UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 19, 2006
BPK Resources, Inc.
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(Exact name of registrant as specified in its charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
000-27339 88-0426887
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(Commission File Number) (IRS Employer Identification Number)
106 Lakeside Avenue, P.O. Box 210, Delano, Pa 18220
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(Address of Principal Executive Offices)
(570) 467-2222
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(Registrant's Telephone Number, Including Area Code)
264 Union Boulevard, First Floor, Totowa, New Jersey 07512
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13-e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. These forward-looking statements are based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Accordingly, actual results may differ materially from those expressed
or forecasted in any such forward-looking statements. Such risks and
uncertainties include those risk factors set forth in this report. We assume no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by
law.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
On April 19, 2006, BPK Resources, Inc. ("BPK Resources") closed upon an
Agreement and Plan of Merger (the "Merger Agreement") among BPK Resources, BPK
Resources Acquisition Corp., a Delaware corporation and wholly owned subsidiary
of BPK Resources ("Merger Sub"), Graphite Technology Group, Inc., a Delaware
corporation ("Graphite Technology"), and Derek Hirsch and James E. Olive, the
principal shareholders of Graphite Technology. In accordance with the Merger
Agreement, Merger Sub merged with and into Graphite Technology with Graphite
Technology surviving as a wholly owned subsidiary of BPK Resources.
In consideration for the merger, (i) the holders of issued and outstanding
shares of Graphite Technology common stock received an aggregate of (A) 40
million shares of BPK Resources' common stock, and (B) 585,000 shares of BPK
Resources' Series D Convertible Preferred Stock convertible into an aggregate of
58,500,000 shares of BPK Resources' common stock; and (ii) holders of issued and
outstanding shares of Graphite Technology preferred stock received an aggregate
of 14,546 shares of Series E Convertible Preferred Stock convertible into an
aggregate of 3,500,000 shares of BPK Resources' common stock.
In connection with the merger, all directors and officers of BPK Resources
resigned and new directors and officers appointed by Graphite Technology were
appointed.
Prior to the merger of Merger Sub with Graphite Technology, BPK Resources was a
shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934.
Pursuant to Item 2.01(f) of Form 8-K, we are required to include in this Report
the information that we would be required to provide if we were filing a general
form for registration of securities on Form 10-SB. This information is set forth
below in this Item 2.01 and is organized in accordance with the Items set forth
in Form 10-SB.
INFORMATION REQUIRED PURSUANT TO FORM 10-SB
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW AND BUSINESS STRATEGY
Graphite Technology was incorporated in Pennsylvania on April 27, 2004,
following which time Graphite Technology acquired the graphite processing
equipment of Applied Carbon Technology (America), a corporation involved in
certain processing and sales of graphite. On January 31, 2005, Graphite
Technology reincorporated in the State of Delaware.
On July 27, 2005, Graphite Technology entered into a purchase and sale agreement
with Societe Miniere de la Grande Ile, ("SMGI"), M. Bertil Akesson,
owner/operator of the Ambatomitamba Graphite Mine and four contiguous graphite
mines located in Madagascar by which Graphite agreed to purchase a 50% common
equity interest in Societe Malagasy du Grafit s.a.r.l., a Madagascar limited
liability company ("SOMAGRA"), as and at the time that SOMAGRA owns and has
rights to operate and develop the Ambatomitamba Graphite Mine and Sahanovo Mine
and contiguous surface mines at Ambodihasina, Sandraka, Ambiani and Sahamaloto.
On March 26, 2006, Graphite Technology acquired that 50% common equity interest
in SOMAGRA. The purchase and sale agreement also provides Graphite Technology
the option to purchase the remaining 50% of SOMAGRA less one share at any time
within three years of the closing. Prior to closing, all graphite mine claims
and mine leases controlled by SMGI, affiliate companies of SMGI, or by Akesson,
were transferred, or in process of transfer to SOMAGRA. Mining equipment
controlled by SMGI was also transferred to SOMAGRA pursuant to the agreement
between Graphite Technology, Akesson and SOMAGRA. SOMAGRA had no material prior
business.
On October 13, 2005, Graphite Technology purchased 37.125% of the common equity
shares of Chenzhou Global Graphite Inc. ("Chenzhou") a company formed under the
laws of China that developed patented technology for the purification of
amorphous graphite and retains all commercial rights for its development.
Chenzhou had no operations at the time Graphite Technology purchased its equity
interest. Chenzhou also has agreements with Jinchuan Graphite Limited Liability
Company, Jiangxi Province, China, by which Chenzhou or Graphite Technology has
the right to acquire up to 55% of the Jinchuan Natural Graphite Mine in Dingnan,
Jiangxi province. The agreements between Graphite and Chenzhou also call for
Graphite Technology to acquire an additional 7.875% of Chenzhou.
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On February 17, 2006, Graphite Technology acquired mineral claims and leases
contiguous to and partly comprising the former producing Kearney Graphite Mine
in the Province of Ontario, Canada. The aforementioned mineral claims and leases
were acquired from Vinecrest Management Services, Ltd. and Vincent Sheehan. On
March 9, 2006, Graphite Technology entered into agreements to acquire the
remaining mining claims and leases of the former Kearney Graphite Mine.
The long-term business strategy of Graphite Technology is to build ownership
value by developing a fully-integrated mining, manufacturing, processing and
sales operation for natural and synthetic graphite products and carbon based
materials (such as activated carbon, metallurgical coke and anthracite) and
manufactured products conducive to Graphite Technology's business
infrastructure. Management believes Graphite Technology's proprietary processing
technology, proprietary formulae, experienced operators and control of supply
sources from natural graphite mines in Canada, Madagascar and China will
accelerate the business development of Graphite Technology in an industry that
otherwise poses substantial barriers to entry. Management believes that if
Graphite Technology can successfully develop its mines, Graphite Technology will
be more cost efficient than a stand-alone graphite mining operation or
stand-alone graphite processing businesses. This strategy has been designed to
position Graphite Technology as one of few global integrated suppliers of
natural and synthetic graphite and carbon products.
Graphite Technology mines, manufactures/processes and sells natural and
synthetic graphite and carbon based materials for use in numerous industries and
applications. Graphite Technology has manufacturing/processing facilities
dedicated to processing graphite located in New York and Pennsylvania and is
co-developing a processing plant in Chenzhou City, Hunan Province, China.
Graphite Technology owns mining rights to operate graphite mines in Canada and
Madagascar and, through a subsidiary, China. Graphite Technology is an ISO
certified manufacturer: ISO 9001: 2000.
Scalable in place processing and mining technology, proprietary formulae and
viable sources of raw material supply owned and controlled by Graphite
Technology comprise the essential business infrastructure for Graphite
Technology to compete effectively as a major supplier of graphite and carbon
based materials to diverse industries.
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Graphite Technology has collaborative ongoing research and development programs
for materials and products with Ben Franklin Technology Partners, the Advanced
Materials Institute of Lehigh University at Bethlehem, the Electrotechnology
Applications Center (ETAC) at Northampton College and China Ocean University
(Qingdao). Graphite Technology has independently developed proprietary carbon
purification technology, which it intends to commercialize and incorporate in
run-of-the-mine graphite production methodologies to cost effectively enhance
carbon content levels of mined and manufactured graphite and carbon materials to
otherwise optimize the value of its mineral reserves.
DESCRIPTION OF THE BUSINESS OF GRAPHITE TECHNOLOGY
The graphite and carbon materials markets which Graphite Technology serves are
significant in scale and diversity. Graphite Technology has industry experienced
operators, control of sources of long-term graphite supply, raw material
supplier agreements for carbon additives, and proprietary technology and product
formulae which together comprise an infrastructure that management believes will
support rapid growth in all business lines in which Graphite Technology
competes.
Graphite Technology mines, engineers, manufactures/processes and sells natural
and synthetic graphite products and carbon additives for use in refractory and
foundry operations and for use by manufacturers of steel, aluminum, brass and
other nonferrous metals, as well as manufacturers of pencil leads, packing
materials, composite materials, brake linings, lubricants, coatings, gaskets and
seals, and cosmetics. Graphite Technology plans to expand its customer base
within these industries, but intends to also produce and sell a broad range of
ultra fine (also "micronized") natural and synthetic graphite products to
industries including manufacturers of batteries, fuel cells, powdered metals and
composite materials. Management believes Graphite Technology's business
infrastructure will allow Graphite Technology to expand its manufacturing
operations to include production of synthetic ("artificial") graphite,
expandable and machined graphite, industrial grade graphite foil and carbon
filament products.
PROCESSING OPERATIONS
Graphite Technology presently engineers and processes a broad range of
standardized particle sizes and blends of graphite and carbon additives at its
manufacturing and processing facility located in Brocton, New York. Graphite
Technology processes micronized graphite powders from its recently completed
specialized processing facility in Delano, Pennsylvania.
Graphite Technology's processing operations combine proprietary technologies,
including carbon purification technology and manufacturing methodologies such
as, air driven high speed particle collision technologies, screening, blending,
classifying and materials optimization routing technology, for production of
graphite powders for use by foundry and refractory businesses, manufacturers of
steel and non-ferrous metals as well as manufacturers and producers of
conductive coatings, lubricants, brake linings, industrial gasket materials,
pencils and packing materials, fillers and extenders. Graphite Technology's
processing operations also allow Graphite Technology to produce and sell ultra
fine grades and a range of carbon additives to aforementioned industries as well
as to manufacturers such as:
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POWDER METALS:
|X| Production of powder (or "powdered") metal products, tools, dies and
parts, and manufacturing processes using hot forming metals, forging
compounds and sintering aids. Typically, natural crystalline formulas of
graphite are preferred and widely used, but synthetic graphite is also
used.
LUBRICANTS, COLLOIDS, COATINGS, SEALS:
|X| Production of glass where graphite/wetting and suspending agents are
applied as a lubricant/coating and release agent for hot pressing of
glass.
|X| Production of electronic components, inks, paints and adhesives where
colloids (conductive, resistive and dielectric coatings) are essential to
the manufacturing processes.
|X| Production of metal coated graphite for sprays and powders for thermal
resistant technologies.
|X| Manufacturing of tableware, kitchen ware, glass block, tubes and
ophthalmic lenses, formulated mold oil for hot metal surfaces resulting in
a film lubricant.
FUEL CELL:
|X| Production of fuel cell components relying on high-carbon-content natural
and synthetic graphite blends as an essential material for the manufacture
of proton exchange membranes and containment units where it is utilized to
promote transferability of protons from fuel source to oxygen.
BATTERY:
|X| Manufacturing of batteries, chemical resistant coatings of various
substrates such as metal and plastic surfaces of alkaline batteries.
FRICTION:
|X| Material blends as additives for adhesives and abrasives and lubricity
coefficient at high temperatures.
COMPOSITE MATERIALS:
|X| Structural materials utilizing graphite blend formulations in conductive
materials such as plastics and polymers.
Graphite is a critical industrial carbon material used widely by basic
industries and emerging industries for manufacturing or production processes, or
by inclusion in manufactured or produced products. Graphite is used for its
chemical and thermal properties and lubricity, which finds essential application
for steel and metals manufacturing, manufacturing of brick, tiles, fire
retardants, pencil leads, paints, inks, or for adhesives and abrasives and
automotive brakes, seals, rings and carbon brushes, tools, metal parts and dies,
and for lubricants, electronic components, plastics and polymers, glass and
colloidal dispersions among many others. The type of graphite, its composition
and attributes when processed for a particular manufacturing process or its
inclusion in a manufactured product, is wide ranging. Manufacturers often
require graphite in a number of forms and compositions for diverse applications.
Graphite Technology processes graphite and carbon materials to customer specific
use and tolerances, including a wide range of standardized semi-finished
graphite and customer specific blend materials.
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Graphite Technology's competitors in the processing and sales of graphite and
carbon products include major suppliers as well as the numerous specialty
suppliers in each major business line. Management believes Graphite Technology's
primary competitors include Asbury Carbons, Inc., Timcal Ltd., Graphitwerk
Kropfmuhl AG, and Superior Graphite in the graphite industry and numerous
specialists in business lines.
Graphite Technology recognizes that its processing technology has significant
application in serving processing requirements of other industrial materials and
may establish processing operations for certain other minerals or materials.
COMPANY MINING
Graphite Technology owns graphite mines in Canada and Madagascar and controls
graphite mine operations in Hunan Province, and the option to control graphite
mine operations in Jiangxi Province, China. Graphite Technology has entered into
conditional agreements to joint venture the development of anthracite coal
properties in northeastern Pennsylvania. The mineral resources of Graphite
Technology are substantial, and represent viable sources of long term raw
material supply.
GRAPHITE MINING (MADAGASCAR)
Graphite Technology owns a 50% common equity interest of Societe Malagasy du
Grafit ("SOMAGRA"), a Madagascar company that owns all mine rights, leases and
development interests in the Ambatomitamba Graphite Mine located in Madagascar,
reported to be the largest single producing graphite mine in the country during
the years that it was producing, which ended in 1999, and owner of several
contiguous surface mines: Amodasina, Sandraka, Ambiani and Sahamaloto. The
Ambatomitamba Graphite Mine is one of the world's largest high quality graphite
deposits containing a substantial graphite ore mineral inventory of which part
has been previously reported by BRGM (Bureau de Recherches Geologiques et
Minieres). SOMAGRA plans to reopen the mine in 2006.
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GRAPHITE MINING (CHINA)
Graphite Technology owns 37.125% of Chenzhou Global Graphite Inc. ("Chenzhou").,
a company based in Hunan Province, China, which is currently in the application
process to become licensed to operate amorphous graphite mine claims located in
Lutang, Hunan Province. Chenzhou has agreements to become the majority owner and
developer of a natural graphite mine in Jiangxi Province. By agreement, Graphite
Technology will acquire an additional 7.875% of Chenzhou Global Graphite Inc.
GRAPHITE MINING (CANADA)
Graphite Technology owns, subject to royalties, an undivided interest in 4
active mineral claims and 12 leased mining claims located in Butt Township,
Ontario, Canada, and by separate agreement intends to acquire all of the mineral
claims and mineral leases comprising the former producing "Kearney Graphite
Mine". All of the Canadian mining claims and leases controlled by Graphite
Technology lie within the Greenville Structural Province of the Canadian
Precambrian Shield.
From 1989 through 1994 the claims and leases partly comprising Kearney Graphite
Mine, and partly comprising the new established iCarbon Canada Graphite Mine
produced between 4000 and 8500 metric tons annually. The mine supplied a range
of graphite grades to manufacturers of lubricants, powder metals and pencils and
foil products manufactured by UCAR, the world's largest supplier of graphite
foil products. While Kearney Graphite Mine ceased operations in 1994 then citing
reasons relating to graphite prices of foreign suppliers for similar mined
graphite products, world prices for graphite in recent years suggest the
economics are appropriate and favor reopening the mine.
The mine exploration findings on all claims controlled by Graphite Technology
provide sufficient evidence of mineable resources contiguous in some instances
and forming one graphite ore body designated by four zones. The four zones are
the McGuire West Zone, the McGuire Zone, the McGuire East Zone and the Sheehan
Zone.
1. The McGuire West Zone: The prior operated open-pit mine of the Kearney
Graphite Mine is located in this zone. Adjacent to this mine is a tailings
disposal system and waste rock disposal area. Graphite Technology holds a
priority security interest in all leased claims in this zone and otherwise has
agreements to acquire all claims in this zone.
2. The McGuire Zone: The mineralization of the McGuire West Zone is continued
into this zone through the safety pillar of the current pit and sub-crop in the
bottom of McGuire Lake. Graphite Technology holds a priority security interest
in all leased claims in this zone and otherwise has agreements to acquire all
claims in this zone.
3. The McGuire East Zone: The mineralization of the McGuire West Zone and the
McGuire Zone continues into this zone. Previous drilling in this zone identified
significant mineralization. Further drilling is required to establish resource
and reserve estimates. This zone is owned by Graphite Technology and is subject
to royalty payments.
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4. The Sheehan Zone: The mineralization of the McGuire Zone continues into this
zone located approximately two kilometers up-strike from the McGuire Zone.
Previous drilling in this zone resulted in unclassified calculations exhibiting
characteristics similar to the existing resource base. Further drilling is
required to establish resource estimates. This zone is owned by Graphite
Technology and is subject to royalty payments.
The existing resource base in the McGuire West Zone and McGuire Zone portions
was established by Pincock, Allen and Holt, Inc., international resource
consultants (the "Pincock Report"). The Pincock Report was compiled prior to the
adoption of regulations for reporting resources and reserves set out in Canada
National Instrument 43-101 ("NI 43-101"). All reporting of resources and
reserves contained in previous geological reports of the properties owned and
controlled by Graphite Technology must be reconsidered, revised accordingly, and
only reported consistent with NI 43-101. The following mentioned tonnage or
grade for mentioned zones is provided for information purposes only and may not
be relied upon until such time as classified in compliance with NI 43-101.
The Pincock Report evaluated the McGuire West Zone and McGuire Zone from which
it determined a mineral inventory of 9.95 million tons of measured
mineralization at 2.5%-Cg, 17.8 million tons of indicated mineralization at
2.46%-Cg and 11.8 million tons of inferred mineralization at 2.5%-Cg. The
Pincock Report determined additional mineral inventory for the Sheehan Zone of
4.55 million tons of mineralization at a grade of 2.46%-Cg. The Pincock Report
did not include results from 15,000 meters of diamond drilling in the Sheehan
Zone. Separately, Watts, Griffis and McQuat Limited, consulting geologists and
engineers, performed an economic analysis of the graphite properties (the "WGM
Report"). The WGM Report reviewed the mineral resources and mine processing
operations of the former operated Kearney Graphite Mine. While the WGM Report
did not audit the resources of the McGuire West Zone and McGuire Zone, the
report did concur with the estimates of mineral inventory established by the
Pincock Report, and found likelihood of significant additional resources to
exist on the McGuire East Zone and Sheehan Zone. The mineral inventory
established by the Pincock Report and WGM Report were estimated in accordance
with the then used standards established by the Ontario Securities Commission
(the "OSC") for mineral inventory and reserve classification. The WGM Report was
disclosed publicly in connection with previous public filings with OSC by prior
owners of the graphite claims and leases. Current existing regulations of
reporting mineral resources in compliance with NI 43-101 and in compliance with
regulation by Securities and Exchange Commission of the United States ("SEC")
will require Graphite Technology to report resource and reserve findings
differently than past reporting of the properties.
ENVIRONMENTAL PERMITTING
Graphite Technology's graphite mine in Madagascar is permitted by the Malagasy
Mining Code, law no. 90-017 of 1990 as amended by the Malagasy Parliament.
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Graphite Technology's graphite mine in Canada is permitted under Certificate of
Approval by the Ontario Ministry of the Environment (Permit No. 4-0043-88-006)
which allows Graphite Technology to conduct mining related activities on each of
the four zones. This Certificate of Approval covers mining, tailings and all
ordinary course mining activities. Permits to take water have been approved for
previous existing operations. Graphite Technology is currently updating the site
closure plan to meet current Ontario Ministry standards. This site closure plan
must be filed prior to commencing on-site production and must include a form of
financial assurance at the time of filing.
Graphite Technology intends to proceed with permit applications for approval of
mining in the McGuire Zone and to complete in-fill drilling on the McGuire East
Zone and apply for permitting of the Sheehan Zone and for combining the McGuire
Zone, the McGuire West Zone and the Sheehan Zone for mining from single
open-pit.
If the permit application is approved, the single open-pit mine would offer the
flexibility required to balance and optimize ore grades and further reduce unit
mining costs. Graphite Technology expects that a single open-pit mine will
increase the longevity of planned operations.
COMMERCIALIZATION OF COMPANY OWNED MINES
Graphite Technology plans to commercially develop its mines with initial
production expected to begin during 2006 at the Madagascar mine properties and
in Hunan and Jiangxi Province, China. At the earliest time practicable, Graphite
Technology intends to incorporate proprietary carbon purification technology
into run-of-the-mine graphite production methods, the application of which is
meant to enhance carbon content levels of mined graphite and to otherwise
optimize the value of Graphite Technology's mineral reserves.
COMPETITION
Graphite Technology's competitors in graphite mining are operators of graphite
producing mines situated throughout the world, including mines in China, Brazil,
India, Zimbabwe, Madagascar, Norway, Russia, and Canada. Notable mining
competitors of Graphite Technology operating outside of China include Timcal
Ltd., Nacional de Grafite Ltda., Industrial Minerals, Inc. (OTCBB: IDSM) Crystal
Graphite Corporation (OTCBB: CYGTE), Worldwide Graphite Producers Ltd., and
Sequoia Minerals Inc. (TSE: SEQ).
SUMMARY OF TRANSACTIONS INVOLVING GRAPHITE TECHNOLOGY GROUP
APPLIED CARBON TECHNOLOGY (AMERICA), INC.
On July 31, 2004, Graphite Technology purchased assets of Applied Carbon
Technology (America), Inc. The assets included primarily graphite processing
equipment. In connection with this transaction, Graphite Technology Group, Inc.
assumed, and rescheduled to its satisfaction, various creditor loans
outstanding. In a separate transaction in February 2006 Graphite Technology
purchased the approximate 90,000 square foot graphite processing plant
previously used by Applied Carbon.
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SOCIETE MINIERE DE LA GRANDE ILE
On July 27, 2005, Graphite Technology entered into agreements to acquire a
one-half (50%) common equity ownership interest in Societe Malagasy du Grafit,
owner/developer of the largest producing graphite mine in Madagascar, the
Ambatomitamba Graphite Mine and contiguous mines. The acquisition was completed
on March 26, 2006.
VINECREST MANAGEMENT SERVICES/ SHEEHAN
On February 17, 2006, Graphite Technology acquired mining claims and leases for
graphite bearing properties located in Butt Township, Ontario, Canada. Certain
of the acquired claims and leases constituted part of the former Kearney
Graphite Mine. Additional mining claims and leases that are contiguous to the
former Kearney Graphite Mine were also acquired. All mineral claims and leases
acquired by Graphite Technology were acquired in two separate transactions with
Vinecrest Management Services and Vincent Sheehan, and all acquired claims and
leases from those parties are subject to royalty payments.
CHENZHOU GLOBAL GRAPHITE INC.
On October 13, 2005, Graphite Technology purchased 37.125% ownership of Chenzhou
Global Graphite Inc. ("Chenzhou") and has the right to acquire up to 45%
ownership of Chenzhou. Chenzhou has successfully developed patented purification
technology which increases carbon levels of amorphous graphite. High level fixed
carbon amorphous graphite (99.2% Fixed Carbon) represents commercial potential
for better or lower cost material solutions for numerous industrial
applications. Graphite Technology and Chenzhou Global Graphite will collaborate
to commercialize the product potential of the patented technology. In addition,
Chenzhou is party to agreements by which Chenzhou will be the majority owner and
the licensed operator of graphite mines in Hunan Province and Jiangxi Province,
China.
INTERNATIONAL GRAPHITE INC.
On March 31, 2005, Graphite Technology acquired a priority loan security
interest in the assets of International Graphite Inc., which assets comprise
mineral claims and leases forming part of the prior operating Kearney Graphite
Mine in Ontario, Canada. On March 9, 2006, Graphite Technology entered into
agreement with International Graphite Inc. and Crich Holdings & Buildings by
which Graphite Technology will acquire all graphite mineral claims, mineral
leases and permits for mining properties located contiguous to mineral claims
and leases previously acquired by Graphite Technology Group, Inc.
PITTSBURGH GENERAL WAREHOUSE INC.
On April 7, 2006, GTG Cardons LLC, a wholly owned subsidiary of Graphite
Technology entered into agreement with Mechanical Services Inc. to acquire the
former LTV Steel plant in Aliquippa, Pennsylvania on the Ohio River. The
facility is compromised of approximately 250,000 square foot commercial
warehousing with barge and crane loading and unloading and related materials
handling equipment, and 15 acres of commercial zoned land. If and when the
acquisition is completed, Graphite Technology plans to utilize the river port
and warehousing facility for receiving and warehousing and processing raw
materials and finished goods and for warehousing finished goods.
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RISK FACTORS
An investment in our securities is highly speculative and involves a high degree
of risk. Therefore, in evaluating us and our business you should carefully
consider the risks set forth below, which are only a few of the risks associated
with investing in our common stock.
RISKS RELATING TO THE BUSINESS OF GRAPHITE TECHNOLOGY
GRAPHITE TECHNOLOGY PRESENTLY DEPENDS ON FOREIGN SUPPLIERS FOR RAW MATERIALS.
Graphite Technology is presently reliant on foreign suppliers for raw materials
required by its operations and will continue to rely on them until such time as
Graphite Technology can successfully develop its graphite mines. Interruptions
of supply, for whatever contributing reasons, would jeopardize the
manufacturing/processing business of Graphite Technology. Shortages have
occurred in the past and may occur again.
THE PROCESSING AND DISTRIBUTION OF GRAPHITE, CARBON PRODUCTS AND CARBON
ADDITIVES IS A HIGHLY COMPETITIVE BUSINESS. MANY OF GRAPHITE TECHNOLOGY'S
COMPETITORS HAVE GREATER RESOURCES THAN GRAPHITE TECHNOLOGY.
The graphite and carbon materials industries involve mining and
manufacturing/processing operations and specialists within business sectors.
Graphite Technology will compete with major suppliers in North America, Europe
and Asia, as well as specialist suppliers to particular industries. The success
of Graphite Technology will entail gaining market share in numerous industries
where graphite and carbon products are used. This may also entail price
competition affecting market and product margin and may make certain business
lines unprofitable to pursue. The major business lines in which Graphite
Technology will compete are highly competitive and involve international and
regional competitors, including established manufacturers/producers that have
retained significant market share over a long history of operations. Graphite
Technology could experience increased future competition. Any of these
occurrences could have an adverse effect on Graphite Technology's operating
results or financial condition. In addition, some of Graphite Technology's
principal competitors may be less leveraged, have greater access to
financial or other resources, may have lower cost operations and be better able
to withstand market conditions.
Graphite Technology's competitors in the manufacturing/processing and sales of
graphite products and carbon additives include major processors and suppliers as
well as numerous specialty suppliers in each major business line. Graphite
Technology believes these competitors include Asbury Carbons, Inc., Timcal Ltd.,
Graphitwerk Kropfmuhl AG, and Superior Graphite. Graphite Technology's principal
competitors are more established and have greater, sales and marketing resources
than Graphite Technology.
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THE PRICE FOR GRAPHITE AND CARBON MATERIALS IS DIFFICULT TO PREDICT.
The viability of Graphite Technology's operations will be significantly affected
by changes in the price of raw materials, particularly graphite and anthracite
coal prices, which fluctuate and are affected by numerous factors beyond the
control of Graphite Technology such as the state of the economies affecting the
business of users, political influences and regulations affecting suppliers,
changes in applications, or changes in the economic or regulatory environment
affecting overall growth or decline of a particular industry. There is no
commodities exchange at which graphite and carbon materials are traded,
therefore prices for raw materials utilized by Graphite Technology are
negotiated at the time of purchase.
GRAPHITE TECHNOLOGY'S MINING OPERATIONS ARE SUBJECT TO RISKS.
The commercial viability of a mineral deposit is dependent on a number of
factors including the price of the raw material, exchange rates, particular
attributes of the deposit such as its size, grade and proximity to
infrastructure as well as other factors including financing costs, taxation,
royalties, land tenure, land use, water use, power use and environmental
protection. The effect of these factors on commercial viability cannot be
accurately predicted.
RESERVE/RESOURCES ARE ONLY ESTIMATES.
There is uncertainty attributable to the calculation of mine resources and
corresponding recovery rates ("grade") of future production. Reserves and
mineral resources and grades, must be considered as estimates only. Any reported
estimates of reserves or resources cited within were compiled prior to currently
in effect regulations for reporting resources and reserves and as a result may
not be relied upon. In addition, mine production will vary depending on prices.
TITLE TO GRAPHITE TECHNOLOGY'S MINES MAY BE CHALLENGED.
Graphite Technology investigated its rights to explore, exploit and develop its
mining properties and, to the best knowledge of Graphite Technology, such rights
are in good standing. No assurance can be given that such rights will not be
challenged or impugned by third parties. In addition, properties in which
Graphite Technology has an interest may be subject to prior unregistered
agreements, transfers or claims, and title may be affected by such undetected
defects.
THE MINING BUSINESS IS HEAVILY REGULATED.
Mining activities of Graphite Technology will be subject to extensive federal,
provincial and local laws and regulations controlling not only the mining and
exploration of Graphite Technology's mineral properties, but also the possible
effects of such activities upon the environment. Permits from a variety of
regulatory authorities are required for many aspects of mining operations and
processes and reclamation. Future legislation and regulations could cause
additional expense, capital expenditures, restrictions and delays in the
development of Graphite Technology's properties, the extent of which cannot be
predicted. In the context of environmental permitting, Graphite Technology must
comply with known standards, existing laws and regulations, which may entail
greater or lesser costs and delays depending on the nature of the activity to be
permitted and how stringently the regulations are implemented by the permitting
authority.
12
RISKS RELATING TO GRAPHITE TECHNOLOGY
GRAPHITE TECHNOLOGY HAS LIMITED PRIOR OPERATING HISTORY.
Graphite Technology's current business has a limited operating history. This
lack of history may be important to potential customers when evaluating merits
of doing business with Graphite Technology. This limited history may also make
it difficult for investors to evaluate the business and prospects for Graphite
Technology.
GRAPHITE TECHNOLOGY HAS REPORTED LOSSES TO DATE AND EXPECTS TO CONTINUE TO INCUR
LOSSES.
Graphite Technology has losses from prior operations, currently operates at a
loss, and will continue to operate at a loss indefinitely. Many factors,
including but not limited to, customer acceptance of Graphite Technology's
products, supplier arrangements, and response by major competitors to Graphite
Technology's entry into the industry, make it impossible to predict when or
whether Graphite Technology will generate sufficient revenue to sustain
long-term profitability.
GRAPHITE TECHNOLOGY REQUIRES ADDITIONAL CAPITAL TO ACHIEVE PROFITABLE
OPERATIONS.
Graphite Technology will require additional capital to implement all of its
planned operations. There can be no assurance that such additional funds will be
available or that, if available, will be on terms acceptable to Graphite
Technology. The failure to obtain additional funding when required may have a
material adverse effect on Graphite Technology.
DEPENDENCE ON KEY MANAGEMENT
The success of Graphite Technology depends, to a significant degree, upon the
continued service of key senior management personnel and advisors, and the
continuing ability to attract, retain and motivate qualified engineers, research
and development personnel, managerial and sales personnel. There can be no
assurance that Graphite Technology will be able to retain existing employees or
attract, retain and motivate highly- qualified personnel in the future.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Previous to now, Management of Graphite Technology's priorities were to assemble
the primary business infrastructure necessary to compete effectively in the
graphite and carbon materials industry, which it believes it has now assembled
and which presently includes viable long term mine resources in Madagascar,
Canada and China and graphite manufacturing/processing plants in New York and
Pennsylvania, as well as proprietary processes and formulae and experienced
operators and sales persons. In the nine month period ended December 31, 2005,
Graphite Technology had sales of $898,320 versus sales in the nine month period
ended December 31, 2004 of $517,719 Losses for the nine month period ended
December 31, 2005 were $2,032,313 versus losses in the nine month period ended
December 31, 2004 of $712,054. Management sees the current infrastructure as
providing capacity and versatility to meet expected long term demand by diverse
industries worldwide. Management now plans to expand Graphite Technology's
manufacturing/processing facilities, including completion of its Pennsylvania
process facility, establishment of certain manufacturing/processing capabilities
for carbon additive materials at its Pittsburgh-based facility as and when
purchased, and installing graphite process capabilities in Chenzhou City, Hunan
Province, China. SOMAGRA, the joint owned company in which Graphite Technology
is a 50% common equity owner and responsible for management of SOMAGRA's
Madagascar based mining business, is currently reassembling previous utilized
mine equipment to commence production of the Ambatombitamba Mine in summer 2006.
SOMAGRA intends to modernize mine operations on a continuing basis. In Canada,
Graphite Technology expects to focus on site preparation and compliance matters
necessary to open Graphite Technology's Canadian mine operations at the earliest
time practicable. Management also plans to co-develop the patented carbon
purification technologies of its affiliate, Chenzhou Global Graphite. Management
plans to add sales professionals, mining professionals and manufacturing staff
throughout 2006.
ITEM 3. DESCRIPTION OF PROPERTY.
We own an approximate 90,000 square foot manufacturing and processing facility
located in Brocton, New York. We lease an approximate 20,000 square foot
specialized processing facility in Delano, Pennsylvania. The lease on the
Delano, Pennsylvania facility commenced on January 1, 2005 and has a five year
term at an annual rent of $54,000. The lease may be extended by us for two five
year options. We believe that if we lost the lease at these premises, it would
cause operating losses and lost of continuing business for the period of time
until a suitable relocation could be identified and process equipment could be
relocated. We carry an approximate $260,000 mortgage on the Brocton, New York
facility.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates how many shares of our common stock were
beneficially owned as of April 1, 2006, by (1) each person known by us to be the
owner of more than 5% of our outstanding shares of common stock, (2) our
directors, (3) our executive officers, and (4) our directors and executive
officers as a group. In general, "beneficial ownership" includes those shares a
director or executive officer has sole or shared power to vote or transfer
(whether or not owned directly) and rights to acquire common stock through the
exercise of stock options or warrants that are exercisable currently or become
exercisable within 60 days. Except as indicated otherwise, the persons named in
the table below have sole voting and investment power with respect to all shares
shown as beneficially owned by them. We based our calculation of the percentage
owned on 94,259,503 shares outstanding on April 1, 2006. The address of each
director and executive officer listed below is c/o Graphite Technology Group,
Inc., 106 Lakeside Avenue, P.O. Box 210, Delano, PA 18220.
14
- -----------------------------------------------------------------
Number of
Shares
Beneficially
Name and Address Owned Percent of Class
- -----------------------------------------------------------------
Derek Hirsch 3,155,036(1) 3.35%
Co-Chairman
- -----------------------------------------------------------------
Thomas G. Dugan 365,087(2) *
Co-Chairman
- -----------------------------------------------------------------
James E. Olive 3,651,167(3) 3.90%
Director, President, and CEO
- -----------------------------------------------------------------
Alvin B. Marshall 108,183(4) *
Director, Secretary
- -----------------------------------------------------------------
Edward L. Ryan Jr. 278,170(5) *
Director
- -----------------------------------------------------------------
Budea Johns 108,183(6) *
Director
- -----------------------------------------------------------------
Bertil Akesson Jr. 108,183(7) *
Director
- -----------------------------------------------------------------
David Laudeman 202,843(8) *
CFO
- -----------------------------------------------------------------
BP Investments Group, LLC 27,692,305 29.41%
111 Presidential Boulevard
Suite 158A
Bala Cynwyd, PA 1904
- -----------------------------------------------------------------
All officers and 7,976,852 8.46%
directors as a group
(8 persons)
- -----------------------------------------------------------------
* Represents less than 1%
- -----------------------------
(1) Does not include 4,614,200 common shares issuable to Mr. Hirsch upon
the conversion of 46,142 Series D preferred stock. The Series D
preferred stock will automatically convert upon the earlier of (i) the
filing of an amendment to BPK Resources' Articles of Incorporation
increasing the number of authorized shares of Common Stock such that
sufficient number of shares of Common Stock is authorized and unissued
so that each share of Series D Preferred Stock may be converted into
Common Stock; or (ii) the first business day after the effective date
of a reverse stock split of the outstanding shares of Common Stock such
that a sufficient number of shares of Common Stock is authorized and
unissued so that each share of Series D Preferred Stock may be
converted into Common Stock. This also does not include 3,500,000
common shares issuable to Mr. Hirsch upon the conversion of 14,546
Series E preferred stock.
15
(2) Does not include 533,940 common shares issuable to Mr. Dugan upon the
conversion of 5,339 Series D preferred stock.
(3) Does not include 5,339,832 common shares issuable to Mr. Olive upon the
conversion of 53,398 Series D preferred stock.
(4) Does not include 158,217 common shares issuable to Mr. Marshall upon
the conversion of 1,582 Series D preferred stock.
(5) Does not include 406,824 common shares issuable to Mr. Ryan upon the
conversion of 4,068 Series D preferred stock.
(6) Does not include 158,217 common shares issuable to Mr. Johns upon the
conversion of 1,582 Series D preferred stock.
(7) Does not include 158,217 common shares issuable to Mr. Akesson upon
conversion of 1,582 Series D preferred stock.
(8) Does not include 296,697 common shares issuable to Mr. Laudeman upon
the conversion of 2,966 Series D preferred stock.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors, officers and key employees are as follows:
Name Age Position
- ---- --- --------
Derek Hirsch 35 Co-Chairman
Thomas G. Dugan 69 Co-Chairman
James E. Olive 59 Director, President and CEO
Alvin B. Marshall, Esq. 66 Director and Secretary
Edward L. Ryan Jr. 56 Director
Budea Johns 42 Director
Bertil Akesson Jr. 36 Director
David Laudeman 44 Chief Financial Officer
The business experience, principal occupations and employment of each of the
above persons during at least the last five years are set forth below.
DEREK HIRSCH. Mr. Hirsch has served as Co-Chairman of the Board of Directors
of Graphite Technology since June 30, 2004. Since January, 2001, Mr. Hirsch has
been the Managing Partner and Chief Investment Officer of DHCI, a Montreal
based money management organization established by Mr. Hirsch. Prior to January
2001, Mr. Hirsch was the Managing Partner and Chief Investment Officer of Les
Gestions AKD. Mr. Hirsch is an adjunct professor with the John Molson School of
Business in Montreal, Canada. Mr. Hirsch is a resident and citizen of Canada.
16
THOMAS G. DUGAN. Mr. Dugan has served as Co-Chairman of the Board of Directors
of Graphite Technology since June 30, 2004. From 1980 until January 2006, Mr.
Dugan served as a Financial Advisor and Senior Vice President, Investments, with
Legg Mason Wood Walker, Baltimore, Maryland.
JAMES E. OLIVE. Mr. Olive has been the Chief Executive Officer of Graphite
Technology since April 2004 and has been a member of the Board of Directors of
Graphite since June 30, 2004. From 1997 until joining Graphite, Mr. Olive was
President and Chief Operating Officer of Applied Carbon Technology (America), a
company engaged in the graphite business. Mr. Olive's prior experience includes
his holding senior executive positions in the industrial engineering,
purchasing, sales and marketing departments of Joseph Dixon Crucible Company,
Amalgamate Canada and Graphite Trading Corp.
ALVIN B. MARSHALL, ESQ. Mr. Marshall has been a member of the Board of Directors
of Graphite Technology. since June 30, 2004. Since 1970, Mr. Marshall has been a
partner of Lipkin, Marshall, Bohorad & Thornburg P.C., a Pennsylvania based law
firm specializing in corporation, financing, transactional, employment and labor
law. Mr. Marshall has been Senior Managing Partner of the firm since 1995. Mr.
Marshall is a member of the regional Advisory Board of Directors of M&T Bank,
member of the Board of Directors of Schuylkill Economic Development Corp, and
Pottsville Hospital.
EDWARD L. RYAN, JR. Mr. Ryan has been a member of the Board of Directors of
Graphite Technology since June 30, 2004. Since 1996, Mr. Ryan has served as the
Managing Director, Corporate Bonds of R.W. Pressprich & Co., a New York based
NASD member firm. Mr. Ryan is a former Managing Director of Nomura Securities
and former Senior Managing Director of Bear Stearns.
BUDEA JOHNS. Mr. Johns has been a member of the Board of Directors of Graphite
Technology since June 30, 2004. Since February 2004, Mr. Johns founded and
served as the President of CSG Properties, a Pittsburgh based diversified
services company specializing in commercial and industrial property ownership,
logistics, development and management. Prior to founding CSG, Mr. Johns was a
principal and manager of Chapman Business Properties, a property management and
development company.
BERTIL AKESSON, JR. Mr. Akesson has been a member of the Board of Directors of
Graphite Technology since June 30, 2004. Since January 2003, Mr. Akesson has
been Le President Directeur General of Societe d Commerce et de Mine (Paris,
France), a mica mining, processing and sales company. Mr. Akesson is the former
Sales Manager for Timcal AG (Imerys Group) for graphite and carbon product sales
in Germany-Austria-Benelux from January 2001 to October 2003, and formerly
associated with Graphitwerk Kropfmuhl during 1995 and 1996. Mr. Akesson will
oversee Graphite's graphite sales operations in Europe and the Madagascar mining
business.
DAVID LAUDEMAN, CPA, CVA. Mr. Laudeman has been Chief Financial Officer of
Graphite Technology since July 1, 2004. Since 1992, Mr. Laudeman has been the
Managing Member of Heckman & Laudeman LLC, certified public accountants and
registered securities advisors. Mr. Laudeman is a CPA and a certified business
valuation expert and registered investment advisor and member of the Advisory
Board of M&T Bank and Penn State University.
17
EMPLOYEES
We currently have 24 full-time employees and two full time consultants. We plan
to hire approximately 10 more employees or full time consultants during the next
12 months to support our expansion plans and foreign operations. We have 22
persons currently employed by SOMAGRA, our joint owned Madagascar mining
business.
ITEM 6. EXECUTIVE COMPENSATION
The following table discloses the compensation we paid to our senior executive
officers, in the twelve months ending March 31, 2006.
- --------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------
Name and Principal Annual Compensation
Other Securities
Annual Underlying All Other
Compensa- Options/ Compen-
Position Year Salary($) Bonus($) tion SARs sation($)
- --------------------------------------------------------------------------------------
James E. Olive 2006 $195,000 -- -- -- --
Chief Executive
Officer
- --------------------------------------------------------------------------------------
David Laudeman 2006 $75,000 -- -- -- --
CFO
- --------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
No Graphite Technology employees have employment agreements.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Neither our directors and executive officers nor any person who beneficially
owns, directly or indirectly, shares carrying more than 5% of our common stock,
nor any members of the immediate family (including spouse, parents, children,
siblings, and in-laws) of any of the foregoing persons, has any material
interest, direct or indirect, in any transaction that we have entered into since
our incorporation or any proposed transaction.
ITEM 8. LEGAL PROCEEDINGS
None.
18
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Prior to the merger described herein, there was no public trading market for
Graphite Technology's shares.
HOLDERS
As of April 1, 2006, the number of stockholders of record of our common stock
was 108.
DIVIDENDS
Graphite Technology has not paid any cash dividends on its common stock to date,
and has no intention of paying such cash dividends in the foreseeable future.
The declaration and payment of dividends is subject to the discretion of our
Board of Directors and to certain limitations imposed under Delaware corporate
law. The timing, amount and form of dividends, if any, will depend on, among
other things, our results of operations, financial condition, cash requirements
and other factors deemed relevant by our Board of Directors.
TRANSFER AGENT
The transfer agent for our common stock is Stock Transfer, Inc., 44 West
Lancaster Avenue, Ardmore, Pennsylvania, 19003, (610) 649-7300.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since incorporation in April 2004 through July 2004, Graphite Technology has
issued 11,585,499 of its common stock to approximately 22 founders of Graphite
Technology in consideration for forming and organizing Graphite Technology. This
offering and sale of shares of our common stock qualified for exemption under
Section 4(2) of the Securities Act of 1933 since the issuance by us did not
involve a public offering. The offering was not a public offering as defined in
Section 4(2) because the offer and sale was made to an insubstantial number of
persons and because of the manner of the offering. In addition, all founder
investors had the necessary investment intent as required by Section 4(2) since
they agreed to, and received, share certificates bearing a legend stating that
such shares are restricted. This restriction ensures that these shares will not
be immediately redistributed into the market and therefore not be part of a
public offering. Therefore this offering was done with no general solicitation
or advertising. Based on an analysis of the above factors, we believe we have
met the requirements to qualify for exemption under Section 4(2) of the
Securities Act of 1933 for this transaction.
In July 2004, Graphite Technology issued 560,000 shares of its common stock to
approximately 12 persons in consideration for future services as directors,
officers, and/or consultants. This offering and sale of shares of our common
stock qualified for exemption under Section 4(2) of the Securities Act of 1933
since the issuance by us did not involve a public offering. The offering was not
a public offering as defined in Section 4(2) because the offer and sale was made
to an insubstantial number of persons and because of the manner of the offering.
We did not undertake an offering in which we sold shares to a large number of
investors. In addition, these investors had the necessary investment intent as
required by Section 4(2) since they agreed to, and received, share certificates
bearing a legend stating that such shares are restricted. This restriction
ensures that these shares will not be immediately redistributed into the market
and therefore not be part of a public offering. This offering was done with no
general solicitation or advertising. Based on an analysis of the above factors,
we believe we have met the requirements to qualify for exemption under Section
4(2) of the Securities Act of 1933 for this transaction.
19
In November 2004, Graphite Technology issued 120,000 shares of its common stock
to Beach Lane Investments, Ltd. in connection with Beach Lane extending terms of
outstanding demand notes and entering into new loans with Graphite Technology.
This offering and sale of shares of our common stock qualified for exemption
under Section 4(2) of the Securities Act of 1933 since the issuance by us did
not involve a public offering. The offering was not a public offering as defined
in Section 4(2) because the offer and sale was made to a single entity, and
because of the manner of the offering. We did not undertake an offering in which
we sold shares to a large number of investors. In addition, this investor had
the necessary investment intent as required by Section 4(2) since he agreed to,
and received, share certificates bearing a legend stating that such shares are
restricted. This restriction ensures that these shares will not be immediately
redistributed into the market and therefore not be part of a public offering.
This offering was done with no general solicitation or advertising. Based on an
analysis of the above factors, we believe we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act of 1933 for this
transaction.
In January 2005, Graphite Technology issued an aggregate of 704,749 shares of
its common stock to four entities that were lenders to the company in
satisfaction of loans then outstanding to Graphite Technology by those parties.
Shares were issued to Merchant Capital Group Inc., Twinbro Capital LLC, Industry
Capital Partners L.P., and Range Corp. This offering and sale of shares of our
common stock qualified for exemption under Section 4(2) of the Securities Act of
1933 since the issuance by us did not involve a public offering. The offering
was not a public offering as defined in Section 4(2) because the offer and sale
was made to an insubstantial number of entities and because of the manner of the
offering. We did not undertake an offering in which we sold shares to a large
number of investors. In addition, these investors had the necessary investment
intent as required by Section 4(2) since he agreed to, and received, share
certificates bearing a legend stating that such shares are restricted. This
restriction ensures that these shares will not be immediately redistributed into
the market and therefore not be part of a public offering. This offering was
done with no general solicitation or advertising. Based on an analysis of the
above factors, we believe we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.
In February 2005, Graphite Technology issued 4,546 Series "A" and 1,000 Series
"B" Convertible Preferred Stock, with a stated value of $100. This issue of our
preferred stock was issued in exchange for $1,454,600 principal amount of
outstanding loan to Graphite Technology by Derek Hirsch. This offering and sale
of preferred shares qualified for exemption under Section 4(2) of the Securities
Act of 1933 since the issuance by us did not involve a public offering. The
offering was not a public offering as defined in Section 4(2) because the offer
and sale was made to one lender of the company and because of the manner of the
offering. We did not undertake an offering in which we sold shares to a large
number of investors. In addition, this investor had the necessary investment
intent as required by Section 4(2) since he agreed to, and received, share
certificates bearing a legend stating that such stock is restricted. This
restriction ensures that these shares will not be immediately redistributed into
the market and therefore not be part of a public offering. This offering was
done with no general solicitation or advertising. Based on an analysis of the
above factors, we believe we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.
20
In February 2005, Graphite Technology issued 75,000 shares of its common stock
to Max Christian in connection with his agreement to be employed by Graphite
Technology. This offering and sale of shares of our common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance by
us did not involve a public offering. The offering was not a public offering as
defined in Section 4(2) because the offer and sale was made to only one person
and because of the manner of the offering. In addition, this investor had the
necessary investment intent as required by Section 4(2) since he agreed to, and
received, share certificates bearing a legend stating that such shares are
restricted. This restriction ensures that these shares will not be immediately
redistributed into the market and therefore not be part of a public offering.
This offering was done with no general solicitation or advertising. Based on an
analysis of the above factors, we belive we have met the requirements to qualify
for exemption under Section 4(2) of the Securities Act of 1933 for this
transaction.
In February and March 2005, Graphite Technology issued the aggregate amount of
91,429 shares of its common stock to two accredited investors in exchange for
$155,000. We did not pay commissions to any placement agent. The issuance of
these shares was exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act.
In May 2005, Graphite Technology issued 66,667 shares of its common stock to
Theodore Twardzik and 66,667 to Timothy Twardzik under terms of a subscription
agreement between Graphite Technology and those individuals and in connection
with the payment by those individuals of $150,000 to 9102-2764 Quebec Inc., the
payment of which reduced the outstanding principal amount of a then outstanding
loan between Graphite Technology and 9102-2764 Quebec Inc. In addition, we
issued 15,000 shares to each of Theodore Twardzik and Timothy Twardzik in
connection with their appointments to the Advisory Board of Graphite Technology
and in consideration of future services to be rendered by them. We also issued
10,000 shares of our common stock to Larry Belcamino in connection with his
providing marketing services to Graphite Technology. These offerings and sales
of shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance by us did not involve a public
offering. The offering was not a public offering as defined in Section 4(2)
because the offer and sale was made to an insubstantial number of persons and
because of the manner of the offering. We did not undertake an offering in which
we sold shares to a large number of investors. In addition, these investors had
the necessary investment intent as required by Section 4(2) since they agreed
to, and received, share certificates bearing a legend stating that such shares
are restricted. This restriction ensures that these shares will not be
immediately redistributed into the market and therefore not be part of a public
offering. Therefore this offering was done with no general solicitation or
advertising. Based on an analysis of the above factors, the Registrant has met
the requirements to qualify for exemption under Section 4(2) of the Securities
Act of 1933 for this transaction.
21
In June 2005, Graphite Technology issued 597,285 shares of its common stock to
Merchant Capital Group Inc. in connection with the acquisition by Graphite
Technology of a priority security lien interest in mining claims and leases
located in the Province of Ontario, Canada, and in connection with the
acquisition by Graphite Technology of mining equipment. This offering and sale
of shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance by us did not involve a public
offering. The offering was not a public offering as defined in Section 4(2)
because the offer and sale was to one entity and because of the manner of the
offering. We did not undertake an offering in which we sold shares to a large
number of investors. In addition, this investor had the necessary investment
intent as required by Section 4(2) since it agreed to, and received, share
certificates bearing a legend stating that such shares are restricted. This
restriction ensures that these shares will not be immediately redistributed into
the market and therefore not be part of a public offering. This offering was
done with no general solicitation or advertising. Based on an analysis of the
above factors, we believe we have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for this transaction.
In October 2005, Graphite Technology issued 600,795 shares of its common stock
to Chenzhou Global Graphite Inc. in connection with the acquisition by Graphite
Technology of a 37.125% common equity ownership interest in Chenzhou Global
Graphite. This offering and sale of shares of our common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance by
us did not involve a public offering. The offering was not a public offering as
defined in Section 4(2) because the offer and sale was made to a single entity
and because of the manner of the offering. We did not undertake an offering in
which we sold shares to a large number of investors. In addition, this investor
had the necessary investment intent as required by Section 4(2) since it agreed
to, and received, share certificates bearing a legend stating that such shares
are restricted. This restriction ensures that these shares will not be
immediately redistributed into the market and therefore not be part of a public
offering. This offering was done with no general solicitation or advertising.
Based on an analysis of the above factors, we believe we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
In October 2005, Graphite Technology issued 75,000 shares of its common stock to
ShiWei Tang in connection with his agreement to continue in the role of CEO of
Chenzhou Global Graphite Inc., an affiliated company. This offering and sale of
shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance by us did not involve a public
offering. The offering was not a public offering as defined in Section 4(2)
because the offer and sale was made to only one person and because of the manner
of the offering. In addition, this investor had the necessary investment intent
as required by Section 4(2) since he agreed to, and received, share certificates
bearing a legend stating that such shares are restricted. This restriction
ensures that these shares will not be immediately redistributed into the market
and therefore not be part of a public offering. This offering was done with no
general solicitation or advertising. Based on an analysis of the above factors,
the Registrant has met the requirements to qualify for exemption under Section
4(2) of the Securities Act of 1933 for this transaction.
22
In December 2005, Graphite Technology issued an aggregate of 149,552 shares of
its common stock to approximately five lenders of Graphite Technology, which
shares were then issued in lieu of accrued interest payments due. In addition,
we issued 51,433 shares of our common stock to approximately five lenders of
Graphite Technology as inducement of those lenders to extend maturity dates of
loans. This offering and sale of shares of our common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance by
us did not involve a public offering. The offering was not a public offering as
defined in Section 4(2) because the offer and sale was to an insubstantial
number of persons and because of the manner of the offering. We did not
undertake an offering in which we sold shares to a large number of investors. In
addition, these investors had the necessary investment intent as required by
Section 4(2) since they agreed to, and received, share certificates bearing a
legend stating that such shares are restricted. This restriction ensures that
these shares will not be immediately redistributed into the market and therefore
not be part of a public offering. This offering was done with no general
solicitation or advertising. Based on an analysis of the above factors, we
believe we have met the requirements to qualify for exemption under Section 4(2)
of the Securities Act of 1933 for these transactions.
In February 2006, Graphite Technology issued 5,714 share of its common stock to
an accredited investor in exchange for $10,000. Graphite Technology did not pay
commissions to any placement agent. The issuance of these investment units was
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act since the issuance by us did not involve a public offering.
The offering was not a public offering as defined in Section 4(2) because the
offer and sale was to one entity and because of the manner of the offering. This
offering was done with no general solicitation or advertising. Based on an
analysis of the above factors, we believe we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act of 1933 for this
transaction.
ITEM 11. DESCRIPTION OF SECURITIES
AUTHORIZED AND OUTSTANDING
Our authorized capital consists of 100 million shares of common stock, par value
$.001 per share and 10 million shares of preferred stock, par value $.001 per
share. As of April 19,2006, there were issued and outstanding (i) 94,259,503
shares of common stock; (ii) options to acquire 2,100,000 shares of common
stock, with a weighted average exercise price of $.1367 per share; (iii) shares
reserved to be issued in connection with convertible loans to acquire 9,615,385
shares of common stock; (iv) warrants to acquire 10,994,995 shares of common
stock with a weighted average exercisable price of $.2472 per share; (v) 829,775
shares of Series B Convertible Preferred Stock convertible into 829,775 shares
of common stock; (vi) 22,000 shares of Series C Convertible Preferred Stock
convertible into 12,941,100 shares of common stock; (vii) 585,000 shares of
Series D Convertible Preferred Stock convertible into 58,500,000 shares of
common stock; and (viii) 14,546 shares of Series E Preferred Stock convertible
into 3,500,000 shares of common stock.
23
COMMON STOCK
VOTING RIGHTS
Holders of our common stock have the right to cast one vote for each share of
stock in their name on the books of our company, whether represented in person
or by proxy, on all matters submitted to a vote of holders of common stock,
including election of directors. There is no right to cumulative voting in
election of directors. Except where a greater requirement is provided by statute
or by the articles of incorporation, or in the by-laws, the presence, in person
or by proxy duly authorized, of the one or more holders of a majority of the
outstanding shares of our common stock constitutes a quorum for the transaction
of business. The vote by the holders of a majority of a class of outstanding
shares is required to effect certain fundamental corporate changes such as
liquidation, merger, or amendment of our articles of incorporation.
DIVIDENDS
There are no restrictions in our articles of incorporation or by-laws that
prevent us from declaring dividends. The Nevada Revised Statutes does, however,
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend (1) we would not be able to pay our debts as they
become due in the usual course of business or (2) our total assets would be less
than the sum of our total liabilities plus the amount that would be needed to
satisfy the rights of stockholders who have preferential rights superior to
those receiving the distribution.
We have not declared any dividends, and we do not plan to declare any dividends
in the foreseeable future.
PREEMPTIVE RIGHTS
Holders of our common stock are not entitled to preemptive rights, and no
redemption or sinking fund provisions are applicable to our common stock. All
outstanding shares of our common stock are fully paid and non-assessable.
SERIES B PREFERRED STOCK
By resolution dated on or about March 5, 2004, BPK Resources' Board of Directors
designated 829,775 of our authorized but unissued shares of preferred stock as
Series B Convertible Preferred Stock (the "Series B Shares"). All Series B
Shares were issued at .55 per share and are immediately convertible at the
option of the holder into one share of common stock. In the event of a
liquidation or dissolution of the Company, the Series B Shares automatically
convert into shares of common stock at an effective conversion price of $.55 per
share. Except as provided in the Nevada General Corporation Law, holders of
Series B Shares have no voting rights. We can redeem the Series B Shares at any
time at our option at a redemption price of $.01 per share so long as (i) the
average of the closing bid prices of our common stock during the twenty trading
days preceding the redemption notice date equals or exceeds $1.00 per share; and
(ii) the shares of common stock issuable upon conversion are either subject to
an effective registration statement under the Securities Act of 1933, or
transferable pursuant to Rule 144(k) promulgated thereunder.
24
SERIES C PREFERRED STOCK
On March 10, 2006, BPK Resources filed a Certificate of Designation with the
Secretary of State of the State of Nevada designating 500,000 shares of our
preferred stock as BPK Series C Preferred Stock (the "Series C
Certificate of Designation").
Each share of BPK Series C Preferred Stock has an original issue price of $17.00
and will automatically convert into shares of BPK Common Stock at a conversion
price of $0.17 per share upon the earlier of: (i) the filing of an amendment to
the Company's Articles of Incorporation increasing the number of authorized
shares of BPK Common Stock such that a sufficient number of shares of BPK Common
Stock is authorized and unissued so that each share of BPK Series C Preferred
Stock may be converted into BPK Common Stock; or (ii) the first business day
after the effective date of a reverse stock split of the outstanding shares of
BPK Common Stock such that a sufficient number of shares of BPK Common Stock is
authorized and unissued so that each share of BPK Series C Preferred Stock may
be converted into BPK Common Stock. The holders of BPK Series C Preferred Stock
have no voting rights or rights to receive dividends. However, subject to the
rights of holders of any series of preferred stock which by its terms is senior
to the BPK Series C Preferred Stock, in the event of any liquidation,
dissolution or winding up of BPK, holders of the BPK Series C Preferred Stock
will be entitled to receive in preference to the holders of BPK Common Stock an
amount equal to the original issue price. In addition, all or any portion of the
shares of BPK Series C Preferred Stock may be redeemed upon payment of the
Purchase Price at any time by the Company in it sole discretion upon thirty (30)
days' written notice to the holders of BPK Series C Preferred Stock.
SERIES D PREFERRED STOCK
On April 19, 2006, BPK Resources issued 585,000 of its Series D Preferred Stock
to 46 shareholders of Graphite Technology as partial consideration for their
ownership interest in Graphite Technology. Each share of Series D Preferred
Stock will automatically convert into shares of Common Stock upon the earlier
of: (i) the filing of an amendment to BPK Resources' Articles of Incorporation
increasing the number of authorized shares of Common Stock such that sufficient
number of shares of Common Stock is authorized and unissued so that each share
of Series D Preferred Stock may be converted into Common Stock; or (ii) the
first business day after the effective date of a reverse stock split of the
outstanding shares of Common Stock such that a sufficient number of shares of
Common Stock is authorized and unissued so that each share of Series D Preferred
Stock may be converted into Common Stock. The holders of Series D Preferred
Stock will have no liquidation preference, voting rights or rights to receive
dividends.
25
SERIES E PREFERRED STOCK
On April 19, 2006, BPK Resources issued 14,546 of its Series E Preferred Stock
to one shareholder, Derek Hirsch, of Graphite Technology as partial
consideration for his ownership interest in Graphite Technology. Subject to the
rights of holders of any series of preferred stock which by its terms is senior
to the Series E Preferred Stock, in the event of any liquidation, dissolution or
winding up of BPK Resources, holders of Series E Preferred Stock will be
entitled to receive in preference to the holders of Common Stock an aggregate
amount of approximately $1,454,000.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation eliminates the personal liability of our
directors for monetary damages arising from a breach of their fiduciary duty as
directors to the fullest extent permitted by Nevada law. This limitation does
not affect the availability of equitable remedies, such as injunctive relief or
rescission. Our articles of incorporation requires us to indemnify our directors
and officers to the fullest extent permitted by Nevada law, including in
circumstances in which indemnification is otherwise discretionary under Nevada
law.
Under Nevada law, we may indemnify our directors or officers or other persons
who were, are or are threatened to be made a named defendant or respondent in a
proceeding because the person is or was our director, officer, employee or
agent, if we determine that the person:
o conducted himself or herself in good faith;
o reasonably believed, in the case of conduct in his or her official
capacity as our director or officer, that his or her conduct was in
our best interests, and, in all other cases, that his or her conduct
was at least not opposed to our best interests; and
o in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
These persons may be indemnified against expenses, including attorney fees,
judgments, fines, including excise taxes, and amounts paid in settlement,
actually and reasonably incurred, by the person in connection with the
proceeding. If the person is found liable to the corporation, no indemnification
shall be made unless the court in which the action was brought determines that
the person is fairly and reasonably entitled to indemnity in an amount that the
court will establish.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
26
ITEM 13. FINANCIAL STATEMENTS
See the financial statements included below.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
On April 19, 2006, BPK Resources issued 40,000,000 shares of its common stock to
46 shareholders of Graphite Technology Group, Inc. as partial consideration for
their ownership interest in Graphite Technology Group, Inc. This offering and
sale of shares of common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance by BPK Resources did not involve a
public offering. The offering was not a public offering as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, these investors had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, share certificates bearing a legend stating that such shares are
restricted. This restriction ensures that these shares will not be immediately
redistributed into the market and therefore not be part of a public offering.
This offering was done with no general solicitation or advertising by BPK
Resources. Based on an analysis of the above factors, BPK Resources has met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
On April 19, 2006, BPK Resources issued 585,000 of its Series D Preferred Stock
to 46 shareholders of Graphite Technology Group, Inc. as partial consideration
for their ownership interest in Graphite Technology Group, Inc. This offering
and sale of Series D Preferred Stock qualified for exemption under Section 4(2)
of the Securities Act of 1933 since the issuance by BPK Resources did not
involve a public offering. The offering was not a public offering as defined in
Section 4(2) because the offer and sale was made to an insubstantial number of
persons and because of the manner of the offering. In addition, these investors
had the necessary investment intent as required by Section 4(2) since they
agreed to, and received, share certificates bearing a legend stating that such
shares are restricted. This restriction ensures that these shares will not be
immediately redistributed into the market and therefore not be part of a public
offering. This offering was done with no general solicitation or advertising by
BPK Resources. Based on an analysis of the above factors, BPK Resources has met
the requirements to qualify for exemption under Section 4(2) of the Securities
Act of 1933 for this transaction.
27
On April 19, 2006, BPK Resources issued 14,546 of its Series E Preferred Stock
to one shareholder, Derek Hirsch, of Graphite Technology Group, Inc. as partial
consideration for his ownership interest in Graphite Technology Group, Inc. This
offering and sale of Series E Preferred Stock qualified for exemption under
Section 4(2) of the Securities Act of 1933 since the issuance by BPK Resources
did not involve a public offering. The offering was not a public offering as
defined in Section 4(2) because the offer and sale was made to one person and
because of the manner of the offering. In addition, this individual had the
necessary investment intent as required by Section 4(2) since he agreed to, and
received, share certificates bearing a legend stating that such shares are
restricted. This restriction ensures that these shares will not be immediately
redistributed into the market and therefore not be part of a public offering.
This offering was done with no general solicitation or advertising by BPK
Resources. Based on an analysis of the above factors, BPK Resources has met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for this transaction.
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT
BPK Resources incorporates by reference the information set forth in the
Schedule 14F-1 that it filed with the Commission on March 22, 2006
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS
(b) Resignation of Principal Officer and Directors
On April 19, 2006, Christopher Giordano resigned as Chief Executive Officer,
Treasurer and Secretary of BPK Resources, effective immediately.
On April 19, 2006, Christopher Giordano, Michael Rosenbaum and Cecile T. Dibona
resigned as directors of BPK Resources, effective immediately.
(c) Appointment of Principal Officer
On April 20, 2006, BPK Resources' board of directors appointed David Laudeman,
CPA, CVA, its Chief Financial Officer, effective immediately. Mr. Laudeman has
been Chief Financial Officer of Graphite Technologies since July 1, 2004. Since
1992, Mr. Laudeman has been the Managing Member of Hechman & Laudeman LLC,
certified public accountants and registered securities advisors. Mr. Laudeman is
a CPA and a certified business valuation expert and registered investment
advisor and member of the Advisory Board of M&T Bank and Penn State University.
(d) Appointment of Directors
On April 19, 2006, the following persons were appointed directors of BPK
Resources: Derek Hirsch, Thomas G. Dugan, James E. Olive, Alvin B. Marshall,
Edward L. Ryan, Budea Johns and Bertil Akesson.
Neither Derek Hirsch, Thomas G. Dugan, James E. Olive, Alvin B. Marshall, Edward
L. Ryan, Budea Johns and Bertil Akesson, Jr., nor any of their respective
affiliates, has been involved in any transaction with BPK Resources or any of
its directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission.
Similarly, neither of them has a familial relationship with any current or
proposed director or executive officer of BPK Resources.
Item 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BY-LAWS; CHANGE IN FISCAL
YEAR
On April 19, 2006, the board of directors of BPK Resources approved and adopted
an amendment of BPK Resources By-Laws. The purpose of the amendment was to
increase the size of the board from a number between one and five to a number
between one and seven. The amendment was effective immediately.
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
The information provided in Item 2.01 of this Report is incorporated herein by
reference.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statements and pro forma financial information
filed as a part of this report:
(a) Financial Statements of Business Acquired
Audited financial statements of Graphite Technology Group, Inc. as of March 31,
2005 and for the period from April 27, 2004 (date of inception) to March 31,
2005.
Financial statements of Graphite Technology Group, Inc. as of December 31, 2005
and 2004 and for the nine month periods ended December 31, 2005 and the period
from April 27, 2004 (date of inception) to December 31, 2004.
Financial statements of Applied Carbon Technology (America), Inc. as of April
30, 2004 and December 31, 2003 and for the four and twelve month periods then
ended.
(b) Pro Forma Consolidated Financial Information
Pro forma financial information showing the effects of the acquisition of
Graphite Technology Group, Inc. as of December 31, 2005 and for the nine months
ended December 31, 2005.
(c) Not applicable.
(d) Exhibits
3.1 Articles of Incorporation (1)
3.2 By-Laws (1)
10.1 Purchase and Sale Agreement between Chenzhou Global Graphite, Inc. and
Graphite Technology Group, Inc. dated October 13, 2005 (2)
28
10.2 Purchase and Sale Agreement Carlant Holdings Limited, Graphite Lake
Resources Ltd. And Graphite Technology Group, Inc. dated November 10,
2005 (2)
10.3 Option Agreement between Vinecrest Management Services Limited and
Graphite Technology Group, Inc. dated February 17, 2006 (2)
10.4 Option Agreement between Vincent Sheehan and Graphite Technology Group,
Inc. dated February 17, 2006 (2)
10.5 Deed of Trust between Robert J. Bassermann and Vinecrest Management
Services Ltd. And Graphite Technology Group, Inc. dated February 20, 2006
(2)
10.6 Deed of Trust between Robert J. Bassermann and Vincent Sheehan and
Graphite Technology Group, Inc. dated February 20, 2006 (2)
10.7 Purchase and Sale Agreement between International Graphite, Inc. Crich
Holdings & Buildings and Graphite Technology Group dated March 9, 2006
(2)
10.8 Purchase and Sale Agreement between Bertil Akesson, Societe Malagasy du
Grafit and Graphite Technology Group, Inc. dated March 26, 2006 (2)
10.9 Lease Agreement for Delano, Pennsylvania property. (2)
_______________________
(1) Incorporated by reference to the Form SB-2 filed on September 2, 1999
(2) Filed herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BPK RESOURCES, INC.
Dated: April 25, 2006 By: /s/ James E. Olive
-----------------------
Chief Executive Officer
29
EXHIBIT INDEX
10.1 Purchase and Sale Agreement between Chenzhou Global Graphite, Inc. and
Graphite Technology Group, Inc. dated October 13, 2005
10.2 Purchase and Sale Agreement Carlant Holdings Limited, Graphite Lake
Resources Ltd. And Graphite Technology Group, Inc. dated November 10,
2005
10.3 Option Agreement between Vinecrest Management Services Limited and
Graphite Technology Group, Inc. dated February 17, 2006
10.4 Option Agreement between Vincent Sheehan and Graphite Technology Group,
Inc. dated February 17, 2006
10.5 Deed of Trust between Robert J. Bassermann and Vinecrest Management
Services Ltd. And Graphite Technology Group, Inc. dated February 20, 2006
10.6 Deed of Trust between Robert J. Bassermann and Vincent Sheehan and
Graphite Technology Group, Inc. dated February 20, 2006
10.7 Purchase and Sale Agreement between International Graphite, Inc. Crich
Holdings & Buildings and Graphite Technology Group dated March 9, 2006
(2)
10.8 Purchase and Sale Agreement between Bertil Akesson, Societe Malagasy du
Grafit and Graphite Technology Group, Inc. dated March 26, 2006
10.9 Lease Agreement for Delano, Pennsylvania property.
30
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements of Graphite Technology Group, Inc.:
Independent Auditor's Report on the Financial Statements F-1
Balance Sheet - March 31, 2005 F-2
Statement of Operations - Period ended March 31, 2005 F-4
Statement of Stockholders' Equity - Period ended March 31, 2005 F-5
Statement of Cash Flows - Period ended March 31, 2005 F-6
Notes to Financial Statements F-8 - F-23
_______________________________________________
Unaudited Financial Statements of Graphite Technology Group, Inc.:
Unaudited Balance Sheets - December 31, 2005 and 2004 F-24
Unaudited Statements of Operations - Nine Months ended December 31, 2005 F-26
and for the period from April 27, 2004 (date of inception) to December 31,
2004
Unaudited Statement of Stockholders' Equity - Nine Months ended December F-27
31, 2005
Unaudited Statements of Cash Flows - Nine Months Ended December 31, 2005 F-28
and for the period from April 27, 2004 (date of inception) to December 31,
2004
Notes to Unaudited Fianacial Statements F-30 - F-49
_______________________________________________
Unaudited Financial Statements of Applied Carbon Technology (America), Inc.:
Unaudited Balance Sheets - April 30, 2004 and December 31, 2003 F-50
Unaudited Statements of Operations - Four and Twelve month periods ended F-52
April 30, 2004 and December 31, 2003
Unaudited Statements of Stockholder's Equity - Four and Twelve month F-53
periods ended April 30, 2004 and December 31, 2003
Unaudited Statements of Cash Flows - Four and Nine month periods ended F-54
April 30, 2004 and December 31, 2003
Notes to Unaudited Financial Statements F-55 - F-58
_______________________________________________
Unaudited Pro Forma Financial Statements:
Pro Forma financial information as of December 31, 2005 F-59
Pro Forma financial information for the nine months ended F-61
December 31, 2005
31
Independent Auditor's Report
on the Financial Statements
To the Board of Directors
Graphite Technology Group, Inc.
We have audited the accompanying balance sheet of Graphite Technology
Group, Inc. as of March 31, 2005, and the related statements of operations,
stockholders' equity and cash flows for the period from April 27, 2004 (date of
inception) to March 31, 2005. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Graphite Technology Group,
Inc. at March 31, 2005 and the results of its operations and its cash flows for
the period from April 27, 2004 (date of inception) to March 31, 2005 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Beard Miller Company LLP
- ----------------------------
Beard Miller Company LLP
Reading, Pennsylvania
March 16, 2006
F-1
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Balance Sheet
March 31, 2005
2005
----------
Assets
Current Assets
Cash $ 88,260
Restricted cash 15,000
Trade accounts receivable 141,106
Other receivable 2,923
Inventories 341,095
Prepaid expenses 324,598
----------
Total Current Assets 912,982
Property, Plant and Equipment, Net 4,686,966
Goodwill 800,240
----------
Total Assets $6,400,188
==========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-2
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Balance Sheet
March 31, 2005
2005
-----------
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt $ 450,049
Current maturity of capital lease obligation 3,375
Notes payable, demand, stockholders 1,999,131
Accounts payable 910,805
Accrued expenses 121,067
Due to related parties 53,221
-----------
Total Current Liabilities 3,537,648
Long-Term Debt, less Current Maturities
Related parties 932,947
Other 75,462
-----------
Total Long-Term Debt 1,008,409
-----------
Capital Lease Obligation, less Current Maturity 6,150
-----------
Total Liabilities 4,552,207
-----------
Stockholders' Equity
Class A preferred stock; $0.001 par value;
authorized 500,000 shares; issued and
outstanding 4,546 shares (involuntary
liquidation value - $454,618 at March 31, 2005) 5
Class B preferred stock; $0.001 par value;
authorized 500,000 shares; issued and
outstanding 10,000 shares (involuntary
liquidation value - $1,000,000 at March 31, 2005) 10
Common stock, $0.001 par value; authorized
25,000,000 shares; issued and outstanding
13,145,677 shares 13,146
Paid-in capital 2,924,110
Accumulated deficit (1,089,290)
-----------
Total Stockholders' Equity 1,847,981
-----------
Total Liabilities and Stockholders' Equity $ 6,400,188
===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-3
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statement of Operations
Period Ended March 31, 2005
2005
-----------
Net Sales $ 752,933
Cost of Sales 348,098
-----------
Gross Profit 404,835
Selling, General and Administrative Expenses 1,254,314
-----------
Operating Loss (849,479)
-----------
Other Expenses
Interest expense (235,150)
Other expenses (4,661)
-----------
Total Other Expenses (239,811)
-----------
Net Loss ($1,089,290)
===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-4
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statement of Stockholders' Equity
Period Ended March 31, 2005
Class A Class B
Preferred Stock Preferred Stock Common Stock
------------------------- ------------------------- -------------------------
Shares Par Value Shares Par Value Shares Par Value
----------- ----------- ----------- ----------- ----------- -----------
Balance - April 27, 2004
(Date of Inception) 0 $ 0 0 $ 0 $ 0 $ 0
Initial issuance of
common stock 0 0 0 0 10,240,186 10,240
Shares issued and capital
contributed in connection
with the Company's
acquisition of Applied
Carbon Technology
(America), Inc. 0 0 0 0 1,354,313 1,355
Conversion of $454,618
of debt into 4,546
shares of Class A
nonvoting preferred
stock 4,546 5 0 0 0 0
Conversion of $1,000,000
of debt into 10,000
shares of Class B
nonvoting preferred
stock 0 0 10,000 10 0 0
Conversion of $1,035,412
of debt into 704,749
shares of common stock 0 0 0 0 704,749 705
Issuance of 91,429
shares of common
stock in exchange for
$155,000 of cash 0 0 0 0 91,429 91
Other issuances of
common stock 0 0 0 0 755,000 755
Net loss 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Balance - March 31, 2005 4,546 $ 5 10,000 $ 10 13,145,677 $ 13,146
=========== =========== =========== =========== =========== ===========
Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
----------- ----------- -----------
Balance - April 27, 2004
(Date of Inception) $ 0 $ 0 $ 0
Initial issuance of
common stock (10,240) 0 0
Shares issued and capital
contributed in connection
with the Company's
acquisition of Applied
Carbon Technology
(America), Inc. 290,886 0 292,241
Conversion of $454,618
of debt into 4,546
shares of Class A
nonvoting preferred
stock 454,613 0 454,618
Conversion of $1,000,000
of debt into 10,000
shares of Class B
nonvoting preferred
stock 999,990 0 1,000,000
Conversion of $1,035,412
of debt into 704,749
shares of common stock 1,034,707 0 1,035,412
Issuance of 91,429
shares of common
stock in exchange for
$155,000 of cash 154,909 0 155,000
Other issuances of
common stock (755) 0 0
Net loss 0 (1,089,290) (1,089,290)
----------- ----------- -----------
Balance - March 31, 2005 $ 2,924,110 ($1,089,290) $ 1,847,981
=========== =========== ===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-5
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statement of Cash Flows
Period Ended March 31, 2005
2005
-----------
Cash Flows from Operating Activities
Net loss ($1,089,290)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 197,942
Interest capitalized on notes payable 78,893
(Increase) in assets:
Trade accounts receivable and other receivable (12,159)
Inventories (218,208)
Prepaid expenses (159,998)
Increase in liabilities:
Accounts payable 662,047
Accrued expenses 121,067
Due to related parties 53,221
-----------
Net Cash Used in Operating Activities (366,485)
-----------
Cash Flows Used in Investing Activities
Purchase of property, plant, and equipment (950,732)
-----------
Cash Flows from Financing Activities
Repayment of capital lease obligation (1,075)
Proceeds from the issuance of common stock 155,000
Proceeds from demand notes payable, related
parties 1,983,489
Repayments on demand notes payable, related
parties (825,000)
Proceeds from the issuance of long-term debt:
Related parties 474,975
Other 100,000
Repayments on long-term debt:
Related parties (249,975)
Other (216,937)
-----------
Net Cash Provided by Financing Activities 1,420,477
-----------
Net Increase in Cash 103,260
Cash - Beginning 0
-----------
Cash - Ending $ 103,260
===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-6
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statement of Cash Flows
Period Ended March 31, 2005
2005
-----------
Supplemental Disclosure of Cash Flow Information
Interest paid $ 162,916
==========
Supplemental Disclosures of Noncash Investing and
Financing Activities
Acquisition of certain assets and liabilities of
Applied Carbon Technology (America), Inc. in
exchange for seller financing ($600,000) and
forgiveness of accounts payable due to a
Company shareholder and associated
contribution of capital ($292,241) to the
Company (see Note 3) $ 892,241
==========
Debt converted to common stock $1,035,412
==========
Debt converted to preferred stock $1,454,618
==========
Equipment acquired by direct financing $ 438,100
==========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-7
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 1 - Nature of Operations
Graphite Technology Group, Inc. (the "Company") is engaged in the
business of mining, manufacturing and selling natural and synthetic
graphite and carbon based materials for use in aerospace, automotive,
lubricants, refractory, and emerging industries such as composite
materials, conductive composite polymers and plastics and fuel cells. The
Company has processing facilities located in New York and Pennsylvania
and, subsequent to March 31, 2005, became the owner/developer of graphite
mines located in Canada, Madagascar, and China. The Company is an ISO
certified manufacturer: ISO 9001: 2000. The Company maintains its
administrative offices in Delano, Pennsylvania. The Company was organized
on April 27, 2004 (date of inception).
Note 2 - Significant Accounting Policies
Cash
Cash is on deposit in banks and other financial institutions. In the
normal course of business, the Company may have deposits which
exceed the insured limits. For the statement of cash flow purposes
cash includes a $15,000 deposit held as collateral by a bank (Note
7).
Inventories
Inventories are stated at the lower of cost or market with cost
determined by the first-in, first-out (FIFO) method.
Goodwill
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 142 "Goodwill and Other Intangible Assets," which
governs financial accounting and reporting for acquired goodwill and
other intangible assets. Under SFAS No. 142, goodwill and
indefinite-lived intangible assets are not amortized but are
reviewed at least annually for impairment. Intangible assets that
have finite useful lives are amortized over their useful lives.
SFAS No. 142 requires that goodwill be tested for impairment at
least annually utilizing a two-step methodology. The initial step
requires the Company to determine the fair value of each of its
reporting units and compare it to the carrying value, including
goodwill, of such reporting units. If the fair value exceeds the
carrying value, no impairment loss is recognized. However, a
carrying value that exceeds its fair value may be an indication of
impaired goodwill. The amount, if any, of the impairment would then
be measured and an impairment loss would be recognized. As of March
31, 2005, no adjustment for impairment is deemed necessary. The
Company will evaluate its goodwill, at least annually, and will
reflect the impairment of goodwill, if any, in the results of
operations in the income statement.
- --------------------------------------------------------------------------------
F-8
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 2 - Significant Accounting Policies (Continued)
Shipping and Handling Costs
The Company records shipping and handling costs related to products
sold and shipped as a component of cost of sales. Such costs
amounted to $34,487 for the period ended March 31, 2005.
Trade Accounts Receivable
Trade accounts receivable are stated at outstanding balances, less
an allowance for doubtful accounts. The allowance for doubtful
accounts is established through provisions charged against income.
Accounts deemed to be uncollectible are charged against the
allowance and subsequent recoveries, if any, are credited to the
allowance. The allowance for doubtful accounts is maintained at a
level considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation of the
adequacy of the allowance is based on past experience, agings of the
receivables, adverse situations that may affect a customer's ability
to pay, current economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires estimates that
may be susceptible to significant change. Unpaid balances remaining
after the stated payment terms are considered past due. Based upon
such procedures management has determined that no allowance is
required as of March 31, 2005.
Net sales from the Company's five largest customers accounted for
67% of net sales for the period ended March 31, 2005. Accounts
receivable from these customers accounted for 68% of the accounts
receivable balance at March 31, 2005.
Property, Plant and Equipment
Property, plant and equipment are carried at original cost.
Maintenance and repairs are charged to operations as incurred. Upon
sale, retirement or other disposition of property, plant and
equipment, the cost and accumulated depreciation are eliminated from
the accounts and gain or loss is included in the statement of
income.
Depreciation is computed generally using the straight line method
over the following estimated useful lives of the various classes of
assets:
Years
-------
Buildings and improvements 40
Machinery and equipment 10
Office furniture and
equipment 5 - 7
- --------------------------------------------------------------------------------
F-9
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 2 - Significant Accounting Policies (Continued)
Income Taxes
Deferred taxes are provided on the liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Advertising
It is the Company's policy to expense advertising costs as incurred.
Advertising expense for the period ended March 31, 2005 was $1,991.
Estimates and Assumptions
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
F-10
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 3 - Business Acquisition
On July 31, 2004, the Company completed the acquisition of certain
assets and liabilities of Applied Carbon Technology (America), Inc. (ACT),
a company engaged in the processing and supplying of natural and synthetic
graphite flakes. ACT was a wholly-owned subsidiary of Merchant Capital
Group. This acquisition was consummated in order to enable the Company to
build its product lines. The purchase price for this acquisition was
$892,241 in the form of seller financing in the amount of $600,000 and ACT
payables forgiven by a shareholder of the Company in the amount of
$292,241, for which this shareholder contributed capital to the Company.
The acquisition was accounted for under the purchase method of accounting
and the operating results from this operation have been included in the
financial statements from the date of the acquisition. Prior to this
acquisition the Company was engaged to manage the operations of ACT for
which the Company earned a management fee of approximately $380,000, which
was offset by amounts owed to ACT by the Company at the date of
acquisition. ACT was insolvent, however, the Company agreed to manage
ACT's operations in order to sustain such operations through the date of
acquisition. The purchase price was allocated based upon the estimated
fair value of the assets acquired and liabilities assumed as follows:
Inventory $ 122,887
Goodwill 800,240
Accounts receivable 131,870
Other assets 164,600
Property and equipment 3,496,076
----------
Total Assets Acquired 4,715,673
----------
Accounts payable 248,758
Notes payable 3,574,674
----------
Total Liabilities Assumed 3,823,432
----------
Purchase Price $ 892,241
==========
Under current accounting rules, goodwill resulting from this
acquisition is not being systematically amortized but will be subjected to
annual impairment tests and will be written down to its estimated fair
value when and if the impairment test indicates that the carrying value of
goodwill exceeds its fair value. The goodwill resulting from this
acquisition is deductible for tax purposes.
- --------------------------------------------------------------------------------
F-11
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 4 - Inventories
Inventories at March 31, 2005 consist of the following:
Finished goods $ 83,864
Work-in-process 3,926
Raw materials 253,305
---------
$ 341,095
=========
Note 5 - Property, Plant and Equipment
Property, plant and equipment at March 31, 2005 consist of the
following:
Land, buildings and improvements $ 170,000
Machinery, office furniture, and
equipment 2,909,000
Construction in progress 1,805,908
-----------
4,884,908
Accumulated depreciation (197,942)
-----------
$ 4,686,966
===========
Depreciation expense was $197,942 for the period ended March 31, 2005.
Note 6 - Notes Payable, Demand, Stockholders
Notes payable, demand, consists of the following as of March 31, 2005:
Industry Capital:
Note payable due on demand. Interest is
charged at 7.00%, collateralized by all
unsubordinated assets of the Company.
Industry Capital is owned by certain
stockholders of the Company. $ 50,000
Beach Capital:
Note payable due on demand or July 31, 2005,
whichever is later. Interest is charged at
9.00%, collateralized by the Company's
inventory. Beach Capital is owned by
certain stockholders of the Company. 127,744
Note payable due on demand with 60 days
notice. Interest is charged at 6.00%,
collateralized by all of the Company's
unsubordinated assets. Beach Capital is
owned by certain stockholders of the
Company. 975,000
- --------------------------------------------------------------------------------
F-12
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 6 - Notes Payable, Demand, Stockholders (Continued)
Individual stockholder:
Loan payable due on demand or October 30,
2005 whichever is later. Interest is
charged at 8.00%, collateralized by all
unsubordinated assets of the Company. $ 50,000
Quebec, Inc.
Note payable due on demand or July 31, 2005
whichever is later. Interest is charged
at 9.00%, collateralized by the Company's
inventory. Quebec, Inc. is owned by
certain stockholders of the Company. 339,162
Note payable due on demand. Interest is
charged at 6.00%, collateralized by all
unsubordinated assets of the Company.
Quebec, Inc. is owned by certain
stockholders of the Company. 457,225
----------
$1,999,131
==========
Note 7 - Long-Term Debt
Long-term debt consists of the following as of March 31, 2005:
Keystone Nazareth Bank & Trust:
Installment loan payable in monthly principal
and interest payment of $2,408 through
February 2009. Interest is charged at
7.22%. Loan is collateralized by specific
equipment and also restricts the use of a
$15,000 deposit with Keystone Nazareth
Bank & Trust. $ 98,011
Atlas Mine & Mill Supply
Loan payable on June 15, 2005. Interest is
charged at 8.00%, collateralized by
specific equipment. 427,500
Twinboro Financial LLC
Loan payable on September 30, 2007. Interest
only payments until September 30, 2007.
Interest is charged at 9.00%, collateralized
by a mortgage on the Company's Brocton
Facility. Twinboro Financial LLC is
owned by certain stockholders of the
Company. 225,000
- --------------------------------------------------------------------------------
F-13
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 7 - Long-Term Debt (Continued)
Knox Insurance Brokers, Ltd.
Loan payable due on December 30, 2006.
Interest only payments through
December 31, 2006. Interest is charged at
9.00%, collateralized by specific
equipment. This debt including accrued
interest is convertible to common stock at
$1.50 for one common share. Knox is
owned by certain stockholders of the
Company. $ 190,000
Quebec, Inc.
Loan payable on December 30, 2006. Interest
only payments through December 30,
2006. Interest is charged at 9.0%,
collateralized by certain equipment. This
debt including accrued interest is
convertible to common stock at $1.50 for
one common share. Quebec, Inc. is owned
by certain stockholders of the Company. 249,975
Derek Hirsch
Loan payable on July 31, 2006. Interest only
payments through July 31, 2006. Interest
is charged at 6.00%, secured by a
mortgage on the Company's Brocton, New
York facility. Derek Hirsch is a
stockholder of the Company. 267,972
----------
1,458,458
Current maturities (450,049)
----------
$1,008,409
==========
- --------------------------------------------------------------------------------
F-14
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 7 - Long-Term Debt (Continued)
Aggregate maturities on long-term debt as of March 31, 2005 are due in
future years as follows:
Related
Parties Other Total
---------- ---------- ----------
Period ending March 31:
2006 $ 0 $ 450,049 $ 450,049
2007 707,947 24,232 732,179
2008 225,000 26,040 251,040
2009 0 25,190 25,190
---------- ---------- ----------
$ 932,947 $ 525,511 $1,458,458
========== ========== ==========
Of total interest expense incurred of $235,150, interest expense of
$195,224 was incurred with related parties for the period ended March 31,
2005.
Note 8 - Capital Lease Obligations
During the period ended March 31, 2005, the Company entered into a
three-year lease agreement for the use of equipment. The lease, which
qualifies as a capital lease obligation, requires monthly payments of $326
through November 2007.
The following amounts represent annual lease payments by year and in
the aggregate including amounts which represent interest and current
maturities at March 31, 2005:
Year ending March 31:
2006 $ 3,912
2007 3,912
2008 2,608
--------
10,432
Amount representing interest (907)
--------
$ 9,525
========
The following amounts are included in property and equipment related to
the above lease at March 31, 2005:
Machinery and equipment $ 13,350
Accumulated depreciation (445)
--------
$12,905
========
- --------------------------------------------------------------------------------
F-15
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 9 - Income Taxes
The income tax provision recorded in the financial statements differs
from the expense that would result from applying federal statutory rates
to income before income taxes because the Company has fully reserved all
net deferred tax assets.
Net deferred tax assets consisted of the following components as of
March 31, 2005:
Deferred tax assets:
State and federal loss
carryforwards $ 407,691
Other 2,857
---------
Total Deferred Tax Assets 410,548
Valuation allowance (334,700)
---------
Net Deferred Tax Assets 75,848
---------
Deferred tax liabilities:
Property and equipment 63,790
Goodwill 12,058
---------
Total Deferred Tax Liabilities 75,848
---------
Net Deferred Tax Asset $ --
=========
As of March 31, 2005, the Company has approximately $1,200,000 of
federal and state net operating loss carryforwards to offset future
taxable income for income tax purposes. The net operating loss
carryforwards expire through March 2025.
The Company increased its valuation allowance by $334,700 for the
period ended March 31, 2005.
Note 10 - Leases
The Company leases a warehouse and administrative facility from a
related party under a lease that expires in September 2009. Monthly rent
for this facility was $4,500 through December 2004 and was increased to
$4,539 effective January 1, 2005. All costs of maintaining and operating
the facility are paid by the Company.
The Company guarantees the debt of this related party. Debt outstanding
at March 31, 2005 was $495,182. The Company would be required to honor
this guarantee should the related party default. The Company would have
recourse against the building currently rented.
The Company also leases vehicles and equipment under noncancellable
operating leases. Total monthly payments are $2,722 and the leases expire
in various intervals through April 2009.
- --------------------------------------------------------------------------------
F-16
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 10 - Leases (Continued)
At March 31, 2005, minimum lease payments for the next five years are
as follows:
Related
Party Other Total
---------- ---------- ----------
2006 $ 54,468 $ 32,663 $ 87,131
2007 54,468 32,224 86,692
2008 54,468 14,406 68,874
2009 54,468 7,517 61,985
2010 40,851 0 40,851
---------- ---------- ----------
$ 258,723 $ 86,810 $ 345,533
========== ========== ==========
Total rental expense for the period ended March 31, 2005 amounted to
$101,025 of which $40,600 was paid to a related party.
Note 11 - Stockholders' Equity
Series A preferred stock consists of 500,000 authorized nonvoting
shares with a $0.001 par value and a stated liquidation value of $100 per
share. The holders of the Series A Preferred Stock shall be entitled to
receive, out of any assets legally available therefore, cumulative
dividends at the rate of five percent (5%) per annum, accrued daily and
payable in preference and priority to any payment of any dividend on the
common stock. Dividends may, at the election of the Company, be paid in
common shares of the Company at the rate of $2.25 of such dividends to be
paid in exchange for 1 common share. No dividends were declared during the
period ended March 31, 2005. Total dividends in arrears were $3,788 at
March 31, 2005. Each share of Series A preferred stock shall be
convertible, at the option of the holder, into 44.44 shares of the
Company's common stock. Part or all of the Series A preferred stock shall
be subject to redemption by the Company at any time prior to conversion at
$105 per share plus any accrued but unpaid dividends. Such redemption
shall be paid in cash. Any shares of the Series A preferred stock
redeemed, purchased or otherwise acquired by the Company shall be deemed
retired and shall be cancelled and may not under any circumstances
thereafter be reissued or otherwise disposed of by the Company.
- --------------------------------------------------------------------------------
F-17
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 11 - Stockholders' Equity (Continued)
Series B preferred stock consists of 500,000 nonvoting shares with a
$0.001 par value and a stated liquidation value of $100 per share. The
holders of the Series B preferred stock shall be entitled to receive, out
of any assets legally available therefore, cumulative dividends at the
rate of five percent (5%) per annum, accrued daily and payable in
preference and priority to any payment of any dividend on the common
stock. Dividends may, at the election of the Company, be paid in common
shares of the Company's common stock at the rate of $3.25 of dividends to
be paid in exchange for 1 common share. No dividends were declared during
the period ended March 31, 2005. Total dividends in arrears were $8,333 at
March 31, 2005. Each share of Series B preferred stock shall be
convertible, at the option of the holder, into 30.77 shares of the
Company's common stock. Part or all of the Series B preferred stock shall
be subject to redemption by the Company at any time prior to conversion at
$105 per share plus any accrued but unpaid dividends. Such redemption
shall be paid in cash. Any shares of the Series B preferred stock
redeemed, purchased or otherwise acquired by the Company shall be deemed
retired and shall be cancelled and may not under any circumstances
thereafter be reissued or otherwise disposed of by the Company.
In connection with the formation of the Company on April 27, 2004,
10,240,186 shares of common stock were issued to the initial shareholders
of the Company. Also in conjunction with the acquisition of ACT (Note 3)
1,354,313 common shares were issued and capital of $292,241 was
contributed to the Company.
During the period ended March 31, 2005, the Company converted debt
totaling $2,490,030 into 704,749 shares of common stock valued at
($1,035,412), 4,546 shares of Class A preferred stock valued at ($454,618)
and 10,000 shares of Class B preferred stock valued at ($1,000,000). This
debt was included in the notes payable assumed and seller financed
purchase price in conjunction with the acquisition of ACT in July 2004
(see Note 3).
Note 12 - Commitments and Contingencies
During the period ended March 31, 2005, the Company entered into two
contracts to purchase amorphous and flake graphite. The Agreements
specified a partial payment upon placing the order and the remaining
balance to be paid upon the receipt of goods. The initial payment of
$263,642 was paid prior to March 31, 2005 and is included in prepaid
expenses. The Company must pay the remaining $443,000 when all of the
graphite is received.
The Company has entered into two agreements to purchase certain
production equipment for its Delano facility. The remaining commitment
under these agreements was $267,000 at March 31, 2005.
- --------------------------------------------------------------------------------
F-18
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 13 - Subsequent Events
A number of material agreements affecting the Company, its future
operations and financial position have occurred during the period
following March 31, 2005. The following summarizes these matters:
Agreement between the Company, M. Bertil Akesson, Societe Miniere de la
Grande Ile, and SOMAGRA
On July 27, 2005, the Company entered into an agreement with Bertil
Akesson ("Akesson"), Le President Directeur General of Societe
Miniere de la Grande Ile and Societe Malagese du Graphit (SOMAGRA)
by which the Company will purchase 50% ownership of all SOMAGRA's
owned right and interest in mining claims and leases comprising the
Ambatomitamba Graphite Mine and four contiguous graphite mines
located in Madagascar as well as all equipment on site. Ownership
will be unencumbered. It is expected that ownership will transfer to
a company to be formed as a wholly-owned subsidiary of the Company,
GTG Madagascar.
By terms of the agreement, the Company will finance, manage, operate
and develop the graphite mines.
The purchase agreement calls for the Company to purchase this 50%
ownership by payment of $3.0 million. The payment of the purchase
price is to be paid by $1.2 million in cash, of which $200,000 has
been paid subsequent to year-end. The additional $1.8 million is due
at the earliest date after all governmental approvals, mining
permits and licenses are secured through the issue of 615,385 shares
of the Company's common stock.
The agreement is conditional upon receiving, to the complete
satisfaction of the Company, all pertinent approvals in compliance
with Madagascar corporate law and mining regulation.
Issuance of 452,489 Common Shares to Merchant Capital Group (Merchant)
On June 1, 2005, the Company purchased the priority security lien
interest held by Merchant over the assets of International Graphite
Inc. (IGI), a Canadian private company and owner of mineral claims
and leases partly comprising the "Kearney Graphite Mine" (Kearney),
in Ontario, Canada, that IGI owned. The priority security interest
arose from a default of loan and financial commitments to Merchant.
The transaction value was deemed to have a worth of $1,250,000 for
which Graphite negotiated with Merchant the issuance of 452,489
common shares in payment. By purchasing the security interest, the
Company assured itself that it would control the disposition of the
mine claims and leases through its secured creditor standing. The
transaction was based in U.S. dollars.
- --------------------------------------------------------------------------------
F-19
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 13 - Subsequent Events (Continued)
Issuance of 452,489 Common Shares to Merchant Capital Group (Merchant)
(Continued)
On November 10, 2005, the Company entered into agreement with
Carlant Holdings, which agreement was superseded by the Agreement of
Purchase & Sale, dated March 9, 2006, between the Company, IGI and
Crich Holdings & Buildings Ltd., by which the Company will purchase
the mineral claims and leases controlled by IGI on about March 27,
2006. Consideration is (i) the cancellation of the above $1.25
million security interest, (ii) CDN $125,000, (iii) Promissory Note
in the principal amount of CDN $480,010, and (iv) the issue for
$437,000 U.S. "Equity Participation Units," convertible to common
shares and warrants of the Company post the merger of the Company
into BPK Resources, Inc. (See following subsequent event discussion
later in this note).
Purchase of Canadian Mining Equipment
A series of transactions by the Company resulted in purchasing title
to Canadian mining equipment currently on site at Kearney.
Merchant Capital Group
On June 1, 2005, the Company issued 144,796 common shares valued at
$400,000 to Merchant to purchase equipment at Kearney, subject to
the Company satisfying a $375,000 prior claim on this equipment.
Bradford-Bachinski in Trust
On November 15, 2005, the Company became a guarantor of a loan
between Graphite Lake Resources Ltd. ("GLRL") as Borrower and
Bradford-Bachinski in Trust as Lender in the principal amount of
$375,000, interest at 9%, maturing December 15, 2008. The Company
expects to honor this guarantee and in turn own full title to all
equipment at Kearney.
- --------------------------------------------------------------------------------
F-20
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 13 - Subsequent Events (Continued)
Agreement between the Company and Chenzhou Global Graphite Inc.
On October 13, 2005, the Company purchased 37.125% ownership of
Chenzhou Global Graphite Inc. (a Company incorporated in Hunan
Province, China) ("Chenzhou"). Chenzhou has successfully developed
patented purification technology which increases carbon levels of
amorphous graphite. High level fixed carbon amorphous graphite
(99.2% fixed carbon) represents the potential for better and lower
cost material solutions for numerous industrial applications. The
Company and Chenzhou will collaborate to commercialize the product
potential of the patented technology. In addition, Chenzhou has an
agreement to become the majority owner and the licensed operator of
a graphite mine in Jiangxi Province, China. Chenzhou will also have
mining rights and licenses for mining amorphous graphite in Hunan
Province. The transaction entailed a share exchange of 600,795
common shares issued by the Company for 3,712,500 common shares
representing 37.125% ownership of Chenzhou Global (value of
$1,652,186). The Company is also required to purchase an additional
787,500 shares, 7.875% ownership, for $350,000 cash.
Agreements between the Company and Vinecrest Management Services Ltd.,
and Vincent Sheehan
On December 30, 2005, the board of directors approved the
acquisition by the Company of mining claims and leases for graphite
bearing properties located in Butt Township, Ontario, Canada.
Certain of the acquired claims and leases constituted part of
Kearney. Additional mining claims and leases that are contiguous to
Kearney were also acquired. The mineral claims and leases are to be
acquired by the Company in two separate transactions, one with
Vinecrest Management Services, Ltd., and the second with Vincent
Sheehan in the amount of $150,000. All acquired claims and leases
from those parties will be subject to royalty payments. Agreements
with each of the parties were finalized on February 17, 2006 and
closed on February 20, 2006.
Merger Agreement between the Company and BPK Resources, Inc.
On March 9, 2006, the Company signed a merger agreement with BPK
Resources, Inc. (BPK), a Nevada corporation publicly traded through
the facilities of NASDAQ OTC. Prior to this merger agreement the
Company received bridge financing from BPK. This financing was made
in connection with the Company signing a Letter of Intent by which
the Company would merge with a subsidiary of BPK. The Letter of
Intent was signed in December 2005. On December 26, 2005, the
Company and BPK signed a promissory note whereby BPK would loan to
the Company up to $750,000. This note bears interest at 12%. This
note is secured by all of the assets of the Company. In the event
the merger does not take place BPK has the option to purchase shares
of the Company's common stock for $750,000 up to December 31, 2008.
During December 2005 and January 2006 the Company borrowed $750,000
on this note.
- --------------------------------------------------------------------------------
F-21
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 13 - Subsequent Events (Continued)
On February 7, 2006, the Company and BPK entered into an additional
promissory note to loan up to an additional $1,000,000 to the
Company in contemplation of the Merger. This note bears interest at
an annual rate of 12% and is secured by all of the Company's assets.
The unpaid principal balance of this note, together with all accrued
and unpaid interest thereon, is due no later than March 31, 2006.
BPK has advanced $1,000,000 on this note.
Under the February 7, 2006 note, BPK has the option to purchase up
to 13.33% of the Company's then outstanding shares of common stock
calculated on a fully diluted basis for up to $1,000,000 at any time
prior to December 31, 2008. This option may only be exercised in the
event the Company determines not to proceed with the Merger.
On March 10, 2006, BPK entered into a third promissory note with the
Company to loan up to an additional $1,000,000 to the Company in
contemplation of the Merger. This Note bears interest at an annual
rate of 12% and is secured by all of the Company's assets. The
unpaid principal balance of this note, together with all accrued and
unpaid interest thereon, is due no later than March 31, 2006. BPK
has advanced $208,000 to the Company under this note.
Under the March 10, 2006 note, BPK has the option to purchase up to
13.33% of the Company's then outstanding shares of common stock
calculated on a fully diluted basis for up to $1,000,000 at any time
prior to December 31, 2008. This option may only be exercised in the
event the Company determines not to proceed with the Merger.
As of March 16, 2006, the Company has borrowed a total of $1,958,000
from PBK.
Additional Loans
In addition to the borrowings noted previously in Note 13, the
Company has also borrowed $1,740,986 under various loan agreements
since March 31, 2005. Of this amount, $1,015,986 was borrowed from
various stockholders.
Brocton Plant, Rizzo, and Chautauqua County, New York
As described in Note 3, on July 31, 2004 the Company purchased
certain assets and liabilities of ACT which included a building at
110 Central Avenue, Brocton, New York, however transfer of title to
the building required settlement of the outstanding real property
taxes due to Chautauqua County and the Village of Brocton. On
December 13, 2005, Chautauqua County, subject to foreclosure notice
to ACT, eventually sold the building at auction to an unrelated
party.
Following the auction on January 19, 2006, the Company offered to
purchase the building free of tax liens for $170,000 from the new
owner. The Company has advanced to this person $90,000 and expects
to pay the remaining balance at closing.
- --------------------------------------------------------------------------------
F-22
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
March 31, 2005
Note 13 - Subsequent Events (Continued)
Barlow Lane Holding Limited Loan
On July 1, 2005, the Company incurred a loan to Barlow Lane Holding
Limited (Barlow) in the amount of $480,000. This loan is repayable
in monthly principal installments of $6,667 and one final payment on
March 31, 2007. This loan is non-interest bearing. The Company has
discounted this note using a rate of 7.5% and recorded this loan at
approximately $430,000. As a result of this transaction, the Company
was able to acquire inventory held by Barlow under a secured
arrangement Barlow had with ACT.
- --------------------------------------------------------------------------------
F-23
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Balance Sheets
(Unaudited)
December 31, 2005 and 2004
2005 2004
----------- -----------
Assets
Current Assets
Cash $ 296,711 $ 41,218
Restricted cash 15,000 --
Trade accounts receivable 123,320 146,496
Other receivable 2,923 2,923
Inventories 1,342,326 294,410
Prepaid expenses 61,197 --
----------- -----------
Total Current Assets 1,841,477 485,047
Property, Plant and Equipment, Net 6,323,637 3,739,302
Goodwill 800,240 800,240
Investment in subsidiaries 1,752,186 --
----------- -----------
Total Assets $10,717,540 $ 5,024,589
=========== ===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-24
2005 2004
------------ ------------
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt:
Related parties $ 857,972 $ --
Other 648,243 --
Current maturity of capital lease obligation 3,833 3,318
Notes payable, demand, stockholders 2,818,117 1,528,386
Accounts payable 1,036,454 442,748
Accrued expenses 115,053 111,122
Due to related parties 53,221 53,221
------------ ------------
Total Current Liabilities 5,532,893 2,138,795
Long-Term Debt, less Current Maturities
Related parties 225,000 3,298,592
Other 1,342,046 --
------------ ------------
Total Long-Term Debt 1,567,046 3,298,592
------------ ------------
Capital Lease Obligation, less Current Maturity 3,467 7,015
------------ ------------
Total Liabilities 7,103,406 5,444,402
------------ ------------
Stockholders' Equity (Deficit)
Class A preferred stock; $0.001 par value; authorized 500,000 shares; issued and 5 --
outstanding 4,546 shares (involuntary liquidation value - $454,618) 2005; 0
shares 2004
Class B preferred stock; $0.001 par value; authorized 500,000 shares; issued and
outstanding 10,000 shares (involuntary liquidation value - $1,000,000) 2005; 0
shares 2004 10 --
Common stock, $0.001 par value; authorized 25,000,000 shares; issued and outstanding
14,741,643 shares - 2005;
12,274,499 shares - 2004 14,742 12,275
Paid-in capital 6,720,980 279,966
Accumulated deficit (3,121,603) (712,054)
------------ ------------
Total Stockholders' Equity (Deficit) 3,614,134 (419,813)
------------ ------------
Total Liabilities and Stockholders' Equity $ 10,717,540 $ 5,024,589
============ ============
See notes to financial statements.
- --------------------------------------------------------------------------------
F-25
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statements of Operations
(Unaudited)
For the Nine Month Period Ended December 31, 2005 and the Period April 27, 2004
(date of inception) to December 31, 2004
2005 2004
----------- -----------
Net Sales $ 898,320 $ 517,719
Cost of Sales 547,785 314,311
----------- -----------
Gross Profit 350,535 203,408
Selling, General and Administrative Expenses 2,008,655 780,763
----------- -----------
Operating Loss (1,658,120) (577,355)
----------- -----------
Other Expenses
Interest expense (239,193) (136,697)
Other (expenses) income (135,000) 1,998
----------- -----------
Total Other Expenses, net (374,193) (134,699)
----------- -----------
Net Loss ($2,032,313) ($ 712,054)
=========== ===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-26
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statement of Stockholders' Equity
(Unaudited)
Nine Month Period Ended December 31, 2005
Class A Class B Common
Preferred Stock Preferred Stock Stock Total
------------------ ----------------------- ----------------------- Paid-in Accumulated Stockholders'
Shares Par Value Shares Par Value Shares Par Value Capital Deficit Equity
------ ---------- ---------- ------------ ---------- ------------ ------------ ---------- ----------
Balance - March 31,
2005 (audited) 4,546 $ 5 10,000 $ 10 13,145,677 $ 13,146 $ 2,924,110 ($1,089,290) $ 1,847,981
Issuance of
597,285 shares
of common stock
in exchange for
title to mining
equipment and
mining
claims and
leases -- -- -- -- 597,285 597 1,649,403 -- 1,650,000
Conversion of
$323,780 of
debt
into 282,886
shares of
common
Stock -- -- -- -- 282,886 283 323,497 -- 323,780
Issuance of
600,795
shares of
common stock in
exchange
for
37.125% interest
in China
mine -- -- -- -- 600,795 601 1,651,585 -- 1,652,186
Other issuances
of common
stock -- -- -- -- 115,000 115 172,385 -- 172,500
Net loss -- -- -- -- -- -- -- (2,032,313) (2,032,313)
------ ---------- ---------- ------------ ---------- ------------ ------------ ---------- ----------
Balance - December
31, 2005 4,546 $ 5 10,000 $ 10 14,741,643 $ 14,742 $ 6,720,980 ($3,121,603) $ 3,614,134
====== =========== ========== ============ ========== =========== =========== =========== ===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-27
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
For the Nine Month Period Ended December 31, 2005 and the Period April 27, 2004
(date of inception) to December 31, 2004
2005 2004
----------- -----------
Cash Flows from Operating Activities
Net loss ($2,032,313) ($ 712,054)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 265,706 123,468
Loss on asset 135,000 --
Stock issued in lieu of compensation 172,500 --
Interest capitalized on notes payable 15,256 --
(Increase) decrease in assets:
Trade accounts receivable and other receivable 17,786 (17,549)
Inventories (572,184) (171,523)
Prepaid expenses 263,401 164,600
Increase (decrease) in liabilities:
Accounts payable 125,649 193,990
Accrued expenses 358,521 111,122
Due to related parties -- 53,221
----------- -----------
Net Cash Used in Operating Activities (1,250,678) (254,725)
----------- -----------
Cash Flows Used in Investing Activities
Purchase of property, plant, and equipment (497,377) (356,094)
----------- -----------
Cash Flows from Financing Activities
Repayment of capital lease obligation (2,225) (267)
Proceeds from demand notes payable, related parties 590,000 1,467,252
Repayments on demand notes payable, related parties (7,000) (825,000)
Proceeds from the issuance of long-term debt:
Related parties 400,000 474,975
Other 1,225,000 --
Repayments on long-term debt:
Related parties -- (249,975)
Other (249,269) (214,948)
----------- -----------
Net Cash Provided by Financing Activities 1,956,506 652,037
----------- -----------
Net Increase in Cash 208,451 41,218
Cash - Beginning 103,260 --
----------- -----------
Cash - Ending $ 311,711 $ 41,218
=========== ===========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-28
Statements of Cash Flows (Unaudited)
For the Nine Month Period Ended December 31, 2005 and the Period April 27, 2004
(date of inception) to December 31, 2004
2005 2004
---------- ----------
Supplemental Disclosure of Cash Flow Information
Interest paid $ 58,436 $ 68,065
========== ==========
Supplemental Disclosures of Noncash Investing and
Financing Activities
Acquisition of certain assets and liabilities of Applied Carbon Technology
(America), Inc. in exchange for seller financing ($600,000) and forgiveness of
accounts payable due to a Company shareholder and associated contribution of
capital ($292,241) to the Company (see Note 3) -- $ 892,241
========== ==========
Debt converted to common stock $ 200,000 $ --
========== ==========
Equipment acquired by issuance of common stock $ 1,650,00 $ 10,600
Equipment acquired by direct financing $ 375,000 $ --
========== ==========
Inventory acquired by direct financing $ 429,047 $ --
========== ==========
Investment in business interest acquired by direct financing $ 100,000 $ --
========== ==========
Investment in business interest acquired by issuance of common
stock $1,652,186 $ --
========== ==========
Accrued interest converted to common stock $ 194,535 $ --
========== ==========
Long-term debt, related party reclassified to demand note $ 49,975 $ --
Payable, related party
Asset repossessed and related debt relieved $ 315,000 $ --
Other property released and related accrued expense relieved $ 170,000 $ --
Other non cash equity and demand notes payable transaction $ 70,755 $ --
========== ==========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-29
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine
month period ended December 31, 2005 are not necessarily indicative of the
results that may be expected for the fiscal year ended March 31, 2006. For
further information, refer to the Graphite Technology Group, Inc.
financial statements and footnotes thereto included in this filing as of
March 31, 2005 and for the period from April 27, 2004 (date of inception)
to March 31, 2005.
Note 2 - Nature of Operations
Graphite Technology Group, Inc. (the "Company") is engaged in the business
of mining, manufacturing and selling natural and synthetic graphite and
carbon based materials for use in aerospace, automotive, lubricants,
refractory, and emerging industries such as composite materials,
conductive composite polymers and plastics and fuel cells. The Company has
processing facilities located in New York and Pennsylvania. The Company is
also the owner/developer of graphite mines located in Canada, Madagascar,
and China. The Company is an ISO certified manufacturer: ISO 9001: 2000.
The Company maintains its administrative offices in Delano, Pennsylvania.
The Company was organized on April 27, 2004 (date of inception).
Note 3 - Significant Accounting Policies
Cash
Cash is on deposit in banks and other financial institutions. In the
normal course of business, the Company may have deposits which exceed the
insured limits. For the statement of cash flow purposes cash includes a
$15,047 deposit held as collateral by a bank (Note 7).
Inventories
Inventories are stated at the lower of cost or market with cost determined
by the first-in, first-out (FIFO) method.
Goodwill
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 142 "Goodwill and Other Intangible Assets," which governs financial
accounting and reporting for acquired goodwill and other intangible
assets. Under SFAS No. 142, goodwill and indefinite-lived intangible
assets are not amortized but are reviewed at least annually for
impairment. Intangible assets that have finite useful lives are amortized
over their useful lives.
F-30
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 3 - Significant Accounting Policies (Continued)
Goodwill (Continued)
SFAS No. 142 requires that goodwill be tested for impairment at least
annually utilizing a two-step methodology. The initial step requires the
Company to determine the fair value of each of its reporting units and
compare it to the carrying value, including goodwill, of such reporting
units. If the fair value exceeds the carrying value, no impairment loss is
recognized. However, a carrying value that exceeds its fair value may be
an indication of impaired goodwill. The amount, if any, of the impairment
would then be measured and an impairment loss would be recognized. As of
December 31, 2005 and 2004, no adjustment for impairment was deemed
necessary. The Company will evaluate its goodwill, at least annually, and
will reflect the impairment of goodwill, if any, in the results of
operations in the statement of operations.
Shipping and Handling Costs
The Company records shipping and handling costs related to products sold
and shipped as a component of cost of sales. Such costs amounted to
$37,100 and $22,343 for the periods ended December 31, 2005 and 2004,
respectively.
Trade Accounts Receivable
Trade accounts receivable are stated at outstanding balances, less an
allowance for doubtful accounts. The allowance for doubtful accounts is
established through provisions charged against income. Accounts deemed to
be uncollectible are charged against the allowance and subsequent
recoveries, if any, are credited to the allowance. The allowance for
doubtful accounts is maintained at a level considered adequate to provide
for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on past experience,
agings of the receivables, adverse situations that may affect a customer's
ability to pay, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires estimates that may
be susceptible to significant change. Unpaid balances remaining after the
stated payment terms are considered past due. Based upon such procedures
management has determined that no allowance was required as of December
31, 2005 and 2004.
Net sales from the Company's five largest customers accounted for 68% of
net sales for the period ended December 31, 2005. Accounts receivable from
these customers accounted for 70% of the accounts receivable balance at
December 31, 2005.
Net sales from the Company's five largest customers accounted for 64% of
net sales for the period ended December 31, 2004. Accounts receivable from
these customers accounted for 65% of the accounts receivable balance at
December 31, 2004.
Property, Plant and Equipment
Property, plant and equipment are carried at original cost. Maintenance
and repairs are charged to operations as incurred. Upon sale, retirement
or other disposition of property,
F-31
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 3 - Significant Accounting Policies (Continued)
Property, Plant and Equipment (Continued)
plant and equipment, the cost and accumulated depreciation are eliminated
from the accounts and gain or loss is included in the statement of income.
Depreciation is computed generally using the straight line method over the
following estimated useful lives of the various classes of assets:
Years
-----
Buildings and improvements 40
Machinery and equipment 10
Office furniture and equipment 5 - 7
Income Taxes
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Advertising
It is the Company's policy to expense advertising costs as incurred.
Advertising expense for the periods ended December 31, 2005 and 2004 was
$5,936 and $1,435, respectively.
Estimates and Assumptions
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-32
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 4 - Business Acquisition
On July 31, 2004, the Company completed the acquisition of certain assets
and liabilities of Applied Carbon Technology (America), Inc. (ACT), a
company engaged in the processing and supplying of natural and synthetic
graphite flakes. ACT was a wholly-owned subsidiary of Merchant Capital
Group. This acquisition was consummated in order to enable the Company to
build its product lines. The purchase price for this acquisition was
$892,241 in the form of seller financing in the amount of $600,000 and ACT
payables forgiven by a shareholder of the Company in the amount of
$292,241, for which this shareholder contributed capital to the Company.
The acquisition was accounted for under the purchase method of accounting
and the operating results from this operation have been included in the
financial statements from the date of the acquisition. Prior to this
acquisition the Company was engaged to manage the operations of ACT for
which the Company earned a management fee of approximately $380,000, which
was offset by amounts owed to ACT by the Company at the date of
acquisition. ACT was insolvent, however, the Company agreed to manage
ACT's operations in order to sustain such operations through the date of
acquisition. The purchase price was allocated based upon the estimated
fair value of the assets acquired and liabilities assumed as follows:
Inventory $ 122,887
Goodwill 800,240
Accounts receivable 131,870
Other assets 164,600
Property and equipment 3,496,076
--------------
Total Assets Acquired 4,715,673
--------------
Accounts payable 248,758
Notes payable 3,574,674
--------------
Total Liabilities Assumed 3,823,432
--------------
Purchase Price $ 892,241
==============
Under current accounting rules, goodwill resulting from this acquisition
is not being systematically amortized but will be subjected to annual
impairment tests and will be written down to its estimated fair value when
and if the impairment test indicates that the carrying value of goodwill
exceeds its fair value. The goodwill resulting from this acquisition is
deductible for tax purposes.
F-33
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 5 - Inventories
Inventories at December 31, 2005 and 2004 consist of the following:
Finished goods $ 77,829 $ 42,343
Work-in-process 36,680 1,404
Raw materials 1,227,817 250,663
---------------- ------------------
$1,342,326 $294,410
================ ==================
Note 6 - Property, Plant and Equipment
Property, plant and equipment at December 31, 2005 and 2004 consist of the
following:
Land, buildings and improvements $ 237,517 $ 170,000
Machinery, office furniture, and equipment 4,088,176 2,901,413
Construction in progress 2,455,426 791,357
----------------- -------------------
6,781,119 3,862,770
Accumulated depreciation (457,482) (123,468)
----------------- ------------------
$6,323,637 $3,739,302
================= ==================
Depreciation expense was $265,706 and $123,468 for the periods ended
December 31, 2005 and 2004, respectively.
F-34
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 7 - Notes Payable, Demand, Stockholders
Notes payable, demand, stockholders consists of the following as of
December 31, 2005 and 2004:
2005 2004
------------------ ------------------
Industry Capital:
Note payable due on demand. Interest is
charged at 7.00%, collateralized by all
unsubordinated assets of the Company.
Industry Capital is owned by certain
stockholders of the Company. $ 43,000 $ -
Beach Lane Investments Ltd:
Note payable due on demand or July 31, 2005,
whichever is later. Interest is charged at
9.00%, collateralized by the Company's
inventory. Beach Lane Investments Ltd
is owned by certain stockholders of the
Company. 127,744 127,744
Note payable due on demand with 60 days
notice. Interest is charged at 6.00%,
collateralized by all of the Company's
unsubordinated assets. Beach Lane
Investments Ltd is owned by certain
stockholders of the Company. 1,275,000 975,000
Individual stockholder:
Loan payable due on demand or October 30,
2005 whichever is later. Interest is
charged at 8.00%, collateralized by all
unsubordinated assets of the Company. 50,000 -
Individual stockholder:
Loan payable due on demand or October 30,
2005 whichever is later. Interest is
charged at 7.00%, collateralized by all
unsubordinated assets of the Company. 240,000 -
Carlant Holdings
Note payable due on demand. Interest is
charged at 8.00%, collateralized by all
unsubordinated assets of the Company.
Carlant Holdings is owned by certain
stockholders of the Company. 100,000 -
F-35
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 7 - Notes Payable, Demand, Stockholders
2005 2004
------------------ ------------------
9102-2764 Quebec, Inc.
Note payable due on demand or July 31, 2005 339,162 143,417
whichever is later. Interest is charged at
9.00%, collateralized by the Company's
inventory. 9102-2764 Quebec, Inc. is
owned by certain stockholders of the
Company.
9102-2764 Quebec, Inc.
Note payable due on demand. Interest is
charged at 6.00%, collateralized by all
unsubordinated assets of the Company.
9102-2764 Quebec, Inc. is owned by
certain stockholders of the Company 643,211 282,225
----------------- -------------------
$2,818,117 $1,528,386
================= ===================
Note 8 - Long-Term Debt
Long-term debt consists of the following as of December 31, 2005 and 2004:
JML Investments, Inc.
Note payable due on demand or October 30, 2005, whichever
is later. Interest is charged at 15.00%, collateralized
by all unsubordinated assets of the Company. $100,000 $ -
BPK Resources, Inc.
Note payable due on demand or March 31, 2005, whichever is
later. Interest is charged at 12.00%, collateralized
by all of the assets of the Company. 400,000 -
Keystone Nazareth Bank & Trust:
Installment loan payable in monthly principal
and interest payment of $2,408 through
February 2009. Interest is charged at
7.22%. Loan is collateralized by specific
equipment and also restricts the use of a
$15,000 deposit with Keystone Nazareth
Bank & Trust. $81,342 $ -
F-36
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 8 - Long-Term Debt (Continued)
PA Dept. of Community & Economic Development 2005 2004
------------------ ------------------
Loan payable on December 1, 2012. Interest is 425,000 -
charged at 2.75%, collateralized by
specific equipment.
Twinboro Financial LLC
Loan payable on September 30, 2007.
Interest only payments until September 30,
2007. Interest is charged at 9.00%,
collateralized by a mortgage on the
Company's Brocton Facility. Twinboro
Financial LLC is owned by certain
stockholders of the Company. 225,000 225,000
Barlow Lane Holding Limited
Loan payable on March 31, 2007. Interest is imputed at
7.5% with monthly payments of $6,667 with a balloon payment
on March 31, 2007, collateralized by security agreements. 408,947 -
Graphite Lake Resources Ltd.
Loan payable on December 15, 2008. Interest
is charged at 9%, collateralized by equipment
at Kearney mine in Canada. 375,000 -
Merchant Capital Group, Inc.
Loan payable on July 31, 2010. Interest is charged at 6%,
collateralized by all assets of the Company subordinate to
mortgages, priority loans, notes or securities as are given
priority to this loan. This loan was exchanged for 450,000
shares of common stock on January 31, 2005. - 600,000
Range Corp.
Loan payable on July 31, 2007. Interest is charged at 6%,
paid semi-annually, collateralized by all assets of the
Company subordinate to mortgages, priority loans, notes or
securities as are given priority to this loan. This loan
was exchanged for 45,673 shares of common stock on January
31, 2005. - 77,600
F-37
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 8 - Long-Term Debt (Continued)
2005 2004
------------------ ------------------
102-2764 Quebec, Inc.
Loan payable July 31, 2010. Interest
only payments through July 31,
2010, interest is
charged at 9.0%, collateralized by all assets of the
Company subordinate to mortgages, priority loans,
notes or securities as are given priority to this
loan. This loan and the related accrued interest of
$42,369 was exchanged for 4,546 Series A Preferred
Shares and 10,000 Series B Preferred Shares on January
31, 2005. - 1,412,250
ndustry Capital, LP
Loan payable, interest is charged at 9%,
collateralized by all assets of the Company
subordinate to mortgages, priority loans, notes or
securities as are given priority to this loan. - 277,096
Knox Insurance Brokers, Ltd.
Loan payable due on December 30, 2006.
Interest only payments through
December 31, 2006. Interest is charged at
9.00%, collateralized by specific
equipment. This debt including accrued
interest is convertible to common stock at
$1.50 for one common share. Knox is
owned by certain stockholders of the
Company. $190,000 $ 190,000
9102-2764 Quebec, Inc.
Loan payable on December 30, 2006. Interest
only payments through December 30,
2006. Interest is charged at 9.0%,
collateralized by certain equipment. This
debt including accrued interest is
convertible to common stock at $1.50 for
one common share. 9102-2764 Quebec,
is owned by certain stockholder of the
Company. This loan was repaid with
$200,000 cash and the balance of accrued
interest was added to the Senior
Secured
Demand Loan between 9102-2764 Quebec,
Inc. and the Company. - 249,975
F-38
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 8 - Long-Term Debt (Continued)
2005 2004
------------------ ------------------
T.T.T. Realty Company, Inc.
Loan payable on June 30, 2006. Interest only
payments through June 30, 2006. Interest
is charged at 15%, secured by a
mortgage
on the Company's Delano facility. T.T.T.
Realty Company, Inc. is owned by certain
stockholders of the Company. 400,000 -
North Eastern Pennsylvania Alliance
Loan payable on December 1, 2015. Interest
is charged at 2.75%, collateralized
by specific equipment and a junior lien on
receivables, inventory and all other
equipment of the Company. 200,000 -
Derek Hirsch
Loan payable on July 31, 2006. Interest only
payments through July 31, 2006. Interest
is charged at 6.00%, secured by a
mortgage on the Company's Brocton, New
York facility. Derek Hirsch is a
stockholder of the Company. 267,972 266,671
------------------ ------------------
3,073,261 3,298,592
Current maturities (1,006,215) -
------------------ ------------------
$2,067,046 $3,298,592
================== ==================
Aggregate maturities on long-term debt as of December 31, 2005 are due in
future years as follows:
Related Parties Other Total
------------------ ------------------ ------------------
Period ending December 31:
2006 $857,972 $648,243 $ 1,506,215
2007 225,000 458,957 683,957
2008 480,078 480,078
2009 84,300 84,300
2010 81,977 81,977
Thereafter - 236,734 236,734
------------------ ------------------ ------------------
$1,082,972 $1,990,289 $3,073,261
================== ================== ==================
F-39
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 9 - Capital Lease Obligations
During the period ended December 31, 2004, the Company entered into a
three-year lease agreement for the use of equipment. The lease, which
qualifies as a capital lease obligation, requires monthly payments of $326
through November 2007.
The following amounts represent annual lease payments by year and in the
aggregate including amounts which represent interest and current
maturities at December 31, 2005:
Year ending December 31:
2006 $4,236
2007 3,584
------------------
7,820
Amount representing interest (520)
------------------
$7,300
==================
The following amounts are included in property and equipment related to
the above lease at December 31, 2005 and 2004:
2005 2004
Machinery and equipment $13,350 $13,350
Accumulated depreciation (1,446) (111)
--------------------------------------------
$11,904 $13,239
============================================
F-40
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 10 - Income Taxes
The income tax provision recorded in the financial statements differs from
the expense that would result from applying federal statutory rates to
income before income taxes because the Company has fully reserved all net
deferred tax assets.
Net deferred tax assets consisted of the following components as of
December 31, 2005 and 2004 are as follows:
1 Deferred tax assets: 2005 2004
------------------ ------------------
State and federal loss carryforwards $1,188,395 $268,331
Other 2,857 2,857
------------------ ------------------
Total Deferred Tax Assets 1,191,252 271,188
Valuation allowance (975,400) (218,700)
------------------ ------------------
Net Deferred Tax Assets 215,852 52,488
------------------ ------------------
Deferred tax liabilities:
Property and equipment 202,229 45,011
Goodwill 13,623 7,447
------------------ ------------------
Total Deferred Tax Liabilities 215,852 52,488
------------------ ------------------
Net Deferred Tax Asset $ - $ -
================== ==================
As of December 31, 2005, the Company has approximately $3,400,000 of
federal and state net operating loss carryforwards to offset future
taxable income for income tax purposes. The net operating loss
carryforwards expire through March 2025.
As of December 31, 2004, the Company has approximately $800,000 of federal
and state net operating loss carryforwards to offset future taxable income
for income tax purposes. The net operating loss carryforwards expire
through March 2024
The Company increased its valuation allowance by $640,700 and $218,700 for
the periods ended December 31, 2005 and 2004, respectively.
Note 11 - Leases
The Company leases a warehouse and administrative facility from a related
party under a lease that expires in September 2009. Monthly rent for this
facility was $4,500 thorugh December 31, 2004 and increased to $4,539
effective January 1, 2005. All costs of maintaining and operating the
facility are paid by the Company.
F-41
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
The Company guarantees the debt of this related party. Debt outstanding at
December 31, 2005 was $480,696. The Company would be required to honor
this guarantee should the related party default. The Company would have
recourse against the building currently rented.
The Company also leases vehicles and equipment under noncancellable
operating leases. Total monthly payments are $2,722 and the leases expire
in various intervals through April 2009.
F-42
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 11 - Leases (Continued)
At December 31, 2005, minimum lease payments for the next five years are
as follows:
Related Party Other Total
- ------------------------------------------------------------------------------------------------------------
2006 $ 54,468 $34,836 $ 89,304
2007 54,468 22,154 76,622
2008 54,468 8,399 62,867
2009 54,468 1,559 56,027
2010 - - -
------------------- ------------------- ------------------
$217,872 $66,947 $284,819
=================== =================== ==================
Total rental expense for the periods ended December 31, 2005 and 2004,
amounted to $68,928 and $79,309, respectively; of which $40,854 and
$27,000, respectively, was paid to a related party.
Note 12 - Stockholders' Equity
Series A preferred stock consists of 500,000 authorized, nonvoting shares
with a $0.001 par value and a stated liquidation value of $100 per share.
The holders of the Series A Preferred Stock shall be entitled to receive,
out of any assets legally available therefore, cumulative dividends at the
rate of five percent (5%) per annum, accrued daily and payable in
preference and priority to any payment of any dividend on the common
stock. Dividends may, at the election of the Company, be paid in common
shares of the Company at the rate of $2.25 of such dividends to be paid in
exchange for 1 common share. No dividends were declared during the period
ended December 31, 2005. Total dividends in arrears were $20,836 at
December 31, 2005. Each share of Series A preferred stock shall be
convertible, at the option of the holder, into 44.44 shares of the
Company's common stock. Part or all of the Series A preferred stock shall
be subject to redemption by the Company at any time prior to conversion at
$105 per share plus any accrued but unpaid dividends. Such redemption
shall be paid in cash. Any shares of the Series A preferred stock
redeemed, purchased or otherwise acquired by the Company shall be deemed
retired and shall be cancelled and may not under any circumstances
thereafter be reissued or otherwise disposed of by the Company.
F-43
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 12 - Stockholders' Equity (Continued)
Series B preferred stock consists of 500,000 authorized, nonvoting shares
with a $0.001 par value and a stated liquidation value of $100 per share.
The holders of the Series B preferred stock shall be entitled to receive,
out of any assets legally available therefore, cumulative dividends at the
rate of five percent (5%) per annum, accrued daily and payable in
preference and priority to any payment of any dividend on the common
stock. Dividends may, at the election of the Company, be paid in common
shares of the Company's common stock at the rate of $3.25 of dividends to
be paid in exchange for 1 common share. No dividends were declared during
the period ended December 31, 2005. Total dividends in arrears were
$45,833 at December 31, 2005. Each share of Series B preferred stock shall
be convertible, at the option of the holder, into 30.77 shares of the
Company's common stock. Part or all of the Series B preferred stock shall
be subject to redemption by the Company at any time prior to conversion at
$105 per share plus any accrued but unpaid dividends. Such redemption
shall be paid in cash. Any shares of the Series B preferred stock
redeemed, purchased or otherwise acquired by the Company shall be deemed
retired and shall be cancelled and may not under any circumstances
thereafter be reissued or otherwise disposed of by the Company.
In connection with the formation of the Company on April 27, 2004,
10,240,186 shares of common stock were issued to the initial shareholders
of the Company. Also in conjunction with the acquisition of ACT (Note 3)
1,354,313 common shares were issued and capital of $292,241 was
contributed to the Company.
During the period ended December 31, 2005, the Company converted debt
totaling $323,780 into 282,886 shares of common stock valued at $323,780.
Note 13 - Commitments and Contingencies
On December 13, 2005, the Company's facility in Brocton, New York, was
sold at an auction for non-payment of real estate taxes by the County of
Chautauqua. The Company had been unsuccessful in reaching an agreement
with the local taxing authorities over the back taxes that were owed by
ACT. The Company negotiated with the new owner to buy the facility and
entered into a sales agreement on January 19, 2006. The Company purchased
the building free of all prior tax liens for $170,000 plus closing costs.
The Company completed the purchase in March 2006.
F-44
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 14 - Investments in Business Interests and other Acquisitions
Agreement between the Company, M. Bertil Akesson, Societe Miniere de la
Grande Ile, and SOMAGRA
On July 27, 2005, the Company entered into an agreement with Bertil
Akesson ("Akesson"), Le President Directeur General of Societe Miniere de
la Grande Ile and Societe Malagese du Graphit (SOMAGRA) by which the
Company will purchase 50% ownership of all SOMAGRA's owned right and
interest in mining claims and leases comprising the Ambatomitamba Graphite
Mine and four contiguous graphite mines located in Madagascar as well as
all equipment on site. Ownership will be unencumbered. The Company will
operate under the name SOMAGRA.
By terms of the agreement, the Company will finance, manage, operate and
develop the graphite mines.
The purchase agreement calls for the Company to purchase this 50%
ownership by payment of $3.0 million. The payment of the purchase price is
to be paid by $1.2 million in cash, of which $100,000 has been paid and
another $200,000 was paid subsequent to December 31, 2005. The additional
$1.8 million is due at the earliest date after all governmental approvals,
mining permits and licenses are secured through the issue of 615,385
shares of the Company's common stock.
There is currently no mining activity. The Company is developing a mine
operations plan with initial operations limited to establishing
pre-production mine processes.
Issuance of 452,489 Common Shares to Merchant Capital Group (Merchant)
On June 1, 2005, the Company purchased the priority security lien interest
held by Merchant over the assets of International Graphite Inc. (IGI), a
Canadian private company and owner of mineral claims and leases partly
comprising the "Kearney Graphite Mine" (Kearney), in Ontario, Canada, that
IGI owned. The priority security interest arose from a default of loan and
financial commitments to Merchant. The transaction value was deemed to
have a worth of $1,250,000 for which Graphite negotiated with Merchant the
issuance of 452,489 common shares in payment. By purchasing the security
interest, the Company assured itself that it would control the disposition
of the mine claims and leases through its secured creditor standing. The
transaction was based in U.S. dollars.
F-45
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 14 - Investments in Business Interests and other Acquisitions (Continued)
Issuance of 452,489 Common Shares to Merchant Capital Group (Merchant)
(Continued)
On November 10, 2005, the Company entered into agreement with Carlant
Holdings, which agreement was superseded by the Agreement of Purchase &
Sale, dated March 9, 2006, between the Company, IGI and Crich Holdings &
Buildings Ltd., by which the Company will purchase the mineral claims and
leases controlled by IGI on about March 27, 2006. Consideration is (i) the
cancellation of the above $1.25 million security interest, (ii) CDN
$125,000, (iii) Promissory Note in the principal amount of CDN $480,010,
and (iv) the issue for $437,000 U.S. "Equity Participation Units,"
convertible to common shares and warrants of the Company post the merger
of the Company into BPK Resources, Inc. (See subsequent events discussion
later in this report).
Purchase of Canadian Mining Equipment
A series of transactions by the Company resulted in purchasing title to
Canadian mining equipment currently on site at Kearney.
Merchant Capital Group
On June 1, 2005, the Company issued 144,796 common shares valued at
$400,000 to Merchant to purchase equipment at Kearney, subject to the
Company satisfying a $375,000 prior claim on this equipment.
Bradford-Bachinski in Trust
On November 15, 2005, the Company became a guarantor of a loan between
Graphite Lake Resources Ltd. ("GLRL") as Borrower and Bradford-Bachinski
in Trust as Lender in the principal amount of $375,000, interest at 9%,
maturing December 15, 2008. The Company expects to honor this guarantee
and in turn own full title to all equipment at Kearney.
F-46
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 14 - Investments in Business Interests and other Acquisitions (Continued)
Agreement between the Company and Chenzhou Global Graphite Inc.
On October 13, 2005, the Company purchased 37.125% ownership of Chenzhou
Global Graphite Inc. (a Company incorporated in Hunan Province, China)
("Chenzhou") which was established during 2005. Chenzhou has successfully
developed patented purification technology which increases carbon levels
of amorphous graphite. High level fixed carbon amorphous graphite (99.2%
fixed carbon) represents the potential for better and lower cost material
solutions for numerous industrial applications. The Company and Chenzhou
will collaborate to commercialize the product potential of the patented
technology. In addition, Chenzhou has an agreement to become the majority
owner and the licensed operator of a graphite mine in Jiangxi Province,
China. Chenzhou will also have mining rights and licenses for mining
amorphous graphite in Hunan Province. The transaction entailed a share
exchange of 600,795 common shares issued by the Company for 3,712,500
common shares representing 37.125% ownership of Chenzhou Global (value of
$1,652,186). The Company is also required to purchase an additional
787,500 shares, 7.875% ownership, for $350,000 cash.
Agreements between the Company and Vinecrest Management Services Ltd., and
Vincent Sheehan
On December 30, 2005, the board of directors approved the acquisition by
the Company of mining claims and leases for graphite bearing properties
located in Butt Township, Ontario, Canada. Certain of the acquired claims
and leases constituted part of Kearney. Additional mining claims and
leases that are contiguous to Kearney were also acquired. The mineral
claims and leases are to be acquired by the Company in two separate
transactions, one with Vinecrest Management Services, Ltd., and the second
with Vincent Sheehan in the amount of $150,000. All acquired claims and
leases from those parties will be subject to royalty payments. Agreements
with each of the parties were finalized on February 17, 2006 and closed on
February 20, 2006.
F-47
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 15 - Subsequent Events
A number of material agreements and events affecting the Company, its
future operations and financial position have occurred during the period
following December 31, 2005. The following summarizes these matters:
Merger Agreement between the Company and BPK Resources, Inc.
On March 9, 2006, the Company signed a merger agreement with BPK
Resources, Inc. (BPK), a Nevada corporation publicly traded through the
facilities of NASDAQ OTC. Prior to this merger agreement the Company
received bridge financing from BPK. This financing was made in connection
with the Company signing a Letter of Intent by which the Company would
merge with a subsidiary of BPK. The Letter of Intent was signed in
December 2005. On December 26, 2005, the Company and BPK signed a
promissory note whereby BPK would loan to the Company up to $750,000. This
note bears interest at 12%. This note is secured by all of the assets of
the Company. In the event the merger does not take place BPK has the
option to purchase shares of the Company's common stock for $750,000 up to
December 31, 2008. During January 2006 the Company borrowed an additional
$350,000 on this note.
On February 7, 2006, the Company and BPK entered into an additional
promissory note to loan up to an additional $1,000,000 to the Company in
contemplation of the Merger. This note bears interest at an annual rate of
12% and is secured by all of the Company's assets. The unpaid principal
balance of this note, together with all accrued and unpaid interest
thereon, is due no later than March 31, 2006. BPK has advanced $1,000,000
on this note.
Under the February 7, 2006 note, BPK has the option to purchase up to
13.33% of the Company's then outstanding shares of common stock calculated
on a fully diluted basis for up to $1,000,000 at any time prior to
December 31, 2008. This option may only be exercised in the event the
Company determines not to proceed with the Merger.
On March 10, 2006, BPK entered into a third promissory note with the
Company to loan up to an additional $1,000,000 to the Company in
contemplation of the Merger. This Note bears interest at an annual rate of
12% and is secured by all of the Company's assets. The unpaid principal
balance of this note, together with all accrued and unpaid interest
thereon, is due no later than March 31, 2006. BPK has advanced $208,000 to
the Company under this note.
Under the March 10, 2006 note, BPK has the option to purchase up to 13.33%
of the Company's then outstanding shares of common stock calculated on a
fully diluted basis for up to $1,000,000 at any time prior to December 31,
2008. This option may only be exercised in the event the Company
determines not to proceed with the Merger.
As of April 24, 2006, the Company has borrowed a total of $3,608,000 from
BPK.
F-48
Graphite Technology Group, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
December 31, 2005 and 2004
Note 15 - Subsequent Events (Continued)
Agreement between the Company, M. Bertil Akesson, Societe Miniere de la
Grande Ile, and SOMAGRA
Subsequent to December 31, 2005, the Company entered into an agreement
with Bertil Akesson ("Akesson"), Le President Directeur General of Societe
Miniere de la Grande Ile and Societe Malagese du Graphit (SOMAGRA) by
which the Company will have the option to purchase the remaining 50%
ownership of all SOMAGRA's owned right and interest in mining claims and
leases comprising the Ambatomitamba Graphite Mine and four contiguous
graphite mines located in Madagascar as well as all equipment on site (see
Note 13 for additional information on SOMAGRA).
The option agreement calls for the Company to purchase this 50% ownership
by payment of $3.0 million. The payment of the purchase price is to be
paid by $1.2 million in cash and $1.8 million in equity. The $1.8 million
in stock will be based on the then current market price of the Company's
stock.
F-49
Applied Carbon Technology (America) Inc.
- --------------------------------------------------------------------------------
Balance Sheets
(Unaudited)
April 30, 2004 and December 31, 2003
2004 2003
----------- ----------
Assets
Current Assets
Cash $ 32,327 $ 14,305
Trade accounts receivable 75,685 68,830
Other receivable 4,152 8,723
Inventories 108,910 62,268
---------- ----------
Total Current Assets 221,074 154,126
Property, Plant and Equipment, Net 950,902 960,395
Other Assets 81,770 95,128
---------- ----------
Total Assets $1,253,746 $1,209,649
========== ==========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-50
2004 2003
------------- ------------
Liabilities and Stockholder's Deficit
Current Liabilities
Notes payable, demand $ 1,337,698 $ 983,558
Accounts payable 575,493 622,578
Accrued expenses 229,271 246,546
------------ ------------
Total Current Liabilities 2,142,462 1,852,682
Long-Term Debt, less Current Maturities
Related parties 11,912,523 11,874,361
------------ ------------
Total Liabilities 14,054,985 13,727,043
------------ ------------
Stockholder's Deficit
Common stock 100 100
Accumulated deficit (12,801,339) (12,517,494)
------------ ------------
Total Stockholder's Deficit (12,801,239) (12,517,394)
------------ ------------
Total Liabilities and Stockholder's Deficit $ 1,253,746 $ 1,209,649
============ ============
F-51
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Statements of Operations
(Unaudited)
For the Four Months Ended April 30, 2004 and the Year Ended December 31, 2003
2004 2003
--------- ---------
Net Sales $ 134,645 $ 320,662
Cost of Sales 65,633 150,892
--------- ---------
Gross Profit 69,012 169,770
Selling, General and Administrative Expenses 352,857 984,577
--------- ---------
Net Loss ($283,845) ($814,807)
========= =========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-52
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Statement of Stockholders' Deficit
(Unaudited)
Four Months Ended April 30, 2004, and the Year Ended December 31, 2003
Common
Stock Total
--------- Accumulated Stockholder's
Par Value Deficit Deficit
------------ ------------ -------------
Balance - December 31, 2002 $ 100 ($11,702,687) ($11,702,587)
Net loss (814,807) (814,807)
------------ ------------ -------------
Balance - December 31, 2003 $ 100 ($12,517,494) ($12,517,394)
Net loss (283,845) (283,845)
------------ ------------ -------------
Balance - April 30, 2004 $ 100 ($12,801,339) ($12,801,239)
============ ============ ============
See notes to financial statements.
- --------------------------------------------------------------------------------
F-53
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
For the Four Months Ended April 30, 2004 and the Year Ended December 31, 2003
2004 2003
--------- --------
Cash Flows from Operating Activities
Net loss ($283,845) ($814,807)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 60,493 221,482
(Increase) decrease in assets:
Trade accounts receivable and other
receivable (2,284) (10,336)
Inventories (46,642) 6,082
Other Assets 13,358 --
Increase (decrease) in liabilities:
Accounts payable (47,085) 34,997
Accrued expenses (17,275) 137,856
--------- ---------
Net Cash Used in Operating Activities (323,280) (424,726)
--------- ---------
Cash Flows Used in Investing Activities
Purchase of property, plant, and equipment (51,000) --
--------- ---------
Cash Flows from Financing Activities
Proceeds from demand notes payable, related
parties 354,140 (6,442)
Proceeds from the issuance of long-term debt:
Related parties 38,162 404,160
--------- ---------
Net Cash Provided by Financing Activities 392,302 397,718
--------- ---------
Net Increase (Decrease) in Cash 18,022 (27,008)
Cash - Beginning 14,305 41,313
--------- ---------
Cash - Ending $ 32,327 $ 14,305
========= =========
See notes to financial statements.
- --------------------------------------------------------------------------------
F-54
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
April 30, 2004 and December 31, 2003
Note 1 - Basis of Presentation
The accompanying unaudited financial statements as of December 31, 2003
and for the year then ended have been prepared in accordance with
generally accepted accounting principles. The financial statement as of
April 30, 2004 and for the four month period then ended have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the four month
period ended April 30, 2004 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2004.
Note 2 - Nature of Operations
Applied Carbon Technology (America), Inc. (the "Company") is engaged
in the business of manufacturing and selling natural and synthetic
graphite and carbon based materials for use in aerospace, automotive,
lubricants, refractory, and emerging industries such as composite
materials, conductive composite polymers and plastics and fuel cells. The
Company has a processing facility located in New York. The Company is an
ISO certified manufacturer: ISO 9001: 2000. The Company is a wholly owned
subsidiary of Merchant Capital Group, Inc., a Canadian public company.
Note 3 - Significant Accounting Policies
Cash
Cash is on deposit in banks and other financial institutions. In the
normal course oft 6 6 business, the Company may have deposits which
exceed the insured limits.
Inventories
Inventories are stated at the lower of cost or market with cost
determined by the first-in, first-out (FIFO) method.
Shipping and Handling Costs
The Company records shipping and handling costs related to products
sold and shipped as a component of cost of sales. Such costs
amounted to $5,939 and $8,027 for the four month period ended April
30, 2004 and the year ended December 31, 2003, respectively.
Trade Accounts Receivable
Trade accounts receivable are stated at outstanding balances, less
an allowance for doubtful accounts. The allowance for doubtful
accounts is established through provisions charged against income.
Accounts deemed to be uncollectible are charged against the
allowance and subsequent recoveries, if any, are credited to the
allowance. The allowance for doubtful accounts is maintained at a
level considered adequate to provide
F-55
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
April 30, 2004 and December 31, 2003
Note 3 - Significant Accounting Policies (Continued)
Trade Accounts Receivable (Continued)
for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on past
experience, agings of the receivables, adverse situations that may
affect a customer's ability to pay, current economic conditions and
other relevant factors. This evaluation is inherently subjective, as
it requires estimates that may be susceptible to significant change.
Unpaid balances remaining after the stated payment terms are
considered past due. Based upon such procedures management has
determined that no allowance was required as of April 30, 2004 and
December 31, 2003.
Property, Plant and Equipment
Property, plant and equipment are carried at original cost.
Maintenance and repairs are charged to operations as incurred. Upon
sale, retirement or other disposition of property, plant and
equipment, the cost and accumulated depreciation are eliminated from
the accounts and gain or loss is included in the statement of
income.
Depreciation is computed generally using the straight line method
over the following estimated useful lives of the various classes of
assets:
Years
------
Buildings and improvements 40
Machinery and equipment 10
Office furniture and equipment 5 - 7
Income Taxes
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
F-56
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
April 30, 2004 and December 31, 2003
Note 3 - Significant Accounting Policies (Continued)
Advertising
It is the Company's policy to expense advertising costs as incurred.
The company had no advertising expense for the four month period
ended April 30, 2004 and the year ended December 31, 2003.
Estimates and Assumptions
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Note 4 - Inventories
Inventories at April 30, 2004 and December 31, 2003 consist of the
following:
Finished goods $ 32,788 $ 24,926
Work-in-process 3,592 5,113
Raw materials 72,530 32,229
-------- --------
$108,910 $ 62,268
======== ========
Note 5 - Property, Plant and Equipment
Property, plant and equipment at April 30, 2004 and December 31, 2003
consist of the following:
Land, buildings and improvements $ 52,759 $ 52,759
Machinery, office furniture, and
equipment 2,660,970 2,660,970
Construction in progress 51,000 --
----------- -----------
2,764,729 2,713,729
Accumulated depreciation (1,813,827) (1,753,334)
----------- -----------
$ 950,902 $ 960,395
=========== ===========
Depreciation expense was $60,493 and $181,482 for the four month period
ended April 30, 2004 and the year ended December 31, 2003, respectively.
F-57
Applied Carbon Technology (America), Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
April 30, 2004 and December 31, 2003
Note 6 - Subsequent Event
On July 31, 2004, the Company sold certain assets and liabilities to
Graphite Technology Group, Inc. (Graphite), in exchange for a note
receivable of $600,000 and forgiveness of payables in the amount of
$292,241 owed by the Company to a shareholder of Graphite.
F-58
As of December 31, 2005 (1) (2)
Historical Historical Pro Forma Pro Forma
BPK GTG Adjustments Adjustments
--------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 43,396 $ 296,711
Restricted Cash $ - $ 15,000
Accounts receivable $ 33,613 $ 123,320
Notes and interest receivable $ 1,088,978 $ 2,923 $ (400,000)
Inventories $ - $ 1,342,326
Prepaid expenses $ 2,926 $ 61,197
--------------------------------------------------------------------
Total current assets $ 1,168,913 $ 1,841,477 $ (400,000) $ -
PP&E,Net $ - $ 6,323,637
Investment in Subsidiaries $ - $ 1,752,186
Goodwill $ - $ 800,240
--------------------------------------------------------------------
Total Assets $ 1,168,913 $ 10,717,540 $ (400,000) $ -
==========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt and $ - $ 1,010,048
capital lease obligations
Accounts payable and accrued expenses $ 533,591 $ 1,151,507
Accounts payable and accrued expenses - related party $ 180,701 $ -
Notes payable $ 468,178 $ 500,000 $ (400,000)
Notes payable - related party $ 826,061 $ 53,221
Note payable on demand - Stockholders $ - $ 2,818,117
--------------------------------------------------------------------
Total current liabilities $ 2,008,531 $ 5,532,893 $ (400,000) $ -
Long-term Debt, less Current Maturities
Related Parties $ - 225,000
Capital Lease Obligation, less Current Maturity $ - 3,467
Other $ - 1,342,046
--------------------------------------------------------------------
Total Long-Term Debt and Capital Lease Obligation - 1,570,513 - -
--------------------------------------------------------------------
Total Laibilities 2,008,531 7,103,406 (400,000) -
Stockholders' Equity
Series A Preferred $ - $ 5
Series B Preferred $ 830 $ 10
Series C Preferred $ - $ -
Series D Preferred $ - $ - $ 585
Series E Preferred $ - $ - $ 15
Common stock $ 54,259 $ 14,742 $ 40,000
Additional Paid in Capital $ 13,104,092 $ 6,720,980 $ (40,600)
Accumulated deficit $ (13,998,799) $ (3,121,603)
-------------------------------------------------------------------
Total Stockholders Equity $ (839,618) $ 3,614,134 $ - $ -
Total Liabilities & Stockholders Equity $ 1,168,913 $ 10,717,540 $ (400,000) $ -
==========================================================================
(3) (4) (5) (6)
Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Total
-------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,030,629 $ 4,370,736
Restricted Cash $ 15,000
Accounts receivable $ 156,933
Notes and interest receivable $ (688,446) $ 3,455
Inventories $ 1,342,326
Prepaid expenses $ 64,123
--------------------------------------------------------------------------
Total current assets $ - $ - $ (688,446) $ 4,030,629 $ 5,952,573
PP&E,Net $ 6,323,637
Investment in Subsidiaries $ 1,752,186
Goodwill $ 800,240
(3) (4) (5) (6)
--------------------------------------------------------------------------
Total Assets $ - $ - $ (688,446) - $ 4,030,629 - $ 14,828,636
==========================================================================
Notes:
(1) To eliminate the monies loaned to GTG by BPK at 12/31/2005
(2) Record Common & Preferred Stock issued in the merger
(3) Eliminate accumulated deficit of BPK
(4) Eliminate members capital of GTG
(5) Record assignment of the Bright Brains NR/NP and interest
rec/payable Excess Amounts owned to SH have been classified as an
equity contribution by the SH
(6) To Record Equity & Debt raised in connection with the transaction
and funded to GTG
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt and $ 1,010,048
capital lease obligations
Accounts payable and accrued expenses $ 1,685,098
Accounts payable and accrued expenses - related party $ (17,974) $ 162,727
Notes payable $ 1,350,000 $ 1,918,178
Notes payable - related party $ (785,000) $ 94,282
Note payable on demand - Stockholders $ 2,818,117
--------------------------------------------------------------------------
Total current liabilities $ - $ - $ (802,974) $ 1,350,000 $ 7,688,450
Long-term Debt, less Current Maturities
Related Parties $ 225,000
Capital Lease Obligation, less Current Maturity $ 3,467
Other $ 1,342,046
--------------------------------------------------------------------------
Total Long-Term Debt and Capital Lease Obligation - - - - 1,570,513
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Total Laibilities - - (802,974) 1,350,000 9,258,963
Stockholders' Equity
Series A Preferred $ (5) $ -
Series B Preferred $ (10) $ 830
Series C Preferred $ - $ 188 $ 188
Series D Preferred $ 585
Series E Preferred $ 15
Common stock $ (14,742) $ 94,259
Additional Paid in Capital $ (13,998,799) $ 14,757 $ 114,528 $ 2,680,441 $ 8,595,399
Accumulated deficit $ 13,998,799 $ (3,121,603)
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Total Stockholders Equity $ - $ - $ 114,528 $ 2,680,629 $ 5,569,673
Total Liabilities & Stockholders Equity $ - $ - $ (688,446) $ 4,030,629 $ 14,828,636
==========================================================================
F-59
Notes:
(1) To eliminate the monies loaned to GTG by BPK at 12/31/2005
(2) Record Common & Preferred Stock issued in the merger
(3) Eliminate accumulated deficit of BPK
(4) Eliminate members capital of GTG
(5) Record assignment of the Bright Brains NR/NP and interest
rec/payable Excess Amounts owned to SH have been classified as an
equity contribution by the SH
(6) To Record Equity & Debt raised in connection with the transaction
and funded to GTG
F-60
Nine months ended
12.31.05
Proforma
Pro-forma information (unaudited) :
Loss from continuing operations $(2,588,758)
============
Net loss for period $(2,412,737)
============
Pro-forma per share data :
Basic and diluted net loss per common share (0.026)
============
Basic and diluted weighted average number
of common shares outstanding 94,259,503
============
F-61