Attached files
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EX-23.2 - Aegean Earth & Marine CORP | v204816_ex23-2.htm |
EX-23.1 - Aegean Earth & Marine CORP | v204816_ex23-1.htm |
EX-10.3 - Aegean Earth & Marine CORP | v204816_ex10-3.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
(Amendment
No. 2)
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported) February 9, 2010
HELLENIC
SOLUTIONS CORPORATION
(Exact
name of registrant as specified in its charter)
CAYMAN
ISLANDS
|
000-52136
|
NA
|
||
(State
or other jurisdiction of
incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification
No.)
|
5,
Ichous Str. – Galatsi
111
46 Athens, Greece
(Address
of principal executive offices, including zip code)
30-210-223-4533
(Registrant’s
telephone number, including area code)
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:
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
In
this report, unless otherwise indicated or the context otherwise requires, all
references to the “Company,” “we,” “Hellenic,” or “us” shall mean Hellenic
Solutions Corporation, together with our wholly-owned subsidiaries, Aegean Earth
and Marine S.A. and Temhka S. A.
EXPLANATORY
NOTE
This
Current Report on Form 8-K/A amends and restates (i) our Current Report on Form
8-K filed on February 17, 2010 and (ii) our Current Report on Form 8-K/A filed
on May 3, 2010, each of which relate to, among other things, the completion of
our acquisition of Temhka S.A. We are filing this Current Report on
Form 8-K/A to revise certain information and provide additional disclosure in
response to a comment letter received from the Securities and Exchange
Commission, or the SEC.
Forward-Looking
Statements
This
Current Report contains forward-looking statements, including statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements that are other than statements
of historical facts. These statements are subject to uncertainties
and risks including, but not limited to, demand and acceptance of services,
changes in governmental policies and regulations, economic conditions, the
impact of competition and pricing, and other risks defined in this document and
in statements filed from time to time with the SEC. All such
forward-looking statements, whether written or oral, and whether made by us or
on our behalf, are expressly qualified by the cautionary statements and any
other cautionary statements which may accompany the forward-looking
statements. In addition, we disclaim any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
ITEM
1.01
|
ENTRY
INTO A MATERIAL DEFINITIVE
AGREEMENT
|
All share
and per share information furnished herein regarding us, unless otherwise
expressly provided, reflects (i) the May 14, 2010 consolidation, or the
Consolidation, of our ordinary shares, with a par value $0.00064 per share, at
the rate of each 5.402 ordinary shares into one (1) ordinary share, and (ii) the
May 14, 2010 amendment, or the Amendment, to our Memorandum and Articles of
Association increasing the authorized number of our ordinary shares to
100,000,000. Prior to the Consolidation and the Amendment, our
authorized share capital consisted of 78,125,000 ordinary shares, par value
$0.00064 per share.
ACQUISITION
AGREEMENT
On
February 9, 2010, we entered into an Acquisition Agreement, or the Acquisition
Agreement, with Temhka S.A., a company organized under the laws of the Hellenic
Republic, or Greece, and the shareholders of Temhka S.A., pursuant to which we
acquired all the issued and outstanding capital stock of Temhka S.A. from Temhka
S.A.’s shareholders, each of whom is referred to herein as a Seller and are
collectively referred to as the Sellers, solely in exchange for 1,623,333 of our
Series B Preference Shares. Of such Series B Preference Shares,
600,036 were placed in escrow pending the fulfillment of certain
criteria. Each such Series B Preference Share automatically
converted, the Conversion, into ten shares of our ordinary shares immediately
subsequent to the Consolidation. Consequently, we acquired 100% of
the issued and outstanding capital stock of Temhka S.A., resulting in Temhka
S.A. becoming our wholly-owned subsidiary. As a condition prior to
the closing of our acquisition of Temhka S.A., Stavros Ch. Mesazos, the
controlling shareholder of Temhka S.A., contributed $4,500,000 to Temhka S.A.
during 2009.
After
giving effect to the Consolidation, the Amendment, the Conversion and the
cancellation, redemption and conversion into ordinary shares of our Class A
Preference Shares held by Access America Fund, LLP, or AAF, prior to the closing
of our acquisition of Temhka S.A., the number of our issued and outstanding
ordinary shares was 18,133,330, consisting of (i) the 16,233,330 ordinary shares
held by the Sellers, constituting approximately 89.5% of our issued and
outstanding ordinary shares, and (ii) 1,900,000 of our ordinary shares held by
persons who were our shareholders prior to our acquisition of Temhka S.A.,
constituting approximately 10.5% of our issued and outstanding ordinary
shares. The closing of our acquisition of Temhka S.A. resulted in a
change in control.
The
Series B Preference Shares issued to the Sellers were issued pursuant to the
exemption from registration provided under Section 4(2) of the Securities Act of
1933, as amended, or the Securities Act, and Rule 506 promulgated thereunder
and/or Regulation S of the Securities Act. We made this determination
based on the representations of the persons obtaining such securities, which
included, in pertinent part, that such persons were “accredited investors”
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, and that such persons were acquiring such securities for investment
purposes for their own respective accounts and not as nominees or agents, and
not with a view to resale or distribution, and that each such person understood
that such securities may not be sold or otherwise disposed of without
registration under the Securities Act or an applicable exemption
therefrom.
2
We agreed
that we would appoint a new board of directors as soon as reasonably practical
(but in no event later than 90 days) following the closing of our acquisition of
Temhka S.A. The new board of directors must consist of five
directors, of which a minimum of two such directors shall be appointed by AAF
and shall be “independent” as defined by NYSE-AMEX rules and
regulations. On April 13, 2010, we appointed Rizos Krikis (who
resigned as our Chief Financial Officer on May 3, 2010), Stavros Ch. Mesazos and
Dimitrios K Vassilikos (who was simultaneously appointed as our Chief Executive
Officer) to our board of directors, and on June 15, 2010, we appointed Kostas
Moschopoulous to our board of directors. Joseph Clancy, who was
appointed as a member of our board of directors on February 29, 2008, continues
to serve as one of our directors. Messrs. Moschopoulous and Clancy
are each “independent directors” as defined by the NYSE-AMEX rules and
regulations.
We agreed
that, for a period of twelve months commencing upon the closing date of our
acquisition of Temhka S.A., we would not sell more than ten percent of our Net
Equity without the written consent of Access America Investments LLC, or AAI,
where “Net Equity” means that amount reflected as Shareholders’ Equity on our
most recent financial statements filed with the SEC at such time as we elect to
sell our securities.
The
foregoing description of the Acquisition Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text of
such Acquisition Agreement, which is filed as Exhibit 2.1 to our Form 8-K filed
on February 17, 2010 and incorporated herein by reference.
MAKE
GOOD ESCROW AGREEMENT
On
February 9, 2010, we entered into a Make Good Escrow Agreement, or the Make Good
Escrow Agreement, with the Sellers, AAF and an escrow agent, pursuant to which
the Sellers placed 600,636 of the 1,623,333 Series B Preference Shares received
in connection with our acquisition of Temhka S.A. (as converted into 6,003,360
shares of our ordinary shares, these shares are referred to herein as the Escrow
Shares) into escrow for the benefit of AAF in the event that we fail to attain
certain financial thresholds defined as follows:
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·
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“2010 Threshold.” The
threshold for our 2010 fiscal year is $7.5 million in net income (as
determined in accordance with United States Generally Accepted Accounting
Principles, or GAAP, consistently applied);
and
|
|
·
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“2011 Threshold.” The
threshold for our 2011 fiscal year is $14.9 million in net income (as
determined in accordance with
GAAP).
|
If our
net income is ten percent or more below the 2010 Threshold, the escrow agent
shall release to AAF that number of Escrow Shares equivalent to the percentage
by which we missed the 2010 Threshold. For example, if we were to
miss the 2010 Threshold by 15%, the number of Escrow Shares released to AAF
would be 900,954 of our ordinary shares. In the event we miss our
2010 Threshold, and, as a result thereof, the escrow agent releases all and/or a
portion of the Escrow Shares to AAF, then each Seller shall (pro rata based upon
the total number of Series B Preference Shares such Seller received in
connection with our acquisition of Temhka S.A. relative to the total number of
such shares issued in connection with such acquisition), deliver to the escrow
agent such number of additional ordinary shares in the Seller’s name so that the
escrow agent continues to hold 6,006,360 Escrow Shares.
If our
net income is at least ten percent less than the 2011 Threshold, the escrow
agent shall release to AAF that number of Escrow Shares equivalent to the
percentage by which we missed the 2011 Threshold. All Escrow Shares
not required to be released to AAF following the release of our 2011 fiscal year
annual financial information shall be promptly released to the Sellers on a pro
rata basis based on the number of such shares the Sellers received from us
pursuant to the Acquisition Agreement.
The
foregoing description of the Make Good Escrow Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Make Good Escrow Agreement, which is filed as Exhibit 4.1 to our Form 8-K
filed on February 17, 2010 and incorporated herein by reference.
3
VOTING
AGREEMENT AND IRREVOCABLE PROXY
On
February 9, 2010, we entered into a Voting Agreement and Irrevocable Proxy, or
the Voting Agreement, with the Sellers and certain other signatories thereto,
who are collectively referred to herein as the Voting Parties, pursuant to which
the Sellers agreed to vote their 16,233,330 shares of our ordinary shares, or
the Voting Shares, received in connection with our acquisition of Temhka S.A.
(as converted from the 1,632,333 shares of our Class B Preference Shares) in
accordance with the terms of the Voting Agreement. Specifically, each
Seller agreed that, at any meeting or by written consent of our shareholders,
such Seller will vote all of his, her or its Voting Shares in favor of (i) the
May 14, 2010 consolidation of our ordinary shares, with a par value $0.00064 per
share, at the rate of each 5.402 ordinary shares into one ordinary share, (ii)
an amendment to our Memorandum and Articles of Association increasing the
authorized number of our ordinary shares to 100,000,000, and (iii) two persons
nominated by the representative of AAF, or the Representative, to be elected as
members of our board of directors pursuant to the Acquisition Agreement.
Additionally, each Seller appointed the Representative to vote such Seller’s
Voting Shares in a manner consistent with the Voting Agreement at any meeting or
written consent of our shareholders
The
Voting Agreement will terminate two years from February 9, 2010.
The
foregoing description of the Voting Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the Voting
Agreement, which is filed as Exhibit 4.2 to our Form 8-K filed on February 17,
2010 and incorporated herein by reference.
SECURITIES
PURCHASE AGREEMENT
Simultaneous
with the closing of our acquisition of Temhka S.A., in February 2010 we entered
into a Securities Purchase Agreement, or the Purchase Agreement, with Temhka
S.A. and AAF. Pursuant to the Purchase Agreement, we sold in a
private offering, or the February 2010 Offering, 1,666,667 ordinary shares and
warrants to purchase up to an additional 1,666,667 ordinary shares for an
aggregate purchase price of $2.5 million to AAF. Each warrant is
exercisable for five years at a price of $3.00 per ordinary
share. The ordinary shares and warrants sold in the February 2010
Offering were issued pursuant to the exemptions from the registration
requirements of the Securities Act provided under Section 4(2) of the Securities
Act and Rule 506 promulgated thereunder and/or Regulation S of the Securities
Act. We made this determination based on the representations of the
persons obtaining such securities, which included, in pertinent part, that such
persons were “accredited investors” within the meaning of Rule 501 of Regulation
D promulgated under the Securities Act, and that such persons were acquiring
such securities for investment purposes for their own respective accounts and
not as nominees or agents, and not with a view to resale or distribution, and
that each such person understood that such securities may not be sold or
otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom.
In March
2010, and pursuant to the Purchase Agreement, we sold in a private offering, or
the March 2010 Offering, 1,333,334 ordinary shares and warrants to purchase up
to an additional 1,333,334 ordinary shares to accredited investors for an
aggregate purchase price of $2.0 million. Each warrant is exercisable
for five years at a price of $3.00 per ordinary share. The ordinary
shares and warrants sold in the March 2010 Offering were issued pursuant to the
exemption from registration provided under Section 4(2) of the Securities Act
and Rule 506 promulgated thereunder. We made this determination based
on the representations of the persons obtaining such securities, which included,
in pertinent part, that such persons were “accredited investors” within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act, and
that such persons were acquiring such securities for investment purposes for
their own respective accounts and not as nominees or agents, and not with a view
to resale or distribution, and that each such person understood that such
securities may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom.
The
Purchase Agreement required that we appoint a new board of directors as soon as
reasonably practical (but in no event later than 90 days) after the date on
which the final closing of the private offering contemplated by the Purchase
Agreement occurred, or the Closing Date. The new board of directors
must consist of five directors, of which a minimum of two such directors shall
be appointed by AAF and shall be “independent” as defined by NYSE-AMEX rules and
regulations. On April 13, 2010, we appointed Rizos Krikis (who
resigned as our Chief Financial Officer on May 3, 2010), Stavros Ch. Mesazos and
Dimitrios K Vassilikos (who was simultaneously appointed as our Chief Executive
Officer) to our board of directors, and on June 15, 2010, we appointed Kostas
Moschopoulous to our board of directors. Joseph Clancy, who was
appointed as a member of our board of directors on February 29, 2008, continues
to serve as one of our directors. Messrs. Moschopoulous and Clancy
are each “independent directors” as defined by the NYSE-AMEX rules and
regulations.
4
We
agreed, for a period of two years following the Closing Date, that we will not
effect any financing or transaction in which we (i) sell or issue securities
that are convertible into, exchangeable or exercisable for, or include the right
to receive additional ordinary shares at a conversion, exercise or exchange rate
or other price that is (A) based upon and/or varies with the trading prices of
or quotations for shares of our ordinary shares at any time after the initial
issuance of such debt or equity securities or (B) subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events related to our business or the
market for our ordinary shares or (ii) sell or issue amortizing convertible
securities which amortize prior to their maturity date, where we are required to
or have the option to (or the investor in such transaction has the option to
require us to) make such amortization payments in ordinary shares, or (iii)
enter into any agreement, including but not limited to, an equity line of
credit, pursuant to which we agree to sell securities at a future determined
price.
We agreed
that we will not, between the Closing Date and the date that is ninety days
following the effective date of the registration statement filed pursuant to the
Registration Rights Agreement (as discussed below), file any new registration
statement under the Securities Act without the consent of the holders of at
least a majority of the ordinary shares purchased under the Purchase Agreement
except for the registration statement to be filed in accordance with the
Registration Rights Agreement. On November 10, 2010, pursuant
to consent received from the holders of the majority of the ordinary shares
purchased under the Purchase Agreement, we filed a Registration Statement
on Form S-1 under which we intend to offer up to $30 million of our ordinary
shares. We expect to file a registration statement as required by the
Registration Rights Agreement shortly following the commencement of the offering
of our securities contemplated by the registration statement that we filed on
November 10, 2010.
We agreed
to use our best efforts to (i) file an application with NYSE-AMEX within ninety
days following the final Closing Date and (ii) cause our ordinary shares to be
listed on the NYSE or other national stock exchange no later than six months
after the final Closing Date. We have applied to list our ordinary
shares on the NASDAQ Global Market and, if approved, our ordinary shares will
trade under the symbol “HESC.”
We agreed
that we would adopt a stock option plan applicable to our directors, employees
and consultants within ninety days following the final Closing Date, with such
stock option plan being approved by our board of directors. We also
agreed not to issue any compensatory stock options prior to the adoption of a
stock option plan and thereafter, not to issue any compensatory stock options
outside of the stock option plan. We intend to implement a stock
option plan for our directors, employees and consultants within the next twelve
months.
We agreed
that, during the twelve month period commencing on February 10, 2010, we will
not (i) sell more than 10% of our “Net Equity” (as defined above and after
giving effect to our acquisition of Temhka S.A.) without the written consent of
each of AAF and both of the independent directors appointed by AAF pursuant to
the Purchase Agreement, or (ii) assume, borrow, guarantee and/or otherwise
become obligated for Indebtedness (as defined in the Purchase Agreement) that
equals and/or exceeds fifty percent of our Net Equity.
We intend
to use the net proceeds from the February 2010 Offering and the March 2010
Offering primarily for working capital.
The
foregoing description of the Purchase Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Purchase Agreement, which is filed as Exhibit 4.3 to our Form 8-K filed on
February 17, 2010 and incorporated herein by reference.
REGISTRATION
RIGHTS AGREEMENT
In
connection with the private placement of our ordinary shares in February 2010,
we entered into a Registration Rights Agreement with our investors, pursuant to
which we agreed that within 60 calendar days of February 10, 2010, we would use
our best efforts to file a registration statement with the SEC, on the
appropriate form, covering the resale of (i) the ordinary shares purchased by
the investors, including ordinary shares underlying the warrants acquired by
AAF, (ii) the ordinary shares underlying the Series B Preference Shares held in
Escrow pursuant to the Make Good Agreement entered into in connection with our
acquisition of Temhka S.A., and (iii) any and all ordinary shares issued in
respect of the foregoing as a result of stock splits, stock dividends,
reclassifications, consolidation, recapitalizations, or other similar
events.
We agreed
to use our best efforts to (a) cause the registration statement to be declared
effective within one hundred twenty days from the filing date, or, if not
reviewed by the SEC, within three business days after the date on which the SEC
informs us that the SEC will not review the registration statement, and (b) keep
the registration statement continuously effective until such date as is the
earlier of (i) the date when all the ordinary shares covered by such
registration statement have been sold or (ii) the date on which the ordinary
shares may be sold without any restriction pursuant to Rule 144.
5
The
foregoing description of the Registration Rights Agreement does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Registration Rights Agreement, which is filed as Exhibit 4.4 to our Form
8-K filed on February 17, 2010 and incorporated herein by
reference.
ITEM
2.01
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COMPLETION
OF ACQUISITION OR DISPOSITION OF
ASSETS
|
THE
ACQUISITION OF TEMHKA S.A.
On
February 9, 2010, we entered into the Acquisition Agreement, pursuant to which
we acquired all the issued and outstanding capital stock of Temhka S.A. from the
Sellers in exchange for the issuance of 1,623,333 of our Series B Preference
Shares. Of such Series B Preference Shares, 600,036 were placed in
escrow pending the fulfillment of certain criteria. In connection
with the Conversion, each such Series B Preference Share automatically converted
into ten shares of our ordinary shares immediately subsequent to the
Consolidation. Consequently, we acquired 100% of the issued and
outstanding capital stock of Temhka S.A., resulting in Temhka becoming our
wholly-owned subsidiary.
The
foregoing description of the acquisition of Temhka S.A. does not purport to be
complete and is qualified in its entirety by reference to Item 1.01 above and to
the complete text of the Acquisition Agreement, which is filed as Exhibit 2.1 to
our Form 8-K filed on February 17, 2010 and incorporated herein by
reference.
Item
2.01(f) of Form 8-K states that if the registrant was a shell company, as we
were immediately before the acquisition of Temhka S.A., then the registrant must
disclose the information that would be required if the registrant were filing a
general form for registration of securities on Form 10. Accordingly,
set forth in Item 5.01 below is the information that would be included in a Form
10 if we were to file a Form 10 as a "smaller reporting company," as such term
is defined in Regulation S-K promulgated by the SEC. Please note that
the information provided below relates to the combined enterprises after the
acquisition of Temhka S.A., except that information relating to periods prior to
the date of the acquisition only relate to us unless otherwise specifically
indicated.
ITEM
3.02
|
UNREGISTERED
SALES OF EQUITY SECURITIES
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Reference
is made to the disclosure set forth under Item 1.01, Item 2.01 and Item 5.01 of
this Current Report on Form 8-K/A, each of which is incorporated herein by
reference.
ITEM
5.01
|
CHANGE
IN CONTROL OF REGISTRANT
|
On
February 9, 2010, we consummated the transactions contemplated by the
Acquisition Agreement, pursuant to which we acquired all of the issued and
outstanding shares of Temhka S.A. from the Sellers in exchange for the issuance
of 16,233,330 of our ordinary shares to the Sellers, or 89.5% of our ordinary
shares issued and outstanding immediately following the
acquisition. The ordinary shares issued to the Sellers were issued
pursuant to the exemption from registration provided under Section 4(2) of the
Securities Act, and Rule 506 promulgated thereunder and/or Regulation S of the
Securities Act. We made this determination based on the
representations of the persons obtaining such securities, which included, in
pertinent part, that such persons were “accredited investors” within the meaning
of Rule 501 of Regulation D promulgated under the Securities Act, and that such
persons were acquiring such securities for investment purposes for their own
respective accounts and not as nominees or agents, and not with a view to resale
or distribution, and that each such person understood that such securities may
not be sold or otherwise disposed of without registration under the Securities
Act or an applicable exemption therefrom.
Other
than the transactions and agreements disclosed in this Current Report on Form
8-K/A, we know of no arrangements which may result in a change of
control.
No
officer, director, promoter or affiliate has, or proposes to have, any direct or
indirect material interest in any asset proposed to be acquired by us through
security holdings, contracts, options, or otherwise.
Prior to
the consummation of our acquisition of Temhka S.A., Frank DeLape resigned as our
Executive Chairman. Joseph Clancy remains a member of our board of
directors subsequent to our acquisition of Temhka. Upon the closing of our
acquisition of Temhka S.A., Mr. Mesazos became our Executive Chairman, as
well as our Chief Operating Officer, and Dimitrios Vassilikos was appointed as
our Chief Executive Officer. On April 13, 2010 we appointed Rizos
Krikis, Stavros Ch. Mesazos and Dimitrios K Vassilikos to our board of
directors, and on June 15, 2010, we appointed Kostas Moschopoulous to our board
of directors. These actions, viewed together with the transactions
related to our acquisition of Temhka S.A., constitute a “change in
control.”
Reference
is made to the disclosure set forth under Item 1.01 and Item 2.01 of this
Current Report on Form 8-K/A, each of which is incorporated herein by
reference.
6
FORM
10 INFORMATION
BUSINESS
Overview
We are a
leading designer, builder, remodeler and outfitter of manufacturing facilities,
specializing in the agricultural sector in Greece. Our clients
utilize European Union, or EU, grants to help pay for these new, expanded or
remodeled facilities. In order to obtain EU grants, we first prepare
a feasibility study and construction plan to be submitted by the client to the
applicable Greek governmental ministry for approval, which ministry has been
delegated grant approval authority by both the EU and Greek
government. Following approval by the relevant Greek governmental
ministry, we design and build the facility to the specifications outlined in the
approved grant application.
For the
year ended December 31, 2009, we generated $35.0 million in revenues and net
profit of $3.2 million. Additionally, we have a total of €388 million
(or $543.2 million) in
projects that are either in our backlog or in our pipeline and are expected to
generate revenues during fiscal years 2011 through 2014. Of our
completed projects, 81% have been in the agricultural and green
sectors. Similarly, 89% of our current backlog and pipeline projects
are in the agricultural and green sectors. We provide the following
services to our clients:
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perform
engineering and economic feasibility
studies;
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prepare
EU grant applications under the CSF
guidelines;
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design
building facilities;
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design
production lines and related
equipment;
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specify
all facilities and all equipment to be installed in a
facility;
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·
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order
all equipment and materials;
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install
or construct all facilities and equipment in conformance with the study,
the plans and the specification;
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test
all of the installed equipment in the facility to ensure workmanship
according to the plans and specifications;
and
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conduct
periodic follow-up inspections to ensure that the facility is performing
at optimal conditions.
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At the
present time, we believe that we are recognized in the Greek marketplace as a
company that designs and constructs not only functional facilities but also
“people friendly” facilities that promote employee awareness and good
morale. These factors all contribute directly to the profitability of
our clients’ businesses. We believe this attention to the business
needs of our clients is one of the primary reasons that approximately two-thirds
of our clients are repeat clients. We are building and expanding our
business by securing not only repeat business but also new clients on an ongoing
basis.
We
believe that we employ a model that is unique in the Greek
marketplace. We provide turnkey solutions, including designing and
building processing and packaging facilities, to businesses and individuals that
are recognized as being at the top of their specific segment in the agriculture
sector.
The way
our business operates is best summarized by considering the typical planning and
execution stages of a project:
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·
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During
a series of planning meetings with a prospective client, our engineers and
our economists, a preliminary outline of the project requirements is
developed.
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The
client agrees to pay us for an economic and technical feasibility study,
which may take several weeks or months to complete, depending on the scope
of the proposed project. Such study covers the economic
feasibility of the project, including all geographic and industry sector
demographics that may be relevant to the project. As part of
the study, a full economic analysis, including projections and market
study characteristics, are set forth in order to validate or to modify the
projections that have been presented by the client. This study
also encompasses the technical feasibility of the proposed plant to be
constructed and the operating equipment to be installed. Once
completed, the feasibility study will be fully compliant with the EU
standards for grant submittal, as well as containing full specifications
and designs for the proposed plant (including sections, profiles, plan
views, roof and ceiling plans, and electrical and mechanical drawings and
specifications). A complete bill of materials for the project,
with specifications and quantities, is also prepared at this
time. Additionally, all equipment to be installed has been
identified, pro forma invoices prepared, and firm price quotations
received.
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7
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·
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The
entire package is then submitted to the relevant Greek governmental
ministry for approval. Included in the submittal are all
financial guarantees from the client and its bank to assure that, upon
receiving EU grant approval, the project will be 100%
financed. The review and approval process is typically short
and, when completed, the project will have received full approval for not
only the actual construction, but also of all grant
submittals. This review and approval process is undertaken in
accordance with applicable Greek laws and EU regulations, and in our
founder’s 31 year history of making these types of EU grant-based
submittals and proposals, only one package that we submitted was not
approved. After the project has received this approval, a
formal contract may be entered into between the client and us pursuant to
which the parties agree on the scope and timing of the
work. The construction will then commence with full grant
support.
|
|
·
|
The
project materials are then forwarded to an internal ministerial committee
for formal approval in accordance with both EU regulations and Greek
law. There is no appeal or disapproval at this phase as the
project has already been approved. This step is simply a
bureaucratic requirement that consists of transcribing the previous
approval, which is handwritten, into electronic
format.
|
|
·
|
In
a typical scenario, we will collect at least 20% of the project cost from
the client (usually paid at the time the feasibility study
commences). Approximately 50% of the cost will be covered by EU
grants, and the remaining 30% will take the form of conventional bank
financing arranged either by the client or by us for the
client.
|
|
·
|
The
project then commences with all specifications and approvals in place, and
will be completed, on average, within eight months. In the
event of a change in the scope of work or in any cost overruns that result
in any change orders, any increase in the cost of the project will be the
responsibility of the client. Conversely, in the event of cost
savings, such savings, per the standard project contract, inure to us, and
not the client.
|
8
The
following flow chart highlights the typical project lifecycle:
Competitive
Strengths
Our
competitive strengths are based on the following:
Our company has unmatched experience
in the industry in which we operate. During the past 31 years,
we and our predecessors have focused on providing turnkey solutions to the
agriculture sector in both primary processing and packaging. This
focus has been supplemented by the implementation of the CSF program, which
began in 1986 and is now into its fourth program. We have a strong
relationship with the Ministry of Agriculture which has directed access to €6.3
billion (or $8.8 billion) EU Community Support Framework IV funds allocated to
the agricultural sector in Greece. We believe that we are the only
provider to the agricultural sector in Greece providing our clients with turnkey
facilities in the areas of design and build as well as in the equipment and
installation of production and packaging facilities. While there are
other companies that each provide a particular subset of the services we offer,
such as feasibility, economic and environmental studies, or architectural and
engineering services, or construction and management expertise, to our
knowledge, no other company in Greece offers the complete range of services we
provide, from the initial feasibility study, to the grant process, and through
to the construction and outfitting of the final facility.
9
We have a successful track record
for our past projects and a strong backlog and pipeline for future
projects. We believe we are the first and only company in
Greece offering turnkey advisory services, construction, operational solution
and financing to both the primary and processing segments of the agricultural
industry. Since inception, we have successfully completed over 200
projects with no losses over the past 31 years of operations. Our
total revenue from current contracted projects exceeded €130 million (or $182
million) over the past 3.5 years alone. Over 67% of all current
clients are repeat clients. As of October
15, 2010, our projects in process, backlog and pipeline was approximately €388
million (or $543.2 million).
Our clients have been highly
satisfied with our services. We believe that our competitive
advantage rests in our ability to provide turnkey solutions to our clients. Over
the past 31 years, we have continually provided innovative and cost effective
solutions to benefit our clients. This is evidenced by the fact that over
two-thirds of our current client base are repeat clients. Only one-third are
new, or first time, clients. We believe that our staff of professional engineers
and technicians enjoy a high level of professional peer respect, and have earned
our clients’ trust as a result of the quality service and advice provided over
the years.
Our management team has substantial
experience in our industry. Our management team plays a
significant role in establishing and maintaining long-term relationships with
our clients, supporting the growth of our business and managing the financial
aspects of our operations. Our management team possesses significant industry
experience and contains a deep understanding of our clients and their
performance requirements.
Strategy
The key
elements of our business strategy are:
Execute successfully on our existing
backlog and pipeline. As of October 15, 2010, our backlog and
project pipeline was approximately €388 million (or $543.2 million). We intend
to work closely with our clients to ensure we execute on our already signed
contracts at a performance level that exceeds our clients’ service requirements.
In addition, we are dedicated to utilizing our expertise to ensure that we
execute this existing backlog in a highly profitable manner.
Expand and diversify our target
business. We are focused on growing and diversifying our
backlog through increasing our relationships with existing clients and building
relationships with new clients. The continued expansion and enhancement of not
only our current operations, but also the acquisition and imposition of new
technology into the existing operations is one of our primary focus areas.
Specifically, we have formed an environmental division, led by our founder,
Stavros Ch. Mesazos, to focus on growing our green sector capabilities and
taking on a larger number of green projects in the future. At
present, we have 39 projects that fall within the biofuels and biogas green
sector, five of which are “stand alone” projects wherein their scope of work is
not tied to a larger facility contract involving processing or packaging, and
the other 34 of which relate to existing physical plants that we have
constructed or are presently constructing for our clients. Of
these 39 green projects, eight are backlog projects with an aggregate value of
€19.3 million (or $27.0 million), and 31 pipeline projects with an aggregate
value of €68.5 million (or $95.9 million)). We have a number of
backlog and pipeline projects that will also utilize solar energy to generate
and augment power into the grid of the national electrical utility
company. We have projects that will use animal or plant waste
by-products from the processing operations of our clients to generate “green”
energy and, in the case of electricity, to shift it back into the electrical
grid system.
Pursue selective acquisitions to
increase our revenue. We plan to continue growing our core
business at a measured rate, in light of our project stream and the availability
of capital from both the private sector and the CSF funding
programs. In addition, we are seeking to selectively acquire
businesses that will enhance what we believe is our leading position in the
sector. Our founder has continued to maintain his professional
reputation and the high professional standards of our company in furtherance of
this strategy. Acquisitions, should they occur, will be strategic to
the growth of our business and will most likely involve certain of our existing
suppliers and subcontractors with whom we have dealt over the years of business
in a repeated and successful fashion. This will enable us to improve
our profitability and enhance our position in the market place.
Greek
and EU Market
Both the
Greek government and the EU have endorsed two major sectors of growth within
Greece: agriculture and tourism. Since a key component of
our business approach is the availability of EU grants, we have assiduously
maintained and monitored the developments with respect to the EU’s CSF project
as it continues in its fourth phase. The recently endorsed Stability,
Growth and Development Program by the Greek government is an excellent
example. While “stability” and “growth” can be addressed internally
by many of the programs espoused by the government, “development” can only occur
with the participation of the private sector. This is where we
believe we have a dominant role among other companies. The Greek
government, through the Ministry of Rural Development and Food, has earmarked
over €6.3 billion (or $8.8 billion) of the CSF funds for the agricultural
sector, and has pledged an additional matching amount equal to 15% of these
funds.
10
We
believe that we are well positioned to take advantage of the market and economic
conditions currently prevalent in the EU and Greece. Our near term
objectives are to:
·
|
solidify
what we perceive as our dominant position in the agricultural processing
and packaging industry of Greece;
|
·
|
become
a leading player in the renewable energy sector as it directly relates to
our position as a provider of “turnkey” solutions to successful companies
in the agricultural processing and packaging
industry;
|
·
|
undertake
deliberate acquisitions of companies and suppliers that we believe can
provide our company with economies of scale and allow us to expand
vertically our operations via selective and accretive acquisitions, as
described in more detail below; and
|
·
|
as
a result of the above, to provide maximum shareholder value from our
operations.
|
Our long
term objectives are to:
·
|
expand
our scope of operations from Greece into the neighboring Balkan and Middle
Eastern regions; these are also agriculturally dominated countries and we
would offer our technology and processing skills in a “turnkey” manner to
those markets;
|
·
|
apply
our technological expertise in the renewable energy sector in these
additional markets as we expand
geographically;
|
·
|
establish
a subsidiary that could provide financing to our clients enabling them to
expand their operations without needing to rely on the commercial
financing of Greek banks. We anticipate offering such financing
services only to our client base and not to the general public;
and
|
·
|
provide
maximum shareholder value from all of our
operations.
|
Consolidation
and Vertical Integration
Our
current program is to accelerate our vertical integration within our
business. We plan to undertake a series of deliberate, non-hostile
acquisitions of our suppliers of goods and materials for our
projects. We have not entered into any agreements or letters of
intent for such acquisitions or investments, so we may not be successful in such
undertakings.
The
elementary parameters of such an acquisition, should it occur, would be that the
target company contributes at least 5%, on average, to our project
costs. Such a participation in project costs would merit, in our
opinion, a close examination as to the accretive value of an investment or
acquisition. Also, we will generally require that we have worked with
the target company on a number of projects over a period of several years before
considering an acquisition. We believe this will mitigate any
unknowns regarding operational characteristics of the target and will minimize
the likelihood of any fiscal surprises during our due diligence on the targets
financial affairs.
There is
no assurance that we will be successful in this effort or that any such
acquisitions, should they occur, will be profitable and not be dilutive to our
management and capital resources. Such dilutive effort, should it
occur, could have a material adverse effect on our revenues, profitability and
share value.
Projects
Completed by the Company
The below
table illustrates the projects we have completed since 2001. We have
never lost money on a project nor, to our knowledge, ever failed to complete a
project to the client’s satisfaction.
Year
|
Number
of Projects
|
Contract
Value
In €
|
Contract
Value
In $
|
|||||||||
2009
|
4 | € | 9,447,898 | $ | 13,227,057 | |||||||
2008
|
15 | € | 42,800,198 | $ | 59,920,277 | |||||||
2007
|
7 | € | 15,883,643 | $ | 22,237,100 | |||||||
2006
|
9 | € | 19,546,500 | $ | 27,365,300 | |||||||
2005
|
6 | € | 14,030,000 | $ | 19,642,000 | |||||||
2004
|
5 | € | 3,174,100 | $ | 4,443,740 | |||||||
2003
|
5 | € | 11,096,000 | $ | 15,534,400 | |||||||
2002
|
1 | € | 1,295,000 | $ | 1,813,000 | |||||||
2001
|
4 | € | 3,188,600 | $ | 4,464,040 |
11
Backlog
and Project Pipeline
The
following table sets forth our backlog and project pipeline at the dates
indicated. “Backlog” refers to services that our clients have
committed by contract to purchase from us, and for which full funding approval
has been received from both the EU and a commercial banking
source. “Pipeline” refers to services that our clients have committed
by contract to purchase from us, but for which final financing approval is being
sought or is pending from either or both of the EU and a commercial banking
source. Our business is not cyclical and does not have a clear pattern of
seasonality.
As
of
December
31, 2009
|
As
of
October
15, 2010
|
|||||||||||||||||||||||
Number
|
Amount
in €
|
Amount
in $
|
Number
|
Amount
in €
|
Amount
in $
|
|||||||||||||||||||
Backlog:
Projects
approved for commencement of construction
|
11 | € | 84,481,761 | $ | 118,274,465 | 20 | € | 105,581,761 | $ | 147,814,465 | ||||||||||||||
Pipeline:
Projects
for which funding is pending with government
|
8 | € | 42,850,000 | $ | 59,990,000 | 49 | € | 175,650,000 | $ | 245,910,000 | ||||||||||||||
Total
Backlog and Pipeline:
|
19 | € | 127,331,761 | $ | 178,264,465 | 69 | € | 281,231,761 | $ | 393,724,465 |
Project
Pricing Structure
We use a
standard form of contract, similar to the form of contract used by the American
Institute of Architects in the U.S. and the Royal Institute of British
Architects in the United Kingdom. Our form contract provides for
specifications, workmanship, materials and equipment to be used in the
construction of the client’s facility, included in the economic and technical
feasibility study submitted to the relevant Greek and EU officials for the CSF
grant funding. These contracts are historically based on a cost plus
system with a fixed price set and agreed at the outset. The fixed
price may be modified by change orders either from the client or from
us.
Change
orders may include, but are not limited to, a change in the scope of the
project, a change in specifications of the equipment or of the processing
involved in the project, or a change in the cost of raw materials or equipment
for the project. Any change orders that result in an increase in the
price are paid by the client; conversely, we will benefit from any change orders
that reduce the price.
Suppliers
and Subcontractors
We employ
subcontractors and suppliers on our projects who have applicable regional and
industry experience, most of whom work with us on multiple
projects. Our suppliers vary from project to project as the
specifications of each project will differ and will dictate the technical
expertise and equipment required.
Quality
Assurance
One of
our top priorities is to ensure that we build high quality facilities for our
clients. Although the standard contract used in Greece provides for a
one year guarantee or warranty on parts, material, labor and overall
workmanship, we periodically visit each job that has been completed for up to a
5 year period or longer, depending on the project, to ensure that both the
construction and the processing technology continue to function as originally
designed, specified and installed by us.
12
Sales
and Marketing
The
majority of our work is awarded from new and existing clients. This work is
awarded to us directly. On occasion, we may bid on a project, but
such instances are rare as most of our work is sourced from referrals
originating in either the private sector or from the government.
We employ
a sales and marketing team, led by our founder, Stavros Ch. Mesazos and assisted
by two of our senior engineers and consultants, who respond to new opportunities
as they are identified. We internally process new client requests for proposals
as procured by such team. Through our proprietary systems, we track
opportunities and respond based upon our resources, strict financial criteria
and overall strategic objectives.
Clients
Our
clients are recognized as being at the top of their specific segment in the
agricultural sector, including companies such as: N. Ladas, S.A., a premier
olive oil bottler in Greece; Feta Producing Vonitsa, S.A., a producer of high
quality Feta cheese; Kokiniotis S.A., a processor of fine Greek honey; Pharma
Hita S.A., a provider of high quality processing and packaging of meats; A.T.I.
S.A., a provider of high quality processing and packaging of vegetables; and
Golden Eggs, S.A., a state-of-the-art egg processing operator. As of
June 30, 2010, our work for A.T.I. S.A. constituted €7.4 million ($10.3
million), or 21.3%, of our revenues and Anaparogogiki Ipeirou S.A. constituted
€7.2 million ($10.1 million), or 20.98%, of our revenues.
Government
Regulation of Our Industry in Greece
Since our
focus is on the agricultural sector, our projects are typically conducted under
various governmental supervision and oversight. For example, a
project may fall under the purview of the Ministry of Rural Development and Food
(Agriculture), the MEF or the Ministry of Development.
Before we
commence construction of a project, we require our clients to present us with
written evidence that all environmental approvals required for such project have
been received. These approvals, and any costs associated therewith,
are incorporated into our standard proposal for EU grant and project approval at
the Greek ministerial level. Accordingly, our compliance with state
and local previsions enacted with respect to environmental protections have had
no material effects on our capital expenditures.
Please
see “Industry Overview” for more information regarding government regulation of
our industry.
Competition
We
estimate that there are over 2,000 construction companies in
Greece. Many of these companies are small businesses conducting their
trade on a local level. Some are large international construction
firms with operations on an international scale.
We
operate in a narrowly defined niche that we believe to be unique to the market
place in Greece. No projects are undertaken without EU grant
approval, whereby we prepare the entire dossier. No project is
commenced without all financing, both public and private, in place, so that
payment is guaranteed from the outset. The effectiveness of this
approach has been proven by the consistent profitability of the operations over
the last three decades. We have never lost money on a project since
our inception. This is further testimony to the level of repeat
clients that make up our base of projects.
There are
other companies that perform feasibility studies, prepare architectural design
of structures, or design and specify processing equipment for
facilities. However, to our knowledge, there is no single firm that
combines all of these areas of expertise, other than ourselves.
With the
global economic situation and the resultant uncertainties, we believe we are
well positioned to increase our business and our client base in that the current
governmental focus is agricultural processing or packaging of food items for
consumption to the consumer. Therefore, we intend to capitalize on
this timing and optimize our position in this important sector within Greece and
with the continued support and endorsement of the EU.
History
We were
incorporated as an exempted company with limited liability under the laws of the
Cayman Islands on March 10, 2006 for the purpose of identifying and entering
into a business combination with a privately held business or company, domiciled
and operating in an emerging market. On February 29, 2008, we
completed the acquisition of Aegean Earth S.A. pursuant to a share exchange
agreement. Aegean Earth S.A. was organized under the laws of Greece
in July 2007 and with the objective of becoming engaged in the construction
industry in Greece and surrounding Mediterranean countries. Since the
acquisition of Aegean Earth S.A., we have entered into negotiations for the
construction of a number of construction projects in Greece but have not
commenced any construction projects or entered into any binding agreements to
perform a construction project. As discussed elsewhere in this
report, in February 2010 we completed the acquisition of Temhka S.A. pursuant to
a share exchange agreement. Prior to our acquisition of Aegean Earth
S.A., we were a blank check company that had not yet realized
revenue.
13
Recent
Acquisition
On
February 9, 2010, we completed the acquisition of all of the issued and
outstanding capital stock of Temhka S.A. from Temhka S.A.’s shareholders solely
in exchange for 1,623,333 Series B Preference Shares. Of such Series
B Preference Shares, 600,036 were placed in escrow pending the fulfillment of
certain criteria. Each Series B Preference Share converted
automatically into ten ordinary shares upon the earlier to occur of the
consolidation of our ordinary shares or the amendment to Memorandum and Articles
of Association. As a condition prior to the closing of our
acquisition of Temhka S.A., Stavros Ch. Mesazos, the controlling shareholder of
Temhka S.A., contributed $4,500,000 to Temhka S.A. during 2009.
Aegean
Earth S.A.
Aegean
Earth S.A.’s business has been focused on construction and development of real
estate projects, roads, utility structures, commercial buildings, and other
related facilities in Greece, the Mediterranean and Balkan countries and other
parts of Southern and Eastern Europe, either alone or by forming joint ventures
with other companies. As a result of the acquisition of Temhka S.A.
and the commencement of the consolidation and the vertical integration into
Temhka S.A., we have focused our efforts on the growth of Temhka S.A. and are
using Aegean Earth S.A. as a supporting vehicle for the growth of the
company.
Employees
As of
September 30, 2010, we had 44 employees, of which 27 are full time.
Company
Organization
The
following chart details the organization of our executive management
team:
Executive
Offices
Our
principal executive offices are located in Galatsi, a suburb of
Athens. Our senior management team, our engineering staff, our
economic and technical feasibility teams and our accounting department are
housed in this location. Our engineers and economic and technical
feasibility teams are supported by state of the art information technology using
a suite of mathematical modeling tools as well as Computer Aided Design, or CAD,
systems to support the initial economic feasibility study, our design-build
program, and our monitoring of the grant approval process. Once the
grant has been approved and the project construction commences, the project
reporting performed by the project manager, under the direct supervision of our
Engineering Department Manager and Mr. Mesazos, is managed from this
office.
14
Our
accounting department uses the Kefaleo Accounting System, which is a state of
the art system of accounting employed to ensure our timely and accurate
reporting under both the Greek accounting and tax methodology as well as under
the reporting requirements of the SEC and the Public Accounting Oversight Board,
or PCAOB, in the U.S.
Key
Clients
We
currently have approximately €388 million (or $543.2 million) of projects in our
anticipated project pipeline for the next three years from 69
clients. Of these clients, 46 are repeat clients and 23 are new
clients. Of the current projects under construction, projects with
two of these clients account for over €34.6 million (or $48.4 million) of
revenues. Such a concentration of business could result in a decrease
in our revenue or profit should either of these clients suffer adverse financial
setbacks that might impact their ability to commence or finalize such
project.
Seasonality
Our
business is not cyclical and does not have a clear pattern of
seasonality.
Property
We rent
our corporate offices at 5, Ichous Str. – Galatsi 111 46 Athens,
Greece. We do not own any real property.
Legal
Proceedings
From time
to time we may become party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of business. We are not
currently involved in legal proceedings that we believe could reasonably be
expected to have a material adverse effect on our business, prospects, financial
condition or results of operations.
INDUSTRY
OVERVIEW
Temhka
S.A. and its predecessor companies, the Mesazos Group of Companies, had its
genesis in 1979 when Stavros Ch. Mesazos, our Executive Chairman of the board of
directors and Chief Operating Officer, recognized an opportunity in the type of
business that has become our core business model. The agriculture
sector is one of the primary focus sectors in Greece by the EU, receiving
approximately 16% of the 4th CSF funds. The revenues from the
agricultural sector in Greece for 2009 accounted for 3.4% of the national GDP,
or $11 billion. (Source: CIA
The World Factbook updated September 16, 2010).
Mr.
Mesazos, as a licensed mechanical engineer, and a graduate of the prestigious
Athens Polytechnic University, had been raised in a rural environment and is
very knowledgeable in the various aspects of primary food processing and food
packaging. As an engineer and contractor, he bid on and was awarded
several projects to construct processing and packaging facilities in the farming
areas of Greece. He realized that in many of these
projects:
·
|
the
feasibility studies which formed the basis for the client’s business model
were inaccurate;
|
·
|
the
architectural drawings and designs that resulted from the conclusions of
the feasibility studies were, as a result, often not reflective of the
pure operational objectives that the client wanted to achieve with the
project;
|
·
|
the
final specifications and building design and construction that emanated
from the preliminary specifications were therefore in error and more often
than not, were either unbuildable as designed or, as was often the case,
though buildable did not achieve the requisite level of functionality and
efficiency; and
|
·
|
the
plant and equipment design and construction that came from the drawings
and specifications therefore often did not successfully meld
together.
|
All too
often, these integrated efforts were, in fact, not integrated. This
led to Mr. Mesazos often having to redesign the final facility in order to
achieve the desired functionality for the client’s own business
model. With this experience in hand, coupled with the practical
knowledge of the agricultural and farming sector, Mr. Mesazos, upon receiving
his degree in 1986 and commencing to build the business on a full time basis,
recognized that he would be able to provide a unique and valuable service to
clients by consolidating these various aspects of a project into one unified
service offering.
15
Community
Support Framework: 2007-2013
Since
joining the EU, Greek regions have benefited from the inflow of community funds
through a number of programs, including the earlier Mediterranean Integrated
Programs, or MIPs (that operated from 1984 through 1993, and provided funds for
certain infrastructure projects), and the later Community Support and Cohesion
Fund, or CSF. The current CSF program is referred to as the 4th CSF and
has allocated approximately €30.4 billion (or $42.6 billion) to
Greece. Of that amount, we believe that €6.3 billion (or $8.8
billion) is allocated to the agricultural sector alone, and may be deployed in
equal amounts per year through 2015. To date, we believe that
approximately €800 million (or $1.1 billion) of the 4th CSF funds have been
assigned to specific projects in the Greek agricultural
industry. These monies are to improve primary processing, packaging
and develop economies of scale not only in primary processing but in plant
facilities in order to enhance Greece’s position in the market place as a major
provider of agricultural products to the local populace as well as an exporter
to the other member states. (Source: Greek Ministry
of Agriculture and Ministry for Rural Development and Food, February
2010.)
The
inflow of CSF funds to Greece, from the country’s accession to this day, has
assisted development, has significantly contributed to the restructuring of the
Greek economy and has softened the social impacts of
adaptation. Since 1996, Greece has continually witnessed a real
economic growth exceeding the European average. The improvement of
the country’s general economic state allowed Greece to enter the Eurozone on
January 1, 2001. (Source: Eurostat Yearbook
2010.)
The
negotiations for the implementation of the 5th CSF,
which is expected to begin in 2013, are underway between the EU and the 27
member states of the EU.
The
CSF Focus: Strategy and Priorities for Joint Action
The Greek
portion of the 4th CSF
aims to contribute to the country’s further integration in the EU and into the
knowledge-based world economy by promoting structural change, higher
productivity and employment. The 4th CSF priorities are focused on
the types of investment in physical, human and knowledge capital that are most
conducive to increasing Greek productivity. This strategy is expected
to create the conditions necessary for sustained high growth rates leading to
real convergence with the rest of the EU in terms of GDP per
capita.
The
impact and effectiveness of this strategy is largely determined by progress in
the following key categories: 1) structural reforms in the labor,
goods and services markets, 2) sustainable rural development and agriculture, 3)
mobilization of the private sector in all regions, and 4) significant
improvement in program management capabilities. We continue to
benefit from the focus on sustainable agriculture development in
particular.
The 4th
CSF also emphasizes development in the fields of environment, culture, health
and welfare, as well as sustainable regional development. The 4th CSF
is financed by €30.4 billion (or $42.6 billion) from the Structural Funds,
including €3.7 billion (or $5.2 billion) from the EU Cohesion Fund, and 20%
co-funded by the Greek government. The EU Cohesion Fund was set up by
the Treaty of Maastricht to help those EU member states whose per capita GNP was
less than 90% of the EU member state average (namely Greece, Ireland, Portugal
and Spain) to enable those countries to adjust to the challenges of the economic
and monetary union by financing of portion of projects in the fields of the
environment and trans-European transport infrastructure. (Sources: https://www.cia.gov/library/publications/the-world-factbook/geos/gr.html and http://www.espa.gr/en/Pages/staticWhatIsESPA.aspx)
With
regard to agricultural and rural development, priority is given to overall rural
competitiveness in a sustainable and balanced way. Principal policy
tools include the mobilization of private investment, the promotion of quality,
improvements in manufacturing and marketing of the products. The
protection of natural resources and the environment is also a
priority. These goals are consistent with the operational modus of
our company in that we will not commence a project until all required
environmental approvals have been received.
Relatedly,
there is a reinforced effort to meet the EU directives concerning drinking water
quality, wastewater treatment, and the promotion of proper management of solid
and toxic waste. Our company, through its emphasis on the green
energy development from our client’s operations, is actively involved in the
treatment and management of wastewater and the management of solid waste in the
facilities we construct.
16
Managing
authorities for the CSF
At the
CSF level, a managing authority was established within the Greek Ministry of
Economy & Finance, or the MEF, which is the general coordinator of all CSF
interventions. Specific program oversight is vested in the Ministry
of Economy Competitiveness and Shipping. (See http://www.espa.gr/en/Pages/staticWhatIsESPA.aspx). Managing
authorities were also designated for all Operational Programmes, or
OP. The Management Organisation Unit (MOU) and other entities support
the managing authorities in their tasks and ensure compatibility with relevant
local community policies.
Compliance
of the CSF interventions with community law is a condition for granting the
payments. The CSF managing authority systematically informs the OP
managing authorities on the state of implementation of EU directives into
national law.
Special
attention is given to compliance with:
1) the EU
public procurement legislation;
2) the EU
environmental legislation;
3) the EU
State aid legislation;
4) equal
treatment between men and women; and
5) the
rural development policy.
Project
approval
The
respective OP managing authority is responsible for project
selection. Only technically mature projects may be funded, and
projects are evaluated for economic and social viability before funding is
approved. Expenditures due to cost or time overruns is ineligible,
unless the projects are resubmitted to a second approval procedure and adopted
with the new planning proposed.
System
for monitoring the CSF and OPs
CSF/OP
implementation is the responsibility of the respective managing authorities
under the surveillance and the control of the CSF/OP monitoring
committees.
The CSF
monitoring committee is chaired by the Minister of Economy and
Finance. Its members are the chairmen of the OP monitoring
committees, the representatives of the CSF managing authority, the paying
authority, the MEF, public authorities and bodies involved in the CSF
implementation, representatives of social partners, the European Commission and
the European Investment Bank, or EIB. Highly qualified persons may be
invited to participate as well on an ad hoc basis. Non-governmental
organizations, or NGOs, are regularly informed and consulted.
The OP
monitoring committees are chaired by the Secretary General of a Ministry or
Region. They include representatives of the OP managing authority,
the paying authority, the MEF, representatives of public authorities or bodies
involved in the OP implementation (environment, equal opportunities), the social
partners, the European Commission and the EIB. Where appropriate,
NGO's are represented as well.
Paying
authority
A single
paying authority for all Structural Funds is set up in the MEF, with a clear
separation of tasks from those of the CSF Managing Authority. This
authority is responsible for monitoring the financial flows, for drawing up
payment applications and for receiving payments from the European
Commission. It also ensures payments to the final beneficiaries in
the least amount of time and in full. It is subject to external
controls and, in case of irregularities, subject to financial
corrections. Financial corrections can take place only after a
hearing of the interested parties and in compliance with the principle of
proportionality. In addition, they are subject to administrative and
judicial appeal.
The
paying authority is the single entity authorized to access accounts kept in the
Bank of Greece (one account for each Structural Fund, one for each Community
Initiative and one for the Cohesion Fund). Commitments and payment
provisions are registered in the Public Investment Programme.
17
This
budget contains data enabling the identification of the operation, the final
beneficiary and the financial assistance. Payment information is
controlled and registered in the CSF Management Information System by the each
respective OP managing authority. The paying authority checks and
verifies this information before submission of payment applications to the
European Commission.
Control
Control
aims to ensure efficient and financially correct implementation of the
Structural Fund assistance.
The
following controls are conducted within the framework of the 4th
CSF:
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Controls
by OP Managing Authorities which include controls of the physical,
financial and accounting aspects of projects, on the basis of provided
data at the office premises of the Managing Authority and at the project
implementation site. In addition, at the office premises of any
agency that holds the original technical dossiers and expenditure
vouchers.
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Controls
by the Paying Authority, consisting of external managerial control of the
OP Managing Authorities and of projects in coordination with those
conducted by the Managing Authorities. These external
managerial controls include the analysis and evaluation of the control
system conducted which involve, when considered necessary, prior decisions
made by the managing bodies, as well as control of final
beneficiaries.
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Control
concerning the total coordination of control systems and specialized
reviews–objectives. Conducted by a special unit belonging to
the MEF/General Accounting Office of the State, that conducts controls of
the Managing Authorities, of the Paying Authority and of final
beneficiaries, in order to ensure sound and effective fiscal
management. The same authority conducts also sampled controls
of projects/actions.
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Greece
has benefited from the CSF, with multiplicative effects on economic and social
cohesion. A significant portion of the financial resources available
from the Structural Funds under the 4th CSF has
been dedicated to infrastructure projects (approximately 8.7% of the total
budget for the period 2007-2013) The largest category is into structural funds,
such as development projects in the productive areas at 68.7%. (Source: Ministry of Economy and
Finance EU Fund Allocation
http://www.espa.gr/elibrary/Xrimatodotiki_Katanomi_2007-2013.pdf).
These
investments have already begun to generate results which we believe will become
increasingly visible in the near future. The intention is to increase
the productivity and competitiveness of the regions. At the same time
special emphasis is placed on social policy and cohesion through improvements in
education and increased levels of employment, allowing the regions to ensure
their people prosperity and full employment.
The
Greek Policy on International Environmental Protection
It is the
position of Greece that environmental protection should be taken into
consideration in all fields of human activity. As a result of this
view, the country has incorporated the environmental dimension in as many
governmental policies as possible. The Gothenburg Summit on
Sustainable Development was an important step in the International Community
efforts to ensure a sustainable environment for future
generations. It is Greece’s belief that the timetables set, the
practical implementation measures adopted and government co-operation with civil
society and private firms lay the foundations for effective environmental
protection. Greece has already formed an Inter-Ministerial Committee
for Sustainable Development, which recently developed a national strategy for
sustainable development.
In May
2002, Greece ratified the Kyoto Protocol on Climate Change and, together with
the other EU Member States, submitted the Protocol’s ratification documents to
the United Nations Secretariat. In March 2002, Greece formulated the
National Plan on Climate Change, which enforces a reduction in greenhouse gases
emissions during the period 2000-2010. In order to achieve this goal,
‘clean energy’ alternatives need to be used. For this reason, Greece
has concentrated its efforts on developing renewable energy sources (wind, sun,
etc.). The international community has recently begun to exchange
views on the matter of global environmental governance. Greece is
open to all options concerning improved co-ordination and effective
international environmental institutions, including the establishment of an
International Authority and an International Court.
We
believe that we are in the forefront of environmental engineering as it pertains
to waste management and the processing of waste from the manufacturing plants of
our clients. In the past 25 years, we have studied and developed cost
effective and efficient systems for converting animal waste
products. At present, we have over €89 million (or $$124.6 million)
in projects in the backlog and pipeline in the biofuels and biogas areas alone
(consisting of nine backlog projects with an aggregate value of €21.2 million
(or $29.7 million), and 31 pipeline projects with an aggregate value of €68.5
million (or $95.9 million)). Some projects utilize solar energy to
generate and augment power from the grid of the national electrical utility
company. Some of these projects are also using animal or plant waste
by-products from the processing operations of our clients to generate “green”
energy and, in the case of electricity, to shift it back into the electrical
grid system. These backlog and pipeline projects number 40 in
total. Of these 40 pending projects in the green sector, five are
“stand alone” projects wherein their scope of work is not tied to a larger
facility contract involving processing or packaging. The other 35 projects
relate to existing physical plants that we have constructed or are presently
constructing for our clients.
18
Rural
Development
We have
historically focused on the rural areas of the market place. As a
result, the development and fiscal impact of any EU, Greek or other governmental
influence is of paramount importance to us and we continually monitor and
provide input as needed or requested in order to assure that such programs,
pronouncements and resultant policies and procedures are properly
enforced. We shall continue this effort in the future as we have in
the past. Accordingly, a full understanding of the nature and impact
of the rural/agricultural sector within Greece and within the EU is necessary in
order to fully comprehend the scope and nature of our company’s
business.
Greece's
agriculture sector continues to hold a significant position, both as a field of
economic activity and as a social and economic cohesion factor for large parts
of the country.
The
general characteristics of Greek agriculture include:
·
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the
average agricultural holding approximates 4.3 hectares and includes 5-6
plots;
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the
mountainous and less-favored areas constitute 80% of the country's
farmable land;
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irrigated
land constitutes 37% of cultivated land, a fact which shows the great
efforts that have been made to improve the productivity of agriculture;
and
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·
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the
natural conditions in Greece favor Mediterranean products such as fruits
and vegetables, olive growing, tobacco and cotton farming, vineyards, as
well as free-range sheep and goat
farming.
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The
agricultural sector contributes to the total GDP a share of 3.4%, or €11.3
billion ($15.8 million), employs 12.4% of the labor
force. (Source:
https://www.cia.gov/library/publications/the-world-factbook/geos/gr.html). In
addition, the agricultural sector creates the right conditions for development
in a significant number of other economic fields, especially in the field of
manufacturing (food and beverage, textile, tobacco industries and
others). It must be emphasized that the agricultural sector share in
certain Greek states is over 50% in both GDP and employment.
Consequently,
developmental restructuring of rural areas, which are dominated by the
agricultural sector, constitutes a major factor in any effort aimed at regional
development in the larger part of Greece.
All of
our projects are located in approved development areas for the processing and
packaging of our client’s products. Whether the client is processing
animal products or plant products for food, the projects are located in
pre-designated development areas for such facilities. As an example,
a pork breeding, feeding and abattoir operations, with or without packaging
facilities, would not be permitted in a populated metropolitan
area. It would be in a designated area, likely in a less populated or
rural setting. Even then, the projects all must meet stringent
building and zoning regulations such as setbacks from roads and rail, height
restrictions, waste management, impact on water aquifers and such other
restrictions as may be imposed by the municipal and state
authorities.
RISK
FACTORS
Risks
Related to our Business
We
will require additional capital to pursue our business plan.
Our
projects begin with a down payment from the client equal to 20% of the total
project costs, plus evidence from the client that an additional 30% of the total
project costs will be available in the form of bank guarantees or loan
commitments from a third party lender. At such time as this 50% of
the project costs has been secured, we then submit the project for EU grant
approval. In most cases, we will not receive additional funds from until 60 days
after the completion of 50% of the project. Therefore, we must
finance a significant portion of the expenses related to the construction until
we receive payments due to us. We have financed our operations since
inception through funds raised in private placements, loans from our founder and
internally generated cash flows. On November 10, 2010, we filed a
Registration Statement on Form S-1 under which we intend to offer $30 million of
our ordinary shares. The proposed sale of our ordinary shares is
referred to herein as the Offering. The registration statement has
not been declared effective by the SEC and our ordinary shares may not be sold
nor may offers be accepted prior to the time, if any, that such registration
statement becomes effective. There can be no assurances that the
registration statement will become effective or that we will be able to complete
the sale of any of the ordinary shares that we intend to offer under such
registration statement.
19
In
February 2010, we completed a private placement in connection with our
acquisition of Temhka S.A., pursuant to which we received approximately $4.5
million in gross proceeds. As a condition precedent, prior to the
February 2010 closing, the founder of Temhka S.A., Stavros Ch. Mesazos, loaned
$4.5 million to us. In addition, our founder has loaned us in excess of $4.9
million from the date that we acquired Temhka S.A. through September 30,
2010. We have accumulated $12.5 million in retained earnings as of
September 30, 2010. These amounts were utilized to fund our current
operating and capital requirements. Accordingly, following the
Offering, we may need to obtain additional private or public financing to fund
our operations, including debt or equity financing, and there can be no
assurance that such financing will be available as needed or, if available, on
terms favorable to us. Furthermore, debt financing, if available,
will require payment of interest and may involve restrictive covenants that
could impose limitations on our operating flexibility. There can be
no assurance that additional funds will be available when and if needed from any
source or, if available, will be available on terms that are acceptable to
us. We may be required to pursue sources of additional capital
through various means, including joint venture projects and debt or equity
financings. Future financings through equity investments are likely
to be dilutive to existing shareholders. Such additional equity
securities may have rights, preferences or privileges that are senior to those
of our existing ordinary shares. The terms of securities we may issue
in future capital transactions may be more favorable for our subsequent
investors. Newly issued securities may include preferences, superior
voting rights, or may be issued with warrants or other derivative securities,
which themselves may have additional dilutive effects. Further, we
may incur substantial costs in pursuing future capital and/or financing,
including investment banking fees, legal fees, accounting fees, printing and
distribution expenses and other costs. Our ability to obtain needed
financing may be impaired by such factors as the capital markets, the lack of a
market for our ordinary shares, and our lack of profitability, which could
impact the availability or cost of future financings. If the amount
of capital we are able to raise from financing activities, together with our
revenue from operations, is not sufficient to satisfy our capital needs, we may
be required to reduce operations.
Our
revenue and profitability are heavily dependent upon the availability of EU
grant funding.
Should EU
grant funding not become available, it would materially adversely impact our
revenue and profitability as such financing is integral to our business
model. The EU program commenced in 1986 and provides to all member
states of the EU the ability to obtain financing in the form of grants that
require no repayment by the grantee and are added to the capital base of the
grantee as the project is completed. This program, entitled the
Community Support Framework, or the CSF, is in its fourth iteration and
accordingly is called the 4th
CSF. The 4th CSF
continues to commit funds through 2013 and flow funds to projects through
2015. This program is an integral part of the Growth and Stability
program of the EU and the negotiations for the implementation of the 5th CSF are
underway between the EU and the 27 member states of the EU. Any slow
down or delay in the implementation of the CSF program by the Greek government
would reduce our revenues and profitability. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operation —
Understanding the EU Community Support Framework.”
If
we are unable to finance our working capital, then our revenue and
income may be reduced.
Due to
the timing of the payments for projects from our customers, we must use working
capital to cover the expenses of the project. Historically, we have
generated working capital by selling equity, borrowing from our founder and
borrowing from commercial banks. Since the financial crisis began in
2008, the availability of commercial bank financing has been severely
limited. If we cannot obtain commercial credit financing, we may not
have sufficient working capital to timely construct or complete the projects we
undertake including projects in our backlog and pipeline. Any delay in the
completion of our projects will delay payments from our customers. In
addition, if we do not have sufficient working capital, we may not be able to
accept new projects. We are pursuing alternative commercial bank
facilities and are considering pursuing other financing arrangements in order to
continue our business model; however, there is no such facility in place at this
time and the unavailability of such a facility could have an adverse effect on
our revenues and profits.
If
our customers are unable to obtain adequate financing for their projects, then
our revenue and income may be reduced.
Our
customers are required to finance, or arrange third party financing, for up to
approximately 50% of the project costs. Historically, this portion of the
project costs has been financed by commercial bank loans. As a result of the
financial crisis that began in 2008, the Greek financial system has been largely
ineffective. The availability of commercial bank financing has been
an integral part of our business model and the elimination of such financial
support would damage our business. If our clients cannot obtain
commercial credit financing or an alternative source of financing, then our
clients will not receive the applicable CSF approval and the number of
projects we can undertake will be reduced. The continued lack of
commercial banking facilities to our clients could have an adverse effect on
both our revenues and profitability.
20
We
may not be able to effectively control and manage our growth and a failure to do
so could adversely affect our operations and financial conditions.
Our
revenue increased from $28.9 million for the nine months ended September 30,
2009, to $54.2 million during the nine months ended September 30,
2010. For the three months ended September 30, 2010, revenues totaled
$19.7 million compared to $9.2 million for the three months ended September 30,
2009, an increase of approximately $10.5 million, or 47%. If we
continue to experience an increase in demand for our services, we will need to
expand our capabilities in order to meet these demands. We may face
challenges in managing and financing the acquisition of additional companies to
facilitate the planned vertical integration of our operations. This
could put increased demands on our management team and may require us to hire
additional executives to manage this growth. Our failure to address
these increased demands could interrupt, delay or adversely affect our
operations and cause construction backlogs, extend project completion times and
contribute to added administrative inefficiencies.
Other
challenges relating to the expansion and operation of our business
include:
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unanticipated
costs;
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diversion
of management’s attention from other business
concerns;
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potential
adverse effects on existing business relationships with clients and
suppliers;
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obtaining
sufficient working capital to support our expansion
program;
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maintaining
the high quality of our
workmanship;
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completing
projects on time;
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completing
projects within budgets;
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maintaining
our profit margins at projected
levels;
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maintaining
adequate controls over expenses and accounting
systems;
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successfully
integrating acquisitions into our corporate structure and
operations;
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anticipating
and adapting to rules and regulatory changes or modifications that may be
promulgated from time to time by the EU or the Hellenic Republic,
sometimes referred to as Greece in this report, as such changes or
modifications may affect our operations;
and
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being
cognizant of any competitive entrants into our market and maintaining our
exclusive position as the sole provider in Greece to provide the range of
services we provide to our clients.
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Even if
we maintain our market share, and are able to increase our sales and/or access
additional sources of funds, there may be a delay between the time that costs
and expenses are incurred and the time when we recognize the benefits of such
increased sales and/or access to other funds, which could also affect our cash
flow, profitability and earnings.
We
have a limited number of clients and the loss of one or more of these clients,
or the cancellation of all or a portion of projects currently underway, could
adversely affect our revenue and profitability.
We
currently have approximately €388 million (or $543.2 million) of projects in our
backlog and project pipeline from 69 clients. Of these clients, 46
are repeat clients and 23 are new clients. Of the current projects
under construction, two of these projects would account for over €34.6 million
(or $48.44 million) of our future revenues. We do not anticipate that
our dependence on a limited number of clients will continue in the
future. However, if we are unable to decrease our dependence on a
limited number of clients, such a concentration of our business could result in
a decrease in our revenue or profit should any of these clients suffer adverse
financial setbacks that might impact their ability to commence or finalize a
project. Any of our client companies could suffer financial setbacks
either resulting from or causing a loss of their respective market
share. The reduction in revenue and profit from our clients could
also have an adverse effect on our business in the form of reducing our revenues
and reducing our profits.
Additionally,
one or more of our clients could cancel all or a portion of a project that is
currently underway, which could have an adverse effect on our business in the
form of reducing our revenues and our profits. We base our planned
operating expenses in part on our expectations of future revenue, and as a
result, a significant portion of our expenses will be fixed in the short
term. If revenue for a particular quarter is lower than we expect, we
likely will be unable to proportionately reduce our operating expenses for that
quarter, which would have a material adverse effect on our operating results for
that quarter.
21
Our
backlog and project pipeline are subject to reduction and
cancellation.
Backlog
represents services that our clients have committed by contract to purchase from
us, and for which full funding approval has been received from both the EU and a
commercial banking source, typically a bank located in
Greece. Additionally, our project pipeline represents services that
our clients have committed by contract to purchase from us, but for which final
financing approval is being sought or is pending from either or both the EU or a
commercial banking source. As of October 15, 2010, our backlog was
approximately €105.6 million (or $147.84 million), and our project pipeline was
approximately €175.7 million (or $245.98 million). Our backlog and project
pipeline are subject to fluctuations as a result of project cancellations or an
inability to obtain full governmental approval, and are not necessarily
indicative of future sales. Moreover, cancellations of services or reductions of
the types of services being purchased in existing contracts could substantially
and materially reduce our backlog and/or project pipeline and, consequently,
future revenues. Our failure to replace canceled or reduced backlog and project
pipeline could result in lower revenues.
We
have a small number of key suppliers for services, equipment and material for
our clients’ projects which could delay our completion of products and increase
our expenses.
We
currently have approximately 65 suppliers of services, goods and materials for
our clients’ projects. These services, goods and materials range from
external economic consultants that advise us on our EU grant submittals, to
architects and engineers that supplement our professional staff with specialty
expertise on equipment design and manufacturing for the specialized packaging
and processing equipment that we design to fit our clients’ requirements and
specification. Of these suppliers and consultants, 13 accounted for
over €34 million (or $47.6 million) of billings in the past year. A
financial setback or reversal to any of our consultants or suppliers of
materials or technology could have a material adverse effect upon our revenues
and profits. Delays due to financial problems, the global economic
crisis, or as a result of shortages of supply or personnel of our key suppliers
could materially adversely impact our business and profitability.
Our
future success depends on retaining our existing key employees and the loss of
any of them could adversely affect our future operations.
Our
future success depends to a significant degree on the continued service of our
executive officers and other key employees, particularly Stavros Ch. Mesazos,
our Chief Operating Officer and Executive Chairman, and Dimitrios K. Vassilikos,
our Chief Executive Officer. Messrs. Mesazos and Vassilikos have
experience in, and knowledge of, the construction and agricultural processing
industry in Greece and the loss of either or both of these individual’s services
could have a material adverse impact on our ability to compete in the industry
in Greece. Further, while we have entered into employment contracts
with each of Messrs. Mesazos and Vassilikos, no assurances can be given that we
will be able to employ and/or keep Messrs. Mesazos and Vassilikos, or any of our
other key employees. The loss of the services of any of our executive
officers, or other key employees, could make it more difficult to successfully
operate our business and pursue our growth strategy, which could have a material
adverse effect on our results of operations. In addition, we do not
currently have key person insurance on any of our employees.
Our
operating results may fluctuate considerably on a quarterly
basis. These fluctuations could have an adverse effect on the price
of our ordinary shares.
Our
results of operations have fluctuated in the past, and may continue to
fluctuate, significantly on a quarterly basis as a result of a number of
factors, many of which are beyond our control. Although many companies may
encounter fluctuations in their results of operations, these fluctuations are
particularly relevant to us as a result of our historical and current reliance
on a limited number of customers, the availability of EU grants and commercial
financing in order to fund our projects, our relatively small size and the
dynamics of operating a business in Greece. Factors that could cause our results
of operations to fluctuate include, among others:
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seasonal
or periodic fluctuations in our clients’ businesses, which could cause the
timing of their engagement of our services to
fluctuate;
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the
average prices for our services, which are impacted by fluctuations in the
raw materials, such as cement and steel, and equipment we use in the
planning and construction of
facilities;
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delivery
delays, price fluctuations and shortages with respect to raw materials
that we acquire from suppliers and outsourced
manufacturers;
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22
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the
rate and cost at which we are able to expand our internal project
development capacity to meet client demand and the timeliness and success
of these expansion efforts;
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the
loss of one or more key customers or the significant reduction or
postponement of projects from these
clients;
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unplanned
expenses incurred to address contingencies such as manufacturing failures,
defects or downtime;
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costs
relating to acquisitions and
investments;
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the
effects of the global economic downturn, and in Greece in particular,
which has led to decreases in demand for our services and which could
continue or increase in severity;
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geopolitical
turmoil within Greece or the EU;
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foreign
currency fluctuations, particularly fluctuations in the exchange rates of
the Euro and U.S. dollar;
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our
success in maintaining, establishing and expanding customer
relationships;
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our
ability to successfully develop, introduce and sell new or enhanced
services in a timely manner, and the amount and timing of related research
and development costs;
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the
timing of new product or technology announcements;
and
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introductions
by our competitors and other developments in our competitive
environment.
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You
should not rely on our results from any quarter as an indication of future
performance. Quarterly variations in our operations could result in significant
volatility in the market for our ordinary shares.
Furthermore,
the occurrence of any of the risks described above could result in long-term
harm to our business, financial condition and operating results, especially if
it continues for a period of time or is not mitigated in subsequent
periods.
Since
competition for highly skilled employees is intense, we may not be able to
attract and retain the highly skilled employees we need to support our business
and our expected growth.
As a
result of the specialized and technical nature of our business, our future
performance is largely dependent on the continued service of, and on our ability
to attract and retain, qualified engineers, economists and technical personnel.
Approximately 73% of our employees are economists, engineers or technicians, who
have specialized experience and education. We compete with competitors and other
employers for these qualified and experienced economists, engineers and
technology professionals. Without sufficient numbers of skilled employees, our
operations would suffer from, among other things, deteriorating production
standards and decreasing capacity utilization. Competition for such skilled
personnel is intense, and replacing qualified employees is difficult. In order
to effectively hire and retain a sufficient number of employees with the skills,
experience and education that we require to operate and expand our business, we
may be required to offer higher compensation and other benefits, which could
materially and adversely affect our business, financial condition and results of
operations. If we are unable to attract, retain and motivate our economists,
engineers and technical personnel, our business and prospects could be
materially and adversely affected. Furthermore, we may not be able to hire
sufficient numbers of skilled and experienced employees to replace those who
leave, and we may be unable to redeploy and retrain our professionals to keep
pace with continuing changes in technology, evolving standards and changing
customer demands, which could adversely affect our business and
prospects.
Our
quarterly operating results may vary from the actual payment stream we receive
from the EU, the commercial banks and our clients.
Our
clients, on average, pay 20% of the project cost from their own funds and an
additional 30% of the project cost from either their own funds or commercial
bank financing, or a combination thereof. The EU pays the balance of
the project costs through a grant, which is typically 50%, upon completion of
50% and 100% of the work. The client pays 20% of the project cost
upfront, and must demonstrate to us and the Greek governmental ministry through
either a bank loan commitment or guarantee, or other evidence that the client
will be able to pay the other 30%, before the project can be submitted to the
relevant governmental ministry for approval. After the initial 20%
up-front payment, the remaining 80% of costs (consisting of funds from both the
EU and the client) are paid to us in two installments, half of which is paid
approximately 60 days after 50% of the work on the project has been completed
and the remaining half of which is paid approximately 60 days after the
completion of the project. The EU does not pay any amounts
upfront. Our reporting periods for revenue and expenses and the
resultant gross profit and net profits for the period are accounted for under
the percentage completion method of accounting and may vary from the actual
income received during the period. Under the percentage completion
method, the accounting is calculated on expenses incurred during the time
period, and as a result, expenses may exceed actual revenue generated, and would
be reflected in our financial statements as “Expenses in Excess of
Billings.” Conversely, it is possible, though unlikely, that our
revenue could exceed expenses incurred and would therefore be reflected in our
financial statements as “Billings in Excess of Expenses.”
23
Concerns
over food safety and public health may affect our operations by causing our
clients to experience increased costs for producing their food
products.
Although
we stringently monitor all events concerning food and food production in the
European markets, our clients may experience some public scrutiny and oversight
from relevant EU agencies concerning food production and packaging, which could
increase their costs, or conversely, reduce their earnings, and reduce their
ability to retain our services. An example was the 2009 occurrence of
swine flu. Although neither we nor any of our clients were affected,
we nevertheless continued to monitor these issues closely in order to intervene
if necessary. There is no assurance that such monitoring or
counteraction, if it occurred in the future, would be effective. If
such actions by us or our clients were not effective, our revenues and earnings
could be negatively impacted.
We
may be subject to construction defect and product liability claims that could
adversely affect our operations.
The
construction business is subject to construction defect and product liability
claims which are common in the construction industry and can be
costly. Among the claims for which developers and builders have
financial exposure are property damage and related bodily injury
claims. Damages awarded under these suits may include the costs of
remediation, loss of property, and bodily injuries. In response to
increased litigation, insurance underwriters have attempted to limit their risk
by excluding coverage for certain claims associated with pollution and product
and workmanship defects. We may be at risk of loss for bodily injury
and property damage claims in amounts that exceed available limits on our
comprehensive general liability policies. In addition, the costs of
insuring against construction defect and product liability claims, if
applicable, are high and the amount of coverage offered by insurance companies
is limited. There can be no assurance that we will be able to
continue to obtain insurance with respect to such claims, or that the coverage
will not be restricted and become more costly. If we are not able to
obtain adequate insurance, we may experience losses that could have a material
adverse effect on our results of operations and financial
condition.
We
may be subject to warranty claims for workmanship claims over an extended period
of time.
We may be
required from time to time to repair buildings and equipment lines which we
constructed entirely or in part. Historically, we conduct routine
inspections of finished projects and the operational
equipment. Although this has typically not been a part of our
contractual agreements beyond a one (1) year period, we nonetheless periodically
perform such inspections for a longer period of time, up to three or more years
following the completion of a project in many cases. We cannot
guarantee that, in the future, circumstances or incidents will not occur that
will require us to extend such warranty periods as it pertains to our
workmanship. We also cannot be assured that governmental rules and
regulations may not require extended periods of warranty to our
workmanship. In the event we experience such extensions of warranty
periods, our business operations and financial condition could be materially
adversely affected if significant repairs are required.
The
relative lack of public company experience of our management team may put us at
a competitive disadvantage.
Our
management team lacks public company experience under the guidelines of the SEC,
which could impair our ability to comply with legal and regulatory requirements
such as those imposed by the Sarbanes-Oxley Act, or
Sarbanes-Oxley. Aside from our Chief Executive Officer, Dimitrios K.
Vassilikos, our senior management does not have experience operating in a
publicly traded company environment. Mr. Vassilikos has had no
experience with a company such as ours which is a fully reporting company under
the rules and regulations of the SEC. Such responsibilities include
complying with federal securities laws and making required disclosures on a
timely basis. Our senior management may be unable to implement
programs and policies in an effective and timely manner that adequately respond
to the increased legal, regulatory and reporting requirements associated with
being a publicly traded company. Our failure to comply with all
applicable requirements could lead to the imposition of fines and penalties,
distract our management from attending to the administration and growth of our
business, result in a loss of investor confidence in our financial reports and
have an adverse effect on our business and stock price.
24
As
a public company, we are obligated to maintain effective internal controls over
financial reporting. Our internal controls may not be determined to
be effective, which may adversely affect investor confidence in us and, as a
result, decrease the value of our ordinary shares.
Although
Greece has a full operating stock exchange, the Athens Exchange, it has not
adopted management and financial reporting concepts and practices similar to
those in the U.S. Consequently, we may have difficulty in hiring and
retaining a sufficient number of qualified finance and management employees to
work for us in Greece. If this were to occur, we may experience
difficulty in establishing and maintaining accounting and financial controls,
collecting financial data, budgeting, managing our funds and preparing financial
statements, books of account and corporate records and instituting business
practices that meet investors’ expectations in the U.S.
Rules
adopted by the SEC, pursuant to Section 404 of Sarbanes-Oxley, require annual
assessment of our internal controls over financial reporting. The
standards that must be met for management to assess the internal controls over
financial reporting as effective are complex and require significant
documentation, testing and possible remediation to meet the detailed
standards. This assessment will need to include disclosure of any
material weaknesses identified by our management in our internal controls over
financial reporting. The process of compiling the system and
processing documentation necessary to perform the evaluation needed to comply
with Section 404 is costly and challenging. We may not be able to
complete our evaluation, testing and any required remediation in a timely
fashion. During the evaluation and testing process, if we identify
one or more material weaknesses in our internal control over financial
reporting, we will be unable to assert that our internal controls are
effective. If we are unable to conclude that our internal control
over financial reporting is effective, we could lose investor confidence in the
accuracy and completeness of our financial reports, which could harm our
business and cause the price of our ordinary shares to decline.
In
connection with the audit of the financial statements for the Mesazos Group of
Companies (the predecessors to Temhka S.A.) for the fiscal years ended December
31, 2009 and 2008, the auditors identified significant deficiencies in Temhka
S.A.’s internal control over financial reporting, but these deficiencies did not
rise to the level of a material weakness. Additionally, our
management identified a material weakness in our internal control over financial
reporting as of December 31, 2009, and concluded that our disclosure controls
and procedures were ineffective as of March 31, 2010, and June 30,
2010. Management concluded that there was a material weakness in our
internal controls because there was an insufficient number of personnel with
appropriate technical accounting and SEC reporting expertise to adhere to
certain control disciplines and to evaluate and properly record certain
non-routine and complex transactions.
A
significant deficiency is a deficiency, or combination of deficiencies, in
internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those responsible for
oversight of a company’s financial reporting. A material weakness in
internal control over financial reporting is a deficiency, or combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statements would not be prevented or detected on a timely
basis. If we fail to (1) remediate the significant deficiencies
identified in Temhka S.A.’s internal control over financial reporting and
integrate Temhka S.A.’s internal controls over financial reporting with ours,
(2) maintain the adequacy of internal control over our financial reporting with
regard to the financial condition and results of operations of Temhka S.A., or
(3) remediate the material weakness identified in our internal controls over
financial reporting, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting
in accordance with Section 404 of Sarbanes Oxley, as such standards are
modified, supplemented or amended from time to time. Also, such
ineffective controls could impair our ability to report quarterly and annual
financial results, or other information required to be disclosed, in a timely
and accurate manner and could cause our financial reporting to be unreliable,
leading to misinformation being disseminated to the public.
If
our costs and demands upon management increase disproportionately to the growth
of our business and revenue as a result of complying with the laws and
regulations affecting public companies in the U.S., our operating results could
be harmed.
As a
public company, we will continue to incur significant legal, accounting,
investor relations and other expenses, including costs associated with public
company reporting requirements. We also have incurred, and will
continue to incur, costs associated with current corporate governance
requirements, including requirements under Section 404 and other provisions of
Sarbanes Oxley, as well as rules implemented by the SEC and the stock exchange
on which our ordinary shares are traded. The expenses incurred by
public companies for reporting and corporate governance purposes have increased
dramatically over the past several years. These rules and regulations
have increased our legal and financial compliance costs substantially and make
some activities more time consuming and costly. If our costs and
demands upon management increase disproportionately to the growth of our
business and revenue, our operating results could be harmed.
25
Our
future growth depends in part on our ability to make strategic acquisitions and
investments and to establish and maintain strategic
relationships. The failure to do so could have a material adverse
effect on our market penetration, revenue growth and prospects.
As part
of our plan to sustain and potentially increase business growth, we intend to
make strategic acquisitions and investments and to establish and maintain joint
ventures and strategic relationships with third parties. We may
engage in such activities to gain expertise in certain production and logistical
activities, access to raw materials or equipment and facilities. In
addition, we may enter into strategic relationships with third parties to gain
access to capital or funding for research and development programs, and
commercialization activities, or to reduce the risk of developing and scaling-up
for backlog and project pipeline.
Strategic
acquisitions, investments, joint ventures and strategic relationships with third
parties that we enter into may not be beneficial for our
business. Furthermore, exploration into these transactions, whether
or not actually consummated, could require us to incur significant expenses and
could divert significant management time and attention from our existing
business operations, which could harm the effective management of our
business. This could have a material adverse effect on our market
penetration, revenue growth and results of operations. In addition,
strategic acquisitions, investments and relationships with third parties could
subject us to a number of risks, including:
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·
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our
inability to integrate new operations, products, personnel, services or
technologies;
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unforeseen
or hidden liabilities, including exposure to lawsuits associated with
newly acquired companies;
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the
diversion of resources from our existing
businesses;
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disagreement
with joint venture or strategic relationship
partners;
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our
inability to generate sufficient revenues to offset the costs and expenses
of strategic acquisitions, investments, joint venture formations, or other
strategic relationships; and
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potential
loss of, or harm to, employees or customer
relationships.
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Any one
or more of these events could impair our ability to manage our business, result
in our failure to derive the intended benefits of the strategic acquisitions,
investments, joint ventures or strategic relationships, result in us being
unable to recover our investment in such initiatives or otherwise have a
material adverse effect on our business, financial condition and results of
operations.
Our
success depends upon our ability to have projects successfully approved and
completed in a timely manner, which involves a high degree of risk.
The
construction business is subject to substantial risks, including, but not
limited to, the ability to acquire favorable construction
projects. Further, if we continue to be successful in securing
favorable construction projects, our ability to successfully complete such
construction projects is subject to a number of additional risks, including, but
not limited to, availability and timely receipt of zoning and other regulatory
approvals, compliance with local laws, availability of, and ability to obtain
capital to fund projects, and potential equipment, raw material and labor
shortages. These risks could result in substantial unanticipated
delays or expenses and, under certain circumstances, could prevent the start or
the completion of construction activities once undertaken, any one of which
could have a material adverse effect on our financial condition and results of
operations.
The
construction business is subject to a number of risks outside of our
control.
Factors
which could adversely affect the construction industry, which are beyond our
control, include but are not limited to:
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the
availability and cost of financing for our
clients;
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unfavorable
interest rates and increases in
inflation;
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overbuilding
or decreases in demand;
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changes
in national, regional and local economic
conditions;
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cost
overruns, inclement weather, and labor or material
shortages;
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the
impact of present or future environmental legislation, zoning laws and
other regulations;
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availability,
delays and costs associated with obtaining permits, approvals or licenses
necessary to develop property;
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26
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increases
in taxes or fees;
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availability
of governmental funding;
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local
laws; and
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labor
problems, work stoppages, strikes and negotiations with
unions.
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All of
the above mentioned risks are mitigated, eliminated or neutralized under our
business model. Prior to commencing construction of any project, we
complete a full feasibility study, including economic and market analysis, as
well as analysis of local labor and civil restrictions and
conditions. However, there can be no assurances that such risks can
continue to be controlled in the future. In the event that we are
unable to control or effectively eliminate these risks, such failure could have
a material adverse effect on our revenues and earnings and thusly our share
price for our ordinary shares.
Risks
Related to Doing Business in Greece
We
face the risk that changes in the policies of the Greek government could have a
significant impact upon the business we may be able to conduct in Greece and the
profitability of such business.
The Greek
economy has been characterized by heavy government spending, a bloated public
sector, rigid labor rules and an overly generous pension
system. Efforts by the government to effect structural reforms have
often faced opposition from Greece’s powerful labor unions and the general
public. Public debt, inflation and unemployment have been above the
average for EU member states. Greece is a major beneficiary of EU aid
and any reduction in such aid could adversely affect its economy.
Greece is
prone to severe earthquakes, which have the potential to disrupt its
economy. Greece’s economy is dependent on the economies of other
European nations. Many of these countries are members of the EU and
are member states of the EU’s Economic Monetary Union, or the
EMU. The member states of the EU and EMU are heavily dependent on
each other economically and politically.
We
conduct all of our operations and generate our revenue in
Greece. Accordingly, economic, political and legal developments in
Greece will significantly affect our business, financial condition, results of
operations and prospects. The Greek economy is being assisted by a
financial aid package structured and implemented by the EU, the European Central
Bank, or ECB, and the International Monetary Fund, or IMF. This
package contains certain benchmarks and restrictive covenants and places great
fiscal responsibility on the Greek government and population. These
programs are expected to transition the Greek economy from instability to
stability and growth in the future. Although this plan and program is
uncertain as to timing and outcome, should it not be successful, it could result
in a slowing of the economy from its present status. While we believe
that Greece will continue to strengthen its economic standing within the EU and
abroad, we cannot assure you that this will be the case. Our
interests may be adversely affected by any changes in policies of the Greek
government, including, changes in laws, regulations or their interpretation,
increased taxation, or disputes within the EU. Our revenues and
profitability could be materially affected by any of these actions.
In
September 2010, the IMF released its first report on the progress of the Greek
government under the accord reached in May 2010 between Greece, the IMF, the EU
and the ECB, referred to as the May Accord. The report stated that
“…the program has made a strong start. End-June quantitative
performance criteria have been met, led by forceful implementation of the fiscal
program, and major reforms are ahead of schedule.” (Source: IMF Greece First
Review dated August 26, 2010). The report and analysis
continued to state that, although a strong start has been made by the Greek
government, there remains much to be accomplished to continue to meet the
benchmarks as agreed in the May Accord. We continue to monitor these
developments and signs of any adverse or positive
occurrences. Although there have been no negative events that have
impacted our core business to date, there is no assurance that, despite the
assertions and efforts of the Greek government, there will not be any negative
events or adverse setbacks in the future. Should any of these events
occur, this could have a material adverse effect on our revenues and
earnings.
The state
of the political and economic environment in Greece significantly affects our
performance as well as the market price of our ordinary
shares. Consequently, an economic slowdown, a deterioration of
conditions in Greece or other adverse changes affecting the Greek economy or the
economies of other member states of the EU could adversely impact our business,
financial condition, cash flows and results of operations. Moreover,
the political environment both in Greece and in other countries in which we may
elect to operate may be adversely affected by events outside our control, such
as changes in government policies, EU directives, political instability or
military action affecting Europe and/or other areas abroad and taxation and
other political, economic or social developments in or affecting Greece and
other EU Union member states.
27
Economic
conditions in Greece have had and may continue to have an adverse effect on our
clients and on our business.
Our
business is concentrated in Greece. Greece has been the subject of
intense scrutiny by the international financial community since October,
2009. Recent developments have included a financial aid package
engineered by the EU, the IMF and the ECB in May 2010. This aid
package imposes strict controls on the Greek government to, among other things,
reduce spending, increase collections and revenues from all forms of taxation,
including but not limited to, value added tax, or VAT, personal income tax,
corporate income tax, property tax, food tax, fuel tax and taxes on other
consumable items. This coordinated effort between the Greek
government and the EU, IMF and ECB has met with some measured success since its
implementation. This success is more fully reported in the IMF Greece
First Review dated August 26, 2010. This report acknowledged that
significant progress had been made by the Greek government to fulfill its
commitments under the May Accord but it cautioned that there was much work
remaining ahead in order to fully meet the covenants of such
accord. There is no guarantee or assurance that such progress will
continue. While we do not depend on government spending in Greece or
receive any government subsidies, we are affected by the prevailing economic
conditions that affect our clients. Should the recent progress falter
or cease, Greece could suffer from high unemployment rates, declining consumer
and business confidence, reduced consumer and business spending, and a worsening
of conditions in the credit and capital markets. Should any of these
events occur, this could have a material adverse effect on our revenues and
earnings.
We
could face increasing competition from foreign or domestic companies and, if so,
any failure to effectively meet such competition could adversely affect our
operations.
Although
we believe that we are the only company in Greece to provide a turn key solution
by building packaging and processing plants and facilities for companies that
are active in the agricultural sector, there is no assurance that some company,
individual or entity may not enter the sector as a competitor. Should
some heretofore unidentified company or entity desire to enter this sector, we
would face competition of an uncertain scale. Although we are
confident that our business model is effective and profitable and that we
provide a superior solution to our clients, there is no assurance that either we
can continue to do so or that a competitor, should one commence operations,
could not adversely affect our business model and adversely affect our revenue
and profitability by providing superior and more cost-effective
solutions.
Difficult
conditions in the global and European economy, particularly the Greek economy,
may adversely affect our ability to complete acquisitions, receive additional
financing, and may decrease the number of projects available for us to bid
on.
The
difficult global economic conditions, particularly in Greece, may significantly
decrease the number of construction projects available for us and make it more
difficult to obtain funding to purchase the necessary materials to complete any
of our intended projects. In addition, we may not be able to obtain
funds necessary to complete synergistic and accretive acquisitions which remain
an important part of our business plan. All of these factors may have
a material adverse effect on our financial condition and results of
operations.
Our
business and operations may be subject to disruption from work stoppages,
terrorism or natural disasters.
Our
operations may be subject to disruption for a variety of reasons, including work
stoppages, acts of war, terrorism, pandemics, fire, earthquake, flooding or
other natural disasters.
Should a major incident or stoppage occur in any of the regions where our
clients projects or facilities are located or if the facilities of critical
suppliers should be damaged or destroyed, such a disruption could result in a
reduction in available raw materials, the temporary or permanent loss of
critical data, suspension of operations, delays in shipment of products and
disruption of business generally, which would adversely affect our revenue and
results of operations.
You
may not be able to enforce your claims in the Cayman Islands or in
Greece. Also, our principal assets are located outside of the United
States and it may be difficult for investors to use the U.S. federal securities
laws to enforce their rights against us, our officers and some of our directors
in the US or to enforce judgments of US courts against us or them in the EU or
Greece.
We are a
Cayman Islands corporation and our wholly-owned subsidiaries, Aegean Earth S.A.
and Temhka S.A., are each Greek companies. There can be no assurance
that a Cayman Islands court, an EU court or a Greek court would enforce foreign
judgments requiring us to make payments outside of the Cayman Islands or
Greece.
All of
our present officers and directors, other than director Joseph B. Clancy, reside
outside of the U.S. In addition, we are located in Greece and all of
our assets are located outside of the U.S. Therefore, it may be
difficult for investors in the U.S. to enforce their legal rights based on the
civil liability provisions of the U.S. federal securities laws against us in the
courts of either the U.S. or Greece and, even if civil judgments are obtained in
courts of the U.S., to enforce such judgments in the Greek
courts. Further, it is unclear whether current extradition treaties
now in effect between the U.S. and the EU would permit effective enforcement
against us or our officers and directors of criminal penalties under the U.S.
federal securities laws or otherwise.
28
We
are subject to the risk of increased income taxes, which could harm our
business, financial condition and operating results.
We base
our tax position upon the anticipated nature and conduct of our business and
upon our understanding of the tax laws of Greece. Although we have
been continually audited by the relevant tax authorities, we have never been
penalized or found in error by underpayment of tax. However, our tax
position is subject to review and possible challenge by tax authorities and to
possible changes in law, which may have retroactive effect. We
currently operate through Temhka S.A., a wholly-owned subsidiary organized under
the laws of Greece and Aegean Earth S.A., a wholly-owned subsidiary also
organized under the laws of Greece. We maintain our executive offices
in Greece, and Greece could assert tax claims against us. We cannot
determine in advance the extent to which such assertions could require us to pay
taxes or make payments in lieu of taxes. If we become subject to
additional taxes, such tax treatment could materially and adversely affect our
business, financial condition and operating results.
Our
current construction projects are subject to various environmental protection
laws and regulations issued by the Greek government authorities and by the
EU. In addition, changes in the existing laws and regulations or
additional or stricter laws and regulations on environmental protection in the
EU and in Greece may cause us to incur significant capital
expenditures.
We carry
on our business in an industry that is subject to Greek and EU environmental
protection laws and regulations. Prior to commencing construction of
our projects, our clients are required to complete the environmental impact
evaluation at its commencement and the examination upon completion of the
construction to the competent environment protection administrative authority
for approval. This environmental approval is done at the state level
in Greece. Our company does not commence any project without the
client providing us with documented approval of the project by the relevant
environmental authority. Failure to submit the environment impact
evaluation document or obtain the approval by competent environmental
administrative authority may subject our client and us to fines and cease the
project construction. Such an event would adversely affect our
business and financial condition.
Greek and
EU laws and regulations also require enterprises engaged in construction that
may cause environmental waste to adopt effective measures to control and
properly dispose of waste gases, waste water, industrial waste, dust and other
environmental waste materials, as well as fee payments from producers
discharging waste substances. Fines may be levied against producers
causing pollution. Although we and our clients have historically
complied in all material respects with such laws and regulations, we cannot
assure you that in the future, we and/or our clients will have fully complied in
all material respects with all such laws and regulations. The failure
to comply with environmental laws or regulations may subject our client and
ourselves to various administrative penalties such as fines, and if the
circumstances of the breach are serious, it is at the discretion of the Greek
government or of the EU, depending upon the project and the violation, to cease
or close any operations failing to comply with such laws or
regulations.
In
addition, there can also be no assurance that the Greek government or the EU
will not change the existing laws or regulations or impose additional or
stricter laws or regulations, compliance with which may cause us to incur
significant capital expenditure, which we may be unable to pass on to our
clients. In addition, we cannot assure you that we will be able to
comply with any such laws and regulations.
Changes
in existing Greek and EU food hygiene and safety laws may cause us to incur
additional costs to comply with the more stringent laws and regulations, which
could have an adverse impact on our financial position.
Since our
core business is providing factory facilities to our clients for the primary
processing and packaging of food items from the agricultural areas of Greece,
our clients are subject to compliance with both EU and Greek food hygiene laws
and regulations. These laws and regulations set out hygiene and
safety standards with respect to foods, packaging and containers, information to
be disclosed on packaging, and hygiene requirements for food production sites,
facilities and equipment used for the transportation and sale of
food. Failure to comply with these food hygiene and safety laws may
result in fines, suspension of operations, loss of business licenses and, in
more extreme cases, criminal proceedings against an enterprise and its
management. Although we believe that all of our clients and their
projects are in compliance in all material respects with current food hygiene
laws, in the event that the Greek or EU governments increase the stringency of
such laws, the production and distribution costs of our clients may increase,
which could slow down our clients growth and expansion and adversely impact our
financial position by reducing our revenues and net profits.
29
Fluctuations
in exchange rates could adversely affect our business and your
investment.
The value
of the Euro against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in the EU member states’ political and
economic conditions. Any significant movement of the Euro against the
U.S. dollar may materially and adversely affect our cash flows, revenue and
financial condition. For example, to the extent that we need to
convert U.S. dollars that we may receive from an offering of our securities into
Euros for our operations, appreciation of the Euro against the U.S. dollar would
diminish the value of the proceeds of the offering and could harm our business,
financial condition and results of operations. Conversely, as our
functional currency is the Euro, if we decide to convert our Euros into U.S.
dollars for business purposes and the U.S. dollar appreciates against the Euro,
the U.S. dollar equivalent of the Euro that we convert would be
reduced. In addition, the depreciation of significant U.S. dollar
denominated assets could result in a charge to our income statement and a
reduction in the value of those assets.
Risks
Related to Our Ordinary Shares
Our
officers, directors and their relatives control us through their positions and
stock ownership, and their interests may differ from other
shareholders.
Stavros
Ch. Mesazos, our Executive Chairman of the board of directors, through his
direct and indirect holdings, has the ability to vote 18,343,670 of our ordinary
shares, which as of September 30, 2010, represented 86.7% of our voting stock on
a fully diluted basis. Additionally, our directors and officers
beneficially own in the aggregate 6% of our voting stock on a fully diluted pro
forma basis as of September 30, 2010. As a result, our officers and
directors are generally able to control the outcome of shareholder votes on
various matters, including the election of directors and extraordinary corporate
transactions, such as business combinations. The interests of our
directors and officers may differ from those of our other
shareholders. Furthermore, the current ratio of ownership of our
ordinary shares reduces the public float and liquidity of our ordinary shares,
which can, in turn, affect the market price of our ordinary
shares. This concentration of ownership may also discourage, delay or
prevent a change in control of our company, which could deprive our shareholders
of an opportunity to receive a premium for their ordinary shares as part of a
sale of our company and might negatively impact the price of our ordinary
shares. These actions may be taken even if they are opposed by our
other shareholders.
We
are not likely to pay cash dividends in the foreseeable future.
We expect
to retain available cash flow for working capital, capital expenditures and
potential acquisitions for the foreseeable future. However, we have
no current agreements to enter into any potential acquisitions. The
payment of any future dividends will be determined by the board of directors in
light of conditions then existing, including our earnings, financial condition
and capital requirements, business conditions, corporate law requirements and
other factors.
An
active trading market for our ordinary shares may not develop, and you may not
be able to sell your ordinary shares at or above the public offering
price.
There is
virtually no public market for our ordinary shares. An active trading market for
our ordinary shares may
never develop or be sustained. As a result, our shareholders may not
be able to sell their ordinary shares at the time that they would like to
sell. Additionally, the lack of a public market for our ordinary
shares may also negatively affect the price of our ordinary shares.
If
equity research analysts do not publish research or reports about our business
or if they issue unfavorable commentary or downgrade our ordinary shares, the
price of our ordinary shares could decline.
The
trading market for our ordinary shares will
rely in part on the research and reports that equity research analysts publish
about us and our business. The price of our ordinary shares could
decline if one or more securities analysts downgrade our ordinary shares or
if those analysts issue other unfavorable commentary or cease publishing reports
about us or our business.
Many
of our ordinary shares will in the future be available for
resale. Any sales of our ordinary shares, if in significant amounts,
are likely to depress the market price of these shares.
There are
presently very few freely tradable ordinary shares. We intend to
register up to an additional 6,000,002 ordinary shares (3,000,001 of which are
issuable upon the exercise of warrants) issued in a private placements completed
in February 2010 and March 2010 and 16,233,330 ordinary shares issued to the
shareholders of Temhka S.A. We currently have no ordinary shares
reserved for issuance pursuant to the exercise of options but we may issue
options in the future and register the underlying ordinary shares on Form S-8 or
other form. While we cannot currently determine the number of such
shares that may be registered, the figure may be substantial.
30
The
ordinary shares issued and outstanding that are not freely tradable are
“restricted securities” as defined under Rule 144 of the Securities Act, the
vast majority of which are owned by our officers, directors and other
“affiliates.” These persons may only sell their shares, absent
registration, in accordance with the provisions of Rule 144 (if at
all). Restricted securities may only be publicly sold pursuant to a
registration under the Securities Act, or pursuant to Rule 144 or some other
exemption that may be available from the registration requirements of the
Securities Act. Rule 144 entitles each affiliate holding restricted
securities to sell an amount of shares which does not exceed the greater of 1%
of the shares of our ordinary shares outstanding every three months in ordinary
brokerage transactions or, assuming our ordinary shares are then traded on
NASDAQ or a national securities exchange, the average weekly trading volume
during the four calendar weeks prior to said sale. Any substantial
sales pursuant to Rule 144 or a registration statement filed subsequent to the
Offering, including the potential sale of ordinary shares held by our
affiliates, may have an adverse effect on the market price of our ordinary
shares, and may hinder our ability to arrange subsequent equity or debt
financing or affect the terms and time of such financing.
Our
stock price may be volatile, and you may be unable to sell your shares at a
desired price.
The
market price of our ordinary shares could be subject to wide fluctuations in
response to, among other things, the factors described in this “Risk Factors”
section in this report or otherwise, and other factors beyond our control, such
as fluctuations in the valuations of companies perceived by investors to be
comparable to us. Furthermore, the stock markets have experienced
price and volume fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. These
fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. These broad market fluctuations, as
well as general economic, systemic, political and market conditions, such as
recessions, interest rate changes or international currency fluctuations, may
negatively affect the market price of our ordinary shares. In the
past, many companies that have experienced volatility in the market price of
their stock have become subject to securities class action
litigation. We may be the target of this type of litigation in the
future. Securities litigation against us could result in substantial
costs and divert our management’s attention from other business concerns, which
could harm our business.
Market
prices for our ordinary shares may be influenced by a number of factors,
including:
·
|
the
issuance of new equity securities pursuant to future
offerings;
|
·
|
changes
in interest rates;
|
·
|
competitive
developments, including announcements by our
competitors;
|
·
|
new
services or significant
acquisitions;
|
·
|
strategic
partnerships, joint ventures or capital
commitments;
|
·
|
variations
in quarterly operating results;
|
·
|
change
in financial estimates by securities
analysts;
|
·
|
the
depth and liquidity of the market for our ordinary shares;
and
|
·
|
general
economic and other national and international
conditions.
|
We
are authorized to issue up to 100,000,000 ordinary shares and 20,000,000
preference shares, the issuance of which could, among other things, reduce the
proportionate ownership interests of current shareholders.
We are
authorized to issue up to 100,000,000 ordinary shares and 20,000,000 preference
shares. Of this authorized capital stock, 21,133,481 ordinary shares
are issued and outstanding. Our board of directors has the ability,
without seeking shareholder approval, to issue additional ordinary shares and/or
preference shares in the future for such consideration as our board of directors
may consider sufficient. The issuance of additional ordinary shares
and/or preference shares in the future will reduce the proportionate ownership
and voting power of the ordinary shares held by existing
shareholders. Further, our board of directors is empowered, without
shareholder approval, to issue preference shares with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of ordinary shares. In the event of
such issuance, the preference shares could be used as a method of discouraging,
delaying or preventing a change in control of our company, which could have the
effect of discouraging bids for our company and thereby prevent shareholders
from receiving the maximum value for their shares.
Any
shares of preferences shares that may be issued are likely to have priority over
our ordinary shares with respect to dividend or liquidation
rights. In the event of issuance, the preference shares could be
utilized under certain circumstances as a method of discouraging, delaying or
preventing a change in control, which could have the effect of discouraging bids
to acquire us and thereby prevent shareholders from receiving the maximum value
for their shares. We have no present intention to issue any
additional shares of preference shares in order to discourage or delay a change
of control or for any other reason. However, there can be no
assurance that preference shares will not be issued at some time in the
future.
31
U.S.
holders of our ordinary shares could be subject to material adverse tax
consequences if we are considered a Passive Foreign Investment Company, or PFIC,
for U.S. federal income tax purposes.
There is
a risk that we will be classified as a PFIC for U.S. federal income tax
purposes. Our status as a PFIC could result in a reduction in the
after-tax return to U.S. holders of our ordinary shares and may cause a
reduction in the value of such shares. We will be classified as a
PFIC for any taxable year in which (i) at least 75.0% of our gross income is
passive income or (ii) at least 50.0% of the average value of all our assets
produces or are held for the production of passive income. For this
purpose, passive income includes dividends, interest, royalties and rents that
are not derived in the active conduct of a trade or business. Based
on the projected composition of our income and valuation of our assets, we do
not believe we were a PFIC in 2009 or will be a PFIC in 2010, and we do not
expect to become a PFIC in the foreseeable future, although there can be no
assurance in this regard. The U.S. Internal Revenue Service or a U.S.
court could determine that we are a PFIC in any of these years. If we
were classified as a PFIC, U.S. holders of our ordinary shares could be subject
to greater U.S. income tax liability than might otherwise apply, imposition of
U.S. income tax in advance of when tax would otherwise apply and detailed tax
filing requirements that would not otherwise apply. The PFIC rules
are complex and a U.S. holder of our ordinary shares is urged to consult its own
tax advisors regarding the possible application of the PFIC rules to it in its
particular circumstances.
32
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with the
financial statements and the related notes which are included elsewhere in this
report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our
actual results may differ substantially from those anticipated in any
forward-looking statements included in this discussion as a result of various
factors, including those set forth in “Risk Factors” contained elsewhere in this
report.
Overview
We are a
leading designer, builder, and outfitter of manufacturing facilities,
specializing in the agricultural sector in Greece. Our clients
utilize European Union, or EU, grants to help pay for these new, expanded or
refurbished facilities. We first prepare a feasibility study and
construction plan to be submitted by the client to the applicable Greek
governmental ministry for approval, which ministry has been delegated grant
approval authority by both the EU and the Greek government. Following
approval by the relevant governmental entity, we design and build the facility
to the specifications outlined in the approved grant application.
We
provide the following services to our clients:
·
|
perform
engineering and economic feasibility
studies;
|
·
|
prepare
EU grant applications under the Community Support Framework (CSF)
guidelines;
|
·
|
design
building facilities;
|
·
|
design
production lines and related
equipment;
|
·
|
specify
all facilities and all equipment to be installed in a
facility;
|
·
|
order
all equipment and materials;
|
·
|
install
or construct all facilities and equipment in conformance with the study,
the plans and the specification;
|
·
|
test
all of the installed equipment in the facility to ensure workmanship
according to the plans and specifications;
and
|
·
|
conduct
periodic follow-up inspections to ensure that the facility is performing
at optimal conditions
|
We were
incorporated as an exempted company with limited liability in the Cayman Islands
on March 10, 2006 for the purpose of identifying and entering into a business
combination with a privately held business or company, domiciled and operating
in an emerging market. On February 29, 2008, we completed the
acquisition of Aegean Earth S.A. pursuant to a share exchange
agreement. Aegean Earth S.A. was organized under the laws of Greece
in July 2007 with the objective of becoming engaged in the construction industry
in Greece and surrounding Mediterranean countries. Aegean Earth S.A.’s primary
business focus is the construction and development of real estate projects,
marinas, and other commercial ventures in Greece and other parts of Southern and
Eastern Europe, either alone or by forming joint ventures with other companies.
Since the acquisition of Aegean Earth S.A., we have entered into negotiations
for the construction of a number of construction projects in Greece, but have
not commenced any construction projects or entered into any binding agreements
to perform a construction project.
In
February 2010, we completed the acquisition of Temhka S.A. pursuant to a share
exchange agreement. Temhka S.A.’s primary business focus is the
design, construction and outfitting of new factory facilities and the expansion,
remodeling, rehabilitation and upgrading of existing facilities for a broad
spectrum of businesses primarily in the agriculture industry. All of
Temhka S.A.’s clients utilize EU grants to help pay for these new, expanded or
remodeled facilities. Based on the projects currently under
construction, and in our backlog and project pipeline categories, approximately
44% of our expected revenues will come from projects involving the construction
of new facilities, while the remaining 56% will come from projects involving the
expansion or remodeling of existing facilities.
Mr.
Mesazos formed Temhka S.A. as a Société Anonyme in December 2009 in anticipation
of our acquisition. The predecessor companies to Temhka S.A. are
referred to as the Mesazos Group of Companies. In 2009, the Mesazos
Group of Companies reported over $37 million in revenue and achieved net income
of over $3.7 million. During the nine months ended September 30,
2010, Temhka S.A. reported $54.2 million of revenues with net income of $5.2
million. Mr. Mesazos has assembled a highly qualified team of over 44
employees who span the business spectrum from technical engineering to financial
executives from Greece and the U.S.
We intend to focus our resources
primarily on expanding the businesses of Temhka S.A. In addition, we
intend to accelerate our vertical integration within our business through
selective acquisitions and/or partnership arrangements. We plan to
undertake a series of deliberate, non-hostile acquisitions of, or joint venture
arrangements with, certain of our suppliers of goods and materials for our
projects.
Key
Components of Operating Results
Sources
of Revenue
We
generate our revenue by designing, constructing and outfitting new commercial,
agricultural and industrial facilities, and upgrading existing facilities, in
Greece on behalf of private sector companies and industry
cooperatives. We also provide our clients with assistance in
procuring EU and/or Greek government grants. Our credit risk with
respect to our projects is minimized through our receipt of notes, collateral or
liens that are in place until the project has been completed and the final cash
payment received.
33
As a
result of the difficult economic conditions in Greece that began in 2008, the
Greek financial system is now largely ineffective, and the availability of
commercial bank financing has been severely limited. Since our
clients have historically financed from 30% to 50% of the cost of a typical
project through commercial bank facilities in Greece, we have had to adjust our
business model in some instances to address the lack of availability of
commercial financing in order to maintain our historical project
flow. If our clients cannot obtain commercial credit financing or an
alternative source of financing, then our clients will not receive the
applicable CSF approval and the number of projects we can undertake
will be reduced. The continued lack of commercial banking facilities
to our clients could have an adverse effect on both our revenues and
profitability.
As a
result of the timing of the payments for projects from our clients, we use
working capital to cover the expenses of the project. Historically,
we have generated working capital by selling equity, borrowing from our
founder and borrowing from commercial banks. Since the financial
crisis began in 2008, the availability of commercial bank financing has
been severely limited. If we cannot obtain commercial credit
financing, we may not have sufficient working capital to timely construct or
complete the projects we undertake including projects on our backlog and
pipeline. Any delay in the completion of our projects will delay payments
from our clients. In addition, if we do not have sufficient working
capital, we may not be able to accept certain projects. We are
pursuing alternative commercial bank facilities in order to continue our
business model; however there is no such facility in place at this time and the
unavailability of such a facility could have an adverse effect on our revenues
and profitability.
Cost
of Sales
Our cost
of sales is derived from the cost of development of each project we undertake.
It consists primarily of our direct cost for materials, labor and subcontracting
costs, as well as our indirect costs related to equipment rental and repair and
insurance.
General
and Administrative Expenses
Selling,
general and administrative expenses consist primarily of wages and salaries for
our executives and administrative personnel, social security contributions,
professional fees, rent and other office expenses, local taxes, marketing and
hospitality expenses, transportation and travel expenses, and depreciation
expense.
Other
Expenses
Other
expenses consist of only interest expenses paid to banks that provide us with
project financing services.
Amendment
to Authorized Shares
On May
14, 2010, shareholder resolutions were passed to increase our authorized
ordinary share capital from 78,125,000 ordinary shares (with a par value per
share of $0.00064) to 100,000,000 ordinary shares (with a par value of
$0.00345728 per share) through the consolidation of the 78,125,000 ordinary
shares outstanding on May 14, 2010 into 14,462,237 ordinary shares, and the
creation of an additional 85,537,763 ordinary shares. This resulted
in every shareholder as of May 14, 2010 receiving 1,000 ordinary shares for
every 5,402 ordinary shares previously held. This consolidation was
treated as a reverse stock split for U.S. GAAP purposes, and all share and per
share data is presented in this report as if the division took place as of the
date of our inception, March 10, 2006.
Results
of Operations
The
acquisition of Temhka S.A. was accounted for as a reverse merger under the
purchase method of accounting since there was a change of
control. Accordingly, Temhka S.A. is treated as the continuing entity
for accounting purposes.
34
Temhka
S.A.
Comparison
of the years ended December 31, 2009 and 2008.
The
following table presents, for the periods indicated, a summary of our condensed
consolidated statement of operations information.
Year Ended
|
Year Ended
|
|||||||
December 31, 2009
|
December 31, 2008
|
|||||||
Revenues
|
$ | 34,990,864 | $ | 61,965,224 | ||||
Cost
of sales
|
(29,490,537 | ) | (54,341,895 | ) | ||||
Gross
profit
|
5,500,327 | 7,623,329 | ||||||
Operating
Expenses
|
||||||||
Selling,
general and administrative expenses
|
906,860 | 1,306,282 | ||||||
Total
operating expenses
|
906,860 | 1,306,282 | ||||||
Income
before other expenses
|
4,593,467 | 6,317,047 | ||||||
Other
expenses
|
||||||||
Interest
and other expense
|
710,738 | 1,161,975 | ||||||
Total
other expenses
|
710,738 | 1,161,975 | ||||||
Income
before income taxes
|
3,882,729 | 5,155,072 | ||||||
Provision
for income taxes
|
698,891 | 1,164,632 | ||||||
Net
income
|
$ | 3,183,838 | $ | 3,990,440 | ||||
Net
income per share – basic and diluted (A)
|
$ | 0.18 | $ | 0.23 | ||||
Weighted
average ordinary shares outstanding– basic and diluted
|
17,538,964 | 17,538,964 |
Revenues.
For the
year ended December 31, 2009, we had revenues of $34,990,864 compared to
$61,965,224 for the year ended December 31, 2008, a decrease of $26,974,360, or
43.5%. Since approximately 50% of our revenues come directly from EU
grants, we experienced a decrease primarily from the temporary slowdown in the
availability of EU grant money from the Greek governmental ministries for our
clients in 2009 compared to 2008, which caused a decrease in demand for new
facilities. The slow down occurred as a result of the transition from
the 3rd CSF to
the 4th CSF,
and the occurrence of governmental elections in Greece and the other EU
nations. Subsequent to the year ended December 31, 2009, and through
the date of this filing, EU grant funds have commenced payments at historical
levels to our clients, increasing our revenues collected. This has enabled our
project workload to increase, and using the percentage completion method of
accounting, our billings have increased proportionately.
Cost
of sales.
Costs of
sales decreased $24,851,358, or 45.7%, for the year ended December 31, 2009
compared to the same period in 2008, to $29,490,537 in 2009 from $54,341,895 in
2008. This decrease was caused primarily by the decrease in sales
activity over the same period.
Gross
profit and gross margin.
Our gross
profit was $5,500,327 for the year ended December 31, 2009, as compared to
$7,623,329 for the year ended December 31, 2008, representing gross margins of
15.7% and 12.3%, respectively. The increase in gross margins is
largely attributable to our ability to reduce costs without reducing revenues
proportionally. Although we experienced a reduction in revenues
during the year ended December 31, 2009, we managed our direct costs by
carefully balancing, and in some cases reducing, the average number of employed
personnel required to successfully complete a project. We also had
improved efficiencies that resulted from working on a smaller number of large
projects so that overall gross margins actually increased on a percentage
basis.
35
Selling,
general and administrative expenses.
Selling,
general and administrative expenses decreased 30.6%, to $906,860 for the year
ended December 31, 2009 from $1,306,282 for the year ended December 31,
2008. This decrease was attributable to the decrease in
administrative expenses occasioned by the decrease in sales activity which
occurred as a result of the delay in EU grant monies for our client projects
during such period.
Liquidity
and Capital Resources
We
estimate that our total anticipated general and administrative and other fixed
costs for the 12 months ended December 31, 2010 will be approximately
$1,500,000, consisting primarily of increased
wages and salaries, social security contributions for newly hired personnel,
increased travel costs for site inspections and added costs attributable to our
offering of up to $30 million of our ordinary shares pursuant to the Form S-1
filed with the SEC on November 10, 2010. We expect some of the
estimated costs will increase or decrease depending on the size and number of
projects that we undertake. We believe that our current cash and cash flow from
operations will be sufficient to meet our anticipated cash needs, including our
cash needs for working capital, for the next 12 months. We may, however,
require additional cash resources due to changing business conditions or other
future developments, including any investments or acquisitions we may decide to
pursue. Because we receive payments from the EU that account for approximately
50% of the costs of the average project within 60 days following the
completion of two separate milestones (25% of which is paid within 60 days
following the date that 50% of the project has been completed, and the balance
of which is paid within 60 days following the date that the project is
finished), we anticipate that we will need to continue utilizing project
financing or deposit payments to fund the construction and development of the
projects we undertake to the extent possible to mitigate the additional
operating costs of undertaking construction and development projects. We also
expect to utilize financing, through the sale of either debt or equity
securities to fund any acquisitions of complimentary businesses including
supplier or service providers with which we work, to further achieve
efficiencies through our vertical integration. Our ability to maintain
sufficient liquidity depends partially on our ability to achieve anticipated
levels of revenue, while continuing to control costs. If we do not have
sufficient available cash, we would have to seek additional debt or equity
financing through other external sources, which may not be available on
acceptable terms, or at all. Failure to maintain financing arrangements on
acceptable terms would have a material adverse effect on our business, results
of operations and financial condition.
Our
ability to satisfy our current obligations is dependent upon our cash on hand,
borrowings under our lines of credit and the operations of our
subsidiaries. Our
obligations as of December
31,
2009, consist
primarily of our
accounts payable to suppliers of approximately $7.4 million,
amounts owing under our credit lines of approximately $11.3 million,
and social
security, deferred tax and other liabilities of approximately
$595,359. In
the event we are not able to generate positive cash flow in the future, or if we
incur unanticipated expenses for operations and are unable to acquire additional
capital or financing, we will likely have to reassess our strategic direction,
make significant changes to our business operations and substantially reduce our
expenses until such time as we achieve positive cash flow. The cancellation
and/or deferral of a number of projects from our largest clients may have a
material impact on our ability to generate sufficient cash flow in future
periods.
36
Summary
of Cash Flows
The
following table summarizes our cash flows for the years ended December 31, 2009
and December 31, 2008:
For the Year Ended
|
||||||||
December 31,
2009
|
December 31,
2008
|
|||||||
Net cash provided
by (used in) operating activities
|
$ | (4,583,891 | ) | $ | 1,073,342 | |||
Net
cash provided by (used in) investing activities
|
$ | 283,134 | $ | (44,582 | ) | |||
Net
cash provided by (used in) financing activities
|
$ | 3,370,499 | $ | (1,088,980 | ) |
Net cash provided by (used in)
operating activities.
Net
cash used in operating activities for the year ended December 31,
2009 was $4,583,891
and net cash provided by operating activities for the year ended December
31, 2008 was $1,073,342. During the year
ended December 31, 2009, cash flow used in operating activities primarily
resulted from payments to our suppliers and subcontractors on our projects
totaling $15,803,302, and we borrowed an additional $9,793,605 from the owner.
During the year ended December 31, 2008, we increased contract receivables by
$22,647,639 and collected $17,754,261 from suppliers.
Net cash provided by (used in)
investing activities.
Net cash
provided by investing activities for the year ended December 31, 2009 was
$283,134 and net cash used in investing activities for the year ended December
31, 2008 was $44,582. During the year ended December 31, 2009, the
cash provided from the sale of equipment was $283,134 and was comprised
primarily of the sale of machinery. During 2008, we purchased equipment
totaling $44,582.
Net cash provided by financing
activities.
Net cash
provided by financing activities for the year ended December 31, 2009 was
$3,370,499. Net cash used in financing activities for the year ended
December 31, 2008 was $1,088,980. During the year ended December 31, 2009, net
cash provided by financing activities consisted primarily of net proceeds from
our lines of credit of $1,562,560 and net contributions from the ownerof
$1,807,939 in anticipation of the acquisition of Temhka, S.A. For 2008, net cash
used in financing activities primarily consisted of net proceeds from our lines
of credit of $2,064,132 and distributions to owners of $3,197,235.
At
December 31, 2009, interest-bearing debt was $11,356,165, drawn under
several credit line facilities. At December 31, 2008, interest
bearing date was $9,793,605, drawn under several credit line
facilities. Each credit line facility is used to finance a specific
project and will be paid off upon completion of the project.
For the
year ended December 31, 2009, we
paid $710,738 in interest and $1,161,775 for the year ended December 31,
2008. As of December 31, 2009, we had $0 available under our credit
line facilities, and no outstanding letters of credit, within our syndicated
credit facilities. We had no debt covenants at December 31,
2009.
37
Management
estimates that there will be no
capital expenditures for the year ended December 31, 2010. We may enter
into additional debt/ credit facilities to fund specific projects should the
business levels exceed our current capacity. We expect to finance our
capital requirements with cash flow from operations, and additional debt/credit
line facilities.
Payment due by period
|
||||||||||||||||||||||||||||
Company
Debt
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
|||||||||||||||||||||
Credit
Lines
|
$ | 11,356,165 | $ | 11,356,165 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Due
Suppliers
|
7,376,566 | 7,376,566 | - | - | - | - | ||||||||||||||||||||||
Total
Company Debt
|
$ | 18,732,731 | $ | 18,732,731 | $ | - | $ | - | $ | - | $ | - | $ | - |
A
significant decrease in demand for our services could limit our ability to
generate cash flow and affect our profitability. Should the current
macro-economic environment further destabilize, we may fail to comply with the
interest payments associated with the credit lines mentioned above. As a result,
we may seek to amend our existing debt structure.
Effect
of Exchange Rate Changes on Cash
Unrealized
translation gains and losses resulting from changes in functional currency
exchange rates are reflected in the cumulative translation component of other
comprehensive loss. During the year ended December 31, 2009, functional currency
exchange rates for most of our international operations strengthened against the
U.S. Dollar, resulting in net unrealized gains of $241,757. The cash held
in foreign currencies will primarily be used for project-related
expenditures in those currencies,
and therefore our exposure to realized exchange gains and losses is considered
nominal.
Critical
Accounting Policies
Our
financial statements are prepared in accordance with U.S. GAAP, which 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.
The
following accounting policies are critical in fully understanding and evaluating
our reported financial results:
Basis
of Presentation
Our
consolidated financial statements are presented on the accrual basis of
accounting in accordance with U.S. GAAP, whereby revenues are recognized in the
period earned and expenses are recognized when incurred. The
consolidated financial statements include the accounts of Aegean Earth S.A. and
Temhka S.A. All immaterial amounts have been eliminated in
consolidation.
Use
of Estimates
Certain
of our accounting policies require higher degrees of judgment than others in
their application. These include the recognition of revenue and
earnings from construction contracts under the percentage of completion method,
the valuation of long-term assets, and income taxes. Management
evaluates all of its estimates and judgments on an on-going basis.
Revenue
Recognition
Construction
Our
primary business is as a provider of engineering and contracting services to
private sector companies and industry cooperatives. Credit risk with
private owners is minimized because of the receipt of post-dated checks and
other liens throughout the construction progress until final cash payment has
been secured.
Revenues
are recognized on the percentage-of-completion method, which is based upon costs
incurred as a percentage of total costs for each contract.
38
Revenues
recognized in excess of amounts billed are recorded as a current asset under the
caption “Costs and estimated earnings in excess of billings on uncompleted
contracts.” Billings in excess of revenues recognized are recorded as
a current liability under the caption “Billings in excess of costs and estimated
earnings on uncompleted contracts.”
Contract
costs include all direct material, labor, subcontracting and other costs and
those indirect costs related to contract performance, such as indirect salaries
and wages, equipment repairs and depreciation, insurance and payroll
taxes. Administrative and general expenses are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes
in job performance, job conditions and estimated profitability, including those
changes arising from contract penalty provisions and final contract settlements
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined. An amount attributable to
contract claims is included in revenues when realization is probable and the
amount can be reliably estimated. If it were to be estimated that an
uncompleted contract would result in a loss, the entire amount of the loss would
be accrued. Costs and estimated earnings in excess of billings
included $0 at December 31, 2009, for contract claims not yet billed to the
client due to the interim stage of completion of such projects. The
zero amount for 2009 was the result of billings equaling work performed as of
December 31, 2009. As of December 31, 2009, we had billed our clients
for all of the work that had been performed to that date, leaving a zero balance
due to us from all projects.
Engineering
& Architectural Design
We
recognize revenue from architectural and engineering design services on the
basis of our estimates of the percentage-of-completion of the underlying
construction contracts or based on progress towards completion of design and
other service agreements. A portion of the total contract price is
recognized as revenue based on management’s measured and validated report on the
percentage-of-completion of each project as compared to the total contract
amount of such project. Certain long-term contracts may extend over
one or more years, and revisions in cost and profit estimates during the course
of the work are reflected in the period in which the facts become
known. At such time as a loss on a contract becomes known, the entire
amount of the loss will be accrued.
Cash
and Cash Equivalents
Our cash
and cash equivalents at December 31, 2009 were $57,159 compared to $987,417 on
December 31, 2008.
We
consider all highly liquid investments with original or remaining maturities of
three months or less at the time of purchase to be cash
equivalents. We have concentrated our risk for cash by maintaining
deposits in foreign bank accounts, which are insured by the Greek Government up
to a limit of €100,000 (approximately $149,331 as of September 30, 2010) per
account holder, regardless of which bank is the depository. We had no
uninsured bank deposits as of December 31, 2009.
In
connection with our acquisition of Temhka S.A. and pursuant to the Securities
Purchase Agreement dated February 10, 2010, we deposited $750,000 in escrow to
be released upon meeting certain requirements for the appointment of directors
and the appointment of an investor relations firm. Both requirements
have been met and the escrow was released to us on June 18,
2010. This amount is classified on the balance sheet as cash held in
escrow.
Contracts
Receivable
Contracts
receivable are primarily concentrated with private companies located throughout
Greece. Credit terms for payment of products and services are
extended to clients in the normal course of business and no interest is
charged. We often accept various forms of collateral, including
post-dated checks, and can follow the practice of filing statutory liens or stop
notices on all construction projects if collection problems are
anticipated. We use the allowance method of accounting for losses
from uncollectible accounts. Under this method, an allowance is
provided based upon historical experience and management's evaluation of
outstanding contract receivables at the end of each year. Because of
the short-term nature of the projects and the frequent collection of collateral
in the form of post-dated checks from the client, receivables are rarely deemed
uncollectible. During 2009, we did not designate any receivables as
uncollectible.
Retainage
We do not
have retention provisions in our present operations since all contracts are
pre-approved in the governmental grant program, if applicable, and are fixed
price contracts. Any change orders upward are paid in advance by the
client and change orders downward cause a credit to the client’s contractual
balance.
39
Foreign
currency translation and other comprehensive income
Our
functional currency is the Euro. For financial reporting purposes,
Euros have been translated into U.S. dollars as the reporting
currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Income statement accounts are
translated at the average rate of exchange prevailing for the
period. Capital accounts are translated at their historical exchange
rates when the capital transaction occurred. Translation adjustments
arising from fluctuations in exchange rates from period to period are included
as a component of shareholders’ equity in accumulated other comprehensive
income.
Property,
Plant and Equipment
Property,
plant and equipment is stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
generally 10 to 30 years. Maintenance and repairs are charged to
expense as incurred.
Deferred
Taxes
Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates.
Fair
Value of Financial Instruments
Our
financial instruments consist of contract receivables, prepayments, deposits,
short term borrowings, and accounts due to suppliers. We believe the
fair value of these items reflect their carrying amounts, primarily due to the
short term nature of these instruments.
In 2007,
the Financial Accounting Standards Board, or FASB, issued new guidance relating
to the measurement and disclosure of financial assets and
liabilities. This guidance established a framework for measuring fair
value in U.S. GAAP and clarified the definition of fair value within that
framework. This guidance does not require assets and liabilities that
were previously recorded at cost to be recorded at fair value or for assets and
liabilities that are already required to be disclosed at fair
value. This guidance introduced, or reiterated, a number of key
concepts which form the foundation of the fair value measurement approach to be
used for financial reporting purposes. The fair value of our
financial instruments reflects the amounts that we estimate to receive in
connection with the sale of an asset or paid in connection with the transfer of
a liability in an orderly transaction between market participants at the
measurement date (exit price). This guidance also established a fair
value hierarchy that prioritizes the use of inputs used in valuation techniques
into the following three levels:
Level
1—quoted prices in active markets for identical assets and
liabilities.
Level
2—observable inputs other than quoted prices in active markets for identical
assets and liabilities.
Level
3—unobservable inputs.
The
adoption of this guidance did not have an effect on our financial condition or
results of operations, but this guidance introduced new disclosures about how we
value certain assets and liabilities. Much of the disclosure is
focused on the inputs used to measure fair value, particularly in instances
where the measurement uses significant unobservable (Level 3)
inputs. As of December 31, 2009 and December 31, 2008, we did not
have financial assets or liabilities that would require measurement on a
recurring basis based on this guidance.
Recent
Accounting Pronouncements
In May
2009 FASB issued State of Financial Accounting Standard, or SFAS, No. 165,
Subsequent Events (ASC 855, Subsequent Events), or ASC 855. ASC 855
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. Specifically, ASC 855 provides (a) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (b) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and (c) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. ASC 855 is effective for interim or annual
financial periods ending after June 15, 2009, and shall be applied
prospectively. We adopted ASC 855 in the second quarter of
2009. The adoption did not have a materially impact on our
consolidated financial position and results of operations. We
considered all subsequent events through April 19, 2010, the date the financial
statements were available to be issued.
40
In June
2009, FASB issued SFAS No. 168, FASB Accounting Standards Codification TM and
the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162 (ASC 105, Generally Accepted Accounting Principles), or ASC
105, which states that the FASB Accounting Standards Codification (Codification)
will become the source of authoritative US GAAP recognized by the FASB to be
applied by nongovernmental entities. On the effective date of this
Statement, the codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the codification became
non-authoritative. ASC 105 is effective for financial statements
issued for interim and annual periods ending after September 15,
2009. The principal impact of ASC 105 is limited to disclosures as
all current and future references to authoritative literature will be reference
in accordance with the codification.
In August
2009, FASB issued Accounting Standards Update, or ASU, No. 2009-05, Fair Value
Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair
Value. This ASU provides amendments for fair value measurements of
liabilities. It provides clarification that in circumstances in which
a quoted price in an active market for the identical liability is not available,
a reporting entity is required to measure fair value using one or more
techniques. ASU 2009-05 also clarifies that when estimating a fair
value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of the liability. ASU 2009-05 is effective
for the first reporting period (including interim periods) beginning after
issuance or fourth quarter 2009. We are assessing the impact of ASU
2009-05 on our financial condition, results of operations, and
disclosures. The implementation of the fair value guidance for
nonfinancial assets and nonfinancial liabilities, effective January 1, 2009, did
not have a material impact on our consolidated financial position and results of
operations.
In
October 2009, the FASB issued amendments to the accounting and disclosure for
revenue recognition. These amendments, effective for fiscal years
beginning on or after June 15, 2010 (early adoption is permitted), modify the
criteria for recognizing revenue in multiple element arrangements and the scope
of what constitutes a non-software deliverable. We are currently
assessing the impact (if any) on our consolidated financial position and results
of operations.
Backlog
and Project Pipeline
Backlog
represents services that our clients have committed contractually to purchase
from us, and for which full funding approval has been received from both the EU
and a commercial banking source. Additionally, our project pipeline represents
services that our clients have committed contractually to purchase from us, but
for which final financing approval is being sought or is pending from either or
both of the EU and a commercial banking source. As of October 15,
2010, we had a total of 69 projects in our backlog and pipeline with contract
values totaling €281.2 million (or $393.7 million). Of these, our
backlog consisted of 20 contracts valued at €105.6 million (or $147.8 million),
and our project pipeline consisted of 49 projects valued at €175.7 million (or
$246.0 million). Projects in our backlog and pipeline categories
consist of the following projects by industry category:
Number
|
Type
|
|
4
|
Vegetable
Processing and Packaging
|
|
3
|
Fish
Processing and Packaging
|
|
18
|
Meat
(Beef, Pork, Wild Game) Processing and Packaging
|
|
12
|
Poultry
/ Eggs Processing and Packaging
|
|
2
|
Wine
Processing and Bottling
|
|
2
|
Olive
Oil Processing and Bottling
|
|
3
|
Cheese
Processing and Packaging
|
|
18
|
Biodiesel,
Solar, Waste to Green Generating
|
|
1
|
Animal
Feed Processing and Packaging
|
|
6
|
Non-Agricultural
Plants and Projects
|
|
69
|
|
Total
Backlog and Pipeline
Projects
|
Our
backlog and project pipelines are subject to fluctuations, including as a result
of cancellations, or an inability to obtain full governmental approval, and not
necessarily indicative of future sales. Moreover, cancellations of
projects or reductions of project scope in existing contracts could
substantially and materially reduce our backlog and/or proposed pipeline, and
consequently, our future revenues. Our failure to replace cancelled
or reduced backlog and project pipeline would have an adverse impact on future
revenues.
41
Off-Balance
Sheet Arrangements
We
currently have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Income
Taxes
We were
registered as an Exempted Company in the Cayman Islands, and therefore, are not
subject to Cayman Island income taxes during the 20 year period commencing on
our date of inception. While we have no intention of conducting any
business activities in the U.S., we would be subject to U.S. income taxes based
on any such activities that would occur in the U.S.
Our
wholly-owned subsidiaries, Temhka S.A. and Aegean Earth S.A. are subject to
income and sales taxes in Greece. The statutory income tax rate in
Greece is currently 24%.
Business
Plan
During
the next 12 months, our business will be focused on (1) the development and
integration of Temhka S.A.’s businesses in Greece and (2) accelerating our
vertical integration within our business through selective acquisitions and/or
partnership arrangements. We plan to undertake a series of
deliberate, non-hostile acquisitions of, or joint venture arrangements with,
certain of our suppliers of goods and materials for our projects. We
have not entered into any agreements or letters of intent for such acquisitions
or joint ventures. There is no assurance that we will be successful
in this effort or that any such acquisitions, should they occur, will be
profitable and not be dilutive to our management and capital
resources. Such dilutive effort, should it occur, could have a
material adverse effect on our revenues, profitability and share
value.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information as of September 30, 2010 with
respect to the beneficial ownership of our ordinary shares by (i) each person
who, to our knowledge, beneficially owns more than 5% of our ordinary shares;
(ii) each of our directors and executive officers; and (iii) all of our
executive officers and directors as a group:
Name and address of Beneficial Owner
|
Number of Shares
|
Percent of Class (1)
|
||||||
Directors and Named Executive
Officers(2):
|
||||||||
Stavros
Ch. Mesazos (3)
|
12,499,670 | 59.1 | % | |||||
Dimitrios
K. Vassilikos (4)
|
300,000 | 1.4 | % | |||||
Joseph
B. Clancy (5)
|
130,853 | * | ||||||
Rizos
P. Krikis
|
- | - | ||||||
Sofia
Douskali
|
- | - | ||||||
Kostas
G. Moschopoulos (6)
|
974,000 | 4.6 | % | |||||
All
directors and executive officers as a group (6 persons)
|
13,904,523 | 65.2 | % | |||||
Other
5% or Greater Beneficial Owners
|
||||||||
Haris
Mesazos (7)
|
2,922,000 | 13.8 | % | |||||
Kostas
Mesazos (8)
|
2,922,000 | 13.8 | % | |||||
Access
America Fund, L.P.(9)
11200
Westheimer Rd. Suite 508
Houston,
TX 77042
|
4,785,904 | 22.6 | % | |||||
* - Less than 1%
Beneficial Ownership
|
(1)
Beneficial ownership is calculated based on the 21,133,481 ordinary shares
outstanding as of September 30, 2010. Beneficial ownership is
determined in accordance with Rule 13d-3 of the SEC. The number of
ordinary shares beneficially owned by a person includes ordinary shares issuable
upon conversion of securities and subject to options or warrants held by that
person that are currently convertible or exercisable or convertible or
exercisable within 60 days of the date hereof. The ordinary shares
issuable pursuant to those convertible securities, options or warrants are
deemed outstanding for computing the percentage ownership of the person holding
such convertible securities, options or warrants but are not deemed outstanding
for the purposes of computing the percentage ownership of any other
person.
42
(2)
Unless otherwise specified, the address for the directors, named executive
officers, and other beneficial owners is c/o Temhka S.A. at The Mesazos Group of
Companies, 5 IHOUS Street, Athens, Greece 11146.
(3)
Stavros Ch. Mesazos was issued 6,655,670 ordinary shares as consideration for
his shares in Temhka S.A. in connection with our acquisition of Temhka
S.A. Such number of shares also includes 5,844,000 shares owned in
the aggregate by Haris Mesazos and Kostas Mesazos, the two sons of Mr.
Mesazos. Accordingly, Mr. Mesazos may be deemed to beneficially own
such additional 5,844,000 shares. Mr. Mesazos, however, disclaims
beneficial ownership of such ordinary shares.
(4) Mr.
Vassilikos was issued such 300,000 ordinary shares in connection with his
service as an advisor to the company.
(5)
Includes 100,000 ordinary shares issued to such person in connection with his
providing advisory services to the company.
(6) Mr.
Moschopoulos was awarded such shares by the shareholders for his past services
to the predecessor companies of Temhka S.A.
(7) Haris
Mesazos was issued the ordinary shares as consideration for his shares in Temhka
S.A. in connection with our acquisition of Temhka S.A.
(8)
Kostas Mesazos was issued the ordinary shares as consideration for his shares in
Temhka S.A. in connection with our acquisition of Temhka S.A.
(9) This
figure consists of (i) 982,639 ordinary shares held by AAF (ii) 1,901,633
ordinary shares purchased by AAF in a private offering following the March 2010
Temhka acquisition, and (iii) 1,901,633 ordinary shares issuable upon exercise
of a warrant under that private offering.
MANAGEMENT
Executive
Officers and Directors
The
following table sets forth as of November 15, 2010 the names, positions and ages
of our current executive officers and directors:
Name
|
Age
|
Position(s)
|
||
Stavros
Ch. Mesazos
|
55
|
Director,
Executive Chairman of the board of directors and Chief Operating
Officer
|
||
Dimitrios
K. Vassilikos
|
43
|
Director
and Chief Executive Officer
|
||
Sofia
Douskali
|
46
|
Chief
Financial Officer
|
||
Joseph
B. Clancy
|
69
|
Director
and Manager of Aegean Earth, S.A.
|
||
Rizos
P. Krikis
|
43
|
Director
|
||
Kostas
G. Moschopoulos
|
|
55
|
|
Director
|
Stavros Ch. Mesazos, Director, Executive Chairman of the
board of directors and Chief Operating Officer. Mr. Mesazos
was appointed as our Chief Operating Officer and Executive Chairman of our board
of directors effective April 13, 2010. Prior thereto, Mr. Mesazos was
the Managing Director of the Mesazos Group of Companies, which he founded in
1979. The Mesazos Group of Companies were consolidated into Temhka
S.A. on January 1, 2010. Mr. Mesazos has over thirty years of
experience in the construction industry. He graduated from the Athens
Polytechnic Institute in 1983 and is a licensed mechanical
engineer. Throughout his career, Mr. Mesazos has been instrumental in
the design and construction of a variety of structures utilized in a number of
industries.
Dimitrios K. Vassilikos, Chief Executive Officer and
Director. Mr. Vassilikos was appointed as our Chief Executive
Officer and as a member of our board of directors effective April 13,
2010. Prior thereto, since 2004, Mr. Vassilikos has been focused on
facilitating private equity transactions for a number of companies, private
individuals and wealth funds in the Middle East and the United States as an
individual advisor. In 1999, he formed a broker dealer in the Athens
market, Mega Trust AXEPEY and was the Responsible Party to the ATHEX Security
Regulator. From 1996 to 1999, he headed all operations for trading and
underwriting for Capital AXEPEY, and in 1996 took a seat on the Athens Stock
Exchange. Mr. Vassilikos has twenty years experience in securities
analysis, private equity and portfolio consulting. Mr. Vassilikos
received a B.A. in Business Administration from the University of Macedonia in
1990.
43
Sofia Douskali, Chief Financial
Officer. Ms. Douskali was appointed as our Chief Financial
Officer effective May 3,
2010. Ms. Douskali served as Director of Corporate Finance at
a number of securities firms in Greece, including Cyclos Securities S.A. from
October 2007 through August 2008, Beta Securities S.A. from October 2008 through
March 2010 and Sarros Securities S.A. from March 2010 to the present, in each
case assuming responsibility for company and project valuations, and for
preparing companies for listing on the Athens Stock Exchange. Prior
thereto, from January through August 2007, Ms. Douskali served as an Executive
Board Member and Head of Investments with Gefico Group Ltd. From
August 2003 through January 2007, Ms. Douskali was Fund Manager and Treasurer
with MTH Investments in Liechtenstein. Ms. Douskali also served as a
Portfolio Manager for ASDOM Developers in Greece and as lecturer of Finance at
European University, Greek Campus. Ms. Douskali received her Bachelor
of Science from New York University in 1986 in Economics and her MBA from
Hartford University in 1988. Ms. Douskali is also a Certified
International Investment Analyst and Certified Derivatives
Consultant.
Joseph B. Clancy, Director. Mr.
Clancy was appointed as a member of our board of directors on February 29, 2008. Mr. Clancy also
serves as the Manager of Aegean Earth S.A., a position he has held since Aegean
Earth S.A.’s inception in July 2007. Mr. Clancy is an experienced
professional in both private equity and construction and
development. Since June 2006, he has served as one of the National
Representatives of AAI in Greece and Cyprus. From February 2003 to
May 2006, he served as a consultant/advisor for Vibrant Capital Corporation in
New York, where he oversaw the implementation of a life settlement acquisition
program to secure a bond issued under the securities laws of Luxembourg and also
implemented two private placement programs of investments in conjunction with
that asset class. Mr. Clancy graduated with a B.Sc. from the United
States Naval Academy in Annapolis, Maryland. He served as a Captain
in the U.S. Marine Corps.
Rizos P. Krikis,
Director. Mr. Krikis was appointed as a member of our board of
directors on June 15, 2010 and our Chief Financial Officer on February 29,
2008. He resigned from his position as Chief Financial Officer
effective May 3, 2010. Prior thereto, Mr. Krikis served as the chief
financial officer of Aegean Earth S.A. since 2007. From 2004 to 2007,
Mr. Krikis was chief financial officer of Cosmotelco Telecommunications, or
Cosmotelco, in Greece. Prior to Cosmotelco, Mr. Krikis was a senior
manager for the Emporiki Private Equity and Venture Capital Fund, where he was
responsible for the initial investment decision and ongoing monitoring of the
fund’s portfolio investment. Mr. Krikis has a number of years of
experience in the financial industry and has served in multiple capacities both
in industry and private equity. Mr. Krikis also was a consultant from
the Greek Trade Commission in New York. He graduated with both his
Bachelor’s and Master’s degrees in Business Administration from Baruch College
in New York, and is fluent in both English and Greek.
Konstantinos G. Moschopoulos,
Director. Mr. Moschopoulos was appointed as a member of our
board of directors effective June 15, 2010. Mr. Moschopoulos has over
fifteen years experience as an independent economic and tax consultant for a
variety of companies. Prior thereto, he served as a financial analyst
and accountant for a number of companies, including Vogue A.E. and Alpha
Bank. Mr. Moschopoulos received his B.A. in Economics from the
University of Macedonia in 1980.
Election
of Directors
Holders
of our ordinary shares are entitled to one (1) vote for each share held on all
matters submitted to a vote of the shareholders, including the election of
directors. Cumulative voting with respect to the election of
directors is not permitted by our Memorandum of Association and Articles of
Association.
Our board
of directors shall be ratified at the annual meeting of the shareholders or at a
special meeting called for that purpose. Each director shall hold
office until the next annual meeting of shareholders and until the director’s
successor is elected and qualified. If a vacancy on the board of
directors, including a vacancy resulting from an increase in the number of
directors then the shareholders may fill the vacancy at the next annual meeting
or at a special meeting called for the purpose, or the board of directors may
fill such vacancy.
Board
Composition
Our board
of directors currently consists of five directors, Stavros Ch. Mesazos,
Dimitrios K. Vassilikos, Joseph B. Clancy, Rizos P. Krikis and Kostas
Moschopoulos.
We have
determined that each of Messrs. Clancy and Moschopoulos is an independent
director within the meaning of the applicable rules of the SEC and NASDAQ, and
that each of Messrs. Clancy and Moschopoulos is also an independent director
under Rule 10A-3 of the Securities Exchange Act of 1934, as amended, for the
purpose of audit committee membership. In addition, our board of
directors has determined that Mr. Krikis is a financial expert within
the meaning of the applicable rules of the SEC and NASDAQ.
44
Board
Committees
Prior to
the consummation of the Offering, we will establish the following committees of
our board of directors:
Audit Committee. The Audit
Committee of our board of directors will consist of Messrs. Clancy, Krikis and
Moschopoulos. Mr. Krikis will serve as the chairman of the Audit
Committee. The Audit Committee will operate pursuant to a charter that will be
approved by our board of directors. The Audit Committee will review our internal
accounting and financial controls and the accounting principles and auditing
practices and procedures to be employed in preparation and review of our
financial statements. The Audit Committee also will supervise the engagement of
independent public auditors and the scope of the audit to be undertaken by such
auditors. The Audit Committee also will review and, as it deems appropriate,
recommend to the board of directors corporate governance policies.
Compensation
Committee. The Compensation Committee of our board of
directors will consist of Dimitrios K. Vassilikos, Stavros Ch. Mesazos and
Joseph B. Clancy. Joseph B. Clancy will serve as the chairman of the
Compensation Committee. The Compensation Committee will operate
pursuant to a charter that will be approved by our board of
directors. The Compensation Committee will review and, as it deems
appropriate, recommend to the board of directors policies, practices and
procedures relating to the compensation of the officers and other managerial
employees and the establishment and administration of employee benefit
plans. The Compensation Committee will exercise all authority under
our employee equity incentive plans and advise and consult with our officers as
may be requested regarding managerial personnel policies.
Nomination
of Directors
Our board
of directors does not have and does not currently intend to establish a
Nominating Committee. Pursuant to the rules of the Nasdaq Global Market, our
board of directors will delegate to its independent members the authority to
select qualified nominees for election or appointment to our board of directors.
The vote of a majority of the independent directors of our board of directors
will be required to select a nominee.
Stock
Option Plans
We intend
to implement a stock option plan for our executives within the next 12
months.
Corporate
Governance
We have
adopted a code of business conduct and ethics that applies to all of our
employees, officers and directors, including those officers responsible for
financial reporting. Our code of business conduct and ethics is
available on our website at www.hellenicsolutions.com. We
intend to disclose any amendments to the code, or any waivers of its
requirements, on our website.
EXECUTIVE
COMPENSATION
We paid
our Chief Financial Officer, Mr. Rizos Krikis, $4,260 in consulting fees for the
year ended December 31, 2009. We did not pay any of our other
executive officers or directors any compensation for the year ended December 31,
2009. We did not pay any of our executive officers compensation for
the fiscal year ended December 31, 2008.
Neither
our Director, Executive Chairman and Chief Operating Officer, Stavros Ch.
Mesazos, nor our Director and Chief Executive Officer, Dimitrios K. Vassilikos,
have received any compensation from us to date. All compensation, in
accordance with the employment agreements between each of Mr. Mesazos and Mr.
Vassilikos and us, has been accrued until the Offering is
completed.
As of
October 15, 2010, the accrued amounts are €167,000 (or $233,800) for Mr. Mesazos
and €150,000 ($210,000) for Mr. Vassilikos.
Ms.
Douskali receives a monthly salary of €3,500 ($4,900) plus
expenses.
45
Employment
Agreements
We have
entered into employment agreements with each of Mr. Mesazos and Mr.
Vassilikos. These agreements provide their amount of salary,
establish standard health benefits, and establish their eligibility to receive
bonuses and stock options. Each agreement has an initial term of five
years, and will be renewed for successive two year terms thereafter unless
terminated by either party upon at least 90 days notice prior to the expiration
of such current time period. We are also entitled to terminate each
of these employment agreement upon the occurrence of certain events, including
such employee’s death, permanent disability, breach or default of such
employee’s representations, warranties, obligations or covenants contained in
such agreement, or upon the finding or conviction of such employee of any civil
and/or criminal charge involving embezzlement, fraud, misappropriation of funds
or moral turpitude. Additionally, we are entitled to terminate such
agreements upon the occurrence of certain change of control
transactions. Each employee is permitted to terminate his respective
employment agreement 30 days following our receipt of notice of our breach of
such agreement, provided such breach has not been cured. In the event
we terminate such employee’s employment in connection with a change in control
transaction, or the agreement is terminated by the employee in connection with
our uncured breach of such agreement, employee will be entitled to receive a
severance payment equal to six months of such employee’s then base salary (which
severance amount may be offset by any amounts such employee receives during the
six month period from other consulting jobs and/or other
employment).
Each of
Mr. Mesazos and Mr. Vassilikos also agree that during the term of such
employment agreements, and for a period of 36 months after the expiration or
termination thereof, they will not directly or indirectly own an interest in or
perform services for any business that is in competition with our company,
subject to certain limited exceptions. Similarly, during the term of
such employment agreements, and for a period of 30 months thereafter, each of
Mr. Mesazos and Mr. Vassilikos agree that he will not directly or indirectly
solicit the business of any client of the company, or induce or attempt to
induce any company employee, agent, consultant, client or supplier to breach any
contract with the company to which such person is a party.
Mr.
Vassilikos’ agreement provides for a base salary of €225,000 (or $315,000) per
year, commencing in February 2010, and the receipt of 300,000 options vesting
over three years with a strike price of $1.50 upon establishment of the
company’s stock option plan. Mr. Mesazos’ agreement provides for a
base salary of €250,000 (or $350,000), commencing in February, 2010, per year
and the receipt of 250,000 options vesting over three years with a strike price
of $1.50 upon establishment of the company’s stock option plan. Both
agreements expire February 17, 2015. All compensation, in accordance
with the employment agreements between each of Mr. Mesazos and Mr. Vassilikos
and us, has been accrued until the Offering is completed.
The
foregoing description of the employment agreements with each of Mr. Vassilikos’
and Mr. Mesazos’ does not purport to be complete and is qualified in its
entirety by reference to the complete text of the agreements, which are filed as
Exhibit 10.1 and Exhibit 10.2, respectively, to our Post Effective
Amendment No. 1 to Form S-1 filed on July 1, 2010 and incorporated herein by
reference.
Grants
of Plan Based Awards
There
have been no awards made to any of our executive officers.
Compensation
of Directors
We have
not paid our directors compensation for serving on our board of
directors. Our board of directors may in the future decide to award
the members of the board of directors cash or stock based consideration for
their services to us, which awards, if granted shall be in the sole
determination of the board of directors.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We
acquired Aegean Earth S.A. pursuant to an Acquisition Agreement dated as of
February 29, 2008 by and among us, Aegean Earth S.A., Joseph B. Clancy and
Konstantinos Polites for 92,559 of our ordinary shares. We valued the
transaction at approximately $50,000 based on the latest third party transaction
involving a purchase of our ordinary shares. At the time of the
acquisition, Mr. Clancy was a controlling shareholder and a Manager of Aegean
Earth S.A. and pursuant to the terms of the acquisition agreement, Mr. Clancy
received 46,280 ordinary shares in exchange for his capital stock of Aegean
Earth S.A. In April 2008, Mr. Clancy transferred 15,427 ordinary
shares to PrimeLife Holdings, Ltd. Mr. Clancy is one of our directors
and he is also the Manager of Aegean Earth S.A. Based on the prior
transaction described above, the dollar value received for the transaction was
approximately $50,000, and the dollar value received by Mr. Clancy was
approximately $25,000.
In
December 2007, we made two loans to Aegean Earth S.A. evidenced by two
promissory notes in the aggregate principal amount of $85,025. These
notes bear interest at the rate of 6% per year and are payable on
demand. These notes were written primarily to provide working capital
to Aegean Earth S.A. prior to our acquisition of Aegean Earth
S.A. Mr. Clancy was a controlling shareholder and a Manager of Aegean
Earth S.A. and one of our directors at the time the loans were
made.
46
On
February 9, 2010, we issued 300,000 shares to Dimitrios Vassilikos, our current
Chief Executive Officer and 100,000 shares to Joseph B. Clancy in connection
with consulting services.
In May
and November 2007, AAF made loans to us evidenced by promissory notes in the
aggregate principal amount of $300,000. We used the loans to provide
working capital to Aegean Earth S.A. prior to our acquisition of Aegean Earth
S.A. The notes accrued interest at the rate of 6% per annum, were
payable on demand, and were convertible at any time and from time to time by the
holder into an aggregate of approximately 462,792 ordinary shares. On
April 21, 2008, AAF converted the notes into 462,792 of our ordinary
shares. As a result of the conversion, as of April 21, 2008, the
remaining outstanding principal balance of the loans was $0. Access
America Investments LLC, or AAI, is the general manager of AAF. Mr.
Frank DeLape, our former Executive Chairman and a former director is the
Chairman of AAI and was a beneficial owner of 33.3% of AAI. Mr.
Joseph Rozelle, who was our Chief Financial Officer and a director at the time
the loans were made is the Chief Financial Officer of AAI.
In
November 2007, we reimbursed AAI for $84,980 in due diligence related expenses
that were incurred by AAI on behalf of us relating to our acquisition of Aegean
Earth, S.A.
In
February, 2010, prior to our acquisition of Temhka S.A., AAF converted 175,001
Series A Preference Shares into 194,374 ordinary shares. In addition,
we redeemed 450,000 Series A Preference Shares held by AAF for cash in the
amount of $1,350,000.
Following
our acquisition of Temhka S.A., we sold to AAF in a private offering 1,901,633
ordinary shares and 5-year warrants to purchase up to 1,901,633 ordinary shares
at an exercise price of $3.00 per ordinary share for aggregate gross proceeds of
$2.85 million.
We were
founded in March 2006 by Nautilus Global Partners, LLC and Mid-Ocean Consulting
Limited. Frank DeLape, our former Executive Chairman and a former
director, is the owner, Chairman and CEO of Benchmark Equity Group, which owns
20% of the equity interests of Nautilus Global Partners and Mr. DeLape controls
other entities that collectively own an additional 20% of the equity interests
of Nautilus Global Partners. Accordingly, based on his ownership and
management position with Benchmark Equity Group, Mr. DeLape may also be deemed
to be one of our founders. In January 2009, we entered into a
consulting agreement with Nautilus Global Partners to provide general consulting
services to us. As of December 31, 2009, we paid $120,000 in consulting fees to
Nautilus Global Partners related to this agreement. Our consulting
agreement with Nautilus Global Partners was terminated on February 10,
2010. In order to provide us with funds for our formation costs, in
April 2006, we issued 289,246 ordinary shares to Nautilus Global Partners and
14,463 ordinary shares to Mid-Ocean Consulting Limited, for aggregate
consideration of $1,050 at a purchase price of $.0054 per share. At
the time we received such funding, Joseph Rozelle, the President of Nautilus
Global Partners was one of our directors. Nautilus Global Partners is
also one of the founders of the following shell companies, each incorporated
under the laws of the Cayman Islands. Each of the foregoing entities
was formed for the purpose of engaging in an acquisition or business combination
of an operating business.
·
|
Emerald
Acquisition Corporation
|
·
|
Dragon
Acquisition Corporation
|
·
|
Ruby
Growth Corporation
|
·
|
Global
Growth Corporation
|
·
|
China
Growth Corporation
|
·
|
Lunar
Growth Corporation
|
·
|
Action
Acquisition Corporation
|
·
|
Pan
Asian Corporation
|
·
|
Juniper
Growth Corporation
|
·
|
Seven
Seas Acquisition Corporation
|
·
|
Summit
Growth Corporation
|
·
|
Bering
Growth Corporation
|
·
|
Compass Acquisition
Corporation
|
Legal
Proceedings
From time
to time we may become party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of business. We are not
currently involved in legal proceedings that we believe could reasonably be
expected to have a material adverse effect on our business, prospects, financial
condition or results of operations.
47
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND
RELATED SHAREHOLDER MATTERS
Market
Information
Our
ordinary shares are quoted on the OTCBB, under the symbol
“AEGZF.OB.” We have applied for listing of our ordinary shares on the
NASDAQ Global Market and, if approved, our ordinary shares will trade under the
symbol HESC. Since our ordinary shares began being quoted on the
OTCBB, there has been virtually no trading in our ordinary shares and there is
no readily available information about the market price of our ordinary shares
since our quotation began. The last reported market price of our
ordinary shares was $4.00 per share on October 25, 2010. As of
December 7, 2010, there 21,133,481 ordinary shares outstanding. On
that date, our ordinary shares were held by
approximately 520 shareholders of record. The number of
record holders was determined from the records of our transfer agent and does
not include beneficial owners of our ordinary shares whose shares are held in
the names of various security brokers, dealers, and registered clearing
agencies.
Dividend
Policy
We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends on our ordinary shares for the foreseeable future. Investors
seeking cash dividends in the immediate future should not purchase our ordinary
shares.
Future
cash dividends, if any, will be at the discretion of our board of directors and
will depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors
as our board of directors may deem relevant. We can pay dividends only out of
our profits or other distributable reserves and dividends or distribution will
only be paid or made if we are able to pay our debts as they fall due in the
ordinary course of business.
Payment
of future dividends, if any, will be at the discretion of the board of directors
after taking into account various factors, including current financial
condition, operating results, current and anticipated cash needs and regulations
governing dividend distributions by Cayman Islands corporations.
Stock
Option Plans
We intend
to implement a stock option plan for our executives and key employees within the
next twelve months.
RECENT
SALES OF UNREGISTERED SECURITIES
2010
In
connection with our acquisition of Temhka S.A. in February 2010, or the Temhka
Acquisition, we issued 1,623,333 Series B Preference Shares to the Temhka S.A.
shareholders in exchange for their Temhka S.A. capital stock. The
Series B Preference Shares issued in the Temhka Acquisition were issued pursuant
to the exemption from registration provided under Section 4(2) of the Securities
Act and Rule 506 promulgated thereunder. We made this determination
based on the representations of the persons obtaining such securities which
included, in pertinent part, that such persons were “accredited investors” within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act,
and that such persons were acquiring such securities for investment purposes for
their own respective accounts and not as nominees or agents, and not with a view
to the resale or distribution, and that each such persons understood such
securities may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom.
Simultaneous
with the closing of the Temhka Acquisition, in February 2010, we sold in a
private offering, or the February 2010 Offering, to AAF 1,666,667 ordinary
shares and warrants to purchase up to an additional 1,666,667 ordinary shares
for an aggregate purchase price of $2.5 million. Each warrant is
exercisable for five (5) years at a price of $3.00 per ordinary
share. The ordinary shares and warrants sold in the February 2010
Offering were issued pursuant to the exemption from registration provided under
Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder. We made this determination based on the representations
of the persons obtaining such securities which included, in pertinent part, that
such persons were “accredited
investors” within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to the resale or distribution, and that each such
persons understood such securities may not be sold or otherwise disposed of
without registration under the Securities Act or an applicable exemption
therefrom. No underwriting discounts or commissions were paid with
respect to the February 2010 Offering.
48
In March
2010, we sold in a private offering, or the March 2010 Offering, 1,333,334
ordinary shares and warrants to purchase up to an additional 1,333,334 ordinary
shares to accredited investors for an aggregate purchase price of $2.0
million. Each warrant is exercisable for five (5) years at a price of
$3.00 per ordinary share. The ordinary shares and warrants sold in
the March 2010 Offering were issued pursuant to the exemption from registration
provided under Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder. We made this determination based on the representations
of the persons obtaining such securities which included, in pertinent part, that
such persons were “accredited
investors” within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to the resale or distribution, and that each such
persons understood such securities may not be sold or otherwise disposed of
without registration under the Securities Act or an applicable exemption
therefrom. No underwriting discounts or commissions were paid with
respect to the March 2010 Offering.
2008
On July
11, 2008, we sold in a private offering 50,000 (9,256 after adjusting for all
splits and combinations) ordinary shares and 50,000 Series A Preference Shares
to AAF, the owner of approximately 71% of our outstanding ordinary shares, for
aggregate gross proceeds of approximately $150,000. The ordinary
shares and Series A Preference Shares were issued pursuant to the exemption from
registration provided under Section 4(2) of the Securities Act and Rule 506
promulgated thereunder. We made this determination based on the
representations of AAF which included, in pertinent part, that it was an “accredited investor” within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act,
and that it was acquiring such securities for investment purposes for its own
account and not as nominee or agent, and not with a view to the resale or
distribution, and that AAF understood such securities may not be sold or
otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom. No underwriting discounts or
commissions were paid with respect to the sale of the ordinary and Series A
Preference Shares.
In
connection with our acquisition of Aegean Earth S.A., in February 2008, or the
February 2008 Acquisition, we issued 500,000 (92,559 after adjusting for all
splits and combinations) ordinary shares to the Aegean Earth S.A. Shareholders
in exchange for their Aegean Earth S.A. capital stock. The ordinary
shares issued in the February 2008 Acquisition were issued pursuant to the
exemption from registration provided under Section 4(2) of the Securities Act
and Rule 506 promulgated thereunder. We made this determination based
on the representations of the persons obtaining such securities which included,
in pertinent part, that such persons were “accredited investors” within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act,
and that such persons were acquiring such securities for investment purposes for
their own respective accounts and not as nominees or agents, and not with a view
to the resale or distribution, and that each such persons understood such
securities may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom.
Simultaneous
with the closing of the February 2008 Acquisition, in February 2008, we sold in
a private offering, or the February 2008 Offering, three thousand eight hundred
and sixty five (3,865) Units at a purchase price of $1,500 per Unit for
aggregate gross proceeds of approximately $5,797,500. Each Unit
consisted of 500 (93 after adjusting for all splits and combinations) ordinary
shares and 500 Series A Preference Shares (an aggregate of 1,932,500 Series A
Preference Shares and 1,932,500 ordinary shares). In April 2008, we
sold in the February 2008 Offering an additional 183 Units (an aggregate of
91,667 Series A Preference Shares and 91,667 (16,970 after adjusting for all
splits and combinations) ordinary shares). The Series A Preference
Shares and ordinary shares sold in the February 2008 Offering were issued
pursuant to the exemption from registration provided under Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder. We made this
determination based on the representations of the persons obtaining such
securities which included, in pertinent part, that such persons were “accredited investors” within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act,
and that such persons were acquiring such securities for investment purposes for
their own respective accounts and not as nominees or agents, and not with a view
to the resale or distribution, and that each such persons understood such
securities may not be sold or otherwise disposed of without registration under
the Securities Act or an applicable exemption therefrom. No
underwriting discounts or commissions were paid with respect to the February
Offering.
49
DESCRIPTION
OF CAPITAL STOCK
Overview
We are
authorized to issue 100,000,000 ordinary shares, $0.00345728 par value per
share, and 20,000,000 preference shares, $0.00064 par value per share, or the
Preference Shares. We have designated 5,000,000 shares of our
Preference Shares as Series A Preference Shares and 2,000,000 shares of our
Preference Shares as Series B Preference shares. On January 8, 2008, we divided
and increased our authorized ordinary share capital from 50,000,000 ordinary
shares of $0.001 par value each to 78,125,000 ordinary shares of $0.00064 par
value each by the division (split) of 50,000,000 ordinary shares of $0.001 par
value each into 78,125,000 ordinary shares of $0.00064 par value
each. On March, 27, 2006, we divided our authorized ordinary share
capital from 5,000,000 ordinary shares of $0.01 par value each to 50,000,000
ordinary shares of $0.001 by the division (split) of 5,000,000 ordinary shares
of $0.01 par value each into 50,000,000 ordinary shares of $0.001.
On
January 8, 2008, we also divided and increased our authorized preference share
capital from 1,000,000 Preference Shares of $0.001 par value each to 20,000,000
Preference Shares of $0.00064 par value by the
division of 1,000,000 Preference Shares of $0.001 par value each into 1,562,500
Preference Shares of $0.00064 par value each, and the authorization of an
additional 18,437,500 Preference Shares with a
par value of $0.00064 each. As a result of the split, our outstanding
ordinary shares increased from 1,281,500 ordinary shares immediately prior to
the share split to 2,002,691 ordinary shares immediately after the share
split. We did not have any Preference Shares outstanding at the time
of the share split.
On May
14, 2010, we decreased our issued and outstanding shares by consolidating each
5.402 of our outstanding ordinary shares, par value $0.00064 per share into 1
ordinary share, par value $0.00345728 per share, resulting in 4,900,131 ordinary
shares being issued and outstanding prior to the conversion of the Series B
Preference shares. On May 14, 2010 we also increased the number of
authorized ordinary shares to 100,000,000 ordinary shares, par value $0.00345728
per share.
As of
December 7, 2010, we had 21,133,481 ordinary shares, and no Preference Shares
outstanding.
Ordinary
Shares
Holders
of our ordinary shares are entitled to one (1) vote for each ordinary share held
at all meetings of shareholders (and written actions in lieu of
meetings). Dividends may be declared and paid on our ordinary shares
from funds lawfully available therefore as, if and when determined by our board
of directors and subject to any preferential rights of any then outstanding
Preference Shares. We currently do not intend to pay cash dividends
on our ordinary shares. Upon our voluntary or involuntary
liquidation, sale, merger, consolidation, dissolution or winding up, holders of
ordinary shares will be entitled to receive all of our assets available for
distribution to shareholders, subject to any preferential rights of any then
outstanding Preference Shares. Our ordinary shares are not
redeemable.
Preference
Shares
Our board
of directors is authorized to issue from time to time, subject to any limitation
prescribed by law, without further shareholder approval, up to 20 million
preference shares in one or more series. Preference shares will have
such designations, preferences, voting powers, qualifications and special or
relative rights or privileges as determined by our board of directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights. We have designated five (5) million of our preference shares
as Series A Preference Shares and two (2) million of our Shares as Series B
Preference Shares. No preference shares are outstanding.
Warrants
In
connection with the private placements of our ordinary shares in February 2010
and March 2010 we issued warrants to purchase 3,000,001 shares of our ordinary
shares. Each warrant is exercisable for five (5) years at a price of
$3.00 per ordinary share.
Registration
Rights
In
connection with the private placement of our ordinary shares in February 2010,
we entered into a Registration Rights Agreement with our investors, pursuant to
which we agreed that within 60 calendar days of February 10, 2010, we would use
our best efforts to file a registration statement with the SEC, on the
appropriate form, covering the resale of the (1) the ordinary shares purchased
by the investors, including ordinary shares underlying the warrants acquired by
AAF, (2) the ordinary shares underlying the Series B Preference Shares held in
Escrow pursuant to the Make Good Agreement entered into in connection with our
acquisition of Temhka S.A., and (3) any and all ordinary shares issued in
respect of the foregoing as a result of stock splits, stock dividends,
reclassifications, consolidation, recapitalizations, or other similar
events.
We agreed
to use our best efforts to (a) cause the registration statement to be declared
effective within one hundred twenty days from the filing date, or, if not
reviewed by the SEC, within three business days after the date on which the SEC
informs us that the SEC will not review the registration statement, and (b) keep
the registration statement continuously effective until such date as is the
earlier of (i) the date when all the ordinary shares covered by such
registration statement have been sold or (ii) the date on which the ordinary
shares may be sold without any restriction pursuant to Rule
144.
50
In
connection with our private offering of units of Series A Preference Shares and
ordinary shares, we granted to the purchasers thereof “piggy-back” registration
rights. As long as no less than 30% of the ordinary shares included
in the units remain issued and outstanding, and provided that such ordinary
shares have not previously been registered for re-sale or are eligible for sale
pursuant to Rule 144, the holders of such ordinary shares have the right to have
such ordinary shares included in a registration statement that we file under the
Securities Act.
We expect
to file a registration statement as required by the Registration Rights
Agreement shortly following the commencement of the Offering.
LIMITATION
OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Cayman
Islands law does not limit the extent to which a company’s Articles of
Association may provide for indemnification of officers and directors, except to
the extent any such provision may be held by the Cayman Islands courts to be
contrary to public policy, such as to provide indemnification against civil
fraud or the consequences or committing a crime. Our Articles of
Association provide for indemnification of officers and directors for actions,
proceedings, costs, charges, expenses, losses, damages, and liabilities incurred
or sustained in their capacities as such.
Insofar
as indemnification for liabilities arising under the Securities Act 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 SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
FINANCIAL
STATEMENTS
Reference
is made to the disclosure set forth under Item 9.01 below, which is incorporated
herein by reference.
ITEM
5.02
|
DEPARTURE
OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF
PRINCIPAL OFFICERS.
|
Reference
is made to the disclosure set forth under Item 5.01 of this Current Report on
Form 8-K/A, which is incorporated herein by reference. For certain
biographical, compensation and other information regarding the newly appointed
officers and directors, see the disclosure under the headings “Management” and
“Executive Compensation” under Item 5.01 of this Current Report on
Form 8-K/A.
To the
best of our knowledge, except as set forth in the disclosure set forth under
Item 5.01, the incoming directors are not currently directors, do not hold any
position with us and have not been involved in any transactions with us or any
of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC. To the best of our knowledge, the designees have not been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, have not been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement.
5.06
|
CHANGE
IN SHELL COMPANY STATUS
|
As
described in Item 1.01 of this Current Report on Form 8-K/A, on February 9,
2010, we entered into an Acquisition Agreement with Temhka S.A. and the
shareholders of Temhka S.A., pursuant to which we acquired all the issued and
outstanding capital stock of Temhka S.A. from Temhka S.A.’s shareholders solely
in exchange for 1,623,333 of our Series B Preference Shares. As a
result of the consummation of our acquisition of Temhka S.A., we are no longer a
shell company as that term is defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended.
8.01
|
OTHER
EVENTS
|
Consolidation
of the Ordinary Shares
On May
14, 2010 we effected a consolidation of our ordinary shares, with a par value
$0.00064 per share, at the rate of each 5.402 ordinary shares into 1 ordinary
share.
51
The
Amendment of the Charter Documents
On May
14, 2010, shareholder resolutions were passed to amend our charter documents to
increase our authorized ordinary share capital from 78,125,000 ordinary shares
(with a par value per share of $0.00064) to 100,000,000 ordinary shares (with a
par value of $0.00345728 per share) through the consolidation of the 78,125,000
ordinary shares outstanding on May 14, 2010 into 14,462,237 ordinary shares, and
the creation of an additional 85,537,763 ordinary shares. This
resulted in every shareholder as of May 14, 2010 receiving 1,000 ordinary shares
for every five 5,402 ordinary shares previously held.
Redemption
of AAF Series A Preference Shares
Immediately
prior to the consummation of our acquisition of Temhka S.A., we determined to
redeem for cash 450,000 of the Series A Preference Shares then held by AAF, as
permitted by the Certificate of Designation of the A Shares. This
redemption is referred to herein as the Redemption.
Conversion
of AAF Series A Preference Shares
Immediately
prior to the consummation our acquisition of Temhka S.A., AAF requested that we
permit it to convert 175,001 of its Series A Preference Shares into 1,050,000
ordinary shares. We agreed to AAF’s request, and in consideration for
the surrender to us of all of AAF’s rights, title and interest in and to such
175,001 Series A Preference Shares, issued to AAF 1,050,000 ordinary
shares. This conversion is referred to herein as the AAF
Conversion. As a result of the Consolidation, these 1,050,000
ordinary shares were consolidated into approximately 194,446 ordinary
shares.
Cancellation
of AAF Series A Preference Shares
Immediately
prior to the consummation of our acquisition of Temhka S.A., we requested that
AAF agree to the cancellation of its remaining 350,000 Series A Preference
Shares held thereby. AAF agreed to our request and surrendered for
cancellation all of its rights, title and interest in and to such 350,000 Series
A Preference Shares. The cancellation of AAF’s Series A Preference
Shares is referred to herein as the Cancellation, and the Redemption, the AAF
Conversion and the Cancellation are referred to herein collectively as the AAF
Transactions.
After
giving effect to the February 2010 Offering, the March 2010 Offering, the
Consolidation and the Conversion, as well as the AAF Transactions described
immediately above, the number of our issued and outstanding ordinary shares was
21,133,481 as of September 30, 2010, consisting of: (i) the 16,233,330 ordinary
shares held by the Sellers; (ii) the 1,900,150 of our ordinary shares held by
persons who were our shareholders prior to our acquisition of Temhka S.A., and
(iii) the 3,000,001 ordinary shares issued pursuant to the Purchase
Agreement. The foregoing excludes warrants to purchase ordinary
shares issued pursuant to the Purchase Agreement.
ITEM
9.01
|
FINANCIAL
STATEMENTS AND EXHIBITS
|
(a)
|
Financial statements
of business acquired.
|
Audited
Financial Statements of Stavros Mesazos Group of Companies, predecessor to
Temhka S.A., as of and for the fiscal years ended December 31, 2009 and 2008,
and related notes thereto, which are incorporated by reference to the Form S-1
(SEC File NO. 333-170532) filed on November 10, 2010.
(b)
|
Exhibits.
|
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report on Form 8-K/A.
52
Exhibit Number
|
Exhibit Description
|
|
2.1
|
Form
of Acquisition Agreement by and among the Registrant, Temhka, S.A. and the
other signatories thereto (incorporated by reference to Exhibit 2.1 to our
Form 8-K (SEC File No. 000-52136) filed on February 17,
2010)
|
|
4.1
|
Form
of Make Good Escrow Agreement by and among the Registrant, Sellers and the
Purchaser (incorporated by reference to Exhibit 4.1 to our Form 8-K (SEC
File No. 000-52136) filed on February 17, 2010)
|
|
4.2
|
Form
of Voting Agreement by and among by and among the Registrant and the
Sellers (incorporated by reference to Exhibit 4.2 to our Form 8-K (SEC
File No. 000-52136) filed on February 17, 2010)
|
|
4.3
|
Form
of Securities Purchase Agreement by and among the Registrant and the
Purchaser (incorporated by reference to Exhibit 4.3 to our Form 8-K (SEC
File No. 000-52136) filed on February 17, 2010)
|
|
4.4
|
Form
of Registration Rights Agreement by and among the Registrant and the
Purchaser (incorporated by reference to Exhibit 4.4 to our Form 8-K (SEC
File No. 000-52136) filed on February 17, 2010)
|
|
4.5
|
Form
of Warrant issued to the Purchaser (incorporated by reference to Exhibit
4.6 to Post Effective Amendment No. 1 to Form S-1 (SEC File No.
333-150389) filed on July 1, 2010)
|
|
10.1
|
Employment
agreement between Company and Stavros Mesazos (incorporated by reference
to Exhibit 10.1 to Post Effective Amendment No. 1 to Form S-1 (SEC File
No. 333-150389) filed on July 1, 2010)
|
|
10.2
|
Employment
agreement between Company and Dimitrios Vassilikos (incorporated by
reference to Exhibit 10.2 to Post Effective Amendment No. 1 to Form S-1
(SEC File No. 333-150389) filed on July 1, 2010)
|
|
10.3
|
Consulting
Agreement between Company and Nautilus Global Partners, LLC dated January
1, 2009
|
|
21.1
|
Subsidiaries
of the Registrant (incorporated by reference to Exhibit 21.1 to Form S-1
(SEC File No. 333-170532) filed on November 10, 2010)
|
|
23.1
|
Consent
of Friedman, LLP
|
|
23.2
|
Consent
of Bagell, Josephs, Levine & Company, L.L.C.
|
|
99.1
|
|
Audited
Financial Statements of Stavros Mesazos Group of Companies for the fiscal
years ended December 31, 2009 and 2008 (incorporated by reference to Form
S-1 (SEC File No. 333-170532) filed on November 10,
2010)
|
53
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated:
December 7, 2010
HELLENIC
SOLUTIONS CORPORATION
|
|||
By:
|
/s/ Stavros Ch. Mesazos
|
||
Stavros
Ch. Mesazos
|
|||
Chief
Operating Officer, Executive
|
|||
Chairman
of the board of directors
|
|||
(Principal
Executive Officer)
|
54