Series A Preference Shares have the right to vote only with respect to matters relating to amendments of any of the preferences, rights or limitations of the Series A Preference Share or the issuance by the Company of Preference Shares having rights equal to and/or superior to the Series A Preference Shares.
On February 29, 2008, the Company acquired all of the outstanding capital stock of Aegean Earth, S.A., a company organized under the laws of Greece (“Aegean Earth”), from Joseph Clancy and Konstantinos Polites, the sole stockholders of Aegean Earth (the “Aegean Earth Shareholders”) pursuant to an Acquisition Agreement dated as of February 29, 2008 for 500,000 of the Company’s ordinary shares. Effective at the closing of the Acquisition (the “Acquisition Closing”) Aegean Earth became a wholly-owned subsidiary of the Company. The focus of Aegean Earth S.A. is to participate in the construction and development business for, among other projects, the direct contracting or joint venturing in the construction and development of real estate projects, roads, utility structures, commercial buildings, and other related facilities. Based on a prior transaction involving the sale of the Company’ ;s ordinary shares, the Company values the purchase at $50,000.
Simultaneously with the Acquisition Closing, the Company in a private offering made solely to accredited investors sold 1,908,675 ordinary shares and 1,908,675 Series A Preference Shares for aggregate gross proceeds of approximately $5,726,025. On April 8, 2008 the Company sold an additional 91,667 Ordinary Shares and 91,667 Series A Preference Shares for aggregate gross proceeds of approximately $275,001. On April 21, 2008 the Company converted $300,000 in notes payable plus accrued interest into 2,500,000 of the Company’s ordinary
7
NOTE 1 - Organization, Business and Operations (continued)
shares. On July 11, 2008, the Company sold an additional 50,000 Ordinary Shares and 50,000 Series A Preference Shares for aggregate gross proceeds of approximately $150,000.
The Company, at its sole discretion, has undertaken a program to redeeming approximately $3.2 million of its redeemable Series A Preference Shares for cash, as the entirety of the proceeds are no longer needed to effectuate a previously contemplated acquisition that will not take place. As of September 30, 2009, the Company had redeemed 1,075,341 shares of the Series A Preference Shares for approximately $3.2 million.
Redeemable Preference Shares with Beneficial Conversion Features
During 2008, the Company attributed a beneficial conversion feature of $129,041 to the Series A preference shares redeemed based upon the difference between the relative fair value assigned at the time of issuance to the Series A preference shares and the ordinary shares. The amount attributable to the beneficial conversion feature has been recorded as a dividend to the holders of the Series A preference shares redeemed during the year ended December 31, 2008. Since the redemption of the Series A preference shares is at the sole discretion of the Company, the Company is not accreting the carrying value of the Series A preference shares to redemption value and will not do so until the Company elects to redeem additional Series A preference shares for cash.
NOTE 2 - Summary of Significant Accounting Policies
Interim financial information
The consolidated financial statements included herein, which have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods on a basis consistent with the annual audited statements. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full year. Certain information, accounting policies and footnote disclosures normally included in consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the informati on presented not misleading. These financial statements should be read in conjunction with our audited consolidated financial statements included in our Form 10-K, for the year ended December 31, 2008, filed with the Securities and Exchange Commission on May 4, 2009.
Basis of Presentation
These consolidated financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles in the United State of America, whereby revenues are recognized in the period earned and expenses when incurred. The Company also follows the accounting and reporting guidance for Development Stage Enterprises in preparing its consolidated financial statements.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, we consider all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents.
8
NOTE 2 - Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Loss Per Ordinary Share
Basic loss per ordinary share is based on the weighted effect of ordinary shares issued and outstanding, and is calculated by dividing net loss attributable to ordinary shares by the weighted average shares outstanding during the period. Diluted loss per ordinary share is calculated by dividing net loss attributable to ordinary shares by the weighted average number of ordinary shares used in the basic loss per share calculation plus the number of ordinary shares that would be issued assuming exercise or conversion of all potentially dilutive ordinary shares outstanding. The Company does not present diluted earnings per share for years in which it incurred net losses as the effect is antidilutive. At September 30, 2009, there were no potentially dilutive ordinary shares outstanding.
Stock Split
On January 8, 2008, the Company divided and increased the authorized ordinary share capital of the Company from 50,000,000 Ordinary Shares of $0.001 par value each to 78,125,000 Ordinary Shares of $0.00064 par value each by the division (split) of 50,000,000 Ordinary Shares of US$0.001 par value each into 78,125,000 Ordinary Shares of US$0.00064 par value each. This resulted in every shareholder as of January 8, 2008 receiving 100 Ordinary shares for every 64 Ordinary shares previously held. This was treated as a stock split for U.S. GAAP purposes, and all share and per share data is presented as if the division took place as of the date of inception, March 10, 2006. On January 8, 2008, the Company also divided and increased the authorized preference share capital of the Company from 1,000,000 Preference Shares of $0.001 par value each to 20,000,000 Preference Shares of $0.00064par value by the division of 1,000, 000 Preference Shares of US$0.001 par value each into 1,562,500 Preference Shares of US$0.00064 par value each, and the authorization of an additional 18,437,500Preference Shares with a par value of US$0.00064 each.
Income Taxes
Aegean Earth and Marine Corporation was registered as an Exempted Company in the Cayman Islands, and therefore, is not subject to Cayman Island income taxes for 20 years from the Date of Inception. While the Company has no intention of conducting any business activities in the United States, the Company would be subject to United States income taxes based on such activities that would occur in the United States. The Company’s wholly owned subsidiary, Aegean Earth S.A. may be subject to income and other taxes in Greece. The statutory corporate income tax rate in Greece is 25%.
The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In assessing the realization of deferred tax assets, management considers whether it is likely that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during periods in which those temporary differences become deductible.
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NOTE 2 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
Our financial instruments consist of accounts payable and payables to an affiliate. We believe the fair value of our payables reflects their carrying amounts.
In 2007, the FASB issued new guidance relating to the measurement and disclosure of financial assets and liabilities. This guidance established a framework for measuring fair value in GAAP and clarified the definition of fair value within that framework. This guidance does not require assets and liabilities that were previously recorded at cost to be recorded at fair value or for assets and liabilities that are already required to be disclosed at fair value, This guidance introduced, or reiterated, a number of key concepts which form the foundation of the fair value measurement approach to be used for financial reporting purposes. The fair value of the Company’s financial instruments reflects the amounts that the Company estimates to receive in connection with the sale of an asset or paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). This guidance also established a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1—quoted prices in active markets for identical assets and liabilities.
Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3—unobservable inputs.
The adoption of this guidance did not have an effect on the Company’s financial condition or results of operations, but this guidance introduced new disclosures about how we value certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable (Level 3) inputs. As of September 30, 2009 and December 31, 2008, the Company did not have financial assets or liabilities that would require measurement on a recurring basis based on this guidance.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations, (ASC 805, Business Combinations) “ASC 805”, which replaces SFAS No. 141. ASC 805 establishes principles and requirements for recognition and measurement of assets, liabilities and any noncontrolling interest acquired due to a business combination. ASC 805 expands the definitions of a business and a business combination, resulting in an increased number of transactions or other events that will qualify as business combinations. Under ASC 805 the entity that acquires the business (the “acquirer”) will record 100 percent of all assets and liabilities of the acquired business, including goodwill, generally at their fair values. As such, an acquirer will not be permitted to recognize the allowance for loan losses of the acquiree. ASC 805 requires the acquirer to recognize goodwill as of the acquisition date, measured as a residual. In most business combin ations, goodwill will be recognized to the extent that the consideration transferred plus the fair value of any noncontrolling interests in the acquiree at the acquisition date exceeds the fair values of the identifiable net assets acquired. Under ASC 805, acquisition-related transaction and restructuring costs will be expensed as incurred rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired. ASC 805 is effective for fiscal years beginning after December 15, 2008. The adoption of ASC 805 on January 1, 2009, had no effect on the Company’s consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (ASC 855, Subsequent Events) “ASC 855”. ACS 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, ASC 855 provides (a) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after
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NOTE 2 - Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements (continued)
June 15, 2009, and shall be applied prospectively. The Company adopted ASC 855 in the second quarter of 2009. The adoption did not materially impact the Company. We considered all subsequent events through November 18, 2009, the date the financial statements were available to be issued.
In June 2009, FASB issued SFAS No.168, FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (ASC 105, Generally Accepted Accounting Principles) “ASC 105”, which states that the FASB Accounting Standards CodificationTM (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The codification is effective for these third quarter financial statements and the principal impact is li mited to disclosures as all future references to authoritative literature will be reference in accordance with the codification.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value. This ASU provides amendments for fair value measurements of liabilities. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques. ASU 2009-05 also clarifies that when estimating a fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period (including interim periods) beginning after issuance or fourth quarter 2009. The Company is assessing the impact of ASU 2009-05 on our financial condition, result s of operations, and disclosures. The implementation of the fair value guidance for nonfinancial assets and nonfinancial liabilities, effective January 1, 2009, did not have a material impact on our consolidated financial position and results of operations.
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (early adoption is permitted), modify the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable. The Company is currently assessing the impact (if any) on its consolidated financial position and results of operations.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.
NOTE 3 – Liquidity and Capital Resources
The Company has no revenues for the period from inception through September 30, 2009. Throughout 2008 the Company raised approximately $6.2 million in a private placement for a potential acquisition and for the operations of the Company. As this acquisition did not take place, the Company began a redemption program for its preference shares, and had redeemed approximately $3.2 million in preference shares as of September 30, 2009. The Company believes that this will be sufficient for the next 12 months to achieve its business objectives. There can be no assurances that the Company will ever consummate another business combination; achieve or sustain profitability or positive cash flows from its operations, reduce expenses or sell additional ordinary shares.
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NOTE 4 - Other Related Party Transactions
During 2008 Aegean Earth S.A. retained the services of Ergo Systems S.A. to provide general consulting and additional services. Ergo Systems S.A. is owned by one of the founders of Aegean Earth S.A. and one of the shareholders of the Company. As of September 30, 2009, the Company has incurred approximately $77,000 in consulting fees since the acquisition of Aegean Earth S.A.
In January 2009, the Company entered into a consulting agreement with Nautilus Global Partners, one of the original founders of the Company, to provide general consulting services. As of September 30, 2009, the Company paid $117,000 in consulting fees related to this agreement.
NOTE 5 - Ordinary Shares
On April 10, 2006, the Company was capitalized with 1,640,625 shares of its restricted ordinary shares issued at par value of $0.00064 per share, for consideration of $1,050 to its founding shareholders. These shares, along with a payable issued to the founder of $5,548, were the basis of the funding of the Company’s $6,598 in formation costs. On May 31, 2006, the Company sold 277,610 shares of its restricted ordinary shares for $35,500. The restricted ordinary shares were sold to 355 offshore private investors pursuant to a Private Placement Offering in lots of 782 shares each at $0.1279 per share. On July 18, 2006, the Company sold an additional 84,456 shares of its restricted ordinary shares for $10,800. The restricted ordinary shares were sold to 108 offshore private investors pursuant to a Private Placement Offering in lots of 782 shares each at $0.1279 per share. No underwriting discounts or commissions were pa id with respect to such sales. On February 29, 2008, the Company issued 1,908,675 ordinary shares in conjunction with its raising of approximately $5.7 million in financing. On April 8, 2008 the Company sold an additional 91,667 Ordinary Shares for aggregate gross proceeds of approximately $275,001. On April 21, 2008 the Company converted $300,000 in notes payable plus accrued interest into 2,500,000 of the Company’s ordinary shares. On July 11, 2008 the Company sold an additional 50,000 Ordinary Shares for aggregate gross proceeds of approximately $150,000.
NOTE 6 - Preference Shares
At formation, the Company was authorized to issue 1,562,500 shares of preference shares with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. In January 2008, the Company increased the number of authorized preference shares to 20 million, and designated 5,000,000 as Series A Preference Shares. On February 29, 2008, the Company issued 1,908,675 Series A Preference Shares in conjunction with its raising of approximately $5.7 million in financing. On April 8, 2008 the Company sold an additional 91,667 Series A Preference Shares for aggregate gross proceeds of approximately $275,001. On July 11, 2008 the Company sold an additional 50,000 Series A Preference Shares for aggregate gross proceeds of approximately $150,000. The Company, at its sole discretion, has undertaken a program to redeem a portion of its redeemable Series A Preference Shares f or cash, as the entirety of the proceeds are no longer needed to effectuate a previously contemplated acquisition that will not take place. As of December 31, 2008, the Company had redeemed 1,075,341 shares of the Series A Preference Shares for approximately $3.2 million.
The Series A Preference Shares rank senior as to the payment of dividends and in liquidation to the ordinary shares. The Series A Preference Shares have a stated value of $3.00 per share, which is subject to adjustment (the “Stated Value”). The Series A Preference Shares have the right to vote only with respect to matters relating to amendments of any of the preferences, rights or limitations of the Series A Preference Share or the issuance by the Company of
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NOTE 6 - Preference Shares (continued)
Preference Shares having rights equal to and/or superior to the Series A Preference Shares. Each Series A Preference Share may be redeemed by us at our sole option at any time and from time to time commencing six months after the date of issuance (the “Redemption Date”) at a redemption price equal to the sum of (i) the Stated Value, and (ii) all accrued but unpaid dividends thereon.
Unredeemed Series A Preference Shares are eligible to be converted into ordinary shares (the “Conversion Shares”) at the then applicable Conversion Ratio (as defined below) thirty months after the date of issuance. Each Series A Preference Share is convertible into six (6) ordinary shares (the “Conversion Ratio”), with each date of conversion being referred to as the “Conversion Date”. Upon conversion, all accrued and unpaid (undeclared) dividends on the
Series A Preference Shares through the Conversion Date shall be paid in additional ordinary shares as if such dividends had been paid in additional shares of Series A Preference Shares rounded up to the nearest whole number, and then automatically converted into additional ordinary shares at the then applicable Conversion Ratio. The Conversion Ratio is subject to adjustment in the event of share splits, share dividends, combinations, reclassifications and the like and to weighted average anti-dilution protection for sales of ordinary shares at a purchase price below $0.50 per share.
Each Series A Preference Share accrues dividends at the rate of six (6%) percent per annum of the Stated Value ($0.18 per share per annum) and is payable on the Redemption Date. Dividends payable will be prorated from the date each Series A Preference Share was issued based on the number of days each such Series A Preference Share
was outstanding. Dividends on the Series A Preference Shares are cumulative. No dividends or other distributions may be paid or otherwise made with respect to the ordinary shares and no ordinary shares may be repurchased by the Company during any fiscal year of the Company until dividends on the Series A Preference Shares have been declared, paid or set apart during that fiscal year. In addition, the Company reserves the right to declare and pay optional dividends to the holders of Series A Preference Shares in such amounts, form (securities and/or cash) and at such time as determined by the Company’ s Board of Directors. The Series A Preference Shares have a liquidation preference over the ordinary shares equal to the then stated value, plus all accrued but unpaid dividends.
NOTE 7 – Business Combination
On February 29, 2008, the Company acquired all of the outstanding capital stock of Aegean Earth, S.A., a company organized under the laws of Greece pursuant to an Acquisition Agreement dated as of February 29, 2008 for 500,000 of the Company’s ordinary shares. Effective at the closing of the Acquisition, Aegean Earth S.A. became a wholly-owned subsidiary of the Company. Based on a prior transaction involving the sale of the Company’s ordinary shares, the Company values the purchase at $50,000 plus the elimination of the note receivable plus accrued interest, resulting in a total purchase price of $135,986.
The Merger has been accounted for under the purchase method of accounting. After considering all the relevant factors in determining the acquiring enterprise, including, but not limited to, relative voting rights, composition of the board of directors and senior management, and the relative size of the companies, the merger was deemed an acquisition and the Company was treated as the “acquiring” company for accounting and financial reporting purposes.
A summary of the components of the estimated purchase price for the acquisition, is as follows:
| | |
Fair value of the Company’s share capital | $ | 50,000 |
Elimination of Note Receivable from Aegean Earth, S.A. plus accrued interest | | 85,986 |
Total | $ | 135,986 |
The fair value of Company’s common stock was estimated by management of the Company.
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NOTE 7 – Business Combination (continued)
The purchase price was allocated based on a determination of the value of the tangible and intangible assets acquired and liabilities assumed. The goodwill recorded as a result of the acquisition will not be amortized, but will be included in the Company’s annual review of goodwill for impairment. The following represents the allocation of the purchase price to the acquired assets and liabilities of Aegean Earth, SA. This allocation was based on the fair value of the assets and liabilities of Aegean Earth S.A. as of February 29, 2008. The excess of the purchase price over the fair value of net identifiable assets acquired is reflected as goodwill:
| | |
Net tangible assets, excluding cash | $ | 4,891 |
Cash acquired | | 51,452 |
Liabilities assumed | | (64,470) |
Identifiable intangible assets | | -- |
Goodwill | | 144,113 |
Total | $ | 135,986 |
NOTE 8 - Commitments and Contingencies
The Company may become subject to various claims and litigation. The Company vigorously defends its legal position when these matters arise. The Company is not a party to, nor the subject of, any material pending legal proceeding nor to the knowledge of the Company, are any such legal proceedings threatened against the Company.
NOTE 9 – Subsequent Events
The Company considered all subsequent events through November 18, 2009, the date the financial statements were available to be issued.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclosure Regarding Forward Looking Statements
Statements, other than historical facts, contained in this Quarterly Report on Form 10-Q, including statements of potential acquisitions and our strategies, plans and objectives, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Although we believe that our forward looking statements are based on reasonable assumptions, we caution that such statements are subject to a wide range of risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are important factors that could cause actual results to differ materially from the forward looking statements, which include, but are not limited to; the effect of existing and future laws, governmental r egulations and the political and economic climate of the United States; the effect of derivative activities; conditions in the capital markets and those factors referred to or identified in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2008. We undertake no duty to update or revise these forward-looking statements.
When used in this Form 10-Q, the words, "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons.
Overview
We were formed on March 10, 2006 solely for the purpose of identifying and entering into a business combination with a privately held business or company, domiciled and operating in an emerging market. On February 29, 2008, we completed the acquisition of Aegean Earth S.A. pursuant to a share exchange agreement. Aegean Earth S.A. was formed in July 2007 for the purpose of engaging in the construction industry in Greece and surrounding Mediterranean countries. Prior to our acquisition of Aegean Earth S.A., we were a blank check company that had not yet realized revenue. Since the acquisition of Aegean Earth S.A., we have entered into negotiations for the construction of a number of construction projects in Greece and in northern Africa, but have not commenced any construction projects or entered into any binding agreements to perform a construction project.
Results of Operations
Comparison of the nine months ended September 30, 2009 and 2008
Because we acquired Aegean Earth at the end of February 2008, and prior thereto we did not have any business operations, we have not had any revenues during the nine months ended September 30, 2009 and 2008. Total operating expenses for the nine months ended September 30, 2009 were $466,967 compared with $591,102 for the nine months ended September 30, 2008. The decrease is primarily due to higher operating costs in the first nine months of 2008 due to the potential acquisition of a bankrupt corporation.
Comparison of the three months ended September 30, 2009 and 2008
Because we acquired Aegean Earth at the end of February 2008, and prior thereto we did not have any business operations, we have not had any revenues during the three months ended September 30, 2009 and 2008. Total operating expenses for the three months ended September 30, 2009 were $100,616 compared with $102,642 for the three months ended September 30, 2008.
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Liquidity and Capital Resources
As of September 30, 2009, we had working capital of $1.5 million and a cash balance of $1.6 million. We believe that we will be able to meet all of our funding needs in the next twelve months, including additional planned acquisitions. No assurances can be given, however, that our business plan will succeed and that we will be not need to seek additional external financing.
Plan of Operation
During the next 12 months, our business will be focused on the development of Aegean Earth S.A.’s construction business in Greece and potential acquisitions of complimentary businesses. As such, we are currently in the development-stage of identifying and bidding on suitable construction projects. For the next 12 months, our Plan of Operation is as follows:
·
Focus on development of Aegean Earth S.A.’s construction business;
·
Work to take advantage of investments in infrastructure, primarily in Greece and the surrounding regions; and
·
Attempt to acquire at least one other construction company by the beginning of the first quarter of 2010.
We anticipate, but cannot assure, that we will have a number of potential projects in various stages of development in the first half of 2010 and we hope to commence construction activities during 2010. Assuming that we obtain the necessary licenses and are able to commence construction activities by 2010, we hope to achieve profitability some time before 2011. Provided however, there can be no assurance that we will be able to commence construction activities or that we will achieve profitability during our anticipated time frames, if at all. We estimate that our total anticipated general and administrative and other fixed costs for the next twelve months will be approximately $500,000. We expect that such estimated costs will increase depending on the size and number of projects that we undertake. We anticipate utilizing project financing or deposit payments to fund the construction and development of the projects we undert ake to the extent possible to mitigate the additional operating costs of undertaking construction and development projects. We also expect to utilize financing, either the sale of debt or equity securities to fund any acquisitions of construction companies that we undertake.
We have entered into negotiations with the Municipality of Argostoli, in Greece, for the potential development of a tourist harbor, commercial marina, cruise ship docking area, and other commercial development surrounding the Argostoli harbor area. We have agreed to fund and prepare a feasibility study, which will be performed by us or through a third party, to determine the scope and economic viability of the proposed project. We hope to conclude the feasibility study during the beginning of 2010. After we have concluded the feasibility study, if the proposed project is viable, and the Municipality decides to go forward with the project, we propose to enter into a joint venture with the Municipality to develop and manage the proposed project. Estimated revenues for this project range from $35-$60 million, depending on the results of the feasibility study, which will determine the size and scope of the project. Such estimated revenues ar e also dependent upon our securing necessary licenses in Greece to allow us to undertake the construction portion of this project. If we are unable to secure a construction license, or if we decide to subcontract the construction portion of this project, potential revenues from the project would be reduced by approximately $5-$10 million.
In addition to the foregoing, we are also engaged in negotiations for projects with parties other than the Municipality of Argostoli in the following areas:
·
The construction and development of additional marinas and surrounding areas;
·
The construction of a number of medical facilities in northern Africa;
·
Remediating a series of landfills in Greece and other countries in the Mediterranean;
·
The reforestation of the Peloponnese region in Southern Greece; and
·
Other residential and commercial construction and development projects.
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We will also attempt to acquire at least one other construction company in Greece in order to acquire additional resources that will allow us to compete for a larger number of projects in varying areas of expertise and allow us to begin construction projects more rapidly. Specifically we will target companies that have experience in infrastructure, reforestation, and private projects.
Proposed Acquisitions
Part of our Plan of Operation is to attempt to grow our business through the acquisition of complimentary construction, engineering, or development companies in Greece and elsewhere in Europe. We have started the process of reviewing potential acquisition candidates and have identified a number of acquisition targets that will potentially allow us to generate immediate revenue through existing projects.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Income Taxes
Aegean Earth and Marine Corporation was registered as an Exempted Company in the Cayman Islands, and therefore, is not subject to Cayman Island income taxes for 20 years from the Date of Inception. While the Company has no intention of conducting any business activities in the United States, the Company would be subject to United States income taxes based on such activities that would occur in the United States.
The Company’s wholly-owned subsidiary, Aegean Earth, S.A. is subject to income and other taxes in Greece. The statutory income tax rate in Greece is currently 25%. The Company has not incurred an income tax liability in Greece due to the net losses of the Company.
The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In assessing the realization of deferred tax assets, management considers whether it is likely that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during periods in which those temporary differences become deductible.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our Chief Executive and Financial Officer has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) or 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer has concluded that our current disclosure controls and procedures are ineffective.
Changes in Internal Control over Financial Reporting. Our management has evaluated whether any change in our internal control over financial reporting occurred during the last fiscal quarter. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the relevant period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
None.
ITEM 1A.
RISK FACTORS.
There have been no material changes to the risk factors previously disclosed under Item 1A of the Company’s Report on Form 10-K for the fiscal year ended December 31, 2008.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5.
OTHER INFORMATION.
None.
ITEM 6.
EXHIBITS.
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Aegean Earth & Marine Corporation
(Registrant)
By: /s/ Rizos P. Krikos
Rizos P. Krikos
Chief Financial Officer
Date:
November 18, 2009
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