Under US GAAP, convertible debentures should not be included within shareholders' deficiency. Accordingly, finders fee relating to the convertible debentures would be charged to income under US GAAP.
The Company's share option plan is treated as a compensatory plan under US GAAP. For the purpose of this reconciliation, the Company has adopted Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its share options which were granted to employees and non-employee directors elected by shareholders.
Under APB 25, compensation expense is recognized when exercise prices are below the fair market value of the underlying shares. The repricing of options on December 8, 1999 required the Company to follow variable plan accounting, under which compensation cost is remeasured each period. Due to the rise in market value, a compensation expense of $214 was recorded for the first time in the financial year ended February 28, 2002. This was partly reversed in the financial year ended February 28, 2003, due to the fall in market value and reduction in the number of outstanding options (see Note 8.3).
For a further discussion of the differences between IFRS and U.S. GAAP, especially as they relate to disclosures, see Note 15 to the audited consolidated financial statements.
In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure – an amendment of FASB Statement No. 123". FAS 148 amends FAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 to require prominent disclosures in the financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of FAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The Company has elected to continue accounting for employee stock based compensation in accordance with APB 25 and related interpretations and therefore FAS 148 is not expected to have a significant impact on the Company’s financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires the guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. It also elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. Disclosures required under FIN 45 are already included in these financial statements, however, the initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have any effect on net loss and shareholders' deficiency under US GAAP at February 29, 2004.
In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" (FIN 46). Under this FIN entities are separated into two populations: (1) these for which voting interests are used to determine consolidation (this is the most common situation) and (2) these for which variable interests are used to determine consolidation. The FIN explains how to identify Variable Interest Entities (VIE) and how to determine when a business enterprise should include the assets, liabilities, non controlling interests, and results of activities of a VIE in its consolidated financial
statements. The FIN is effective as follows: for variable interests in variable interest entities created after January 31, 2003 the FIN shall apply immediately, for variable interests in variable interest entities created before that date, the FIN shall apply for public entities - as of the beginning of the first interim or annual reporting period beginning after June 15, 2003. The adoption of FIN 46 did not have any effect on net loss and shareholders' deficiency under US GAAP at February 29, 2004.
In May 2003, the FASB issued FAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. FAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is in the process of evaluating the effect of adopting FAS 150 in its consolidated financial statements and is not expected to have a material effect on the consolidated financial position or results of operations.
General
February 28, 2005 compared to February 29, 2004.
Revenue. The Company had revenue totaling $75,000 for the year ended February 28, 2005 compared to $51,000 for February 29, 2004.
Expenses. Research and development costs expensed were decreased from $353,000 to $NIL and general and administration expenses decreased from $1,723,000 to $920,000. Among specific items, product development and project development increased to $176,000 and $238,000, respectively. This was as a result of the shift by the Company to commercialize its products and technology. Audit and accounting fees decreased by $5,000 to $142,000.
Net Loss. The net loss in fiscal year 2005 decreased to $1,668,000 from $2,244,000 in 2004. |
February 29, 2004 compared to February 28, 2003.
Revenue. The Company had revenue totaling $51,000 for the year ended February 29, 2004 compared to $NIL for February 28, 2003.
Expenses. Research and development costs expensed were decreased from $719,000 to $353,000 and general and administration expenses increased from $1,004,000 to $1,723,000. Among specific items, salary costs increased by $122,000 due to the increase in operating staff at the small scale plant in Germany, and the appointment of a business development director for the Americas project engineer in Germany and additional specialist engineering assistance. Audit and accounting fees increased by $147,000.
Net Loss. The net loss in fiscal year 2004 decreased to $2,244,000 from $2,188,000 in 2003. |
February 28, 2003 compared to February 28, 2002.
Revenue. The Company had no revenue for the fiscal years ended February 28, 2003 or February 28, 2002.
Expenses. Research and development costs expensed were increased from $696,000 to $719,000 and general and administration expenses increased from $939,000 to $1,004,000. Among specific items, salary costs increased by $92,000 due to the appointment of a project engineer in Germany, additional specialist engineering assistance and the appointment of our paper product development manager and business development director, and legal and professional fees decreased by $142,000.
Net Loss. The net loss in fiscal year 2003 decreased to $2,188,000 from $2,518,000 in 2002. |
The Company's financial statements are in accordance with International Financial Reporting Standards. The application of accounting principles generally accepted in the U.S. would affect the determination of net loss and shareholders' deficiency. See Note 15 to the attached Consolidated Financial Statements.
Foreign Currency Exchange Rates
A significant portion of the Company’s business is conducted in currencies other than the United States dollar. As a result, the Company is subject to exposure from movements in foreign currency exchange rates. The Company does not currently engage in hedging transactions designed to manage currency fluctuation risks. See Notes to Consolidated Financial Statements – Note 2.5. Foreign Currency Translation.
Inflation
Historically, inflation has not affected the Company's business in the current locations where it does business and the Company does not expect that it will do in the future.
Interest Rate Sensitivity
The Company is not currently subject to adverse movement in interest rates because the Company’s credit facilities are fixed at an interest rate of 7.50% and Convertible Debentures at an interest rate of 5%. The credit facility agreement requires repayment on August 31, 2006. The Company may redeem the Convertible Debentures before December 31, 2007. The Company does not currently engage in hedging transactions designed to manage interest rate fluctuation risks.
B. | Liquidity and Capital Resources |
As of February 28, 2005, the Company's working capital deficiency decreased to $359,000 from the working capital deficiency of $1,848,000 on February 29, 2004. On February 29, 2004, the Company’s working capital deficiency increased by $534,000 from a working capital deficiency of $1,314,000 on February 28, 2003.
To develop and commercialize its SCC technology, management foresees its primary need for capital in the next 12 months ending February 28, 2005 will be approximately $7,500,000 for working capital and capital plant investments to carry out its strategic business plan. These requirements are expected to be met through a combination of the Epsom credit facility and new equity financing.
The Company is currently financed by a credit facility from Epsom of up to US $2,500,000 at an interest rate of 7.50%, of which amount the Company had drawn down $238,000 at February 28, 2005, with a repayment due date of August 31, 2006.
In February 2001, the Company completed a placement of 8% convertible debentures in the sum of $1,500,000 with interest payable quarterly. Investors, after two years, may convert the loan into Common Shares at the greater of 75% of the average closing price for the ten trading days prior to the conversion or the market price per share at the time of closing. The investors received warrants to purchase 20,000 Common Shares for every $100,000 invested exercisable for a two year period at 125% of the closing average offer price for the previous ten trading days. The Company may redeem the warrants in whole or part at any time up to two years or prior to notice by the investor to convert. Investors are entitled to demand registration rights in respect of the common stock issuable upon conversion of the debentures or exercise of the warrants. If the registration statement has not been declared effective within 270 days after the date of conversion, the investors may put the debentures to the Company at 110% of their original principal amount plus accrued and unpaid interest. If at any time after the effectiveness of the registration statement, the investors do not have the ability to freely trade the underlying common stock for 15 consecutive trading days, the investors similarly have a put at 115% of the original principal amount plus accrued and unpaid interest. A finder’s fee of 5% and warrants to purchase 1,000 Common Shares per $100,000 invested was paid. The issue of these convertible debentures was approved by the TSX Venture Exchange.
In November 2001, the Company entered into an agreement for the placement of 8% convertible debentures in the sum of $2,500,000. Interest will be payable quarterly. Investors may after two years convert the convertible debentures into Common Shares at the greater of 75% of the average closing price for the ten trading days prior to the conversion or the market price per share at the time of closing. The investors also received warrants to purchase 20,000 Common Shares for every US$100,000 invested exercisable for a two-year period at 125% of the closing average offer price for the previous ten trading days.
The Company may redeem the convertible debentures in whole or part at any time up to two years or prior to a notice by an investor to convert. Investors are entitled to demand registration rights in respect of the common stock issuable upon conversion of the debentures or exercise of the warrants. If the registration statement has not been declared effective within 270 days after the date of conversion, the investors pay put the debentures to the Company at 110% of their original principal amount plus accrued and unpaid interest. If at any time after the effectiveness of the registration statement, the investors do not have the ability to freely trade the underlying common stock for 15 consecutive trading days, the investors similarly have a put at 115% of the original principal amount plus accrued and unpaid interest. A finder’s fee of 5% and warrants to purchase 1,000 Common Shares per $100,000 invested was paid.
In February 2002, the Company entered into an agreement for the placement of 4,933,091 Common Shares, priced at CDN$ 0.55 with a twelve month warrant to purchase an additional common share for each share taken down at CDN$ 0.66, and $ 300,000 7.5% convertible debentures with interest payable on the usual quarter days. This debenture is convertible into Common Shares at the investors option after two years at the greater of 75% of the average closing price for the ten trading days prior to the conversion or CDN$ 0.55. Investors in the convertible debenture shall also receive 60,000 warrants for a two year period at 125% in the first year and 140% in the second year, of the closing average offer price for the previous ten trading days.
The Company may redeem the convertible debentures in whole or part at any time up to two years or prior to a notice by an investor to convert. Investors are entitled to demand registration rights in respect of the common stock issuable upon conversion of the debentures or exercise of the warrants. If the registration statement has not been declared effective within 270 days after the date of conversion, the investors pay put the debentures to the Company at 110% of their original principal amount plus accrued and unpaid interest. If at any time after the effectiveness of the registration statement, the investors do not have the ability to freely trade the underlying common stock for 15 consecutive trading days, the
investors similarly have a put at 115% of the original principal amount plus accrued and unpaid interest. A finder’s fee of 5% and warrants to purchase 1,000 Common Shares per $100,000 invested is payable.
During February 2003, the Company’s 8% and 7.5% convertible debentures with a principal amount of $3,390,000 were re-negotiated by their retirement against the issue of new 6% debentures of $297,000 to February 15, 2004, and $3,805,000 to February 15, 2005. The notes for an aggregate amount of $300,000 issued in April 2002 were not re-negotiated. The reissued convertible debentures did not carry any right to warrants for the investors. All other terms of the convertible debentures remained unchanged.
During February 2004, the Company’s 6% convertible debentures with a value of $4,402,000 were re-negotiated by their retirement against the issue of new 5% debentures with a value of $4,642,000 to February 28, 2005. All terms of the convertible debentures remain unchanged from the original debenture notes.
During June 2004, holders of the 5% convertible debentures were offered a proposal to amend the terms of their notes. The notes were amended to change (1) the conversion date to December 31, 2007 and (2) the conversion price to $1.75 per share. All other terms and conditions of the 5% convertible debenture remained the same. As of this date, all of the 5% convertible debentures have been amended.
During June 2004, holders of the 5% convertible debentures were offered a proposal to amend the terms of their notes. The notes were amended to change (1) the conversion date to December 31, 2007 and (2) the conversion price to $1.75 per share. All other terms and conditions of the 5% convertible debenture remained the same. As of this date, all of the 5% convertible debentures have been amended.
On January 26, 2005, the Company concluded a private placement for a total of US$2.25 million. The placement consisted of the issuing of 9 million units, each unit consisting of one common share priced at US$0.25, with one full common share purchase warrant for twelve months priced at US$0.35 and one half warrant for twenty four months priced at US$0.50. The placement was compliant with Regulation S of the United States Securities Act of 1933. Under this regulation, shares offered exclusively to non-US residents are subject to trading restrictions as laid down in the Company’s jurisdiction of domicile, which in CalciTech’s case is Bermuda. Resulting from this regulation, shares issued in the placement were subject to a trading restriction of 40 days.
In February 2005, Epsom Investment Services N.V. agreed to convert a further $1,400,000 of the balance due under the credit facility agreement into common stock of the Company on the basis of one share for each $0.20 of note. This conversion resulted in the issue of 7,000,000 common shares. In addition, in February 2003, Epsom Investment Services N.V. agreed to convert a further $600,000 of the balance due on the credit facility agreement into common stock of the Company on the basis of one share for each $0.24 of note. This conversion resulted in the issue of 2,531,645 common shares. In February 2004, Epsom Investment Services N.V. agreed to convert a further $2,000,000 of the balance due on the credit facility agreement into common stock of the Company on the basis of one share for each $0.20 of note. This conversion resulted in the issue of 10,010,510 common shares
Additional equity financing will be required to enable the Company to implement its business strategy of growth, which includes investment in joint ventures in the SCC industry. No assurances can be given that the Company will be able to raise cash from additional financing efforts. If the Company is unable to obtain sufficient funds from future financing or unable to complete its short-term financing, the Company may not be able to fully achieve its business objectives.
C. | Research and Development, Patents and Licenses, etc. |
The Company expensed $ NIL in the fiscal year ended February 28, 2005, $353,000 in the fiscal year ended February 29, 2004 and $719,000 in the fiscal year ended February 28, 2003 on research and development. The Company will continue to fund development related to step-up expenses to achieve production on a full commercial scale.
Revenue from the principal activity commenced for trial purposes in the year ended February 29, 2004. At the present time, the Company has not generated any revenue from producing SCC on a commercial scale and has incurred substantial losses due to expenses associated with the Company's close of past Trylene and Acetylene Gas businesses and research and development expenses.
E. | Off Balance Sheet Arrangements |
None.
F. | Tabular Disclosure of Contractual Obligations |
Contractual obligations are disclosed as follows:
| | Payments Due by Period |
Contractual Obligations | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years |
| | | | | |
Credit facility | 365 | | 365 | | |
Convertible debentures | 4,501 | 4,501 | | | |
Equipment leasing | 36 | 20 | 11 | 5 | |
Property rental | 182 | 62 | 69 | 51 | |
| | | | | |
Total Contractual Cash Obligations | 5,084 | 4,583 | 445 | 56 | 0 |
Item 6. Directors, Senior Management and Employees
A. | Directors, Senior Management |
The following is a list of the Company’s directors and officers and a brief description of their business experience. There are no family relationships between any officers and directors.
At the Company’s Annual General Meeting of Shareholders held on February 25, 2005, the Board of Directors changed as follows:
• | Following nine years of service as a director of CalciTech Ltd, Mr. Mark Tomkins decided not to stand for re-election as a director of the Company due to pressure of business commitments. |
• | Mr. Alan Perkins was elected as non-executive Director to the Board. |
Name | Age | Positions Held | Period |
| | | |
Roger A. Leopard | 63 | Director President and Chief
Executive Officer | June 2001-Present February 2000 – Present |
Mr. A. Perkins | 67 | Director | February 2005 – Present |
| | | |
John M. Smith | 69 | Director | August 1993 – Present |
| | | |
Roger A. Leopardis a Chartered Accountant, initially with Deloittes until leaving the profession in 1966 to join The Great Universal Stores as Assistant Treasurer. He played a key role in the development of the corporation’s financial services division. In 1976, Mr. Leopard was appointed Vice President of Finance of the CIG Group, a computer leasing and related product marketing and service operation with diversified European operations. He was subsequently appointed Chairman of the Board and Chief Executive of CIG Group’s, U.S. listed, parent company. During this period, he specialized in innovative methods of financing a wide range of businesses and was involved in early stage company development and finance. This involved the arranging of funding for many commercial organizations in North America, Western Europe, Russia and the CIG Group. Before becoming a director of the Company, Mr. Leopard was a director of Epsom Investment Services N.V. Upon his appointment, he resigned this position and is no longer involved with Epsom Investment Services N.V. Mr. Leopard is currently the President, Chief Executive Officer and Director of the Company.
Alan Perkins has a long and distinguished career in investment management with exposure to a wide range of clients and commercial situations, developing strong business and technical skills. Most recently he was instrumental in the establishment of Pavilion Asset Management Ltd. As an investment subsidiary of Family Assurance Friendly Society. Mr. Perkins also played a part in the subsequent acquisition of a major stake in the subsidiary by Seymour Pierce Group plc in September 2000. Until recently he was the Chief Investment Officer of Pavilion and second in command, supervising their offices in Brighton, UK. Mr. Perkins was also responsible for managing the funds for two major clients, totaling £2 billion.
John M. Smith MBE earned his Bachelor of Arts degree with honors from the University of Hull, England. Mr. Smith has enjoyed a distinguished career in international banking; first with Barclays Bank from 1959 through 1971 in various postings worldwide, and subsequently as Assistant Manager, Barclays Geneva which position he held until 1979. In 1979, Mr. Smith became a partner in a Geneva based fiduciary company. In 1989, he was appointed General Manager and subsequently, Managing Director of Rathbone Trust Company S.A., a wholly owned subsidiary of Rathbone Brothers PLC, an established private banking and trust company quoted on the London Stock Exchange. Mr. Smith is currently retired, but remains a non-executive director of Rathbone Trust Company S.A. In 1995, Mr. Smith was awarded an MBE for voluntary services to the British Community in Switzerland.
During the Company’s fiscal year ended February 28, 2005, the Company paid an aggregate of $492,000 in compensation to its directors and officers as a group for services in all capacities. The Company did not make any payments for pension or retirement plans for officers and directors.
Directors’ Compensation
Directors who are not employees of the Company are compensated by stock options and $1,000 for each board meeting attended, in addition to travel expenses. During fiscal year 2005, non-employee Directors were granted stock options. Directors, who are also officers of the Company, do not receive additional compensation for serving as Directors.
Executive Compensation
The following table sets forth the aggregate cash compensation paid for the past fiscal year for services of Mr. Leopard.
SUMMARY COMPENSATION TABLE
| Long Term Compensation |
| |
| | Annual Compensation | | Awards | | Payouts |
|
Name and Principal Position | Fiscal Cash Year Compensation ($) | Other Annual Compensation ($) | Restricted Stock Award(s) | Securities Underlying Options (#) | LTIP Payouts ($) | All Other Compensation ($) |
| | | | | | | | |
Roger A. Leopard C.E.O. & President | 2005 | 120,000 | Nil | 0 | 500,000 | 0 | 0 |
| | | | | |
| | | | | | | | | | | | | | | | |
The Directors of the Company serve a one-year term and are elected at the Annual General Meeting of Shareholders. At the Annual General Meeting of Shareholders, held on February 25, 2005 the shareholders elected Messrs. Roger A. Leopard, John M. Smith, and Alan Perkins as Directors. The officers of the Company are elected by the Board to serve at the pleasure of the Board. The Company has no contracts with any of its Directors that provide for payments upon termination.
During the 2005 fiscal year, Messrs. Tompkins and Smith comprised the Audit Committee and Messrs. Tompkins and Smith comprised the Compensation Committee. Since the Annual General Meeting of Shareholders, Mr. Alan Perkins has succeeded Mr. Mark Tompkins on the Audit and Compensation Committees. The primary functions of the Audit Committee are to review the scope and result of the audit performed by the Company's independent accountants, the Company's internal accounting controls, non-audit services performed by the independent accountants and the cost of accounting services. The Compensation Committee reviews all compensation proposed for senior management and Board members.
The Company’s subsidiary, CalciTech Group Services SA, has no full-time employees and no part-time employees located in Switzerland. The Company has two officers located in Switzerland: Mr. Leopard and Mr. Smith. CalciTech Deutschland GmbH, has four full-time employees and no part-time employees located in Germany. The Company and its other subsidiaries do not have employees.
The following table sets forth the share ownership of the Officers and Directors of the Company as of date of filing.
Name of Beneficial Owner | | Number of Shares | | Percent |
Roger A. Leopard | | 0 | | 0 |
John M. Smith | | 451,250* | | 0.84 |
Alan Perkins | | 0 | | 0 |
| | | | |
* - this total includes 191,250 shares held in escrow, of which Mr. Smith is not the beneficial owner.
Outstanding Options
Name | Shares Underlying Options | Exercise Price | Purchase Price, if any | Expiration Date |
Roger A. Leopard | 500,000 | CAD 0.33 | - | October 10, 2008 |
H.J. M Tompkins | 250,000 250,000 100,000 100,000 | CAD 0.30 CAD 0.45 CAD 0.33 CAD 0.24 | | February 25, 2010 February 25, 2010 February 25, 2010 February 25, 2010 |
John M. Smith | 250,000 100,000 100,000 | CAD 0.45 CAD 0.33 USD 0.24 | - - | February 25, 2008 October 10, 2008 February 25, 2010 |
Marc Lakmaaker | 50,000 | CAD 0.33 | - | October 10, 2008 |
Geoffrey Long | 100,000 | CAD 0.33 | - | October 10, 2008 |
Alan Perkins | 250,000 | USD 0.24 | - | February 25, 2010 |
| | | | |
Stock Option Plan/Equity Incentive Plans
The Company’s stock option plan is available for directors, officers and employees and complies with recommendations of the TSX Venture Exchange listing authority. Options may be granted with the approval of the Board of Directors and are subject to the approval of the listing authority. All options must be exercised within 30-days of the optionee leaving the Company, otherwise they lapse. Shareholders approved the plan and approve the directors’ authority to grant a certain number of options in their general meeting.
Following his decision not to stand for reelection to the Board of Directors, CalciTech entered into a consulting agreement with Mr. Tomkins for the delivery of services relating to the financing of projects by way of equity or debt as the parties may agree in writing from time to time. As part of the agreement, Mr. Tomkins’s options as granted will be maintained by the company through to maturity.
Item 7. | Major Shareholders and Related Party Transactions |
Past development expenditures were and are currently funded through a Credit Facility Agreement with Epsom Investment Services N.V. (“Epsom”), whose clients collectively hold less than 25% of the equity of the Company. Epsom has no control over these shares as they are held by clients in their own right. Subject to the foregoing, the Company is not directly or indirectly owned or controlled by any other corporation or by any foreign government. Further, the Company does not know of any arrangement, which may by its operation result in a change in control of the Company at some subsequent date.
On July 18, 2005, New Star Institutional Managers, Ltd.,Family UK Equity Fund, Stephen Whittaker, Gregor Logan, Mark Beale, Ian Bettie, Timothy Bray, Keith Brown, Howard Covington, John Duffield, Anna Kirk, Richard Lewis, Rupert Francis James Henry Ruvigny, Michelle Sanders and Deborah Weekes collectively filed a Schedule 13G with the SEC to report their beneficial ownership of 4,419,000 Common Shares which constituted 5.5% of the outstanding Common Shares.
As of February 28, 2005, there were 1,230 record holders of Common Shares in the United States representing approximately 58% of the total shareholders as reported to be held in the records of Computershare Trust Company, the Registrar and Transfer Agent for the Common Shares.
B. | Related Party Transactions |
The amount paid to shareholders, directors and officers of the Company and their related companies for consulting and other services totaled $492,000, $132,000 and $205,000 for the years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively.
In the financial year ended February 29, 2004, this amount included $136,000 paid to EuroHelvetia TrustCo S.A. ($117,000 in the year ended February 29, 2004), who were contracted by CalciTech to act as the Company’s exclusive financial advisors. EuroHelvetia charge their fees for work related to advice on private placements, fund raising and project finance. Roger A. Leopard, Chief Executive Officer and President of the Company, is also a director of EuroHelvetia TrustCo S.A. EuroHelvetia also provides administration of Epsom Investment Services N.V.
During the year ended February 29, 2004, the Company disposed of its 100% subsidiary, CalciTech Group Services SARL (incorporated in France) to the CEO, Roger Leopard and Geoffrey Long, an officer of the Company, for a price of €10 (Ten Euros).
Roger A. Leopard charged the remaining $NIL ($16,000 in the year ended February 29, 2004) to CalciTech Group Services SARL in providing strategic and industrial counseling services.
The fees and services were approved by the independent directors. |
C. | Interest of Experts and Counsel. |
Item 8. Financial Statements |
A. | Consolidated Statements and Other Financial Information |
The following financial statements of the Company are attached to this Annual Report:
• | Consolidated Balance Sheet for years ended February 28, 2005 and February 29, 2004. |
• | Consolidated Statement of Operations for the years ended February 28, 2005, February 29, 2004 and February 28, 2003. |
• | Consolidated Statement of Shareholders Deficiency for the years ended February 28, 2005, February 29, 2004 and February 28, 2003. |
• | Consolidated Statement of cash flows for the years ended February 28, 2005, February 29, 2004 and February 28, 2003. |
• | Notes to Consolidated Financial Statements. |
Dividend Policy
The Company has never paid any dividends and does not intend to in the near future.
Item 9. The Offering and Listing
A4. | Price History of Stock |
Until January 19, 2005, the Company’s Common Shares were listed in Canada on the TSX Venture Exchange (“TSX”), under the symbol CLK and in the United States on the OTC Electronic Bulletin Board (“OTC Bulletin Board”), under the symbol CLKTF.OB. On May 15, 2002, the Company’s shares were approved to trade on the Third Segment of the Frankfurt Stock Exchange in Germany, under the symbol XCH. In July 2005, the Company's Common Shares were approved for listing on the OFEX under the symbol CLK.
On September 27, 2004, following a full review by CalciTech’s Board of Directors, the Company decided that it was in the best interest of both the Company and its shareholders to request to delist its Common Shares from the TSX Venture Exchange. Permission for the delist had been granted by the Company’s shareholders at the Annual General Meeting held on October 29, 2003. Permission to delist was granted on January 19, 2005. The reasons underlying the request to delist were as follows:
• | The continuing obligations and resulting demands on the Company’s financial and personnel resources required maintaining the TSX listing, were considered to be in no proportion to the benefits received from this listing. |
• | Service levels received by the Company were considered to fall substantially short of those to be expected from a professionally run exchange. |
• | The level of competence and swiftness of response from the TSX in relation to issues raised by the Company were considered to be lacking. Example of aforementioned is the serious delay by the TSX, of over one year, in approving newly issued CalciTech stock. |
• | During its time on the TSX, CalciTech has been confronted with a number of unjustifiable trade halts. In these instances it was found that the TSX refused to communicate clearly and in a timely fashion to the arguments brought up by CalciTech. The insistence by the regulatory bodies in Canada on two occasions that the Company file a Quarterly Management Discussion and Analysis as a prerequisite for resumption of trade, were wholly unfounded under BCSC and ASC regulation. The Company was forced to expend significant resources in resolving a situation it had been forced into unnecessary. |
• | The Company felt its resources were better spent in consolidating its North American listing on the OTC Bulletin Board while focusing on implementing new and anticipated procedures in compliance with the Sarbanes-Oxley Act. |
• | It was felt that a consolidation on the OTC Bulletin Board would concentrate trading in the Company’s shares, thereby providing a more accurate picture to shareholders of trading pattern on the North American market. |
• | The consolidation was also seen as a measure to reduce arbitrage trading on the North American markets. |
The high and low prices expressed in Canadian dollars on the TSX for the Company’s Common Shares and the high and low prices expressed in United States dollars quoted on the OTC Bulletin Board for the last six months, each quarter for the last two fiscal years and annually for the last five years are as follows:
| TSX Venture Exchange (Canadian Dollars) | OTC Bulletin Board (United States Dollars) |
Period | High | Low | High | Low |
July 2005 | N/A | N/A | $ 0.23 | $ 0.18 |
June 2005 | N/A | N/A | $ 0.23 | $ 0.15 |
May 2005 | N/A | N/A | $ 0.22 | $ 0.205 |
April 2005 | N/A | N/A | $ 0.23 | $ 0.19 |
March 2005 | N/A | N/A | $ 0.215 | $ 0.17 |
February 2005 | N/A | N/A | $ 0.27 | $ 0.17 |
2004-2005 | High | Low | High | Low |
Fourth Quarter ended February 28, 2005 | N/A | N/A | $ 0.28 | $ 0.17 |
Third Quarter ended November 30, 2004 | N/A | N/A | $ 0.26 | $ 0.16 |
Second Quarter ended August 31, 2004 | N/A | N/A | $ 0.26 | $ 0.16 |
First Quarter ended May 31, 2004 | $ 0.49 | $ 0.31 | $ 0.286 | $ 0.21 |
2003-2004 | High | Low | High | Low |
Fourth Quarter ended February 29, 2004 | $ 0.37 | $ 0.235 | $ 0.27 | $ 0.18 |
Third Quarter ended November 30, 2003 | $ 0.37 | $ 0.27 | $ 0.24 | $ 0.18 |
Second Quarter ended August 31, 2003 | $ 0.36 | $ 0.27 | $ 0.30 | $ 0.21 |
First Quarter ended May 31, 2003 | $ 0.49 | $ 0.31 | $ 0.31 | $ 0.22 |
| High | Low | High | Low |
2004 – 2005 Annual | | | | |
2003 – 2004 Annual | $ 0.49 | $ 0.235 | $ 0.31 | $ 0.18 |
2002 – 2003 Annual | $ 0.73 | $ 0.39 | $ 0.41 | $ 0.25 |
2001 – 2002 Annual | $ 0.65 | $ 0.21 | $ 0.45 | $ 0.12 |
2000 – 2001 Annual | $ 0.50 | $ 0.18 | $ 0.33 | $ 0.12 |
Not Applicable.
The Company’s Common Shares are listed in the United States on the OTC Bulletin Board under the symbol CLKTF.OB. Up until January 19, 2005, the Company’s Common Shares were listed in Canada on TSX, when delisting from this exchange was formalized. With effect from May 15, 2002, the Company’s Common Shares have been listed in Germany on the Third Segment of the Frankfurt Stock Exchange under the symbol XCH. In July 2005, the Company's Common Shares were approved for listing on the OFEX under the symbol CLK.
Item 10. Additional Information
Not Applicable.
B. | Memorandum and Articles of Association |
The Company was incorporated on November 9, 1978 in from British Colombia, Canada. On February 13, 1995, the Company filed a memorandum of continuance to reincorporate from British Colombia, Canada to Bermuda. On September 11, 2000, the Company amended its Articles to change its name to CalciTech Ltd.
Common Shares
The Company is authorized to issue 120,000,000 Common Shares, par value $0.001. All issued and outstanding Common Shares are fully paid and non-assessable. Each holder of record of Common Shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors. Shareholders are not entitled to cumulative voting for directors. The holders of Common Shares will be entitled to dividends on a pro-rata basis, if and when declared by the Board of Directors. There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions on transfers attached to the Common Shares. In the event of liquidation, dissolution or winding up of the Company, the shareholders are entitled to participate in the distribution of assets of the Company available after satisfaction of the claims of creditors.
Powers and Duties of Directors
The Directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the Company Act, Articles or Bye-laws, required to be exercised by the shareholders in a general meeting or prohibited by law.
Directors serve for one year, until the next annual meeting of shareholders. In general, a Director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director. Such a Director shall not vote in respect of any such contract or transaction with the Company if the Chairman disqualifies him. If he votes, his vote shall not be counted, but he shall be counted in the quorum present at the meeting at which such a vote is taken. The shareholders at the general meeting shall determine the remuneration of the Directors. However, notwithstanding the foregoing, Directors shall be paid all expenses incurred in attending meetings or conducting business on behalf of the Company.
The Directors may from time to time on behalf of the Company; (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; or (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.
The Directors of the Company are not required to be residents of Bermuda. There is no age limitation or minimum share ownership for the Company’s Directors.
Shareholders
An Annual General Meeting of Shareholders shall be held once in every year at such time and place as may be determined by the Directors. Notice of the meeting must be given not less than twenty-one nor more than fifty days. A quorum at an Annual General Meeting and Special Meeting shall be two shareholders. There is no limitation imposed by the laws of Bermuda or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote Common Shares.
In accordance with Bye-laws, Directors shall be elected by an “ordinary resolution” which means (a) a resolution passed by the shareholders of the Company in a General Meeting by a simple majority of the votes cast in person or by proxy, or (b) a resolution that has been submitted to the shareholders of the Company who would have been entitled to vote on it in person or by proxy at a general meeting of the Company and that has been consented to in writing by all shareholders of the Company entitled to vote on it.
The Bermuda law and Company’s Articles and Bye-laws contain no provisions that would prevent or delay a change in control of the Company.
Addendum to the Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 27, 1998. On February 28, 1998 the Company entered in a credit facility agreement of up to $2,330,000 with Epsom Investment Services N.V. bearing interest at 8% per annum and a repayment date of 2000. In April 1999, the Company amended the credit facility agreement to provide up to $5,000,000 until February 28, 2001, and reduced the interest rate to 7.75%. Subsequently, the credit facility agreement was amended in February 2001. On February 28, 2003, this credit facility agreement was further amended to reduce the maximum amount of credit to $2,500,000, in addition to a reduction in interest charged to 7.5% per annum. During February 2005, this credit facility was amended extended to August 30, 2006.
Under the terms of the credit facility agreement, any outstanding balance due on the credit facility agreement can be converted in part or in whole into shares of common stock at any time at the option of the holder. The conversion price is equal to 80% of the trading price per share of common stock on the date such note was made or additional advances were made. This credit facility is secured by shares of CalciTech Synthetic Minerals Ltd. No additional consideration was paid for the extensions on the repayment date for the credit facility.
Control over foreign currency has existed in Bermuda since 1940 and is now governed by the Exchange Control Act of 1972 (the “Exchange Control Act”) and regulations promulgated thereunder and is administered by the Bermuda Monetary Authority (Foreign Exchange Control). The Exchange Control Act regulates foreign currency transactions between a resident of Bermuda and a non-resident of Bermuda. However, exempted companies, like the Company, are designated as “non-resident” for purposes of the Exchange Control Act, and as such, are entitled to maintain foreign currency bank accounts and to freely convert the balances in such accounts into currencies of other countries. Because
exempted companies are designated as “non-resident” under the Exchange Control Act, consent from Foreign Exchange Control is required prior to incorporation. Prior consent of Foreign Exchange Control is also required to issue or transfer any share, debenture or other security of an exempted Company. General permission may be given to issue or transfer shares or other securities, in connection with a public issue, which are to be freely transferable. The Company received Bermuda’s permission to transfer its shares, which may be traded on the OTC Bulletin Board. Additionally, on May 15, 2002, the Company’s shares were approved to trade on the Third Segment of the Frankfurt Stock Exchange in Germany, under the symbol XCH.
There are no income, profits, capital gains, sale of goods, death or inheritance taxes in Bermuda. Exempted companies, such as the Company, pay annual fees to the Bermuda government, which are determined by the amount of its share capital. Although the United States and the United Kingdom of Great Britain and Northern Ireland (on behalf of Bermuda) signed a mutual assistance and insurance tax agreement on July 11, 1986, the agreement does not provide for the withholding of taxes on the distribution of dividends to United States taxpayers. While the convention provides for the sharing of information, it primarily deals with the taxation of insurance premiums paid by United States residents to insurance companies domiciled in Bermuda.
Certain United States Federal Income Tax Considerations
The following is a summary of United States federal income tax considerations material to a holder of Common Shares who is a United States citizen or resident or a United States domestic corporation who owns the Common Shares as a capital asset ("United States Investor"). The summary is of a general nature only and is not exhaustive of all possible income tax consequences applicable to United States Investors and does not address the tax consequences of United States Investors subject to special provisions of federal income tax law such as tax exempt organizations, trusts and significant shareholders. Prospective investors are advised to consult their own tax advisors with respect to their particular circumstances and with respect to the effects of state, local or foreign tax laws to which they may be subject.
This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, court decisions and current administrative rulings and pronouncements of the United States Internal Revenue Service ("IRS") that are currently applicable, all of which are subject to change, possibly with retroactive effect. There can be no assurance that future changes in applicable law or administrative and judicial interpretations thereof will not adversely affect the tax consequences discussed herein. Potential investors are advised to consult their own tax advisors regarding the tax consequences of acquiring, holding or disposing of the Common Shares in light of their particular circumstances.
Basis. A United States Investor will have a basis in the Common Shares equal to his or her purchase price for United States federal tax purposes.
Dividends. Cash dividends paid out of the Company’s current and accumulated earnings and profits to a holder of Common Shares who is a United States Investor will be taxed as ordinary income for United States federal income tax purposes. Cash distributions in excess of the current and accumulated earnings and profits of the Company will first be treated, for United States federal income tax purposes, as a nontaxable return on capital to the extent of the United States Investor’s basis in the Common Shares and then as gain from the sale or exchange of a capital asset.
Such dividends generally will also be subject to foreign withholding tax. The deduction for dividends received which is usually available to corporate shareholders is generally not available for dividends paid from a foreign corporation such as the Company. Pursuant to Sections 164 and 901 of the Code, a United States Investor may generally elect, for U.S. federal income tax purposes, to claim either a deduction from gross income for foreign withholding taxes or a credit against its United States federal income taxes with respect to such foreign taxes. The choice of taking a deduction or claiming a credit is up to the taxpayer.
In general, a United States Investor, other than a shareholder owning 10% or more of the voting power of the Company, will be entitled to claim a foreign tax credit only for taxes, if any, imposed on dividends paid to such United States Investor (such as withholding taxes) and not for taxes, if any, imposed on the Company or on any entity in which the Company has made an investment. The amount of the foreign tax credit that may be claimed is limited to that proportion of the tax against which the credit is taken that the holder’s taxable income from non-United States sources bears to the holder’s entire taxable income for that taxable year. The foreign tax credit limitation is applied separately to different categories of income. Generally, for purposes of applying such foreign tax credit limitations, dividends are included in the passive income category.
Dispositions of Common Shares. Subject to the discussion below of the consequences of the Company being treated as a Passive Foreign Investment Company or a Foreign Investment Company, gain or loss realized by a United States Investor (other than a 10-percent shareholder of the Company) on the sale or other disposition of Common Shares will be subject to United States federal income tax as capital gain or loss in an amount equal to the difference between such United States Investor’s basis in the Common Shares and the amount realized on the disposition. In general, such capital gain or loss will be long-term capital gain or loss if the United States Investor has held the Common Shares for more than one year at the time of the sale or exchange. In general, gain from a sale, exchange or other disposition of the Common Shares by a United States Investor will be treated as U.S. source income.
Special United States Federal Income Tax Considerations
Passive Foreign Investment Company. The Company has not been a passive foreign investment company ("PFIC") for United States federal income tax purposes for prior taxable years and management believes that it will not be treated as a PFIC for the current and future taxable years, but this conclusion is a factual determination made annually and thus subject to change. The Company will be a PFIC with respect to a United States Investor if, for any taxable year in which such United States Investor held the Company's shares, either (i) at least 75% of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company's assets are attributable to assets that produce or are held for the production of passive income. In each case, the Company must take into account a pro rata share of the income and the assets of any company in which the Company owns, directly or indirectly, 25% or more of the stock by value (the "look-through" rules). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income. Because the Company is not publicly traded as defined under the statute and regulations governing PFICs, and is not a controlled foreign corporation ("CFC"), the Company would apply the 50% asset test based on fair market values unless the Company elects to use the adjusted tax bases of its assets.
If the Company were to be treated as a PFIC, then, unless a United States Investor who owns shares in the Company elects (a section 1295 election) to have the Company treated as a "qualified electing fund" (a "QEF") (described below), the following rules apply:
1. Distributions made by the Company during a taxable year to a United States Investor who owns shares in the Company that are an "excess distribution" (defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the average received in the shorter of either the three previous years or such United States Investor's holding period before the taxable year) must be allocated ratably to each day of such shareholder's holding period. The amount allocated to the current taxable year and to years when the corporation was not a PFIC must be included as ordinary income in the shareholder's gross income for the year of distribution. The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion. The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included in income in the earlier year, plus interest. The interest charge is at the rate applicable to deficiencies in income taxes.
2. The entire amount of any gain realized upon the sale or other disposition of the shares will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above.
A shareholder that makes a section 1295 election will be currently taxable on his or her pro rata share of the Company' s ordinary earnings and net capital gain (at ordinary income and capital gains rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder's basis in his or her shares will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.
A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholder's election year). A section 1295 election is effective for the shareholder's election year and all subsequent taxable years of the shareholder. Procedures exist for both retroactive elections and protective statements. Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF.
Controlled Foreign Corporations. Sections 951 through 964 and Section 1248 of the Code relate to controlled foreign corporations ("CFCs"). A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder's holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC. The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders.
The 10% United States shareholders of a CFC are subject to current U.S. tax on their pro rata shares of certain income of the CFC and their pro rata shares of the CFC's earnings invested in certain U.S. property. The effect is that the CFC provisions may impute some portion of such a corporation's undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock which would otherwise qualify for capital gains treatment.
The Company does not believe that it will be a CFC. Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders.
Personal Holding Company/Foreign Personal Holding Company/Foreign Investment Company. A corporation will be classified as a personal holding company (a "PHC") if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation's stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income).
A corporation will be classified as a foreign personal holding company (an "FPHC") and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation's stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC's undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted).
A corporation will be classified as a foreign investment company (an "FIC") if for any taxable year it (i) is registered under the Investment Company Act of 1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein) and (ii) 50% or more of the value or the total combined voting power of all the corporation's stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons. In general, unless an FIC elects to distribute 90% or more of its taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder's ratable share of the corporation's earnings and profits for the period during which such stock was held.
The Company's management believes that it is not and will not be a PHC, FPHC or FIC. However, no assurance can be given as to the Company's future status.
U.S. Information Reporting and Backup Withholding. Dividends are generally subject to the information reporting requirements of the Code. Dividends may be subject to backup withholding at the rate of 31% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.
The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the United States Investor's federal income tax liability.
Filing of Information Returns. Under a number of circumstances, a United States Investor acquiring shares of the Company may be required to file an information return. In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply, and United States Investors should consult their own tax advisors concerning these requirements.
Not Applicable.
G. | Dividends and Paying Agents. |
Not Applicable.
The Company files Annual Reports and other information with the Securities and Exchange Commission. These accounts are filed electronically at the SEC Edgar website. You may read and copy any document that we file at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or by accessing the SEC's website (http://www.sec.gov). Please call the Securities and Exchange Commission at 1-800-SEC-0330 for more information about the Public Reference Rooms.
.
The Company's Common Shares is listed on the OTC Bulletin Board and similar information can be inspected and copied at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. Copies of the Company's material contracts are kept in the Company's administrative headquarters.
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
The Company has no significant market sensitive instruments other than foreign currency transactions discussed in Item 5.A.
Item 12. Description of Securities Other than Equity Securities
Not Applicable
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Part II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. DISCLOSURE CONTROLS AND PROCEDURES
As of the end of our fiscal year ended February 28, 2005, an evaluation of the effectiveness of our "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) was carried out by our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
It should be noted that while our management believes that our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our disclosure controls and procedures or internal financial controls will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Changes in Internal Control Over Financial Reporting:
During the fiscal year ended February 28, 2005, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16 [Reserved]
ITEM 16A. AUDIT COMMITTEE FINANCIAL REPORT
There is currently two members on the Audit Committee. Mr. John M. Smith and Mr. Alan Perkins constitute the members of the Audit Committee. Both Messrs Smith and Perkins are independent directors. Due to the size of the Audit Committee, the Board has not determined that a member of the Audit Committee is qualified as an Audit Committee Financial Expert.
ITEM 16B. CODE OF ETHICS
We have not adopted a "code of ethics" (as that term is defined in Form 20-F) (the "Code of Ethics") as of this date, however, the Company intends to form a committee to advise on the content and adoption of the Code of Ethics as soon as practicable.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The independent auditor for the last two fiscal years was MRI Moores Rowland LLP. |
Audit Fees
The aggregate fees billed by MRI Moores Rowland LLP for professional services rendered for the audit of the Company's annual financial statements on Form 20-F for the fiscal year ended February 29, 2004 was $69,050 and February 28, 2005 was $57,500.
Audit-Related Fees
The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Company's financial statements for the year ended February 29, 2004 was Nil and February 28, 2005 was Nil.
Tax Fees
The aggregate fees billed for tax compliance, tax advice and tax planning rendered by our independent auditors for the fiscal year ended February 29, 2004 was Nil and February 28, 2005 was Nil.
All Other Fees
The aggregate fees billed for all other professional services rendered by the Company’s independent auditors for the fiscal year ended February 29, 2004 was Nil and February 28, 2005 was Nil.
The Audit Committee does not have any pre-approval policies or procedures. The percentage of hours expended on the principal accountant's engagement to audit the Company's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Part III
Item 17. Financial Statements
The following Financial Statements pertaining to the Company are filed as part of this annual report:
Auditors’ Report
Consolidated Balance Sheet for years ended February 28, 2005 and February 29, 2004
Consolidated Statement of Operations for the years ended February 28, 2005, February 29, 2004 and February 28, 2003
Consolidated Statement of Shareholders Deficiency for the years ended February 28, 2005, February 29, 2004 and February 28, 2003
Consolidated Statement of cash flows for the years ended February 28, 2005, February 29, 2004 and February 28, 2003
Notes to Consolidated Financial Statements
Item 18. Financial Statements |
Item 19. Exhibits
1.1 | Articles of Kemgas Ltd. (1) |
1.2 | Altered Memorandum of Kemgas. (1) |
1.3 | Altered Memorandum of Kemgas, dated July 29, 1994 (4) |
1.4 | Certificate of Continuance to Bermuda, dated February 13, 1995 (4) |
1.5 | Bye-Laws of Kemgas, as adopted June 1995 (4) |
1.6 | Certificate of Incorporation on Change of Name dated September 11, 2000 (6) |
3.1 | Escrow Agreement - Property between Kemgas, Guaranty Trust Company of Canada and Kemgas Alberta Ltd. dated December 16, 1987 (1) |
3.2 | License Agreement between Kemgas, Kemgas Holdings Inc., and Kemgas Alberta Ltd. dated November 3, 1988 (1) |
3.3 | Technology Licensing Agreement between Kemgas and Kemgas Overseas N.V. dated June 12, 1989 (1) |
3.4 | Share Purchase Option Agreement between Kemgas and Kemgas Overseas N.V. dated June 12, 1989 (1) |
3.5 | Stock Purchase Agreement between Kemgas, Epsom Investment Services, N.V. and Kemgas Overseas N.V (1) |
3.6 | Distribution Agreement between Kemgas and Kemgas Overseas N.V. dated June 12, 1989 (1) |
3.7 | License Agreement between Kemgas and the University of Utah Research Foundation dated January 17, 1990 (1) |
3.8 | Agreement between Kemgas (formerly Rexplore Resources International Limited), Kemgas Alberta Ltd., Grand Cru Investments Ltd., Geosearch Resource Management Ltd., William Fraresso, Holmes Greenslade and Kurt Swinton dated June 15, 1987 (1) |
3.9 | Option Agreement between Kemgas and Adrien Goetz dated February 28, 1992 (1) |
3.10 | Option Agreement between Kemgas and Michael Laidlaw dated June 19, 1991 (1) |
3.11 | Option Agreement between Kemgas and Richard Hethey dated January 12, 1990 and amended September 6, 1990. (1) |
3.12 | Settlement Agreement among Kemgas Sydney, John Galanis, Industries Research Corporation, Kemgas Holdings and Kemgas Alberta Ltd. dated November 5, 1993 (2) |
3.13 | Preliminary Joint Venture and Distribution Agreement among Kemgas Sydney, Taiyuan Calcium Carbide Factory and Can-Chi Ventures Ltd. dated May 23, 1993 (2) |
3.14 | Memorandum of Agreement (Loan Agreement) dated June 15, 1993 between Kemgas Sydney Inc. and Kemgas Overseas N.V. (2) |
3.15 | Option Agreement between Kemgas and Leonard Houzer dated August 10, 1993. (2) |
3.16 | Option Agreement between Kemgas and John Michael Smith dated August 10, 1993. (2) |
3.17 | Option Agreement between Kemgas and Isaac Moss dated April 22, 1994. (3) |
3.18 | Amending Agreement between Kemgas, Kemgas Corporation, Inc., Epsom Investments Services N.V. and Kemgas Overseas, N.V. dated August 2, 1993. (4) |
3.19 | Memorandum of Understanding between Kemgas Licensing and Buse Anlagenbau GmbH dated March 28, 1994. (4) |
3.20 | Acquisition Agreement for Anlagen- und Geraetbau GmbH, dated April, 1995. (4) |
3.21 | Stock Purchase Agreement between Kemgas, Kemgas Corporation, Inc., and Epsom Investment Services N.V. dated June 17, 1995 (4) |
3.22 | Technology Licensing Agreement between Kemgas Licensing Ltd. and Zaklady Chemiczne “Oswiecim” S.A. dated September 18, 1995 (4) |
3.23 | Assignment Agreement and License between Kemgas and James W. Bunger and Associates dated March 17, 1996 (4) |
3.24 | Professional Services Agreement between Kemgas and James W. Bunger and Associates dated March 17, 1996 (4) |
3.25 | Option Agreement between Kemgas and Kenneth George Jackson dated September 17, 1996 (4) |
3.26 | Credit Facility Agreement between Epsom Investment Services N.V. and Kemgas Ltd. dated February 27, 1998 (5) |
3.27 | Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and Kemgas Limited dated April 9,1999 (6) |
3.28 | Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 28, 2001 |
3.29 | Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 28, 2003 |
3.30 | Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 29, 2004 |
3.31 | Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 28, 2005 |
3.32 | Form of 5% Convertible Debenture due February 28, 2005 |
3.33 | Form of Addendum to 5% Convertible Debenture Due February 28, 2005 |
3.34 | Consulting Agreement between CalciTech Ltd. and H.J. Mark Tompkins dated February 25, 2005 |
12.1 | Certification of the Principal Executive Officer under the Sarbanes-Oxley Act |
12.2 | Certification of the Principal Financial Officer under the Sarbanes-Oxley Act |
13.1 | Certification under Section 906 |
____________________________________________
(1) | Previously filed with Registration Statement on Form 20-F under the Securities Exchange Act of 1934 on June 29, 1992. |
(2) | Previously filed with the Form 20-F submitted for the fiscal year ended February 28, 1993. | |
(3) | Previously filed with the Form 20-F submitted for the fiscal year ended February 28, 1994. | |
(4) | Previously filed with the Form 20-F submitted for the fiscal year ended February 28, 1997. | |
(5) | Previously filed with the Form 20 F submitted for the fiscal year ended February 28, 1998. | |
(6) | Previously filed with the Form 20 F submitted for the fiscal year ended February 29, 2000. | |
| | | |
44
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
DATED: September 2, 2005 | CALCITECH LTD. |
By: /s/ Roger A. Leopard |
| Roger A. Leopard | |
| President and Chief Executive Officer | |
| | | |
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
CalciTech Ltd
To the shareholders and board of directors of CalciTech Ltd
We have audited the accompanying consolidated balance sheet of CalciTech Ltd (a Company in the development stage) as of February 28, 2005 and February 29, 2004 and the related consolidated statement of operations, shareholders' deficiency, and cash flows for the years ended February 28, 2005 and February 29, 2004. 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 audit in accordance with International Standards on Auditing and with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
International Financial Reporting Standards vary in certain respects from accounting principles generally accepted in the United States. The application of United States generally accepted accounting principles would have affected the determination of net loss and shareholders' deficiency for the financial years ended February 28, 2005, February 29, 2004 and February 28, 2003 to the extent summarized in Note 15 to the consolidated financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CalciTech Ltd (a development stage Company) as of February 28, 2005 and the consolidated results of its operations and its cash flows for the year ended February 28, 2005 in accordance with International Financial Reporting Standards and with a reconciliation note to U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2.1 to the financial statements, the Company has incurred losses and negative cash flows from operations for the years ended February 28, 2005, February 29, 2004 and February 28, 2003. These matters raise substantial doubt about its ability to continue as a going concern. Management plans in regard to these matters are also described in Note 2.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MRI Moores Rowland LLP September 1, 2005
Chartered Accountants
3 Sheldon Square
London
W2 6PS
United Kingdom
Comments by Auditor for United States Readers on International Standards and United States Standards on Audit Reporting
The consolidated balance sheets of CalciTech Ltd (a Company in the development stage) as at February 28, 2003 and the related consolidated statement of operations, shareholders deficiency and cash flows for the years ended February 28, 2003 were audited by other auditors who provided their unqualified opinion dated October 10, 2003.
Report of Independent Auditors
CalciTech Ltd
To the shareholders and board of directors of CalciTech Ltd
We have audited the accompanying consolidated balance sheets of CalciTech Ltd (a Company in the development stage) as of February 28, 2003 and February 28, 2002, and the related consolidated statements of operations, shareholders' deficiency, and cash flows for the three years in the period ended February 28, 2003. 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 International Standards on Auditing, and with auditing standards generally accepted in the United States of America and Canada. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CalciTech Ltd (a development stage company) as of February 28, 2003 and February 28, 2002, and the consolidated results of its operations and its cash flows for the three years in the period ended February 28, 2003 in accordance with International Financial Reporting Standards.
As described in Note 2 to the financial statements, the Company had restated its financial statements for each of the years in the two year period ended February 28, 2002 to adjust the accounting for certain deferred development costs and convertible debt.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3.1 to the financial statements, the Company has incurred losses and negative cash flows from operations for the years ended February 28, 2003, February 28, 2002 and February 28, 2001. These matters raise substantial doubt about its ability to continue as a going concern. Management plans in regard to these matters are also described in Note 3.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States. The application of United States generally accepted accounting principles, as restated, would have affected the determination of net loss and shareholders’ deficiency for the financial years ended February 28, 2003, February 28, 2002 and February 28, 2001 to the extent summarized in Note 15 to the consolidated financial statements.
PricewaterhouseCoopers
/s/ PricewaterhouseCoopers
Paris, France
October 10, 2003
Comments by Auditor for Canadian Readers on Canadian-International Standards on Auditing Reporting Differences
Canadian reporting standards for auditors do not permit a reference to conditions and events that cast a substantial doubt on a company's ability to continue as a going concern, such as those described in the above paragraph, when these are adequately disclosed in the financial statements. Under Canadian reporting standards for auditors, the going concern paragraph would be excluded from this report.
CALCITECH LTD
(a Company in the development stage)
CONSOLIDATED BALANCE SHEET
For the Years ended February 28, 2005 and February 29, 2004
(amounts in thousands of US dollars)
| | | | | | | | |
| Notes | | | | 2005 | | | 2004 |
ASSETS | | | | | | | | |
| | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | 2.6 | | | $ | 407 | | $ | 61 |
Stock | | | | | 11 | | | - |
Receivables, prepaid expenses and other current assets | 3 | | | | 268 | | | 255 |
| | | | | | | | |
Total current assets | | | | | 686 | | | 316 |
| | | | | | | | |
Non-current assets | | | | | | | | |
Property, plant and equipment, net | 4 | | | | 671 | | | 629 |
Intangible fixed assets | 2.8 and 5 | | | | 124 | | | 91 |
| | | | | | | | |
Total non-current assets | | | | | 795 | | | 720 |
| | | | | | | | |
TOTAL ASSETS | | | | $ | 1,481 | | $ | 1,036 |
| | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
CALCITECH LTD
(a Company in the development stage)
CONSOLIDATED BALANCE SHEET
For the Years ended February 28, 2005 and February 29, 2004
(amounts in thousands of US dollars, except per share data)
| Notes | 2005 | 2004 | |
LIABILITIES AND SHAREHOLDERS' DEFICIENCY | |
| |
Current liabilities | |
Accounts payable | $ | 322 | $ | 995 | |
Accruals | 245 | 679 | |
Deferred gain on sale and leaseback - current portion | 99 | 99 | |
Other loans - current portion of liability element | 7 | 159 | 250 | |
Convertible debentures - current portion of liability element | 2.14 and 8.1 | 195 | 141 | |
Provisions - current portion | 25 | - | |
| | | |
Total current liabilities | 1,045 | 2,164 | |
| |
Deferred gain on sale and leaseback - non current portion | 281 | 380 | |
Credit facility | 6 | 238 | 365 | |
Provisions - non-current portion | 11 | 177 | - | |
Other loans - non current portion | 7 | 577 | 698 | |
Convertible debentures - non-current portion of liability element | 2.14 | 304 | - | |
| |
Total non current liabilities | 1,577 | 1,443 | |
| |
Total liabilities | 2,622 | 3,607 | |
| |
Shareholders' deficiency | 8 | | |
Common stock, Cdn $ 0.001 par value; 120,000,000 shares authorised; issued and outstanding: 79,899,675 in 2005 (63,899,675 in 2004) | | 1,805 | 1,792 | |
| |
Share premium, holders' options outstanding on credit facility and contribution surplus | | 34,563 | 31,441 | |
Convertible debentures | | 3,920 | 3,920 | |
Accumulated deficit during the development stage | | (41,213) | (39,545) | |
Cumulative foreign currency translation adjustments | | (216) | (179) | |
| | |
| | | |
Total shareholders' deficiency | | (1,141) | (2,571) |
| | | |
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY | | $ 1,481 | $ 1,036 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
CALCITECH LTD
(a Company in the development stage)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years ended February 28, 2005, February 29, 2004 and February 28 2003
(amounts in thousands of US dollars, except per share data)
|
| Notes | 2005 | 2004 | 2003 |
| | | | | | | | | |
| | | | | | | | | |
Revenues | | $ | 75 | | $ | 51 | | $ | - |
Cost of revenues | | | (60) | | | - | | | - |
| | | | | | | | | |
Gross margin | | | 15 | | | 51 | | | - |
| | | | | | | | | |
Research and development expenses | | $ | - | | $ | 353 | | $ | 719 |
Project development expenses | | | 238 | | | - | | | - |
Product development expenses | | | 176 | | | - | | | - |
General and administrative expenses | | | 920 | | | 1,723 | | | 1,004 |
| | | | | | | | | |
| | | | | | | | | |
Operating loss | | | (1,319) | | | (2,025) | | | (1,723) |
| | | | | | | | | |
Profit on disposals | 9 | | 22 | | | 316 | | | - |
Interest expense | | | (371) | | | (521) | | | (465) |
Loss before income taxes and minority interest | | | (1,668) | | | (2,230) | | | (2,188) |
| | | | | | | | | |
Provision for income taxes | 11 | | | | | (14) | | | - |
Loss from ordinary activities | | | (1,668) | | | (2,244) | | | (2,188) |
| | | | | | | | | |
Minority interest | | | - | | | - | | | - |
| | | | | | | | | |
Net deficit accumulated during the development stage | | $ | (1,668) | $ | (2,244) | $ | (2,188) |
| | | | | | | | | |
Net deficit per share: | | | | | | | | | |
Basic | | $ | (0.03) | | $ | (0.04) | | $ | (0.04) |
Diluted | | $ | (0.03) | | $ | (0.04) | | $ | (0.04) |
| | | | | | | | | |
Shares used in net deficit per share calculation: | | | | | | | | | |
Basic | | | 64,713,374 | | | 54,723,374 | | | 49,632,816 |
Diluted | | | 64,713,374 | | | 54,723,374 | | | 49,632,816 |
Please refer to note 12 for details of related party transactions.
The accompanying notes are an integral part of the consolidated financial statements
CALCITECH LTD
(a Company in the development stage)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
For the Years ended February 28, 2005, February 29, 2004 and February 28, 2003
(amounts in thousands of US dollars except number of shares)
| | |
| Note | Common Stock | Share Premium, holders' option outstanding and contributed surplus | Convertible debentures | Accumulated deficit | Cumulative currency translation adjustments | Total consolidated shareholders' deficiency |
| | | | | | | | |
| Shares | Amounts |
| | | | | | | |
Balances, February 28, 2001 as restated | 43,724,179 | 1,778 | 26,400 | 1,245 | (32,595) | 26 | (3,146) |
|
Net loss | - | - | - | - | (2,518) | - | (2,518) |
Drawing on credit facility | 6 | - | - | 2 | - | - | - | 2 |
Conversion of credit facility into convertible debentures net of finders fee | 8.1 | - | - | - | 2,058 | - | - | 2,058 |
Foreign currency translation adjustments | - | - | - | - | - | 4 | 4 |
|
Balances, February 28, 2002 as restated | | 43,724,179 | 1,778 | 26,402 | 3,303 | (35,113) | 30 | (3,600) |
|
Net loss | - | - | - | - | (2,188) | - | (2,188) |
Issuance of common stock upon conversion of credit facility | 8.2 | 3,955,695 | 3 | 1,047 | | | | 1,050 |
Issuance of convertible debentures | 8.1 | - | - | - | | 261 |
Conversion of options | 8.4 | 620,000 | - | 119 | - | - | - | 119 |
Exercise of warrants | 8.1 | 656,200 | - | 184 | - | - | - | 184 |
Issuance of common stock upon private
placement | 8.3 | 4,933,091 | 3 | 1,697 | - | - | - | 1,700 |
Foreign currency translation adjustments | - | - | - | - | - | (100) | (100) |
|
Balances, February 28, 2003 | | 53,889,165 | 1,784 | 29,449 | 3,564 | (37,301) | (70) | (2,574) |
|
Net loss | - | - | (2,244) | - | (2,244) |
Issuance of common stock upon conversion | |
of credit facility | 8.2 | 10,010,510 | 8 | 1,992 | - | - | - | 2,000 |
Issuance of convertible debentures | 8.1 | - | - | - | 356 | - | - | 356 |
Foreign currency translation adjustments | - | - | - | - | - | (109) | (109) |
|
Balances, February 29, 2004 | 63,899,675 | 1,792 | 31,441 | 3,920 | (39,545) | (179) | (2,571) |
|
Net loss | | | | | (1,668) | | (1,668) |
Issuance of common stock on conversion |
of credit facility | 8.2 | 7,000,000 | 6 | 1,394 | | | 1,400 |
Issuance of common stock in private |
placement | 9,000,000 | 7 | 2,086 | | | 2,093 |
Foreign currency translation adjustments | | (358) | (37) | (395) |
|
Balances, February 28, 2005 | 79,899,675 | 1,805 | 34,563 | 3,920 | (41,213) | (216) | (1,141) |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
CALCITECH LTD
(a Company in the development stage)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years ended February 28, 2005, February 29, 2004 and February 28, 2003
(amounts in thousands of US dollars)
| 2005 | 2004 | 2003 |
|
|
|
Cash flows from operating activities |
Net deficit | $ | (1,668) | $ | (2,244) | $ | (2,188) |
Adjustments for: |
Profit on disposal of investment | (22) | (316) | - |
Depreciation and amortization | 128 | 94 | 88 |
Interest expense | 371 | 521 | 465 |
Operating loss before working capital changes | (1,191) | (1,945) | (1,635) |
|
Changes in working capital : |
Increase in receivables, prepaid expenses and other current assets | (24) | (55) | (113) |
(Decrease)/increase in accounts payable and accrued expenses, and provisions used | (123) | 285 | (301) |
|
Net cash used in operating activities | (1,338) | (1,715) | (2,049) |
|
Cash flows from investing activities |
Acquisition of property, plant and equipment and patents | (258) | (281) | (8) |
|
Net cash used in investing activities | (258) | (281) | (8) |
|
Cash flows from financing activities |
Proceeds from other loans | (99) | 199 | - |
Proceeds from sale and lease back | (113) | 749 | - |
Proceeds from issuance of convertible debentures | - | - | - |
Proceeds from credit facility | 2,317 | 1,986 | 2,358 |
Payment of credit facility | (127) | (837) | (255) |
Interest paid on convertible debentures | - | - | - |
|
Net cash provided by financing activities | 1,978 | 2,097 | 2,103 |
|
Effect of exchange rate changes on cash | (36) | (119) | 22 |
|
Net increase / (decrease) in cash and cash equivalents | 346 | (18) | 68 |
Cash and cash equivalents, beginning of year | 61 | 79 | 11 |
|
Cash and cash equivalents, end of year | $ | 407 | $ | 61 | $ | 79 |
| | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
1.BUSINESS OF THE COMPANY
CalciTech Ltd (the "Company") is incorporated in the jurisdiction of Bermuda. Starting from the production of acetylene from which revenues were generated until 1997, the Company changed its business model to concentrate on the production of precipitated calcium carbonate (PCC). The production of acetylene gas from calcium carbide generates significant quantities of carbide lime. CalciTech decided to develop a process for producing a low cost PCC from waste lime. PCC is a white pigment which can only be produced from pure, white limestone deposits and is currently used in a wide range of applications, including paper filling and high value pharmaceutical and food additives. The Company’s Synthetic Calcium Carbonate (“SCC”) process can utilize most grades of lime, including low quality lime or industrial waste lime such as carbide lime. In the Company’s process, the waste lime is mixed with a solution of water and a proprietary promoter in a digester, which selectively dissolves the calcium and leaves the impurities behind as insoluble solids, which are readily removed by subsequent flocculation. The clear calcium solution is then pumped into a reactor into which carbon dioxide from any industrial emission source is passed to produce synthetic calcium carbonate by precipitation. After the SCC product is filtered off, the promoter solution is recycled back into the digester. The SCC can be supplied directly as slurry or dried and bagged for market.
Revenue from the principal activity commenced for trial purposes in the year ended February 29, 2004.
2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Going concern
The financial statements have been prepared assuming the Company will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, in particular for the twelve months from the date of approval of the financial statements.
The Company is in the development stage and has therefore incurred cumulative losses of $41,213 through to February 28, 2005 and current liabilities exceed current assets by $359.
Management believes that given the cash on hand of $407 together with the credit facility of $2,500, of which $2,262 is un-utilised at the balance sheet date, and the continuing downward trend of expenses, the Company has sufficient working capital to meet its obligations up to the next 12 months following the date of the approval of these financial statements. Management have received assurances from the provider of this credit facility that it will continue to keep this credit facility available for this period although such assurances are not legally binding. However, if the Company were to commence the development for commercial production, this credit facility would be insufficient and further funding would be required.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
The credit facility agreement with Epsom Investment Services N.V. to provide up to $5,000 (see Note 6) was re-negotiated during February 2003 whereby the maximum amount of draw down was reduced to $2,500 with a reduction in interest charged to 7.5% per annum. During February 2005 this facility was extended to August 30, 2006. Also at this time Epsom agreed to convert part of this facility into equity for $1,400. As at February 28, 2005, $238 of this facility had been drawn down.
During February 2004, the Company’s 6% convertible debentures with a value of $4,402 and €188 were re-negotiated by their retirement against the issue of new 5% debentures with a value of $4,642 to February 28, 2005. All other terms of the convertible debentures remain unchanged from the original debenture notes.
Management is currently pursuing financing to further fund the development of its products and markets and to carry out its business plan and is hopeful of concluding with financing in the near future.
Assets and liabilities are recorded on the basis that the Company will be able to realise its assets and discharge its liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments to the carrying values of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
2.2 Basis of presentation
The consolidated financial statements are prepared under the historical cost convention and they are also presented in accordance with International Financial Reporting Standards (“IFRS”). A reconciliation of net income and shareholders’ equity between IFRS and the accounting principles generally accepted in the United States (US GAAP) is included in Note 15. Certain disclosure differences between IAS and US GAAP are included in Note 15.
2.3 Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated.
2.4 Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
2.5 Foreign currency translation
The reporting currency of the Company is the US dollar (USD), which is also the measurement currency of the parent company. The parent company elected the US dollar as its measurement currency rather than the Bermudan dollar (BMD), which is the currency of its country of domicile, to reflect the fact that the majority of its transactions are denominated in US dollars.
The measurement currency of the Company's operating foreign subsidiaries is their local currency, generally the Euro. Assets and liabilities of the Company's foreign subsidiaries are translated into US dollars using the exchange rate in effect at the balance sheet date. Additionally, their expenses are translated using exchange rates approximating average rates prevailing during the year. Translation adjustments that arise from translating their financial statements from their local currencies to US dollars are accumulated and reflected as a separate component of shareholders' equity.
Gains and losses that arise from the effect of exchange rate changes on balances denominated in currencies other than the measurement currency of each of the Company and its subsidiaries are included in the statements of operations as incurred.
During the year ended February 28, 2005, included in operating loss were foreign exchange gain of $89 (2004 – exchange loss $76, 2003 – exchange loss $190).
2.6 Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
2.7 Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives set out below:
Leasehold improvements | lesser of lease term or 10 years |
Plant and equipment | 10 years | |
Office furniture and equipment | 3 to 8 years | |
| | | |
An impairment review is undertaken where there are indicators of impairment.
Maintenance and repairs are charged to expenses when incurred.
2.8 Patents
Expenditure on acquired patents is capitalised and amortised over their useful lives on a straight line basis. Legal expenditure for the protection of technology developed by the Company is recognised as an expense in the statement of operations, as incurred, except when additional future economic benefits can be attributed to such protection at closing date. The patents are not amortised because the Company is not yet utilizing them on a commercial level. Amortisation will begin upon the commencement of commercial production.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
2.9 Research and development
Research and development costs are expensed as incurred, except for development costs which are deferred as intangible assets when the Company can demonstrate all of the following:
• | the technical feasibility of completing the intangible asset so that it will be available for use or sale; |
• | its intention and ability to use or sell the intangible asset; |
• | the existence of a market for the output of the intangible asset or the intangible asset itself; |
• | the availability of adequate technical resources to complete the development; |
• | the availability of adequate financial and other resources to complete the development and to use or sell the intangible asset, subject to the ability of the Company to continue as a going concern, as described in Note 2.1 and; |
• | its ability to measure the expenditure attributable to the intangible asset during its development reliably. |
Deferred development costs are originally recorded at cost, which includes:
• | expenditure on materials and services used or consumed in generating the intangible asset; |
• | the salaries, wages and other employment related costs of personnel directly engaged in generating the asset, and |
• | any expenditure that is directly attributable to generating the asset, such as the amortisation of patents used to generate the asset. |
Any costs capitalised are amortised on a straight-line basis over the period of expected future benefit.
2.10 Netloss per common share
Basic net loss per share is computed by dividing net loss by the weighted average number of shares outstanding.
For the purpose of calculating diluted earnings per share, the net loss attributable to ordinary shareholders and the weighted average number of shares outstanding is adjusted for the effects of all dilutive potential ordinary shares. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted earnings per share. Potential ordinary shares are anti-dilutive when their conversion to ordinary shares would decrease loss per share from continuing operations.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
2.11 Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturities, based on borrowing rates currently available to the Company. This would include convertible debentures where the fair value of the conversion option is recognised under shareholders’ equity.
2.12 Deferred taxation
Deferred tax assets and liabilities 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. Valuation allowances are recorded for deferred tax assets that are not more likely that not to be realised.
Deferred tax assets are recognised only to the extent that future taxable profit will be available such that realisation of the related tax benefit is more likely than not.
2.13 Stock options
The Company does not recognise any compensation expense with respect to stock options.
2.14 Convertible debt accounting
On issue of convertible debentures and credit facility, the fair value of the conversion element is determined. This amount is recognised in shareholders' equity. The obligation to make future payments of principal and interest to the holder of the option is calculated using a deemed market interest rate for an equivalent non-convertible debt. The obligation to make future payments of interest is carried as a liability until extinguished on conversion or payment. When the Company has the option to convert the principal and, if applicable, the interest on these notes, the obligation to make future payments of principal to the holder is carried as equity.
The fair value of the liability component, representing the obligation to make future payments of interest to the holder of the conversion option is calculated on the issue of the instrument using a deemed market interest rate for an equivalent non-convertible instrument. The residual amount, representing the value of the equity conversion component, is included in shareholders' deficiency.
2.15 Modification of debt instruments
The Company may effect a modification or an exchange of debt instruments with a creditor. The modification or exchange may include changes in the principal amount, interest rate, term to maturity, borrowing currency or creditor. Whether a modification or exchange of debt instruments represents a settlement of the original debt or merely a renegotiation of that debt determines the accounting treatment that is applied by the Company.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
A modification or exchange of debt instruments represents a settlement when the terms of the new or modified debt are substantially changed from the terms of the original debt instrument. Substantial change occurs when:
a. | The present value of the cash flows under the terms of the modified or new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original debt instrument; |
b. | There is a change in the borrowing currency; or |
c. | There is a change in the creditor and the original debt is legally discharged by the debtor through a cash payment or otherwise. |
If a modification or an exchange of debt instruments represents a settlement, the Company calculates a loss or gain that is charged, or credited, to income when settlement occurs. This loss or gain is the difference between the fair value of the new debt instrument and the carrying amount of the original debt instrument, together with all unamortized debits or credits related to the original debt instrument.
If a modification or exchange of debt instruments does not represent a settlement but, instead, is merely a renegotiation of a debt instrument, all existing deferred debits and credits related to the original debt instrument are maintained and are amortised over the remaining term of the renegotiated debt.
2.16 Government grants
Government grants are recognised when there is reasonable assurance that the Company will comply with the conditions attaching to them, and the grants will be received or earned. A government grant that becomes receivable as compensation for research and development expenses already incurred with no future related costs is recognised as a reduction in research and development expenses in the period in which it becomes receivable.
Grants for the acquisition of assets and development activities that are capitalised are set off against the cost price of the assets for which grants are awarded. During the year ended February 29, 2004, CalciTech Deutschland GmbH was awarded grants of €80 (2003 – €77).
2.17 Leases
Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value at the date of acquisition or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against the statement of operations.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Assets held under finance leases are depreciated at the shorter of the lease term and their useful economic lives.
2.18 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
Interest is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
2.19 Borrowing costs
All borrowing costs are recognized in the consolidated statement of operations in the period in which they are incurred.
2.20 Inventories
Inventories are stated at the lower of cost and net realisable value.
3.RECEIVABLES, PREPAID EXPENSES AND OTHER CURRENT ASSETS
Receivables, prepaid expenses and other current assets consist of the following:
| | 2005 | | | 2004 |
Investment allowances | $ | - | | $ | - |
Accounts receivable | | 74 | | | 114 |
Other debtors | | 45 | | | |
VAT receivable | | 26 | | | 2 |
Deposits | | 53 | | | 50 |
Prepaid expenses | | 70 | | | 89 |
| | | | | |
Total receivables, prepaid expenses and other current assets | $ | 268 | | $ | 255 |
The Company’s German subsidiary is eligible to unconditional investment allowances, which were recognised in accordance with the policies described in Note 2.16.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
4.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
| | 2005 |
| | Leasehold
improvements | Computer
equipment | Building,
plant and
equipment | Office furniture
and equipment | Total |
| | | | | | |
Net amount at beginning of the year | $ | - | 5 | 614 | 10 | 629 |
Additions | | - | - | 131 | - | 131 |
Disposals | | | | | | - |
Depreciated during the year | | | (5) | (114) | (8) | (127) |
Foreign currency translation adjustment | 37 | 1 | 38 |
| | | | | | |
Balance at the end of the year | | - | 0 | 668 | 3 | 671 |
| | | | | | |
Gross amount | | 17 | 7 | 801 | 58 | 883 |
Accumulated depreciation | | (17) | (7) | (133) | (55) | (212) |
| | | | | | |
Balance at the end of the year | $ | - | 0 | 668 | 3 | 671 |
Depreciation expense totalled $127, $94 and $64 for the years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively.
During the year end February 29, 2004, the Company disposed of its small scale plant and leased it back for an annual rental of €120 ($150) for a period of five years at the end of which the Company retains the right to re-acquire the plant. The amount capitalised in respect of this plant is $737 of which depreciation of $101 was recognised in the year.
5.PATENTS
Patents can be summarised as following:
| | 2005 | | | 2004 |
| | | | | |
Net amount at beginning of the year | $ | 91 | | $ | 43 |
Additions | | 39 | | | 48 |
Amortised during the year | | - | | | - |
Disposals | | (6) | | | - |
Balance at the end of the year | | 124 | | | 91 |
| | | | | |
Gross amount | | 3,325 | | | 3,292 |
Accumulated amortisation | | (3,201) | | | (3,201) |
| | | | | |
Balance at the end of the year | $ | 124 | | $ | 91 |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Amortisation expense amounted to $NIL, $NIL, and $24 for the years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively.
6.CREDIT FACILITY AGREEMENT
On February 28, 1998 the Company entered in a credit facility agreement of up to $2,330 with Epsom Investment Services N.V., which represented 100% of the lenders acting in a non-discretionary role, bearing interest at 8% per annum and due in 2000. In April 1999, the Company re-negotiated an extension of the existing credit facility agreement to provide up to $5,000 for a term to February 28, 2001. Interest rate per annum was reduced to 7.75%.
In February 2001, the Company re-negotiated a further extension of the existing credit facility agreement for a term to March 4, 2002 at an annual interest rate of 7.75%. A further extension has been negotiated extending the facility to March 5, 2003 with the same rate of interest. On February 28, 2003, this credit facility agreement was re-negotiated with Epsom whereby the maximum amount of draw down was reduced to $2,500 with a reduction in interest charged to 7.5% per annum. During February 2005, this facility was extended to August 30, 2006.
The balance due on the credit facility agreement can be converted in part or in whole into shares of common stock at any time at the option of the holder. The conversion price is equal to 80% of the trading price per share of common stock on the date such note was made or additional advances were made. The facility is collateralised by the shares of CalciTech Synthetic Minerals Ltd.
The credit facility is presented as follows:
| | | | |
| | 2005 | | 2004 |
| | | | |
Face value of note issued during the year | | 2,317 | | 1,986 |
Less equity conversion component | | - | | - |
| | | | |
| | 2,317 | | 1,986 |
| | | | |
Interest expense | | 92 | | 180 |
Conversion of note into common shares | | (1,400) | | (2,010) |
Payments made during the year | | (1,136) | | (993) |
| | | | |
| | (127) | | (837) |
| | | | |
Liability component at the beginning of the year | | 365 | | 1,202 |
| | | | |
Liability component at end of the year | | 238 | | 365 |
| | | | |
Effective interest rate at year end | | 7.50% | | 7.75% |
The caption “Payments made during the year” includes the effect of direct offset to the credit facility of various transactions in the total amount of $1,136 as further described in Note 18.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
The carrying amount of the credit facility approximates its fair value.
7.OTHER LOANS
Note | | 2005 | | | 2004 |
| | | | | |
Other loans | $ | 100 | | $ | 199 |
Finance lease loan 7 | | 636 | | | 749 |
| | | | | |
Total loans | $ | 736 | | $ | 948 |
| | | | | |
| | | | | |
Falling due split: | | | | | |
Amounts due within one year | | | | | |
Other loans | $ | - | | $ | 100 |
Finance lease | | 159 | | | 150 |
| | | | | |
Total amounts due within one year | | 159 | | | 250 |
| | | | | |
Amounts due after one year | | | | | |
Other loans | $ | 100 | | $ | 99 |
Finance lease 1 -2 years | | 159 | | | 150 |
Finance lease 2 -5 years | | 318 | | | 449 |
| | | | | |
Balance at the end of the year | $ | 736 | | $ | 948 |
Included in other loans above is $636, which is secured upon the assets to which it relates. See note 4 for further details of the sale and leaseback.
Average interest rate on the other loans is 6.50% pa.
8.SHAREHOLDERS' DEFICIENCY
8.1 Convertible debentures
In February 2001, the Company entered into an agreement for the placement of 8% convertible debentures in the sum of $1,500 for a term to February 2003, of which $890 were denominated in USD and $610 were denominated in Euro. Of this amount, $441 was paid in cash and $1,059 was exchanged for the credit facility. Interest was payable quarterly. Investors may after two years or on any prior dividend payments date up to maturity, have converted into common shares at the greater of 75% of the average closing price for the ten trading days prior to the conversion or the market price per share at the time of closing. This instrument qualifies for equity classification under IFRS as long as there is no indication that the shares of the Company may be delisted. If that future event was to occur within 270 days after the date of conversion, the investors may have put the debentures to the Company at 100% of their original amount plus accrued and unpaid interest. Accordingly, the instrument would have been reclassified to debt from the date that the decision to delist the shares was made. The investors also received 20,000 warrants for every $100 invested, exercisable for a two year period at 125% of the closing average offer price for the previous ten trading days.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
The Company may have redeemed the convertible debentures in whole or in part at any time up to two years. On the maturity date, the Company also had the right to convert any or all of the amounts of principal and any unpaid interest, into common stock. A finders fee of 5% and 1,000 common stock purchase warrants per $100 invested was paid.
In July 2001, the Company entered into a further agreement for the placement of 7.5% convertible debentures in the sum of $2,500 for a term to November 2003. The terms of the note were exactly the same as those on the notes issued in February 2001. The investors also received 20,000 warrants for every $100 invested, exercisable for a two year period at 125% of the closing average offer price for the previous ten trading days.
In April 2002, the Company entered into a further agreement for the placement of 7.5% convertible debentures in the sum of $300 for a term to July 2004. The terms of the note were exactly the same as those on the notes issued in February 2001 and November 2001. The investors also received 20,000 warrants for every $100 invested, exercisable for a two year period at 125% of the closing average offer price for the previous ten trading days.
The effective interest rate assigned to the convertible debentures was 12%.
During February 2003, the Company’s 8% and 7.5% convertible debentures with a principal amount of $3,390 and €663 were re-negotiated by their retirement against the issue of new 6% debentures of $297 to February 15, 2004, €188 to February 15, 2004 and $3,805 to February 15, 2005. The notes totalling $300 issued in April 2002 were not re-negotiated. The reissued convertible debentures did not carry any right to warrants for the investors. All other terms of the convertible debentures remained unchanged. This modification represented a settlement, and the difference between the fair value of the liability element in the new convertible debentures, assuming an effective interest rate of 12%, and the carrying amount of the original ones was accounted for as an expense of $127, which was posted to interest expense in the statement of income.
During February 2004, the Company’s 6% convertible debentures with a value of $4,402 and €188 were re-negotiated by their retirement against the issue of new 5% debentures with a value of $4,642 to February 28, 2005. All terms of the convertible debentures remain unchanged from the original debenture notes.
During July 2004, holders of the convertible debentures were offered the following amendment to their notes:
Section 2 Definitions: | Shall be extended by the following definition. |
“Conversion Date means the day, notified by the Company on at least sixty (60) days notice, on which an application by way of an equivalent to an Initial Public Offering to a reputable senior European or North American Stock Exchange or by 31st December, 2007, whichever maybe the earlier.”
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Section 3 Conversion: Shall be amended as follows
Whereas, under Section 3, subsection 3.1 of the above referenced Debenture, “the holder of this debenture has the right, but not the obligation to, upon thirty (30) days written notice, on the second (2) year anniversary of the Original Issuance Date, to convert the outstanding principal and any unpaid interest into shares of Common Stock.” This shall now be amended whereby “the holder of this debenture has the right, but not the obligation to, on thirty (30) days notice by the Company, (i) on application for a listing by way of an Initial Public Offering on a reputable Senior European or North American Stock Exchange, or (ii) by 31st December, 2007 to convert the outstanding principal and any accrued interest into shares of Common Stock.”
Furthermore, under Section 3, subsection 3.2 Conversion price. Whereas, “Subject to adjustment pursuant to section 3.3 the Conversion Price shall be the greater of (i) seventy-five (75%) of the average closing offer price of a share of the Company’s Common Stock for the ten (10) days immediately prior to conversion and (ii) the price per share as of the Closing Date.” This shall now be amended whereby, “subject to adjustment pursuant to Section 3.3, the Conversion price of a share of the Company’s Common Stock shall be one United States Dollar and seventy five cents (USD1.75) on the conversion date.
In total, 96% of the convertible debenture holders have accepted this proposal.
The Company has the right but not the obligation, to convert any or all of the amounts of principal and any unpaid interest, into shares of common stock. The conversion price shall be the greater of (i) 75% of the average closing offer price of a share of the Company’s common stock for the 10 days immediately prior to conversion and (ii) the price per share as of the closing date.
The equity element can be summarised as follows:
| | 2005 | | 2004 |
| | | | |
Principal amount of debentures at issuance | | 4,642 | | 4,642 |
Less present value of future interest payments at issuance | (545) | | (545) |
Less finders' fee | | (177) | | (177) |
| | | | |
| $ | 3,920 | $ | 3,920 |
8.2 Conversion of credit facility
In February 2001, the Company entered into an agreement to convert part of the balance due on the credit facility agreement (amounting to $500) with Epsom Investment Services N.V. (Note 6) into common stock of the Company on the basis of one share for each US$0.125 of note. This resulted in the issue of 4,000,000 common shares.
In February 2002, Epsom Investment Services N.V. agreed to convert an additional $450 of the balance due on the credit facility agreement into common stock of the Company on the basis of one share for each $0.32 of note. This conversion resulted in the issue of common stock of 1,424,050 common shares effected on July 15, 2002.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
In February 2003, Epsom Investment Services N.V. agreed to convert a further $600 of the balance due on the credit facility agreement into common stock of the Company on the basis of one share for each $0.24 of note. This conversion resulted in the issue of 2,531,645 common shares.
In February 2004, Epsom Investment Services N.V. agreed to convert a further $2,000 of the balance due on the credit facility agreement into common stock of the Company on the basis of one share for each $0.20 of note. This conversion resulted in the issue of 10,010,510 common shares.
In February 2005, Epsom Investment Services N.V. agreed to convert a further $1,400 of the balance due on the credit facility agreement into common stock of the Company on the basis of one share for each $0.20 of note. This conversion resulted in the issue of 7,000,000 common shares.
8.3 Private placement
During February 2002, the Company announced a private placement of mixed securities to raise US$ 2,000 by way of 7.5% convertible debentures in the sum of $300, with the same terms and conditions as previous issues, and by the issue of common stock in the sum of $1,700 at a discount of 10% to the market average price, with the issue for each share taken down of a twelve month warrant for one additional share at a premium of 20% to the strike price. The placing, which was completed after the end of the financial year and was approved by the TSX Venture Exchange in July 2003, consisted of 4,933,091 common shares, priced at CDN $0.55 with a twelve month warrant to purchase an additional common share for each share taken down at CDN $0.66, and US$300 7.5% convertible debentures.
During November 2004, the Company announced a private placement of common stock and warrants to raise US$ 1,500. The placement consisted of 9 million common shares, priced at $0.25. For each share taken down, the participants receive one common share purchase warrant for twelve months priced at $0.35, and an additional one half common share purchase warrant for twenty four months priced at $0.50. The placement was over-subscribed raising $2,250.
8.4 Stock option plan
Under the provision of the Company’s share option plan, a maximum total of 10% of issued shares may be granted to directors, officers and employees of the Company in the form of stock options. The options generally expire five years from the date of the grant.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Stock option activity was as follows:
| Number of Shares | | Exercise price per share |
| | | |
Balance at February 28, 1999 | 2,185,000 | | Cdn $0.80 to 1.50 |
| | | |
Options lapsed | (1,175,000) | | Cdn $0.29 to 1.50 |
Options granted | 500,000 | | Cdn $0.30 |
| | | |
Balance at February 29, 2000 | 1,510,000 | | Cdn $0.29 to 0.30 |
| | | |
Options lapsed | (350,000) | | Cdn $0.29 |
Options granted | - | | |
| | | |
Balance at February 28, 2001 | 1,160,000 | | Cdn $0.29 to 0.30 |
| | | |
Options lapsed | - | | |
Options granted | - | | |
| | | |
Balance at February 28, 2002 | 1,160,000 | | Cdn $0.29 to 0.30 |
| | | |
Options exercised | (620,000) | | Cdn $0.29 |
Options lapsed | (40,000) | | Cdn $0.29 |
Options granted | - | | |
| | | |
Balance at February 28, 2003 | 500,000 | | Cdn $0.30 |
| | | |
Options exercised | | | |
Options lapsed | | | |
Options granted | 1,350,000 | | Cdn $0.33 to 0.45 |
| | | |
Balance at February 29, 2004 | 1,850,000 | | Cdn $0.30 to 0.45 |
| | | |
Options exercised | | | |
Options lapsed | (250,000) | | Cdn $0.30 |
Options granted | 450,000 | | $ 0.24 |
| | | |
Balance at February 28, 2005 | 2,050,000 | | Cdn $0.30 to 0.45 |
All options that were outstanding as at December 8, 1999, originally priced at Cdn $0.80 to 1.50 have had their exercise price amended to Cdn $0.29.
The following table summarises information with respect to stock options as of February 28, 2005:
Exercise Price | Number of options outstanding | Status | Number of options exercisable | Weighted average remaining contractual life (years) |
| | | | |
Cdn $0.30 | 250,000 | Exercisable | 250,000 | 2.25 |
Cdn $0.33 | 850,000 | Exercisable | 850,000 | 4.67 |
Cdn $0.45 | 500,000 | Exercisable | 500,000 | 4.00 |
$0.24 | 450,000 | Exercisable | 450,000 | 3.77 |
| __________ | | _________ | |
| 2,050,000 | | 2,050,000 | |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
9.PROFIT ON DISPOSAL OF INVESTMENTS
a) Bubbletube – the Company decided during the year that the Bubbletube technology had no value in relation to its SCC technology, nor as a stand alone product for development warranting further investment and decided to cease spending technology development funds on the initiative. In December of 2004, the Company assigned the patents relating to the intellectual property rights for CHF 35 ($28) , the amount of the direct costs, to TechPowder SA of Lausanne, Switzerland, a spin off of the original consortium. The Company was carrying $6 in Intangible Assets – Patents relating to the Bubbletube technology.
| $ |
Sale of patent rights | 28 |
Less: carrying value of patents | (6) |
Profit on sale of patent rights | 22 |
b) The investment in CalciTech Group Services S.A., by its parent company, CalciTech Synthetic Minerals Ltd., was by way of transferring fixed assets to the Swiss company. These fixed assets had previously been fully depreciated but were revalued by an independent Swiss company at CHF 100 ($86).
c) During the year ended February 29, 2004, the Company disposed of its 100% subsidiary, CalciTech Group Services SARL (incorporated in France) to the CEO, Roger Leopard and Geoffrey Long, an officer of the Company, for a price of €10 (Ten Euros). The net liabilities of the Company at the date of disposal were as shown below.
Included in the balance sheet of CalciTech Group Services SARL was a liability to the French tax authorities of $419, which is vigorously disputed by management. CalciTech Ltd has received legal advice stating that if such a liability was deemed as owed to the French authorities, this obligation would remain with the French Company and would not be due by its former parent undertaking. It has however agreed that the Company meet the professional costs in defending this action.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
The results of CalciTech Group Services SARL for the period to February 27, 2004, the date of disposal, which have been included in the consolidated statement of operations, were as follows:
| 2004 | 2003 |
| $ | $ |
| | |
Revenue | 402 | 492 |
Operating costs | (374) | (398) |
| ______ | _____ |
| | |
Profit before tax | 28 | 94 |
Income tax expense | (14) | (17) |
| | |
| ______ | ______ |
Profit on ordinary activities after tax | 14 | 77 |
| ===== | ===== |
The revenue generated by CalciTech Group Services SARL, as shown above, originated from inter-company transactions and has been eliminated accordingly upon consolidation.
The net liabilities of CalciTech Group Services SARL at the date of disposal were:
| 2004 | 2003 |
| $ | $ |
| | |
Property improvements | 4 | 5 |
Other fixed assets | - | 25 |
Deposits | 7 | 7 |
TVA refund receivable | 16 | 30 |
Trade debtors | 27 | - |
Other debtors | 352 | 205 |
Prepayments | 7 | 4 |
Cash at bank | - | (8) |
Trade creditors | (105) | (111) |
Other creditors | (10) | - |
Accrual | (195) | (66) |
Income tax liability | (419) | - |
| ______ | ______ |
| (316) | 91 |
Gain on disposal | 316 | ===== |
| ______ | |
Total consideration | - | |
| ===== | |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
10.INCOME TAXES
Under the current Bermuda law, the Company is not required to pay any income taxes in Bermuda. The Company has received an undertaking from the Minister of Finance of Bermuda that in the event of any such taxes being imposed, the Company will be exempted from such taxation until March 28, 2016.
Loss before income taxes and minority interest consists of the following:
| | 2005 | | 2004 | | 2003 |
| | | | | | |
Bermuda | $ | (1,280) | $ | (1,513) | $ | (1,910) |
Rest of world | | (388) | | (717) | | (278) |
| | | | | | |
Loss before income taxes and minority interest | $ | (1,668) | $ | (2,230) | $ | (2,188) |
There are no significant deferred taxes reflecting the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
There are no significant operating loss carry-forwards, which would have an impact on income tax as of February 28, 2005.
11.PROVISIONS AND CONTINGENCIES
The Company is subject to legal proceeding, claims, and litigation arising in the ordinary course of business. The Company and its subsidiaries are occasionally challenged by local tax authorities. The Company records a provision for these tax risks based on its most available information on the tax claim in each tax jurisdiction. The Company's management does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.
12.RELATED PARTY TRANSACTIONS
The amount paid to shareholders, directors and officers of the Company and their related companies for consulting and other services totalled $492, $132 and $205 for the years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively.
In the financial year ended February 28, 2005, this amount included $247 paid to EuroHelvetia TrustCo S.A. ($117 in the year ended February 29, 2004), who were contracted by CalciTech to act as the Company’s exclusive financial advisors. EuroHelvetia charge their fees for work related to advice on private placements, fund raising and project finance. Roger A. Leopard, Chief Executive Officer and President of the Company, is also a director of EuroHelvetia TrustCo S.A.. EuroHelvetia also provide administration of Epsom Investment Services N.V..
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Roger A. Leopard charged $NIL ($16 in the year ended February 29, 2004) to CalciTech Group Services SARL in providing strategic and industrial counseling services.
All the above transactions were made in the normal course of operations and accounted for under normal trade terms.
See Note 9 to the financial statements, in respect of the sale of CalciTech Group Services SARL to Roger Leopard.
Related party transactions were made on the terms equivalent to those that prevail in arm’s length transactions had the arm’s length transaction been substantiated.
13.FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company operates in one business segment. The following table presents information by geographical area:
| | 2005 | | 2004 | | 2003 |
Operating loss | | | | | | |
Bermuda | $ | (931) | $ | (1,308) | $ | (1,518) |
Rest of world | | (387) | | (717) | | (205) |
Total | $ | (1,318) | $ | (2,025) | $ | (1,723) |
| | | | | | |
Identifiable assets | | | | | | |
Bermuda | $ | 24 | $ | 91 | | 43 |
Rest of world | | 1,544 | | 945 | | 354 |
Total | $ | 1,568 | $ | 1,036 | | 397 |
14. | ANALYSIS OF MAJOR EXPENDITURES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES |
The following is a breakdown of the major expenditures included in General and Administrative Expenses:
| 2005 $ |
Employee costs | 165 |
Accounting | 142 |
Professional fees | 83 |
Investor relations | 118 |
Rent, rates & charges | 108 |
Travel | 169 |
Administrative fees & expenses | 120 |
Depreciation | (13) |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
15.DIFFERENCES BETWEEN INTERNATIONAL FINANCIAL REPORTING STANDARDS AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
The Company's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), which differ from generally accepted accounting principles in the United States (US GAAP).
Under US GAAP, the beneficial conversion feature embedded in the credit facility should be recognised and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.The Company has restated its net loss in accordance with US GAAP to reflect this accounting policy. The effect was the additional charge to net loss as represented by "Beneficial conversion feature on credit facility". There was no effect on Shareholders' deficiency from this change. Share option expense was restated to account for the reclassification of certain options as fixed that were previously accounted for as variable.
The principal differences between IFRS and US GAAP are presented below together with explanations of certain adjustments that affect consolidated net income and total shareholders' equity:
| | 2005 | | 2004 | | 2003 | | Cumulative total
since inception |
| | | | | | | | restated |
| | | | | | | | |
Net loss in accordance with IFRS | $ | (1,668) | $ | (2,244) | $ | (2,188) | $ | (39,720) |
Interest, finders fee and currency translation on convertible debentures | | - | | (280) | | (288) | | (895) |
Beneficial conversion feature on credit facility | | (579) | | (404) | | (590) | | (3,585) |
Share options accounting | | (67) | | - | | 47 | | (281) |
| | | | | | | | |
Net loss in accordance with US GAAP | $ | (2,314) | $ | (2,928) | $ | (3,019) | $ | (44,481) |
| | | | | | | | |
Basic net loss per share under US GAAP | $ | (0.03) | $ | (0.06) | $ | (0.07) | $ | |
Diluted net loss per share under US GAAP | $ | (0.03) | $ | (0.06) | $ | (0.07) | $ | |
| | | | | | | | |
| | 2005 | | 2004 | | | | |
| | | | | | | | |
| | | | | | | | |
Shareholders' deficiency in accordance with IFRS | $ | (1,141) | $ | (2,571) | $ | | | |
Convertible debentures | | (4,143) | | (4,501) | | | | |
| | | | | | | | |
Shareholders' deficiency in accordance with US GAAP | $ | (5,284) | $ | (7,072) | $ | | | |
Under US GAAP, the beneficial conversion feature embedded in the credit facility should be recognised and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
The Company's share option plan is treated as a compensatory plan under US GAAP. For the purpose of this reconciliation, the Company has adopted Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its share options which were granted to employees and non-employee directors elected by shareholders.
Under APB 25, compensation expense is recognised when exercise prices are below the fair market value of the underlying shares. The repricing of options on December 8, 1999 required the Company to follow variable plan accounting, under which compensation cost is remeasured each period. Due to the rise in market value, a compensation expense of $214 was recorded for the first time in the financial year ended February 28, 2002. This was partly reversed in the financial year ended February 28, 2003, due to the fall in market value. There is no expense under variable plan accounting as the share options that relate to the repricing have either been exercised or have lapsed, as at February 29, 2004.
Under US GAAP, additional disclosures would include, but not necessarily be limited to the following:
Consideration received for shares of stock, warrants, rights and other equity securities
| Number | | Amount |
| | | |
As at February 28, 1987 | 8,167,825 | $ | 10,560 |
Performance shares for patent rights | 10,000,000 | | - |
Issue of shares for cash | 766,667 | | 838 |
| | | |
As at February 29, 1988 | 18,934,492 | | 11,398 |
Issue of shares for cash | 250,000 | | 359 |
| | | |
As at February 28, 1989 and 1990 | 19,184,492 | | 11,757 |
Issue of shares for cash | 1,000,000 | | 602 |
�� | | | |
As at February 28, 1991 | 20,184,492 | | 12,359 |
Issue of shares for cash | 600,000 | | 394 |
Exercise of stock options | 23,000 | | 15 |
Issue of shares for debt | 413,171 | | 271 |
Reduction of paid up capital | - | | (12,169) |
| | | |
As at February 29, 1992 | 21,220,663 | | 870 |
Exercise of stock options | 207,000 | | 140 |
Exercise of warrants | 70,000 | | 56 |
Performance shares cancelled | (10,000,000) | | - |
| | | |
As at February 28, 1993 | 11,497,663 | | 1,066 |
Exercise of warrants | 530,000 | | 483 |
Exercise of stock options | 11,000 | | 18 |
Acquisition of Kemgas Corporation Inc. | 5,187,495 | | 109 |
| | | |
As at February 28, 1994 | 17,226,158 | | 1,676 |
Exercise of stock options | 75,000 | | 82 |
Exercise of stock options | 75,000 | | - |
| | | |
As at February 28, 1995 | 17,376,158 | | 1,758 |
Exercise of stock options | 200,000 | | - |
Acquisition of 50.1% Kemgas Corporation Inc. | 5,187,505 | | 4 |
| | | |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
As at February 29, 1996 | 22,763,663 | | 1,762 |
Exercise of Kemgas Corporation Inc. stock options | 375,000 | | - |
| | | |
As at February 28, 1997 | 23,138,663 | | 1,762 |
Issue of shares on conversion of credit facility | 3,800,000 | | 4 |
| | | |
As at February 28, 1998 | 26,938,663 | | 1,766 |
Issue of shares on conversion of credit facility | 2,978,723 | | 2 |
| | | |
As at February 28, 1999 | 29,917,386 | | 1,768 |
Issue of shares for cash | 2,429,150 | | 2 |
Conversion of convertible debentures | 7,202,643 | | 5 |
Exercise of Kemgas Corporation Inc. stock options | 175,000 | | - |
| | | |
As at February 29, 2000 | 39,724,179 | | 1,775 |
Issue of shares on conversion of credit facility | 4,000,000 | | 3 |
| | | |
As at February 28, 2002 and February 28, 2001 | 43,724,179 | | 1,778 |
Issue of shares on conversion of credit facility | 3,955,695 | | 3 |
Issue of shares for cash | 4,933,091 | | 3 |
Exercise of warrants | 656,200 | | - |
Exercise of stock options | 620,000 | | - |
| | | |
As at February 28, 2003 | 53,889,165 | | 1,784 |
Issue of shares on conversion of facility | 10,010,510 | | 8 |
| | | |
As at February 29, 2004 | 63,899,675 | | 1,792 |
| | | |
Issue of shares in private placement | 9,000,000 | | 7 |
Issue of shares on conversion of facility | 7,000,000 | | 6 |
| | | |
| 79,899,675 | | 1,805 |
| | | | |
| Options Outstanding | | Option price per share | |
| | | Cdn. | |
Balance, February 28, 1990 | 1,850,000 | $ | 0.45 | |
Options granted | 490,000 | | 0.90 | |
Options cancelled | (1,925,000) | | 0.45 to 0.90 | |
| | | | |
Balance, February 28, 1991 | 415,000 | | 0.90 | |
Options granted | 100,000 | | 0.90 | |
Options granted | 25,000 | | 1.49 | |
Options granted | 20,000 | | 1.50 | |
Options exercised | (23,000) | | 0.90 | |
Options cancelled | (40,000) | | 0.90 | |
| | | | |
Balance, February 29, 1992 | 497,000 | | 0.90 to 1.50 | |
Options exercised | (207,000) | | 0.90 to 1.50 | |
Options cancelled | (115,000) | | 0.90 to 1.50 | |
Options granted | 75,000 | | 1.50 | |
| | | | |
Balance, February 28, 1993 | 250,000 | | 0.90 to 1.50 | |
Options granted | 131,000 | | 2.25 | |
Options exercised | (11,000) | | 2.25 | |
Options cancelled | (100,000) | | 1.50 | |
| | | | |
Balance, February 28, 1994 | 270,000 | | 0.90 to 2.25 | |
Options granted | 200,000 | | 2.28 | |
Options exercised | (75,000) | | 1.50 | |
Options exercised | (75,000) | | 0.90 | |
| | | | |
| | | | | | | |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Balance, February 28, 1995 | 320,000 | | 2.25 to 2.28 |
Options exercised | (200,000) | | 2.28 |
| | | |
Balance, February 29, 1996 | 120,000 | | 2.25 |
Options lapsed | (10,000) | | 2.25 |
Options granted | 750,000 | | 2.45 |
Options granted | 425,000 | | US$ 2.50 |
| | | |
Balance, February 28, 1997 | 1,285,000 | | 2.25 to 2.45 & 2.50 |
Options lapsed | (1,175,000) | | 2.45 & 2.50 |
Options granted | 1,925,000 | | 1.50 |
| | | |
Balance, February 28, 1998 | 2,035,000 | | 1.50 to 2,25 |
Options lapsed | (600,000) | | 1.50 to 2.25 |
Options granted | 750,000 | | 0.80 to 1.50 |
| | | |
Balance, February 28, 1999 | 2,185,000 | | 0.80 to 1.50 |
Options lapsed | (1,175,000) | | 0.29 to 1.50 |
Options granted | 500,000 | | 0.30 |
| | | |
Balance, February 29, 2000 | 1,510,000 | | 0.29 to 0.30 |
Options lapsed | (350,000) | | 0.29 |
| | | |
Balance, February 28, 2002 and February 28, 2001 | 1,160,000 | | 0.29 to 0.30 |
| | | |
Options exercised | (620,000) | | 0.29 |
Options lapsed | (40,000) | | 0.29 |
| | | |
Balances, February 28, 2003 | 500,000 | | 0.30 |
| | | |
Options granted | 1,350,000 | | 0.33 to 0.45 |
| | | |
Balances, February 29, 2004 | 1,850,000 | | 0.30 to 0.45 |
| | | |
Options lapsed | (250,000) | | 0.30 |
Options granted | 450,000 | | $ 0.24 |
| | | |
| 2,050,000 | | |
During the year, 600,000 options issued to a director of the Company were extended for a further five year period. The exercise price of the options remained unchanged.
| Number of Warrants outstanding | | Exercise price per share Cdn. |
| | | |
Balance at February 29, 2000 | 0 | | |
| | | |
Warrants granted re: debentures | 315,000 | | Cdn$ 0.333 to 0.435 |
Warrants exercised | 0 | | |
| | | |
Balance at February 28, 2001 | 315,000 | | Cdn$ 0.333 to 0.435 |
| | | |
Warrants granted re: debentures | 525,000 | | Cdn $ 0.455 to 0.51 |
Warrants exercised | - | | |
| | | |
Balance at February 28, 2002 | 840,000 | | Cdn $0.333 to 0.51 |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
| | | |
Warrants granted re: private place | 4,933,091 | | Cdn $ 0.66 |
Warrants granted re: debenture | 63,000 | | Cdn $ 0.80 to 0.896 |
Warrants exercised | (656,200) | | Cdn $ 0.333 to 0.455 |
Warrants lapsed | (183,800) | | Cdn $ 0.333 to 0.455 |
| | | |
Balance at February 28, 2003 | 4,996,091 | | Cdn $0.333 to 0.896 |
| | | |
Warrants lapsed | (4,996,091) | | Cdn $0.333 to 0.896 |
| | | |
Balance at February 29, 2004 | - | | |
| | | |
Warrants granted re: private place | 13,500,000 | | $ 0.35 to 0.50 |
Balance at February 28, 2005 | 13,500,000 | | |
The equity element of the convertible debentures can be summarised as follows:
Issuance of convertible debentures | | | | 1,245 |
| | | | | | | |
| | | | | | | |
Year ended February 28, 2001 | | | | | 1,245 |
| | | | | | | |
Issuance of convertible debentures | | | | 2,755 |
Less: finders fee | | | | | | (177) |
Less: present value of future interest payments at issuance | | (520) |
| | | | | | | |
| | | | | | | |
Year ended February 28, 2002 | | | | | 3,303 |
| | | | | | | |
Issuance of convertible debentures | | | | 300 |
Less: present value of future interest payments at issuance | | (39) |
| | | | | | | |
| | | | | | | |
Year ended February 28, 2003 | | | | | 3,564 |
| | | | | | | |
Issuance of convertible debentures | | | | 356 |
| | | | | | | |
| | | | | | | |
Year ended February 29, 2004 | | | | | 3,920 |
And February 28, 2005 | | | | | | | |
| | | | | | | | | |
The Company has elected to adopt the disclosure provisions of Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based Compensation", and continues to follow Accounting Principles Board Opinion No 25 and related interpretation in accounting for its employee stock options.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Had compensation cost for the plan been determined based on the fair value of the options at the grant date for awards in the three year period ended February 28, 2005 consistent with the provisions of SFAS No 123, the Company’s net loss and loss per share would have been as follows:
Net loss per US GAAP: | | 2005 | | 2004 | | 2003 |
- As reported | $ | (2,314) | $ | (2,928) | $ | (3,019) |
- Pro forma | $ | (2,401) | $ | (3,031) | $ | (3,066) |
| | | | | | |
Net loss per share per US GAAP - Proforma: | | | | | | |
Basic net loss per share under US GAAP | $ | (0.04) | $ | (0.06) | $ | (0.08) |
Diluted net loss per share under US GAAP | $ | (0.04) | $ | (0.062) | $ | (0.076) |
| | | | | | |
Basic weighted average number of shares | | 64,713,374 | | 54,723,374 | | 49,632,816 |
Diluted weighted average number of shares | | 64,713,374 | | 54,723,374 | | 49,632,816 |
The fair value of each option grant was estimated on the date of grant using the Black - Scholes option pricing model, with the following assumptions for grants made: dividend yields of 0%; annual risk-free interest rate of 4.5%; expected volatility of33%. All grants were made during the financial year 2000 and 2004.
Under US GAAP, of the private placement concluded in January 2005, part of the private placement net consideration, which is the consideration received less finders fee, should be allocated to the warrants. The fair value of the warrants amounted to USD870,031.
Development Stage Entity
The Company is still in the development stage and under US GAAP falls under the provisions of FAS No. 7 "Accounting and reporting by development stage enterprises.
The cumulative amounts are stated in accordance with International Financial Reporting Standards.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Statement of income
| Notes | Cumulative
totals since
inception
restated |
|
Revenues | $ | 2,854 |
Cost of revenues | (2,056)
__________ |
|
Gross margin | 798 |
|
Research and development expenses | $ | 9,709 |
General and administrative expenses | 16,177 |
Product development | 176 |
Project development | 238 |
Settlement of legal dispute | 11 | 400 |
Write-down of goodwill | 10,649 |
Other expenses | 184
__________ |
|
Operating loss | (36,735) |
|
Profit on disposal of investment | 338 |
Interest expense, net | (4,479)
__________ |
| |
Loss before income taxes and minority interest | (40,876) |
|
Provision for income taxes | 11 | (388)
__________ |
Loss from ordinary activities | (41,264) |
|
Minority interest | 51
__________ |
|
Net deficit | | $ (41,213)
__________ |
| | | |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
Statement of cash flows
| | Cumulative |
| totals since |
| inception |
| restated |
Cash flows from operating activities |
Net deficit | $ | (40,916) |
|
Profit on disposal of investment | (338) |
Depreciation and amortization | 5,052 |
Write-down of property, plant and equipment | 2,033 |
Write-down of inventory | 459 |
Write-down of goodwill | 10,649 |
Interest expense | 4,479 |
Equity in earnings of affiliates | 86 |
Operating loss before working capital changes | (18,496) |
|
Changes in working capital : |
Decrease in receivables, prepaid expenses and other current assets | (19) |
Increase in accounts payable and accrued expenses, and provisions used | 493 |
| |
Cash used in operations | (18,022) |
|
Interest paid to financial institutions | (427) |
| |
Net cash used in operating activities | (18,449) |
| |
Cash flows from investing activities | |
Acquisition of property, plant and equipment | (1,275) |
Purchase of KCI net of cash acquired | 537 |
| |
Net cash used in investing activities | (738) |
|
Cash flows from financing activities |
Proceeds from new other loans | 100 |
Proceeds raised from finance lease | 636 |
Payment of bank loans | (670) |
Proceeds from issuance of common stock | 5,912 |
Proceeds from issuance of convertible debentures | | 2,941 |
Proceeds from credit facility | 14,611 |
Payment of credit facility | (4,186) |
Finders fee | (285) |
Increase in bank overdraft | 437 |
Cash received from share subscription of partner in Odda | 51 |
Interest paid on convertible debentures | (210) |
| |
Net cash provided by financing activities | 19,337 |
| |
Effect of exchange rate changes on cash | 257 |
| |
Net increase / (decrease) in cash and cash equivalents | 407 |
Cash and cash equivalents, at inception | - |
| |
Cash and cash equivalents, end of year | $ | 407 |
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
New accounting pronouncements under IFRS and US GAAP
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (“SFAS Statement 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This statement requires that all share-based payments to employees be recognized in the financial statements based on their fair values on the date of grant. The Company currently uses the intrinsic value method to measure compensation expense for stock-based awards. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after December 31, 2005 and applies to all awards granted, modified, repurchased or cancelled after the effective date. The Company is evaluating the requirements of SFAS 123R and expects that its adoption will not have a material impact on the Company’s consolidated results of operations and earnings per share.
In November of 2004, the FASB issued SFAS No. 151, “Inventory Costs”, which amends the guidance in APB No. 43, “Inventory Pricing,” to clarify the accounting of abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company is required to adopt the provisions of SFAS No. 151 in the first quarter of 2006. The Company does not expect SFAS 151 to have a material impact on its consolidated results of operations or financial condition.
In December of 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29” (SFAS 153). SFAS 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of 2006. The Company does not believe that the adoption of SFAS 153 will have a material impact on the Company’s consolidated results of operations or financial condition.
FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN No. 46) was originally issued in January 2003 and was subsequently revised in December 2003. Fin No. 46 attempts to clarify the application of Accounting Research Bulletin No. 51 “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The Company does not believe that it has any involvement with variable interest entities that are required to be consolidated under FIN No. 46.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
16.LIST OF PRINCIPAL CONSOLIDATED COMPANIES
Principal consolidated companies for 2004 and 2005 are as follows:
Name of Company | Countries | Holding | Proportion held | Nature of business |
CalciTech Synthetic Minerals Ltd. | Bermuda | Ordinary shares | 100% | PCC business |
CalciTech Group Services SA | Switzerland | Ordinary shares | 100% | Administration |
CalciTech Holdings ApS | Denmark | Ordinary shares | 100% | Holding Company |
CalciTech Odda A-S (in liquidation) | Norway | Ordinary shares | 51% | Production of PCC |
CalciTech Deutschland GmbH | Germany | Ordinary shares | 100% | Production of PCC |
On February 1, 2003, the Company’s intellectual property interests in it’s Synthetic Calcium Carbonate (“SCC”) technology were assigned to a new Bermuda organized wholly owned subsidiary, CalciTech Synthetic Minerals Ltd. All group subsidiary companies were transferred to CalciTech Synthetic Minerals Ltd. which now acts as the holding Company and will license within the group rights and use of the technology on a territorial basis.
During the year ended February 28, 2005, the Company acquired CalciTech Group Services SA as its new administrative office.
17.ULTIMATE CONTROLLING PARTY
No individual has an ultimate controlling interest in the Company.
18.SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash transactions were as follows:
| | 2005 | | 2004 | | 2003 |
| | | | | | |
Issuance of common stock upon conversion of credit facility | $ | 1,400 | | 2,000 | | 1,050 |
Conversion of options through credit facility | | - | | 10 | | 119 |
Exercise of warrants through credit facility | | - | | - | | 184 |
Issuance of common stock upon private placement through credit facility | 1,136 | | - | | 1,700 |
Issuance of convertible debentures through credit facility | | - | | - | | 300 |
Interest on convertible debentures paid from credit facility | | - | | - | | (112) |
| | | | | | |
Total | $ | 2,536 | $ | 2,010 | $ | 3,241 |
Upon exercise of options in 2004, certain directors paid the exercise price directly to Epsom as an offset to the credit facility. Similarly, in 2004, the exercise price of warrants was paid directly by certain holders as an offset to the credit facility, and the private placement of common stock and convertible debentures in 2003 was effected through the credit facility.
CALCITECH LTD
(a Company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Year ended February 28, 2005
(amounts in thousands of US dollars, except per share data)
19.COMMITMENT
The Company rents its principal management services office under an annually renewable agreement.
20.NUMBER OF EMPLOYEES (UNAUDITED)
Headcount was 4, 6 and 9 as of February 28, 2005, February 29, 2004 and February 28, 2003, respectively.
21.POST BALANCE SHEET EVENT
There are no material post balance sheet events.
22.APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors and authorised for issue on June 14, 2005.
“R.A. Leopard”
Roger A Leopard
“J.M Smith”
John M Smith
