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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ESSCO (USA), INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-0773383
Delaware 33-0773383
Delaware 33-0773383
Or Other Juri I (State Or Other Jurisdiction Of Incorporation Or
Organization) (I.R.S. Employer Identification No.)
18500 Von Karman, Suite 560, Irvine, California 92612
18500 Von Karman, Suite 560, Irvine, California 92612
(Address Of Principal Executive Offices) (Zip Code)
18500 Von Karman Avenue, Suite 560, Irvine, California 92612
( 714 ) 477-6288
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(714) 477-6299
(714) 477-6299
(949) 477-6299 Company's Telephone Number, Including Area Code:
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Securities To Be Registered Under 12(b) Of The Act: None.
Title Of Each Class Name Of Each Exchange On Which
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To Be So Registered Each Class Is To Be Registered
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____________________________ ____________________________
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____________________________ ____________________________
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Securities To Be Registered Pursuant To Section 12(g) Of The Act:
Common Stock, $.001 par value
Common Stock, $.001 par value
(Title of Class):
TABLE OF CONTENTS
Item 1. Business. 4
OPERATING ENVIRONMENT 6
TRANSACTION BACKGROUND 7
PRICE RANGE OF GRAIN COMMODITIES 8
CORPORATE STRUCTURE 8
EMPLOYEES 8
Item 2. Financial Information. 10
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 10
RESULTS OF OPERATIONS 10
PLAN OF OPERATION 13
Item 3. Properties. 15
Item 4. Security Ownership of Certain Beneficial Owners and Management.
17
Item 5. Directors and Executive Officers. 19
Summary Compensation Table 20
Item 7. Certain Relationships and Related
Transactions. 21
Item 8. Legal Proceedings. 21
Item 9. Market Price of and Dividends of Essco (USA), Inc.'s Common Equity and
Related Stockholder Matters. 22
Item 11. Description of Registrant's Securities
to be Registered. 23
Common Stock 23
Penny Stock Regulations - Restrictions on
Marketability 23
Item 12. Indemnification of Directors
and Officers. 23
Item 15. Financial Statements and Exhibits. 24
Information Systems for the Year 2000 24
Certain statement contained in this Form 10 Report are forward-looking
statements, including statement with respect to the Company's budgeted or
anticipated expenses. "Forward-looking statements" can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate," "continue," "present value," "future," or "reserves,"
or other variations thereof or comparable terminology. All of these statements
involve assumptions of future events which may not prove to be accurate and
risks and uncertainties. For these and other reasons, actual results may differ
materially from those projected or implied
ITEM 1. BUSINESS
Essco (USA), Inc. (the "Registrant") was incorporated in the State
of Delaware on September 23, 1997 for the purpose of acquiring the existing
businesses of MIDLAND AGRICULTURAL , and the bulk freight business
of MIDLAND STEAMSHIPPING M. CO from Mr. Christos
Traios . Mr. Traios, a Greek citizen, had purchased certain
maritime assets from the NATTEM Companies in 1993, and subsequently
formed Midland Steamshipping . On October 9, 1997, Essco (USA), Inc.
acquired 100% of the issued and outstanding shares of MIDLAND, Agricultural S.A.
and 49% of the issued and outstanding shares of MIDLAND STEAMSHIPPING M. CO.
MIDLAND, Agricultural S.A. ("Midland Agricultural") was
incorporated under the laws of the Republic of Panama on November 17, 1995.
Midland Agricultural is based in Piraeus, Greece and derives its revenues from
the trading of agricultural commodities grown in the Former Soviet Union and
transported and sold to food manufacturers in various Mediterranean countries.
Typically, Midland Agricultural, enters into agreements with various farming
entities within Southern Russia, wherein Midland Agricultural will purchase set
volumes of various grain commodities at a set price. Midland Agricultural,
then enters into delivery agreements with food mills, food processors, or
industrial consumers to sell the same grain commodity to be delivered at a
future date. By coordinating the transportation and delivery of these grain
commodities, Midland Agricultural is able to recognize its operating profit.
The agricultural commodities traded include wheat, wheat-flour, corn,
barley, sunflower seeds, beans, millets, citrus, and livestock feed. Midland
Agricultural also trades other commodities from time to time, such as
urea/fertilizer, cement, coal, steel, and timber.
MIDLAND STEAMSHIPPING M. CO. ("Midland Shipping") was incorporated
according to Greek Maritime law on September 17, 1996. Midland Shipping is
based in Piraeus, Greece and derives its revenues from t he operation of
certain maritime assets, including one bulk carrier vessel of 3,500 mans
DWG named "Victoria". Effective January 5, 1998, the Victoria was
re-registered and ownership was transferred to a newly formed subsidiary, Essco
Pioneer, Sa., Panama. As part of this exchange of assets, Essco (USA), Inc.
received 100% ownership of the Essco Pioneer (formerly Victoria) in exchange for
its 49% ownership in Midland Shipping.
MIDLAND STEAMSHIPPING M. CO. currently derives 60% of its revenues
through the transport of grain commodities being handled by Midland
Agricultural.
Following the acquisition of Midland Agricultural and the
acquisition of the Essco Pioneer, Essco (USA), Inc.'s plan of operation for
fiscal 1998 includes the following: (1) Essco (USA), Inc. intends to acquire
additional bulk carrier vessels for the purpose of covering the demand for
transportation of commodities and (2) increase its agricultural commodity
trading activities in the Former Soviet Union and Mediterranean markets.
Essco (USA), Inc. plans to acquire two river-sea going vessels
with about 3,000 metric tons cargo capacity and one bulk/general vessel of
22,000 metric tons cargo capacity. In order to increase its agricultural
commodity trading activities, Essco (USA), Inc. plans to continue to
enter agreements with farmers in the Former Soviet Union for the future
delivery of agricultural commodities at fixed quantities and prices. Essco
(USA), Inc. does not anticipate the need for material changes in the number of
its employees in the next twelve months.
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Midland Agricultural and Midland Steamshipping were both companies owned
and formed by Mr. Christos Traios. Mr. Traios has extensive experience in
the operation and management of shipping companies and vessels, as well as
agricultural commodity trading. Starting in 1986, Mr. Traios formed NATTEM,
S.A., a shipping, aviation, harbor construction and trading company which over
the following years grew to own 18 cargo vessels, manage d 28 dry
bulk cargo vessels , and engaged in various other business
activities. In March of 1993, a vessel owned and operated by NATTEM companies
exploded. As a result, the NATTEM companies were forced to sell the bulk of
their assets to meet the financial obligations that resulted. As part of these
sales, the cargo vessel Victoria, and certain hydrofoils were sold to Mr.
Christos Traios. There were no further liabilities upon the settlement of those
debts.
In 1995, Mr. Traios created Mill-Agora an agricultural trading company
which subsequently changed its name to Midland Agricultural. Furthermore, Mr.
Traios formed Midland Steamshipping which owned and operated the vessel
"Victoria" along with the hydrofoils owned by Mr. Traios.
OPERATING ENVIRONMENT
The shipping business is an internationally competitive business. The
transport of goods, across open seas is always subject to risks
ranging from weather, to equipment malfunction or human error.
Essco (USA), Inc. intends to build upon its established niche of
providing dry bulk cargo services to the Black Sea Basin where most ocean going
vessels cannot service. As a result, there remains a shortage of cargo capacity
to carry agricultural goods from much of the Black Sea Basin.
Essco (USA), Inc. maintains complete insurance coverage on its vessels
to protect the Company in case of natural disaster equipment failure.
In the case of Midland Agricultural, or Essco Commodities (a newly
formed subsidiary), the agricultural trading business puts forth its own set of
risks. These risk range from political risk, to field rot occurring to grain
products, or lack of transportation infrastructure. Likewise, given that both
Midland Agricultural and Essco Commodities will enter into pre-purchase
agreements with farming entities, it is possible that that these companies could
face risks from fluctuation in commodity prices.
All transactions are conducted and paid for in U.S. dollars thereby
providing minimal currency risk and as a result the Company does not undertake
any hedging strategies.
For the period ending December 31, 1997, Midland Agricultural derived in
excess of 10% of its business from the following customers:
CUSTOMER % OF TONNAGE
PROALIM 28%
Adam Commodities 20%
T.L.D. SRL 17%
It is the opinion of management that the market for agricultural
commodities is so immense in the Mediterranean Basin, that the Company could
easily replace any of its current customers.
TRANSACTION BACKGROUND
Midland Agricultural is the main commodity handling arm of the Company.
In this role Midland Agricultural purchases commodities for delivery, makes
the necessary shipping arrangements, and then manages the process until
the deliveries are made. It is anticipated that as the Company continues to
grow, much of the future business of Midland Agricultural will be handled by
Essco Commodities, Inc. another wholly-owned subsidiary of the Company.
As the Company has grown, the role of handling these commodities has
grown as a natural evolution of the core handling business. For instance, in
Russia collective and individual farmers struggle to plant, harvest and deliver
their goods to market. As a result of these shipping problems, many times the
farmers lack the financial means to plant the next season of crops, thereby
further diminishing their value.
In some cases, Midland Agricultural may entered into a pre-purchase
agreement with certain collective farms, whereby the Company advances a
percentage of the purchase price of the commodities (i.e. 25%) thereby locking
in a purchase price for commodities well below world market prices. In this
instance, the collective farm receives necessary funds to purchase seeds,
fertilizer, etc. and assures the ability to sell these products to the world
market. Midland Agricultural secures the products for shipping at a price that
is discounted from prevailing world markets.
Once Midland Agricultural has secured the purchase rights to the harvest,
it then s e ll s these goods under contract to end
buyers. The Shipping and Handling business benefit s from secured
contracts, the collective farms benefit from the ability to purchase necessary
pre-planting goods, and Midland recognizes a gain on the handling of
commodities.
The following example demonstrates how, in some cases, Midland
Agricultural, may enter into pre-purchase agreements with farmers. Should
Midland Agricultural decide to purchase 30,000 metric tons of barley from the
Spring planting season at a price of $80.00 per M/T , a s
part of this agreement, Midland may advance 25% of the total purchase price of
$2.4 million or $600,000 to the farmer(s). It is anticipated that these goods
would be available in June.
Now that Midland has secured its supply, it begins to market this
barley to mills, brokers, purchasers etc. who want to secure their own supply at
a set price for future delivery. Midland enters an agreement to sell these
30,000 M/T to a purchaser in Italy for $130 per M/T for June, July and August
delivery.
Once the contracts are executed, Midland then contracts with a shipping
company (both company owned vessels and third party vessels) to deliver 30,000
M/T on a series of voyages in June, July and August at a rate of $25 per M/T.
As the harvest is complete, the farmers deliver the barley to the port
of Taganrog. At the same time, the cargo vessel pulls up to mooring for loading
of 3,000 M/T of barley. After the loading process of 4 to 5 days, Midland
Agricultural must pay the remaining 75% for that 3,000 M/T of barley or
$180,000. The Essco Pioneer then travels for 6 days to Italy and delivers the
barley to the purchaser. With delivery, the purchaser pays to Midland
Agricultural $390,000 (3,000 M/T @ $130). The cargo vessel(s) return to
Taganrog for another load.
In this scenario, Midland is purchasing barley at $80.00 per M/T,
paying the shipping company $25.00 per M/T, and selling the barley for $130.00
per M/T thus recognizing a gross operating profit of $25.00 per metric ton.
The risks of these transactions remain political risk, the ability to
transport the goods to the end buyer, and negotiating purchase and sales
contracts.
Currently there are three growing seasons for Southern Russia and Ukraine
indicating that this scenario could be repeated three times a year.
Midland Agricultural or Essco Commodities enter into purchase agreements with
farmers, or farming collectives in each growing season to secure grain products
for delivery into the world markets. Typically, Midland Agricultural or Essco
Commodities enters into agreements with specific handling companies within
Southern Russia or Ukraine, for the physical delivery of the grain commodity
thereby avoiding the need to enter into any form of warehousing agreements.
<PAGE>
PRICE RANGE OF GRAIN
COMMODITIES
(Per Metric Ton in $US Dollars)
1997 HIGH LOW
Sunflower- Seeds 295.00 185.00
Feed Barley 152.00 78.00
Feed Wheat 148.00 68.00
Milling Wheat 188.00 186.00
Yellow Corn 88.00 88.00
Soya Beans 194.00 194.00
Sugar Grade A 225.00 225.00
Energy Coal 28.00 26.00
96.00 94.00
CORPORATE STRUCTURE
The Corporate structure of Essco (USA), Inc. will continue to change as
the business of the Company evolves. As of January 15, 1998 the following
corporate structure represents the subsidiaries of the Company :
- - Essco Pioneer s.a., Panama - formed January 5, 1998
- - Midland Agricultural - formed November 17, 1995
- - Essco Commodities, Inc. - formed November 6, 1997
- - Essco (HELLAS), s.a. - formed November 12, 1997
[GRAPHIC OMITED]
It is anticipated that over time, several other subsidiaries will be
created, including Essco Carriers to act as the management company for company
owned vessels and leased vessels. In addition, as the Company expands its
transportation to include possible trucking fleets, etc. this structure will be
adapted. Furthermore, as is traditional in the shipping business, each company
owned vessel will be owned by a separate wholly owned subsidiary.
EMPLOYEES
At this time, Essco (USA), Inc. and its subsidiaries employ 10 full
time employees in its offices in Piraeus, 12 persons in its Taganrog
representative office and 3 people in its offices in the United States. From
time to time the Company will enter into temporary employment agreements with
certain individuals to perform specific functions. In particular, the company
will enter into 6 to 8 month employment contracts with certain individuals to
crew the vessel "Essco Pioneer". Depending upon the number of voyages to be
made in a particular contract period, the Company can employ between 6 and 12
individuals to crew its vessels.
Given that Essco intends to increase its operating fleet, it will enter
into temporary employment contracts with additional individuals to man these
additional vessels.
<PAGE>
Item 2. Financial Information
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements and the related notes thereto attached hereto as pages F-1
through F- 1 3.
Essco (USA), Inc. is a transportation and handling company that
operates predominantly within the Black Sea and Mediterranean Sea area. The
activities of the Company include the carrying of various grain cargo e s
from ports within the Black Sea for delivery to mill and food processors within
the Mediterranean Sea. In addition to the transporting of cargo, the Company
will from time to time enter into management agreements with independent ship
owners to manage their vessels subject to standard operating agreements. Essco
(USA), Inc. also participates in the handling of grain commodities through its
wholly owned subsidiary (ies), Midland Agricultural and Essco
Commodities . These activities include the pre-purchase, transport and
re-selling of specific grain products. Prior to the formation of Midland
Steamshipping, the bulk of agricultural commodities purchased by Midland
Agricultural were transported by various shipping companies servicing the Black
Sea market .
With the rapid changes taking place in Russia, Ukraine, and
Romania, along with a growing demand for grain products in the Mediterranean Sea
Basin, management anticipates that with successful execution of its business
plan, Essco (USA), Inc. could grow significantly over the next several years.
The ability of the Company to expand its cargo fleet, and
commit additional capital for the purchase of grain commodities, and growth in
general , hinges on several factors. In part, difficulties encountered with
the grain harvest(s) around the Black Sea Basin, which can be effected by
climatic conditions and political factors, could potentially disrupt the
Company's core shipping and handling business. In addition, world market prices
for grain commodities do fluctuate based upon, in part, worldwide supply and
demand. Lastly, in order for Essco (USA), Inc. to capture the anticipated
market share of the shipping and handling of grain commodities within the
Black/Mediterranean Sea Basins, it will need to raise capital or enter
into long-term lease operating agreements to increase overall fleet cargo
capacity.
The Company's operating performance is influenced by several
factors, the most significant of which is operating efficiency. In
particular, the necessary personnel, computer systems, and management systems
required for the management of a single vessel, requires only incremental
increase for the management of additional vessels. Furthermore, for items such
as insurance, maintenance and parts with various vendors, the ability to
negotiate for larger quantities will provide further economies of scale.
Essco has been able to traditionally maintain operating expenses equal to
65%-80% of revenues. As a result of recent demand for vessels, operating
expenses have increased in the short-term which should be off-set as cargo rates
begin to reflect this demand.
In addition, the handling business has historically been a high
volume, low operating margin business. For the periods of 1996 and 1997 gross
operating margins have ranged from 15% to 9% and are subject to prevailing cargo
rates, and worldwide commodity prices.
The business of the Company is seasonal by nature. To a large extent, the
agricultural handling business is concentrated within the three growing seasons
(Spring, Summer, Fall) of Southern Russia and the Ukraine. Furthermore, while
the shipping operations of the Company are less seasonable, typically shipping
rates increase during peak period (coinciding with the growing seasons).
<PAGE>
RESULTS OF OPERATIONS
The Company has evolved to handle the delivery of grain commodities for
which it receives payment upon delivery of such goods to the end buyer. In
1997, Midland Agricultural entered into several purchase contracts that outline
the basic terms and conditions of delivery and purchase price. However, these
contracts by nature are usually subject to a 10% adjustment in either direction.
As of December 31, 1997, the following delivery contracts had open balances,
indicating that the farmers had yet deliver ed the following amounts to
the Company:
COMMODITY METRIC TONS
Sunflower Seeds 28,000
Feeding Barley 22,000
Feeding Wheat 18,000
Feeding Corn 8,000
Energy Coal 36,000
PERIOD ENDING DECEMBER 31, 1997
Sales for the year ended December 31, 1997 were $19,930,128 compared to
$23,169,860 for a similar period in 1996, a difference of $3,239,732 or
14%. The basis for the decline in revenues can be attributed to the lower
volumes of grain commodities being handled by the Midland Agricultural
subsidiary. As a result of payment of dividends in 1996 of $2,602,429,
Midland Agricultural, is employing less capital for the purchase of grain
commodities, and is thus, recognizing lower overall revenues. In addition the
agricultural business is somewhat cyclical with obvious patterns to growing and
harvest seasons of the grain commodities it handles. As a result, the reduction
in capital employed at the beginning of 1997 is being demonstrated during this
time period.
Essco (USA), Inc. is currently investigating several options ranging
from a public stock offering, to traditional bank financing to equipment leasing
to increase available capital for agricultural purchases. It is anticipated
that a portion of any proceeds raised would be utilized to expand the
volume of grain commodities being handled by the Company. Management,
believes, that such an increase in working capital could result in the increase
in revenues in 1998.
Midland Steamshipping is in part, affected by the activities of
Midland Agricultural. Midland Steamshipping provides shipping and
transportation services to various vendors. For the period ended December 31,
1997, Midland Agricultural accounted for 60% AGMAlexander G. MontanoFind
out from Traios what % of steamshipping business was agricultural business.
of the revenues of Midland Steamshipping. Midland Steamshipping is paid a
prevailing market price for its services, regardless of whether the paying
client is Midland Agricultural (an affiliated company) or some other
unaffiliated customer.
Financial results for Midland Steamshipping were impacted as a
result of the level of cargo carried on behalf of Midland Agricultural.
The decline in overall commodity volumes handled by Midland
Agricultural has resulted in fewer number of trips required to transport
said grains. This decline in volume has been offset in part by higher cargo
fees within the Black Sea and the Sea of Azov which averaged $30.00 per
metric ton, versus an average of $24.00 per metric ton in 1996.
While there can be no assurances, it is anticipated by management that
if Midland Agricultural is able to expand the level of g r ain
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commodities it handles, it will naturally require additional shipping services.
As a result, it is the plan of management to see Midland Agricultural increase
the volumes transported via Midland Steamshipping.
Cost of Goods Sold for the period ending December 31, 1997 were
$18,485,998 versus Cost of Goods Sold as of December 31, 1996 for $19,708,525.
These figures represent a gross operating margin of 7 % in 1997 versus
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gross operating margins of 15 % for the same period in 1996.
These figures represent higher cost of goods sold as a percentage of
revenues in part due to the lower volumes being handled by the Company, and the
fixed costs associated with operations.
Selling, Administrative and Other operating expenses were
$730,503, versus $558,906 representing an increase of $171,597 or 31% over
similar expenses in 1996. The increases in General and Administrative expenses
can be attributed to expansion of activities in Greece, as well as the one time
expenses of the establishment of Essco (USA), Inc. and expenses associated with
the acquisition of Midland Agricultural, and Midland Steamshipping,
along with registration expenses. Selling, Administration and other expenses
are comprised of office rent, payroll and registration and operating expenses of
the vessels and the subsidiary companies.
Net Income was $800,895 for the period ended December 31, 1997
compared to a profit of $3,027,576 for a similar period in 1996.
Management attributes this decline in earnings as a result of the lower overall
volumes being handled by Midland Agricultural, and the resulting transportation
fees required , as well as one time general and administrative expenses
incurred in 1997 .
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had positive working capital
of $781,422, compared to working capital as of December 31, 1996 of
$2,883,789. Management currently believes that the Company has sufficient
working capital and cash on hand to maintain its current business for the
next twelve months . In October and November of 1997, Essco raised capital
of $466,900 through the issuance of short-term notes. It is anticipated
by Management that additional capital will be raised, through either the
issuance of shares, through bank financing, or through leasing options to repay
these notes, and fund anticipated growth. Each of these potential sources of
capital will be analyzed and compared by Management. It is planned that any
money raised through activities of the Company will be utilized to purchase
additional vessels for operations, as well as providing additional capital to
Midland Agricultural to increase the total volume of goods being handled.
It is anticipated that to continue to grow the business, additional
capital will be required. At its current stage, the Company continues to
utilize internally generated cash flows to fund this growth, which may cause
delays in reaching the internal operating goals set forth by Management.
The Company continues to evaluate alternative financing options in
order to continue the growth of its shipping and handling operations which will
enable the Company to exploit the currently defined niche.
PLAN OF OPERATION
Essco (USA), Inc. was formed as a vehicle to grow the existing
shipping and handling businesses of Midland Steamshipping and Midland
Agricultural. Based upon the historical operational data of these, and their
predecessor companies, it is believe d that the overall shipping of
agricultural goods from Former Communist Countries bordering the Black Sea will
be an opportunity for dramatic growth.
At the current time, much of the agricultural industries of
Russia, Ukraine, and other countries are reeling from the lasting effects of
communist control. As these nations begin to privatize their agricultural
industries, Management expects market conditions to generate greater crop yields
with lower associated costs.
Essco (USA), Inc. intends to establish itself to service the
current marketplace, while creating a competitive advantage to grow with these
crop yields.
Based on this objective, Essco (USA), Inc. intends to add to its
existing fleet of one river/sea going vessel, two or three vessels of similar
size during 1998. These vessels will operate predominantly in the shallower
seas and waterways of the Black and Mediterranean Sea(s). To acquire these
vessels several options are available:
- - Raise Capital to Purchase Vessels
- - Utilize Bank Debt (i.e. Ship Mortgages)
- - Enter Into Lease Agreements
In each case the objective of entering into any such financing
agreement will be for the addition of cargo tonnage to the fleet. It is
anticipated that Essco could expend up to $3,000,000 in the form of capital
expenditures in 1998. While the effects on the Company as a result of these
expenditures will depend in part upon the final approach taken, it is possible
that these expenditures could result in additional long-term debt or the
issuance of additional shares. It is believed that with the addition of
each vessel, certain operating efficiencies will be recognized, thereby
increasing the overall operations of the Company.
In the event that the company enters into a ship lease , the
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following terms are standard within the shipping industry. Essco or its
subsidiary would enter into a term lease contract (normally from 2 to 5 years)
wherein the Company would operate the vessel and make a monthly, quarterly, or
annual lease payment. In this event Essco would be responsible for most all
operating, and maintenance expenses. Typically, the lease contract also
provides for a buy-out at the end of the lease contract wherein the Company
could purchase the vessel. Typically a lease payment would include amortization
plus a return ranging from as low at 5% to as high as 12%. It is currently
anticipated that Essco would seek a leasing program with payments in the range
of 5% - 8%.
In addition to building up the shipping capabilities of the Company, Essco
will also seek to commit more capital to the handling of grain commodities.
Given current flows of monies, and payment terms required by collective and
individual farmers, it is very attractive for the Company to enter into purchase
agreements prior to planting of specific grain commodities. In some cases,
by advancing a certain down payment (i.e. 25%) the Company is able to secure
a supply of goods at a pre-set price. Once executed, the Company in turn enters
into purchase agreements with food mills, processors and trading companies that
seek a reliable supply of grain commodities at a set price. The result
difference between the amount paid to the farmer, and the amount received from
the buyer is the gross profit, less operating expenses.
In 1996, Midland Agricultural was able to commit an excess of
$1,250,000 towards the pre-purchase of grain commodities which
resulted in profits in excess of $1,600,000. Based on this
historical performance, it is the goal of Essco to raise sufficient capital, or
enter into banking relationships, whereby, Midland Agricultural, can contract to
purchase higher volumes of grain commodities. Furthermore, it is anticipated
that by being able to roll the capital, as well as a percentage of the operating
profits into the next growing season, that the overall volume of grain
commodities purchased by the Company should grow each season.
FINANCING ACTIVITIES
In October of 1997, Essco (USA), Inc. raised approximately $466,900 in
the form of short-term notes that are payable within 6 months. The proceeds of
this placement were utilized to pay for expenses related to the completion of
the acquisition of Midland Steamshipping, and Midland Agricultural, as well as
certain professional fees (i.e. legal, and audit) related to the filing of the
Company's Form 10 with the Securities & Exchange Commission.
It is anticipated that Essco (USA), Inc. will raise additional
capital in 1998 to fund the purchase of additional vessels, as well as
increasing capital for its agricultural operations. At this time, several
options are being considered, ranging from the private sale of securities
subject to certain exemptions of the Securities and Exchange Act of 1933, as
amended, to the execution of commercial banking facilities ranging from ship
mortgages, to letter of credit facilities, to the issuance of convertible
debentures.
ITEM 3. PROPERTIES
Essco (USA), Inc. has certain lease obligations as well as
significant fixed assets as part of its normal course of business.
Currently, the Company is headquartered in Irvine, California,
wherein it subleases office space from C & K Capital Corporation an affiliated
entity. Currently, Essco (USA), Inc. pays monthly rent of $2,000 for use of
office facilities and equipment. It is anticipated that in 1998, the Company
will require sufficient office space that it will lease additional office space
in Irvine.
The bulk of the Company's operations are managed from its offices
in Piraeus, Greece. Both the shipping and handling business are
coordinated from these offices totaling 180 square meters. The Company has
entered into a 5 year lease, with monthly lease payments of approximately $3,500
per month, with an annual 10% increase during the term of the lease.
(Approximate numbers are utilized to take into considerations currency
fluctuations.)
In addition, Midland Agricultural does maintain a representative
office in Taganrog, Russia. This office is responsible for communication and
coordination with growers in Southern Russia, loading of vessels and preparation
of necessary bills of lading. The Company currently leases 100 square meters
under a 4 year lease, with an annual 15% increase during the term of the lease,
with an option to extend. Monthly lease payments of approximately $2,500 are
incurred per month.
Lastly, at this time, the largest fixed asset owned by the Company
is the "VICTORIA" (currently being re-registered and renamed "Essco Pioneer").
Having been built in 1976, the Victoria is a river/sea going vessel, certified
to traverse shallow seas and waterways. These vessels have an estimated life of
25 to 35 years depending upon maintenance. Proper insurance and registrations
are current on this vessel.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table s sets forth, as of December 31, 1997, as
well as of June 30, 1998 reflecting recent changes in the stock ownership of
each person known by Essco (USA), Inc. to be the beneficial owner of five
percent or more of Essco (USA), Inc.'s voting securities and each officer,
director, director nominees, and all officer's and directors as a group. Unless
otherwise indicated, each person has beneficial voting and investment power with
respect to the shares owned.
ESSCO (USA), INC.
As of December 31, 1997
NAME & ADDRESSES OF BENEFICIAL OWNERS SHARES OF COMMON STOCK BENEFICIALLY
OWNED PERCENTAGE
Christos Traios 3,250,200 78%
3, Irodotou Street
Priaeus - GREECE
Dr. Wolfgang Priemer 50,000 1%
Director
18500 Von Karman Avenue, Suite 560
Irvine, CA 92612
Judith S. Pelton 50,000 1%
Corporate Secretary
18500 Von Karman Avenue, Suite 560
Irvine, CA 92612
Officers & Directors as a Group 3,350,200 80%
DayStar Partners L.P. 165,000 (1) 3%
100 Clock Tower Place, Ste. 130
Carmel, CA 93923
Larry Wells 193,580 (1) 4.6%
100 Clock Tower Place, Ste. 130
Carmel, CA 93923
Total Shares Issued & Outstanding 4,133,180 100%
(1) Larry Wells is general partner for Daystar Partners, L.P.
ESSCO (USA), INC.
As of June 30, 1998
NAME & ADDRESSES OF BENEFICIAL OWNERS SHARES OF COMMON STOCK
BENEFICIALLY OWNED PERCENTAGE
Christos Traios 3,250,200 65%
3, Irodotou Street
Priaeus - GREECE
Vizier Capital Management, Ltd. 600,000 (2) 12%
Suite 304, Gabriel III Condominum
San Manguel Avenue, Ortigas Ct.
Pasig, Metro Manila
PHILIPPINES
Alexander G. Montano 200,000 (3) 4%
Director & CFO
18500 Von Karman Avenue, Suite 560
Irvine, CA 92612
Dr. Wolfgang Priemer 50,000 1%
Director
18500 Von Karman Avenue, Suite 560
Irvine, CA 92612
Judith S. Pelton 50,000 1%
Corporate Secretary
18500 Von Karman Avenue, Suite 560
Irvine, CA 92612
Officers & Directors as a Group 4,150,200 83%
Total Shares Issued & Outstanding 4,983,650 100%
(1) Daniel C. Montano has a beneficial interest in Vizier Capital
Management, Ltd.
includes 100,000 shares held of record by C.K. Cooper & Company, Inc. 18500 Von
Karman, Suite 560,Irvine, CA 92612
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of all directors
of Essco (USA), Inc.; indicates all positions and offices with Essco (USA),
Inc.; and states each persons term of office.
NAME AGE POSITIONS AND OFFICES TERM OF OFFICE AS DIRECTOR
Christos Traios 37 Director, CEO, October 9, 1997-Present
Alexander G. Montano 27 Director, CFO September 30, 1997-Present
Daniel C. Montano 49 Director October 9, 1997-Present
Dr. Wolfgang Priemer 57 Director October 9, 1997-Present
Under the bylaws of Essco (USA), Inc., directors are elected at the
annual meeting of the stockholders and serve until their successors are elected
and qualified.
The following table sets forth the names and ages of all directors
of Essco (USA), Inc.; indicates all positions and offices with Essco (USA),
Inc.; and states each persons term of office.
NAME AGE POSITIONS AND OFFICES TERM OF OFFICE AS OFFICER
- ---- --- ---------------------- -------------------------
Christos Traios 37 CEO October 9, 1997 - Present
Alexander G. Montano 27 CFO September 30, 1997 - Present
Judy S. Pelton 56 Secretary October 9, 1997 - Present
The business experience during the past five years of each director
and executive officer is set forth below.
MR. CHRISTOS TRAIOS is Chairman of the Broad, President and Chief
Executive Officer of the company. Mr . , Traios founded Mill-Agro Hellas
SA, and Meghael Company in 1995 and 1996, which were predecessor companies of
ESSCO. From 1986 to 1995, Mr. Traios was President and Chief Executive Officer
of Nattem Group of Companies. These companies included shipping, construction,
passenger vessels, and trading in the Black Sea and Mediterranean Sea areas.
Mr. Traios attended the Law School in Thessaloniki and is a citizen of Greece.
MR. DANIEL C. MONTANO is Vice Chairman of the Company and a member
of the Board of Directors. Mr . , Montano has been a associated with
ESSCO since its founding in 1997. Mr. Daniel Montano has been Managing Director
of Investment Banking for C&K Capital Corporation since January 1997. Prior to
that he was Director of Investment Banking at Brookstreet Securities
Corporation from January of 1995 until January of 1997. From 1979 until
1994, Mr. Montano was Chairmen of the Broad and President of Montano Securities,
a USA securities firm which had ten offices across the United States. Mr.
Montano is a member of the Board of Directors of one other publicly
traded company: Helen of Troy Corporation. Mr. Montano obtained his MBA
from the University of Southern California and a BS from California State
University at Los Angeles. Mr. Montano also taught at Pepperdine University and
California State University at Fullerton. Mr. Daniel Montano is the father of
Mr. Alexander Montano.
MR. ALEXANDER MONTANO is Chief Financial Officer of ESSCO and a
member of the Board of Directors. Mr. Montano is also the Founder and President
of C&K Capital Corporation, an international financial services company. In
addition, Mr. Montano is the President of C.K. Cooper & Company, an investment
banking/securities brokerage firm that focuses primarily on the oil and gas
industry. Prior to these current activities Mr. Montano was employed by
Brookstreet Securities Corporation as Director of Research from 1995 to 1996.
From 1992 to 1995 Mr. Montano was Chief Operating Officer and Director for
Montano Securities Corporation, a nationwide securities brokerage and investment
banking firm with ten offices. On December 31, 1997, Mr. Montano filed personal
bankruptcy. Mr. Montano attended the University of Southern California and is
the son of Mr. Daniel Montano.
MS. JUDITH PELTON is the Corporate Secretary of the Company. She
has worked in the investment and securities business for over 25 years. Since
January 1997 she has been a Director at C.K. Capital Corporation. From 1995 to
1996 she was employed at Brookstreet Securities in the investment banking
department. From 1984 till 1994 she was employed at Montano Securities
Corporation, her last position was as Vice President of Administration, handling
regulatory and administrative functions for this nationwide USA
securities/investment banking firm.
WOLFGANG PRIEMER, PH.D is a member of the Company's Board of
Directors. Dr. Priemer is managing director and shareholder of KRUPS-LOGISTIC
SYSTEMS, a young company that developed and markets a new sophisticated
technology for sorting and commissioning for a large range of products. He
holds a position as an inactive director and shareholder of a company offering
the service of outsourcing the production of parts and components for machines
to Eastern Europe including to the own subsidiary machining company in Poland
with 400 employees. He holds the position of an honoree director of the foreign
trade committee of the VDMA (German machine builders association) and is a vice
director of the same committee in the BDI (Association of German Industry). Dr.
Priemer received his Master Degree in mechanical engineering from the University
of Darmstadt and his Ph.D. from the University of Fribourg in marketing. He has
twenty-five years of experience in successfully managing as President a group of
internationally operating machine building companies - The Kolbus GmbH & Co. KG
- - with global turnover of then two hundred million dollars. Dr. Priemer has a
special expertise in taking over companies in turnaround situations and making
them successful. As foreign languages he speaks German, English, French and
some Spanish.
The following summary compensation table sets forth in summary form the
compensation received during each of Essco (USA), Inc.'s last two fiscal years
by Essco (USA), Inc.'s Chief Executive Officer. No other executive earned in
excess of $100,000.
SUMMARY COMPENSATION TABLE
-----------------------------
LONG TERM & OTHER COMPENSATION
AWARDS PAYOUTS
NAME AND ANNUAL COMPENSATION SARS (#) LTIP
ALL OTHER
PRINCIPAL POSITION
PAYOUTS COMPENSATION($)(1)
YEAR SALARY ($) BONUS($)
Christos Traios 1997 $300,000 - -
- -
Chief Executive Officer 1996 $300,000 - -
- -
The following table sets forth the Option/SAR grants in the last
fiscal year.
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Individual Grants Potential realizable value at assumed rates of stock price
appreciation of option term Alternative to (f) and (g): Grant date value
Name Option/SARs Granted (#) Percent of total options/SARs granted to
- ------- ----------------------- ----------------------------------------
employees in fiscal year Exercise of base price ($/Sh) Expiration date
- -------------------------- ----------------------------- ---------------
5% ($) 10% ($) Grant date present value
(a) (b) (d) (e) (f) (g) (f)
CEO Christos Traios 1,000,000 100% $9.00 11/30/07 N/A
N/A $0
There were no option/SAR exercised in the last completed fiscal year.
On December 1, 1997, Essco (USA), Inc. entered into a five year
employment agreement with Christos Traios to serve as Essco (USA), Inc.'s chief
executive officer. Under the employment agreement, Essco (USA), Inc. agreed to
pay Mr. Traios an annual salary of $300,000 and a bonus of 10% of the operating
profits of Essco (USA), Inc. in excess of $3,000,000 per year. The employment
agreement also granted Mr. Traios the option to acquire 1,000,000 shares of
Essco (USA), Inc.'s $.001 par value common stock at an exercise price of $9.00
per share. The non-qualified stock option expires November 30, 2007.
No other officer has a written employment agreement with Essco
(USA), Inc
Essco (USA), Inc. has no annuity, pension or retirement plans or
other plans for which benefits are based on actuarial computations.
Essco (USA), Inc. has no standard arrangements by which its
directors are compensated.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 9, 1997, Essco (USA), Inc. acquired 100% of the issued
and outstanding shares of MIDLAND, Agricultural S.A. and 49% of the issued and
outstanding shares of MIDLAND STEAMSHIPPING M. CO. from Mr. Ch r istos
Traios in exchange for 3,250,200 shares of Essco (USA), Inc.'s common stock.
The following persons may be considered promoters of Essco (USA),
Inc.: Alexander G. Montano, Daniel C. Montano and C.K. Cooper & Company, Inc.
Alexander G. Montano has received 100,000 shares of Essco (USA), Inc.'s
common stock (approximately 2%), subject to certain performance clauses that
must be met. In the case that these items are not met, these shares will be
forfeited by Mr. Montano. Vizier Asset Management, has received
600,000 shares of Essco (USA), Inc.'s common stock (approximately 12%)
subject to certain performance clauses that must be met. In the case that
these items are not met, these shares will be forfeited by Vizier Asset
Management. C. K. Cooper & Company, Inc. may receive 100,000 shares
of Essco (USA), Inc.'s common stock (approximately 2%) subject to certain
performance clauses that must be met. In the case that these items are not met,
these shares will be forfeited by C. K. Cooper & Company, Inc. C.K. Cooper
& Company, Inc. is a corporation over which Alexander G. Montano exercises
voting control.
ITEM 8. LEGAL PROCEEDINGS
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS OF ESSCO (USA), INC.'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for Essco (USA),
Inc.'s $.001 par value common stock. At the present time there stock
options that have been granted to Mr. Traios to purchase 1,000,000 shares of
common stock at an exercise price of $9.00 per share. Other than these
options there are no outstanding options or warrants to purchase common
stock, or securities convertible into common stock of Essco (USA), Inc.
Rule 144 under the Securities Act or that Essco (USA), Inc. has
agreed to register under the Securities Act for sale by security holders. There
are no securities that are being, or have been publicly proposed to be, publicly
offered by Essco (USA), Inc., the offering of which could have a material effect
on the market price of Essco (USA), Inc.'s common stock.
As of December 31, 1997, there were approximately 34
holders of Essco (USA), Inc.'s common stock.
In 1996, Midland Agricultural paid dividends equal to $2,602,429. To date,
Essco (USA), Inc. has never paid any dividends and it is unlikely that Essco
(USA), Inc. will pay dividends in the next two years.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES TO BE REGISTERED
On November 19, 1997, Essco (USA), Inc. received $476,900 in bridge
financing from DayStar Partners, L.P., a California limited partnership. Under
the terms of the bridge loan, Essco (USA), Inc. sold 47.5 Units consisting of a
$10,000 promissory note and 2,000 shares of Essco (USA), Inc.'s common stock.
The notes are due and payable six months following issuance. The transaction
was exempt from registration under Section 4(2) of the Securities Act of 1933 as
a transaction by an issuer not involving any public offering.
The purchaser was provided with business and financial information
respecting the Company and was provided with the opportunity to obtain
additional information in order to verify the information provided or to further
inform themselves respecting the Company.
The entity that acquired these units acknowledged in writing that such
person was obtaining "restricted securities" as defined in rule 144 under the
Securities Act; that such shares could not be transferred without registration
or an available exemption therefrom; that such person must bear the economic
risk of the investment for an indefinite period; and that the Company would
restrict the transfer of the securities in accordance with such representations.
Such persons also agreed that any certificates representing such should would be
stamped with a restrictive legend covering the transfer of such shares. The
certificates representing the foregoing shares bear an appropriate restrictive
legend conspicuously on their face, and the stop transfer instructions are noted
on the Company's stock transfer records.
The following persons may be considered promoters of Essco (USA), Inc.:
Alexander G. Montano, Daniel C. Montano and C.K. Cooper & Company, Inc.
Alexander G. Montano may receive 100,000 shares of Essco (USA), Inc.'s common
stock (approximately 2%) in exchange for his efforts. Vizier Asset Management,
may received 600,000 shares of Essco (USA), Inc.'s common stock (approximately
12%) in exchange for his efforts. C. K. Cooper & Company, Inc. may receive
100,000 shares of Essco (USA), Inc.'s common stock (approximately 2%) in
exchange for his efforts. C.K. Cooper & Company, Inc. is a corporation over
which Alexander G. Montano exercises voting control. These entities are
entitled to begin receiving these shares as of May 1, 1998 depending upon Essco
(USA), Inc. accomplishing certain tasks, such as filing an appropriate Form 10
with the Securities and Exchange Commission, Essco (USA), Inc. having entered
into discussions with certain financial institutions in relation to banking
facilities and ship leasing. At this time, the requirements to begin receiving
these shares have been met.
As of December 31, 1997 there we re approximately
34 holders of Essco (USA), Inc.'s common stock. The holders of Essco
(USA), Inc.'s common stock are entitled to one vote for each share on all
matters voted on by stockholders, including election of directors. Except as
otherwise required by law or provided in any resolution adopted by Essco (USA),
Inc.'s Board of Directors with respect to any series of Preferred Stock, the
holders of such shares will possess all voting power. The shares of Essco
(USA), Inc.'s common stock are free of preemptive rights and will participate in
all dividends, if any, that are declared by Essco (USA), Inc.'s board of
directors in the future.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Essco (USA), Inc.'s authorized capital stock consists of 21 million
shares of which 20 million shares are designated common stock, with $.001 par
value and 1 million shares are designated $.001 par value preferred stock. As
of December 31, 1997, there are presently issued and outstanding 4,133,180
shares of common stock. No preferred stock has been issued by Essco (USA), Inc.
nor have any terms yet been associated with the Preferred Stock.
COMMON STOCK
There are approximately 34 holders of Essco (USA), Inc.'s common
stock. The holders of Essco (USA), Inc.'s common stock are entitled to one vote
for each share on all matters voted on by stockholders, including election of
directors. Except as otherwise required by law or provided in any resolution
adopted by Essco (USA), Inc.'s Board of Directors with respect to any series of
Preferred Stock, the holders of such shares will possess all voting power. The
shares of Essco (USA), Inc.'s common stock are free of preemptive rights and
will participate in all dividends, if any, that are declared by Essco (USA),
Inc.'s board of directors in the future.
PENNY STOCK REGULATIONS - RESTRICTIONS ON MARKETABILITY
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. The Company's
securities may be covered by the penny stock rules, which impose additional
sales practice requirements on broker-dealers who sell such securities to person
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may indemnify its officers,
directors, employees, and agents under certain circumstances, including
indemnification of such persons against liability under the Securities Act of
1933. A true and correct copy of Section 145 of the Delaware General
Corporation Law which addresses indemnification of officers, directors,
employees and agents is attached hereto as Exhibit 99.1
In addition, Section 102(b)(7) of the Delaware General Corporation
Law and the Company's Certificate of Incorporation provide that a director of
this corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (I) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
paying a dividend or approving a stock repurchase in violation of Section 174 of
the Delaware General Corporation Law; or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Certificate of Incorporation and Bylaws contain
provisions that no director of the Company shall be liable to the Company for
monetary damages for breach of fiduciary duty as a director involving any act or
omission of such director other than (I) for breach of director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemption
' s or repurchases, or (iv) for any transaction from which the director
derived an improper personal benefit.
The effect of these provisions may be to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for breach
of fiduciary duty as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (I) -
(iv) of the preceding sentence.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Not applicable.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
Attached hereto as pages F-__ through F-__ are the financial
statements of Essco (USA), Inc.
INFORMATION SYSTEMS FOR THE YEAR 2000
The Company will be required to modify its information systems in order
to accurately process data referencing the year 2000. Because of the importance
of occurrence dates in the shipping industry, the consequences of not
pursuing these modifications could significantly affect the Company's ability to
manage and report operating activities. Currently, the Company plans to
purchase software modifications from third parties in order to correct any
existing deficiencies. The total cost will be approximately $2,500 and the
information systems are anticipated to be updated by the end of 1998. Year 2000
issues as they related to field operation programs, suppliers and contractors
remain to be evaluated by the Company. However, based on current available
information, the Company does not anticipate that the costs associated with any
necessary modifications will be material to the Company's operations or
financial condition.
The following exhibits are attached hereto and incorporated herein by
reference.
3.1 Certificate of Incorporation
3.2 By-Laws
4.1 Form of $.001 Par Value Common Stock Certificate
10.1 Employment Agreement with Christos Traios
99.1 8 Del. Code Ann. 145 Indemnification of officers, directors,
employees and agents
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, Essco (USA), Inc. has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
ESSCO (USA), Inc.
By: /s/ Alexander G. Montano
---------------------------
Name: Alexander G. Montano
Title: Chief Financial Officer
Date: [Exhibit 3.1]
- --------------------------------
CERTIFICATE OF INCORPORATION
OF
ESSCO (USA), Inc.
l. The name of the corporation is ESSCO (USA), Inc
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is: Twenty-One Million (21,000,000) of which stock Twenty
Million (20,000,000) shares of the par value of $.001 each shall be common stock
and of which One Million (1,000,000) shares of the par value of $.001 each shall
be preferred stock. Further, the board of directors of this corporation, by
resolution only and without further action or approval, may cause the
corporation to issue one or more classes or one or more series of preferred
stock within any class thereof and which classes or series may have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the board of directors,
and to fix the number of shares constituting any classes or series and to
increase or decrease the number of shares of any such class or series.
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ----------------
Richard O. Weed 5140 Birch Street, Suite 100
Newport Beach, CA 92660
The name and mailing address of each person who is to serve as a director
until the first annual meeting of the stockholders or until a successor is
elected and qualified, is as follows:
NAME MAILING ADDRESS
---- ----------------
Alexander G. Montano 18500 Von Karman, Suite 560
Irvine, CA 92614
------------------
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
To designate one or more committees, each committee to consist of one or
more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The by-laws may provide
that in the absence or disqualification of a member of a committee, the member
or members present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the board of directors, or in the by-laws of the corporation,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (I) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any by-law of the corporation.
When and as authorized by the stockholders in accordance with law, to sell,
lease or exchange all or substantially all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
8. Elections of directors need not be by written ballot unless the by-laws
of the corporation shall so provide. Meetings of stockholders may be held
within or without the State of Delaware, as the by-laws may provide. The
books of the corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the by-laws
of the corporation.
Whenever a compromise or arrangement is proposed between this corporation and
its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (I) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this Certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this Twenty-third day of September, 1997.
/s/ Richard O. Weed
- ----------------------
Richard O. Weed
[Exhibit 3.2]
ESSCO (USA), Inc.
* * * * *
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section l. All meetings of the stockholders for the election of directors
shall be held in the City of Athens, State of Greece, at such place as may be
fixed from time to time by the board of directors, or at such other place either
within or without the State of Delaware as shall be designated from time to time
by the board of directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1997,
shall be held on the Fifteenth day of September, if not a legal holiday, and if
a legal holiday, then on the next secular day following, at 10:00 AM, or at such
other date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than 15 nor more than 60 days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the president and shall be called by the president or secretary
at the request in writing of a majority of the board of directors, or at the
request in writing of stockholders owning a majority in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than 15 nor more than 60 days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders of
a majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the certificate of
incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be five directors. The directors shall be elected at the annual meeting
of the stockholders, except as provided in Section 2 of this Article, and each
director elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the president on 5
days' notice to each director, either personally or by mail or by facsimile
communication; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors unless
the board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board, a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (I) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
General Corporation Law of Delaware to be submitted to stockholders for approval
or (ii) adopting, amending or repealing any by-law of the corporation. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by facsimile telecommunication.
Section 2. Whenever any notice is required to be given under the provisions of
the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and agents as
it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
Section 4. The salaries of all officers and agents of the corporation shall be
fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General
Corporation Law of Delaware or a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on a certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
[Exhibit 4.1]
NUMBER SHARES
_________________________
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEPTEMBER 23, 1997
ESSCO (USA), INC.
20,000,000 SHARES COMMON STOCK 1,000,000 SHARES PREFERRED
STOCK
$.001. PAR VALUE EACH $.001 PAR VALUE EACH
THIS CERTIFIES THAT________________________________________________ IS THE
REGISTERED HOLDER OF_________________________________________________ Shares
of the Common Stock of
ESSCO (USA), Inc.
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE SHARE REGISTER OF
THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares represented thereby shall be subject to all
of the provisions of Certificate of Incorporation and the By-laws of said
Corporation, a copy of which is on file at the office of the Corporation and
made a part hereof as fully as though the provisions of said Certificate of
Incorporation and By-laws were imprinted in full on this certificate, to all of
which the holder of this certificate, by acceptance hereof assents and agrees to
be bound.
Any stockholder may obtain from the principal office of the Corporation,
upon request and without charge, a statement of the number of shares
constituting each class or series of stock and the designation thereof; and a
copy of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights and the By-laws.
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY AUTHORIZED
OFFICERS.
DATED:
__________________________
__________________________
SECRETARY PRESIDENT
[Exhibit 10.1]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day
of December, 1997, by and between ESSCO (USA), Inc., a Delaware corporation (the
"Company"), and Christos Traios (the "Executive").
WHEREAS, the Company desires to retain the services of the Executive as
Chief Executive Officer of the Company and the Executive desires to render such
services on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment Term. The Company employs the Executive and the Executive
accepts employment by the Company, upon the terms and subject to the conditions
set forth in this Agreement, until November 30, 2002; provided, however, that
such employment may be sooner terminated pursuant to the terms of this
Agreement.
2. Management of the Company. The Executive shall devote the Executive's
time, best efforts, attention and skill to, and shall perform faithfully,
loyally and efficiently the Executive's duties as Chief Executive Officer of the
Company. Further, the Executive will punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter reasonably establish governing the Executive's conduct and the conduct
of the Company's business which are consistent with this Agreement.
3. Compensation; Benefits. In consideration of the services rendered to the
Company by the Executive, the Company shall pay the Executive a salary at the
annual rate of Three Hundred Thousand Dollars ($300,000) (the "Salary"). The
Salary shall be payable in accordance with the normal payroll practices of the
Company then in effect. In addition to Salary, the Executive shall be entitle
to an annual bonus equal to ten percent (10%) of the annual operating profits of
the Company in excess of Three Million Dollars ($3,000,000) per year (the
"Bonus"). The Salary, Bonus, and all other forms of compensation paid to the
Executive hereunder, shall be subject to all applicable taxes required to be
withheld by the Company pursuant to federal, state or local law. The Executive
shall be solely responsible for income taxes imposed on the Executive by reasons
of any cash or non-cash compensation and benefits provided by this Agreement.
In addition to the Salary, during the Employment Term, the Executive shall
be entitled to: (i) all legal and religious holidays, and two (2) weeks paid
vacation per annum. The Executive shall arrange for vacations in advance at
such time or times as shall be mutually agreeable to the Executive and the
Company's Board of Directors. The Executive may not receive pay in lieu of
vacation; (ii) participate in all employee benefit plans and/or arrangements
adopted by the Company relating to pensions, hospital, medical, dental,
disability and life insurance, deferred salary and savings plans, and other
similar employee benefit plans or arrangements to the extent that the Executive
meets the eligibility requirements for any such plan as in effect from time to
time; (iii) payment by the Company directly, or reimbursement by the Company
for, reasonable and customary business and out-of-pocket expenses incurred by
the Executive in connection with the performance by the Executive of the
Executive's duties under this Agreement in accordance with the Company's
policies and practices for reimbursement of such expenses, as in effect from
time to time, including, without limitation, reasonable and necessary travel,
lodging, entertainment and meals incurred by the Executive in furtherance of the
Company's business and at the Company's request.
In addition to the payment of Salary, the Company hereby grants to the
Executive, One Million (1,000,000) non-qualified stock options (collectively,
the "Stock Options"). Each Stock Option provides the Executive with the right
to purchase one share of the Company's $.001 par value common stock at $9.00 per
share. The Stock Options are non-transferable, vest immediately in Executive,
and expire at the close of business on November 30, 2007.
4. Termination of Employment. The Executive's employment hereunder shall
terminate upon the earliest to occur of any the following events, on the dates
and at the times specified below:
(i) the close of business on November 30, 2002 (the "Expiration Date");
(ii) the close of business on the date of the Executive's death ("Death");
(iii) the close of business on the Termination Date (as defined below)
specified in the Notice of Termination (as defined below) which the Company
shall have delivered to the Executive due to the Executive's Disability.
"Disability" shall mean if (i) the Executive is absent from work for 30 calendar
days in any twelve-month period by reason of illness or incapacity whether
physical or otherwise) or (ii) the Company reasonably determines that the
Executive is unable to perform his duties, services and responsibilities by
reason of illness or incapacity (whether physical or otherwise) for a total of
30 calendar days in any twelve-month period during the Employment Term. The
Executive agrees, in the event of any dispute under this Section, and after
receipt by the Executive of such Notice of Termination from the Company, to
submit to a physical examination by a licensed physician selected by the
Company. The Executive may seek a second opinion from a licensed physician
acceptable to the Company. If the results of the first examination and the
second examination are different, a licensed physician selected by the
physicians who have performed the first and second examinations shall perform a
third physical examination of the Executive, the result of which shall be
determinative for purposes of this Section;
(iv) the close of business on the Termination Date specified in the Notice
of Termination which the Executive shall have delivered to the Company to
terminate his employment ("Voluntary Termination");
(v) the close of business on the Termination Date specified in the Notice
of Termination which the Company shall have delivered to the Executive to
terminate the Executive's employment for Cause. "Cause" as used herein means
termination based on (i) the Executive's material breach of this Agreement, (ii)
conviction of the Executive for (a) any crime constituting a felony in the
jurisdiction in which committed, (b) any crime involving moral turpitude whether
or not a felony), or (c) any other criminal act against the Company involving
dishonesty or willful misconduct intended to injure the Company (whether or not
a felony), (iii) substance abuse by the Executive, (iv) the failure or refusal
of the Executive to follow one or more lawful and proper directives of the Board
of Directors delivered to the Executive in writing, or (v) willful malfeasance
or gross misconduct by the Executive which discredits or damages the Company.
Any purported termination by the Company or the Executive (other than by
reason of Death or on the Expiration Date) shall be communicated by written
Notice of Termination to the other. As used herein, the term "Notice of
Termination" shall mean a notice which indicates the specific termination
provision in this Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. After receipt of a
Notice of Termination, the Executive shall continue to be available to the
Company on a part-time basis at reasonable and customary hourly rates to assist
in the necessary transition.
As used herein, the term "Termination Date" shall mean, (i) in the case of
Death, the date of the Executive's death, (ii) in the case of expiration of the
term hereof, the Expiration Date, or (iii) in all other cases, the date
specified in the Notice of Termination.
5. Employee Covenants.
Trade Secrets and Proprietary Information. The Executive agrees and
----------------------------------------------
understands that due to the Executive's position with the Company, the Executive
-
will be exposed to, and has received and will receive, confidential and
proprietary information of the Company or relating to the Company's business or
affairs collectively, the "Trade Secrets"), including but not limited to
technical information, product information and formulae, processes, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices and other forms of information considered by the
Company to be proprietary and confidential and in the nature of trade secrets.
Trade Secrets shall not include any such information which (A) was known to the
Executive prior to his employment by the Company or (B) was or becomes generally
available to the public other than as a result of a disclosure by the Executive
in violation of the provisions of this Section. Except to the extent that the
proper performance of the Executive's duties, services and responsibilities
hereunder may require disclosure, the Executive agrees that during the
Employment Term and at all times thereafter the Executive will keep such Trade
Secrets confidential and will not disclose such information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. On the Termination Date unless the Executive remains
as an employee of the Company thereafter in which case, on the date which the
Executive is no longer an employee of the Company), the Executive will promptly
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data, formulae or any other tangible product or
document which has been produced by, received by or otherwise submitted to and
retained by the Executive in the course of his employment with the Company. Any
material breach of the terms of this paragraph shall be considered Cause.
Prohibited and Competitive Activities. The Executive and the Company
-----------------------------------------
recognize that due to the nature of the Executive's engagement hereunder and the
relationship of the Executive to the Company, the Executive has had and will
have access to, has had and will acquire, and has assisted and may continue to
assist in, developing confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limitation, Trade Secrets. The Executive acknowledges that such information has
been and will be of central importance to the business of the Company and its
affiliates and that disclosure of it to, or its use by, others (including,
without limitation, the Executive (other than with respect to the Company's
business and affairs)) could cause substantial loss to the Company.
The Executive and the Company also recognize that an important part of the
Executive's duties will be to develop good will for the Company and its
affiliates through the Executive's personal contact with Clients (as defined
below), employees, and others having business relationships with the Company,
and that there is a danger that this good will, a proprietary asset of the
Company, may follow the Executive if and when the Executive's relationship with
the Company is terminated. The Executive accordingly agrees as follows:
(i) Prohibited Activities. The Executive agrees that the Executive will
not at any time during the Employment Term: (A) (other than in the course of the
Executive's employment) disclose or furnish to any other person or, directly or
indirectly, use for the Executive's own account or the account of any other
person, any Trade Secrets, no matter from where or in what manner he may have
acquired such Trade Secrets, and the Executive shall retain all such Trade
Secrets in trust for the benefit of the Company, its affiliates and the
successors and assigns of any of them, (B) directly or through one or more
intermediaries, solicit for employment or recommend to any subsequent employer
of the Executive the solicitation for employment of, any person who, at the time
of such solicitation, is employed by the Company or any affiliate, (C) directly
or indirectly, whether for the Executive's own account or for the account of any
other person, solicit, divert, or endeavor to entice away from the Company or
any entity controlled by the Company, or otherwise engage in any activity
intended to terminate, disrupt, or interfere with, the Company's or any of its
affiliates' relationships with, Clients, or otherwise adversely affect the
Company's or any of its affiliates' relationships with Clients or other business
relationships of the Company or any affiliate thereof, or (D) publish or make
any statement critical of the Company or any shareholder or affiliate of the
Company or in any way adversely affect or otherwise malign the business or
reputation of any of the foregoing persons (any activity described in clause
(A), (B), (C) or (D) of this Section being referred to as a Prohibited
Activity"); provided, however, that if in the written opinion of Counsel, the
Executive is legally compelled to disclose Trade Secrets to any tribunal or else
stand liable for contempt or suffer other similar censure or penalty, then the
disclosure to such tribunal of only those Trade Secrets which such counsel
advises in writing are legally required to be disclosed shall not constitute a
Prohibited Activity provided that the Executive shall give the Company as much
advance notice of such disclosure as is reasonably practicable. As used herein,
the term "Clients" shall mean those persons who, at any time during the
Executive's course of employment with the Company (including, without
limitation, prior to the date of this Agreement) are or were clients or
customers of the Company or any affiliate thereof or any predecessor of any of
the foregoing.
(ii) Non-Competition. By and in consideration of the Company's entering
into this Agreement, the Executive agrees that the Executive will not, during
the Employment Term and for a period of eighteen months thereafter, engage in
any Competitive Activity. The term "Competitive Activity" means engaging in any
of the following activities: (A) serving as a director of any Competitor (as
defined below), (B) directly or indirectly through one or more intermediaries,
either (X) controlling any Competitor or (Y) owning any equity or debt interests
in any Competitor (other than equity or debt interests which are publicly traded
and, at the time of any acquisition thereof by the Executive, do not in the
aggregate exceed 5% of the particular class of interests of such Competitor then
outstanding) (it being understood that, if interests in any Competitor are owned
by an investment vehicle or other entity in which the Executive owns an equity
interest, a portion of the interests in such Competitor owned by such entity
shall be attributed to the Executive, such portion determined by applying the
percentage of the equity interest in such entity owned by the Executive to the
interests in such Competitor owned by such entity), employment by (including
serving as an officer, director or partner of), providing consulting services to
(including, without limitation, as an independent contractor), or managing or
operating the business or affairs of, any Competitor or (D) participating in the
ownership, management, operation or control of or being connected in any manner
with any Competitor. The term "Competitor" as used herein (I) during the
Employment Term, means any person (other than the Company, Parke Industries,
Inc. or any of their respective affiliates) that competes, either directly or
indirectly with any of the business conducted by the Company or any affiliate.
Remedies. The Executive agrees that any breach of the terms of this
Section would result in irreparable injury and damage to the Company for which
the Company would have no adequate remedy at law. The Executive therefore agrees
that in the event of said breach or any threat of breach, the Company shall be
entitled to an immediate injunction and restraining order to prevent such breach
and/or threatened breach and/or continued breach by the Executive and/or any and
all persons and/or entities acting for and/or with the Executive, without having
to prove damages. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies to which the Company may be entitled at
law or in equity for any breach or threatened breach hereof, including but not
limited to the recovery of damages from the Executive. the provisions of this
Section 8 shall survive any termination of this Agreement. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section.
Proprietary Information and Inventions. The Executive agrees that any and
all inventions, discoveries, improvements, processes, formulae, business
application software, patents, copyrights and trademarks made, developed,
discovered or acquired by him prior to and during the Employment Term, solely or
jointly with others or otherwise, which relate to the business of the Company,
and all knowledge possessed by the Executive relating thereto collectively, the
"Inventions"), shall be fully and promptly disclosed to the Board of Directors
and to such person or persons as the Board of Directors shall direct and the
Executive irrevocably assigns to the Company all of the Executive's right, title
and interest in and to all Inventions of the Company and all such Inventions
shall be the sole and absolute property of the Company and the Company shall be
the sole and absolute owner thereof. The Executive agrees that he will at all
times keep all Inventions secret from everyone except the Company and such
persons as the Board of Directors may from time to time direct. The Executive
shall, as requested by the Company at any time and from time to time, whether
prior to or after the expiration of the Employment Term, execute and deliver to
the Company any instruments deemed necessary by the Company to effect disclosure
and assignment of the Inventions to the Company or its designees and any patent
applications (United States or foreign) and renewals with respect thereto,
including any other instruments deemed necessary by the Company for the
prosecution of patent applications, the acquisition of letters patent and/or the
acquisition of patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee.
6. Representations and Warranties of the Executive. The Executive
represents and warrants to the Company that:
(I) The Executive's employment by the Company as contemplated will not
conflict with, and will not be constrained by, any prior or current employment,
consulting agreement or relationship, whether written or oral; and
(ii) The Executive does not possess confidential information arising out
of any employment, consulting agreement or relationship with any person or
entity other than the Company which could be utilized in connection with the
Executive's employment by the Company.
7. Binding Effect or Assignment. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective heirs, executors,
representatives, states, successors and assigns, including any successor or
assign to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition of
stock, or otherwise; provided, however, that the Executive, or any beneficiary
or legal representative of the Executive, shall not assign all or any portion of
the Executive's rights or obligations under this Agreement without the prior
written consent of the Company.
8. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt.
9. Amendment and Modification. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by each of the Executive and the Company. No
such waiver or discharge by either party hereto at any time or any waiver or
discharge of any breach by the other party hereto of, or compliance with, any
condition or provision of this agreement to be performed by such other party,
shall be deemed a waiver or discharge of similar or dissimilar provisions or
conditions, or a waiver or discharge of any breach of any provisions, at the
same or at any prior or subsequent time.
10. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of California without giving effect to the
conflict of law principles of that state.
11. Severability. In the event that any one or more of the provisions of
this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other portion of this Agreement, and this Agreement shall be construed as if
such provision had never been contained herein.
12. Withholding Taxes. Notwithstanding anything contained herein to the
contrary, all payments required to be made hereunder by the Company to the
Executive, or his estate or beneficiaries, shall be subject to the withholding
of such amounts as the Company may reasonably determine it should withhold
pursuant to any applicable federal, state or local law or regulation.
13. Arbitration of Disputes. The parties hereto mutually consent to the
resolution by arbitration of all claims and controversies arising out of or
relating to this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes any and all prior agreements, written or
oral, understandings and arrangements, either oral or written, between the
parties with respect to the subject matter, and shall, as of the date hereof,
constitute the only employment agreement between the parties.
16. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all further acts and things and shall execute and deliver
all other agreements, certificates, instruments, and documents as any other
party reasonably may request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated.
17. Construction. The headings in this Agreement are for reference purposes
only and shall not limit or otherwise affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.
"Company"
ESSCO (USA), Inc., a Delaware corporation
By: /s/ Alexander G. Alexander
-----------------------------
Name: Alexander G. Montano
Title: Chief Financial Officer
"Executive"
By: /s/ Christos Traios
---------------------
Name: Christos Traios
[Exhibit 99.1]
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IV. DIRECTORS AND OFFICERS
145. Indemnification of officers, directors, employees and agents; insurance.
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this section, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because the person has
met the applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
Proof Date: August 18, 1998
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall include,
in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear
and determine all actions for advancement of expenses or indemnification brought
under this section or under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
ESSCO (USA), INC. Page
- ---------------------------------------------------------------------------------------- ----
<S> <C>
Financial Statements:
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
----
Consolidated Balance Sheets at December 31, 1997 and 1996. . . . . . . . . . . . . . F-2
----
Consolidated Statements of Operations for the Year Ended December 31, 1997and 1996 . F-3
----
Consolidated Statements of Stockholders= Equity for the Year Ended December 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
----
Consolidated Statements of Cash Flows for the Year Ended December 31, 1997 and 1996. F-5
----
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . F-6
- ---------------------------------------------------------------------------------------- ----
</TABLE>
Proof Date: August 18, 1998
F-1
INDEPENDENT AUDITORS= REPORT
To the Board of Directors and Shareholders of
Essco (USA), Inc.
We have audited the accompanying consolidated balance sheets of Essco (USA),
Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Essco (USA), Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the periods then ended, in conformity with generally accepted
accounting principles.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
May 18, 1998
The accompanying notes are an integral part of these financial statements.
F-5
ESSCO (USA), INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . $ 284,338 $ 365,390
Accounts receivable . . . . . . . . . . . . . . . . 1,021,420 2,530,883
Related party receivable. . . . . . . . . . . . . . 11,034 -
------------- -------------
Total Current Assets. . . . . . . . . . . . . . . . 1,316,792 2,896,273
------------- -------------
Fixed Assets - net of depreciation. . . . . . . . . . . 21,705 28,640
------------- -------------
Investment in subsidiary. . . . . . . . . . . . . . . . 492,415 125,147
------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 1,830,912 $ 3,050,060
============= =============
LIABILITIES AND STOCKHOLDERS= EQUITY
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . $ 6,270 $ 12,484
Related Party Payables. . . . . . . . . . . . . . . . 52,200 -
Notes payable . . . . . . . . . . . . . . . . . . . . 466,900 -
Accrued employee benefits . . . . . . . . . . . . . . 10,000 -
------------- -------------
Total Current Liabilities . . . . . . . . . . . . . 535,370 12,484
------------- -------------
Commitments and Contingencies
Stockholders= Equity
Preferred stock, no par value, 1,000,000 shares
authorized, none issued and outstanding . . . . . . - -
Common stock, $.001 par value, 20,000,000 shares
authorized, 4,134,380 shares issued and outstanding 11,000 10,000
Additional paid in capital. . . . . . . . . . . . . . 58,500 -
Retained earnings . . . . . . . . . . . . . . . . . . 1,226,042 3,027,576
------------- -------------
Total Stockholders= Equity. . . . . . . . . . . . . 1,295,542 3,037,576
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS= EQUITY. . . . . $ 1,830,912 $ 3,050,060
- ------------------------------------------------------- ============= =============
</TABLE>
ESSCO (USA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . $ 19,930,128 $ 23,169,860
-------------- --------------
Cost of Sales. . . . . . . . . . . . . 18,485,998 19,708,525
-------------- --------------
Gross Profit . . . . . . . . . . . 1,444,130 3,461,335
-------------- --------------
Other Income (Expenses)
General and administrative expenses. (730,503) (558,906)
Earnings of subsidiary . . . . . . . 87,268 125,147
-------------- --------------
Total Other Income (Expenses). . . (643,235) (433,759)
-------------- --------------
Net Income . . . . . . . . . . . . . . $ 800,895 $ 3,027,576
============== ==============
Basic earnings per share . . . . . . . $ 0.23 $ .93
- -------------------------------------- ============== ==============
</TABLE>
ESSCO (USA), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS= EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Common Additional Total
Number of Stock Paid in Retained Stockholders'
Shares Amount Capital Earnings Equity
------------ ------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 3,250,000 $10,000 $ - $ - $ 10,000
Net Income. . . . . - - - 3,027,576 3,027,576
------------ ------- ----------- ------------ ---------------
Balance at
December 31, 1996 3,250,000 10,000 - 3,027,576 3,037,576
Issuance of Stock . 884,380 1,000 58,500 - 59,500
Dividends . . . . . - - - (2,602,429) (2,602,429)
Net Income 1997 . . - - - 800,895 800,895
------------ ------- ----------- ------------ ---------------
Balance at
December 31, 1997 4,134,380 $11,000 $ 58,500 $ 1,226,042 $ 1,295,542
============ ======= =========== ============ ===============
</TABLE>
ESSCO (USA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . $ 800,895 $ 3,027,576
Adjustments to reconcile net income
to net cash provided by operating
activities:
Income from subsidiary . . . . . . . . . . . . . . (87,268) (125,147)
Depreciation . . . . . . . . . . . . . . . . . . . 6,935 6,360
Changes in assets and liabilities:
Decrease (increase) in trade receivables . . . . 1,509,463 (2,530,883)
Decrease (increase) in related party receivables (11,034) -
Increase (decrease) in accounts payable. . . . . 45,986 12,484
Increase (decrease) in accrued employee benefits 10,000 -
-------------- --------------
Net Cash Provided by Operating Activities. . . . . . . . 2,274,977 390,390
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary . . . . . . . . . . . . . . . (280,000) -
Additions to fixed assets. . . . . . . . . . . . . . . - (35,000)
-------------- --------------
Net Cash Used by Investing Activities. . . . . . . . . . (280,000) (35,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable. . . . . . . . . . . . . . 466,900 -
Proceeds from common stock issuance. . . . . . . . . . 59,500 10,000
Dividends. . . . . . . . . . . . . . . . . . . . . . . (2,602,429) -
-------------- --------------
Net Cash (Used) Provided by Financing Activities . . . . (2,076,029) 10,000
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents . . (81,052) 355,390
-------------- --------------
Cash and cash equivalents, beginning of period . . . . . 365,390 10,000
-------------- --------------
Cash and cash equivalents, end of period . . . . . . . . $ 284,338 $ 365,390
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest Paid . . . . . . . . . . . . . . . . . . . . . $ - $ -
============== ==============
Taxes Paid. . . . . . . . . . . . . . . . . . . . . . . $ - $ -
- -------------------------------------------------------- ============== ==============
</TABLE>
F-15
ESSCO (USA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
NATURE OF OPERATIONS
Essco (USA), Inc. was formed in October 1997 as a holding company for an
agricultural company and a steamshipping company. The agricultural company
(Midland Agriculture) is 100% owned and accounted for in Essco (USA), Inc.=s
financial statements using the purchase method of accounting. The steamshipping
subsidiary (Midland Steamshipping) is 49% owned, the maximum allowable under
Greek law to be owned by a non-Greek company, and is accounted for in Essco
(USA), Inc.=s financial statements using the equity method of accounting.
Midland Agricultural, S.A., a Republic of Panama Corporation, was formed on
October 1, 1995. The Company was incorporated according to the laws of the
Republic of Panama on November 11, 1995, and registered at the corporations=
registry on November 21, 1995. The Company=s headquarters is in Athens, Greece.
The Company was formerly known as Mill-AGRO Hellas, SA; however, on May 3, 1997,
the Company name was changed to Midland Agricultural, S.A. The Company is
involved in the trade of agricultural products such as wheat, wheat-flour, corn,
and barley. The Company has processing, storage, transportation and an office in
Taganrog Port (Russia) and acts as the link between farmers in Russia and the
food manufacturers in the Mediterranean countries. The Company exclusively uses
the related shipping entity, Midland Steamshipping Company. All accounts are
settled with letters of credit with U.S. dollars.
Midland Steamshipping Co. (the ACompany@), a Greek Maritime Corporation,
headquartered in Athens, was formed on September 17, 1996. The Company was
formerly known as Megahel Nautical, however, its name was changes on March 13,
1997, to Midland Steamshipping. The Company is involved in the shipping of
agricultural products. The Company primarily ships the products of a related
party Midland Agricultural, S.A. Virtually all sales are done in U.S. dollars.
Essco Commodities, Inc., a Delaware Corporation, was formed November 6, 1997.
The purpose of this company is to serve as the main agricultural trading and
handling subsidiary of Essco (USA), Inc. going forward. It is the belief of
management that utilizing a U.S. company as the agent for many of the purchase
and delivery contracts will be beneficial to the enhancement of the company's
image. The business activities of Essco Commodities, Inc. are the same as
Midland Agricultural. As of December 31, 1997, these companies had not commenced
operations.
Essco (Hellas), s.a., is a Greek corporation which was formed November 12, 1997
to act as the field office and coordination points for Essco Commodities, Inc.
PRINCIPLES OF CONSOLIDATION
- -----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary(s), with all material intercompany accounts and
transactions eliminated.
INVESTMENT IN SUBSIDIARY
- --------------------------
The equity method of accounting is used by the Company in connection with its
investment in Midland Steamshipping. Under the equity method, the original
investment is recorded at cost and adjusted for the Company=s share of earnings
or losses and distributions.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
REVENUE RECOGNITION
The Company recognizes revenues from the sales of agricultural products in the
period of shipping and issuing of invoices. Virtually all sales are transacted
in U.S. dollars.
FIXED ASSETS
Furniture and fixtures are recorded at cost. Depreciation on furniture and
fixtures is determined using the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are expensed when
incurred and betterments are capitalized.
IMPAIRMENT OF LONG-LIVED ASSETS (SFAS 121)
In March 1995, the FASB issued SFAS No. 121 AAccounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,@ which requires
that long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The new
standard is effective for fiscal years beginning after December 15, 1995. The
provisions of this statement were implemented for the years ended December 31,
1996 and 1997, and had no material effect upon the company=s financial condition
or results of operations for either year.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash includes all cash and
investments with maturities of three months or less.
INCOME TAXES
According to Greek and Panamanian Law the Company is not subject to income
taxes.
COMMON STOCK
The Company has authorized 20,000,000 shares of common stock. Each share
entitles the holder to one vote. There are no dividend or liquidation
preferences, participation rights, call prices or dates, conversion prices or
rates, sinking fund requirements, or unusual voting rights associated with these
shares. All pertinent rights and privileges of stock options granted and stock
warrants issued are explained in Note 12.
EARNINGS PER SHARE (SFAS 128)
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), AEarnings Per
Share@, which was adopted by the Company for the year ended December 31, 1997.
SFAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share based upon the weighted average number
of common shares for the period. It also requires dual presentation of basic
and diluted earnings per share for companies with complex capital structures.
The excess price of the Company's granted options exceeds the average market
price, during 1997, of the Company's common stock. Therefore, these options are
considered anti-dilutive on the earnings per share ratio and were not included
in the calculation for any of the years presented.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
STOCK-BASED COMPENSATION (SFAS 123)
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
AAccounting for Stock-Based Compensation.@ This statement applies to the
financial statements for fiscal years beginning after December 15, 1995. It
defines a fair value based method of accounting for an employee stock option or
similar equity instrument.
However, it also allows an entity to continue to measure compensation costs for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Under the fair
value based method, compensation costs is measured at the grant date based on
the value of the award and is recognized over the service period, which is
usually the vesting period. Under the intrinsic value based method,
compensation costs are the excess, if any, of the quoted market price of the
stock at grant date or other measurement date over the amount an employee must
pay to acquire the stock.
The Company has elected to continue accounting for stock-based compensation
under APB Opinion No. 25. Additionally, the Company discloses pro forma net
income and earnings per share, as if the fair value based method of accounting
defined in Statement 123 had been applied. The provisions of this statement
were implemented for the year ended December 31, 1997, and had no material
effect on the Company=s financial position or results of operations for either
year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130), Reporting Comprehensive Income. This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 will
be adopted by the Company for the year ended December 31, 1998. Prior period
financial statements provided for comparative purposes will be reclassified, as
required. Upon adoption, the Company does not expect SFAS 130 to have a
material effect upon the Company=s financial condition or results of operations.
In June 1997, the FASB issued Statements of Financial Accounting Standards No.
131 (SFAS 131), Disclosures about Segments of an Enterprise and Related
Information. The statement requires the Company to report income/loss, revenue,
expense and assets by business segment including information regarding the
revenues derived from specific products and services and about the countries in
which the Company is operating. The Statement also requires that the Company
report descriptive information about the way that operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the Company=s general-purpose financial statements, and changes in
the measurement of segment amounts from period to period. SFAS 131 will be
adopted by the Company for the year ended December 31, 1998. This statement has
no effect on financial statements traditionally presented by the Company, but
increases required disclosures.
NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------------
The carrying amount of cash, accounts receivable, accounts payable and accrued
liabilities approximates fair value because of the short maturity of these
instruments. Virtually all accounts receivable are settled with letters of
credit within eight days from loading.
NOTE 3 - RELATED PARTY TRANSACTIONS
------------------------------
At December 31, 1997, the Company has $11,034 of related party receivable, which
represents amounts from Midland Liners, Co., a company owned by the Company=s
major shareholder.
At December 31, 1997, the Company has $52,200 of related party payable, which is
owed to Midland Steamshipping, an affiliated entity.
At December 31, 1997, the Company had paid to C & K Capital Corporation, an
affiliated entity, fees in total of $_______ for services rendered in
relation to the acquisition of Midland Steamshipping and Midland Agricultural.
In addition, the Company had reimbursed certain legal, travel, and office
expenses incurred as a result of these services provided.
At this time, the Company continues to sublease office space from C & K Capital
Corporation at a rate of $2,000 per month, plus any extraordinary expenses such
as telephone charges, etc.
C & K Capital Corporation is a corporation owned by Mr. Alexander G. Montano,
the Chief Financial Officer of the Company, and employs Mr. Daniel C. Montano,
Vice Chairman as a managing director (see Note 7).
The Company will from time to time purchase agricultural commodities in Russia
at prevailing market prices from an agricultural company in which Mr. Christos
Traios is a shareholder.
NOTE 4 - ECONOMIC DEPENDENCY, MAJOR CUSTOMERS, AND CONCENTRATIONS OF
-----------------------------------------------------------------
CREDIT RISK
----------
SALES
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and, if necessary,
maintains allowances for possible losses.
Approximately 60% of Midland Steamshipping=s revenues for the year ended
December 31, 1997 were derived from the transport of grain commodities for
Midland Agricultural. Midland Steamshipping operates a single bulk carrier
vessel, the AVictoria.@
For the year ended December 31, 1997 Midland Agricultural derived approximately
65% of its revenues from 3 customers, the largest representing approximately 28%
of the Company=s revenues, and the lowest representing approximately 17%. The
following major customers represent 10% or more of total operating revenues for
the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
AGRICULTURAL
- ----------------------
PROALIM. . . . . . . 28% 29%
- ----------------------
Adam Commodities . . 20% 18%
T.L.D. SRL . . . . . 17% 18%
STEAMSHIPPING
- ----------------------
Midland Agricultural 60% 56%
- ---------------------- ----- -----
</TABLE>
NOTE 4 - ECONOMIC DEPENDENCY, MAJOR CUSTOMERS, AND CONCENTRATIONS OF
-----------------------------------------------------------------
CREDIT RISK (Continued)
----------
MARKETS
Midland Agricultural primarily handles agricultural goods that are harvested and
delivered in Southern Russia. As a result, the business of the Company is
impacted by items such as weather patterns, and political risk associated with
Russia.
The bulk of the Company=s agricultural goods are in turn sold to various
purchasers around the Mediterranean Sea, with a predominance in nations such as
Italy, Greece, Israel, Lebanon and Egypt.
NOTE 5 - CONTINGENCIES
-------------
The Company is involved in legal actions arising in the ordinary course of
business. In the opinion of management, the Company has adequate legal defenses
or insurance coverage with respect to each of these actions and does not believe
that they will materially affect the Company=s results of operations or
financial position.
NOTE 6 - FIXED ASSETS
Premises and equipment at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cost:
Furniture and equipment . . . . $35,000 $35,000
Less: accumulated depreciation 13,295 6,360
------- -------
$21,705 $28,640
======= =======
</TABLE>
Depreciation expense for fixed assets amounted to $6,935 and $6,360 in 1997 and
1996, respectively.
NOTE 7 - LEASE COMMITMENTS
------------------
Currently, the Company is headquartered in Irvine, California, wherein it
subleases office space from C & K Capital Corporation an affiliated entity.
Currently, the Company pays monthly rent of $2,000 for use of office facilities
and equipment.
The bulk of the Company=s operations are managed from its offices in Piraeus,
Greece. Both the shipping and handling business are coordinated from these
office totaling 180 square meters. The Company has entered into a 5 year lease,
with monthly lease payments of approximately $3,500 per month, with an annual
10% increase during the term of the lease.
NOTE 7 - LEASE COMMITMENTS (Continued)
------------------
The Company pays approximately $2,500 per month for 100 square meters of office
space in Taganrog. The Company just completed its first year of a four year
lease, with annual increases of 15%. The Company has the choice to exercise an
option to extend the lease for an additional four years.
<TABLE>
<CAPTION>
Year Ending Minimum
December 31, Payments
- ------------ ---------
<S> <C>
1998 . . . . $ 30,000
1999 . . . . 34,500
2000 . . . . 39,675
---------
Thereafter . $ 104,175
=========
</TABLE>
Note: The above minimum payments are for the Taganrog lease only. The Irvine
and Greece leases need to be calculated
Rent expense for the years ended December 31, 1997 and 1996 amounted to
$___________ and $_________, respectively.
NOTE 8 - SUMMARIZED FINANCIAL INFORMATION - UNCONSOLIDATED SUBSIDIARIES
-------------------------------------------------------------------
The following unaudited summarized financial information is presented for the
Company=s 49% subsidiary, Midland Steamshipping.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current Assets. . . $ 601,116 $ 374,491
Non-current Assets. 2,876,482 3,330,127
Current Liabilities 295,300 1,545,015
Net Sales . . . . . 1,042,550 1,321,275
Gross Profit. . . . 555,288 542,017
Net Income. . . . . 380,598 255,403
</TABLE>
NOTE 9 - NOTES PAYABLE
----------------
In November of 1997, the Company entered into a purchase agreement with Daystar
Partners, L.P. and various others. Under this agreement, the Company is to sell
units consisting of (1) secured promissory notes issued by the Company in the
amount of $10,000 at an initial interest rate of 12% and maturing six months
from the issuance, and (2) 2,000 shares of the Company=s $001 par value common
stock. Each unit has a purchase price of $10,200 and the purchase price of the
common stock is deemed to be $0.10 per share.
These notes are secured by a pledge of 49% of the outstanding capital stock of
Midland Steamshipping Co., and Greek Maritime Company and 100% of the
outstanding capital stock of Midland Agricultural, SA., a Company organized
under the laws of Panama, and 100% of the outstanding capital stock of ESSO,
Commodities, Inc. A Delaware Corporation.
As of December 31, 1997, 474 units had been sold, and the total outstanding
balance of the promissory notes was $466,900 with due dates ranging between
April and May of 1998. As of August 15th of 1998 no principal payments had been
made.
NOTE 10 - SUBSEQUENT EVENT
-----------------
Effective January 5, 1998, Midland Steamshipping transferred ownership of its
sole vessel, AVictoria@ to a newly formed corporation, Essco Pioner (Panama).
Essco (USA), Inc. Received 100% ownership in the newly formed Essco Pioneer in
exchange for its 49% ownership in Midland Steamshipping.
NOTE 11 - YEAR 2000
----------
The Company has reviewed its current computer software and hardware systems and
is currently working to resolve the potential problems associated with the Year
2000 and the processing of date sensitive information by such systems. Based on
preliminary information, the Company believes that it will be able to implement
successfully the systems and programming changes necessary to address the Year
2000 issues, and does not expect the cost of such changes to have a material
impact of the Company=s financial position, results of operations or cash flows
in future projects.
NOTE 12 - STOCK OPTIONS
--------------
At December 31, 1997, the Company did not have a formal stock-based compensation
plan. They did, however, grant the Chief Executive Officer the option to avquire
1,000,000 shares of the Company's stock at an exercise price of $9.00 per share,
the Company applies APB Opinion 25 and related Interpretations in accounting for
stock-based compensation. Accordingly, no compensation costs has been
recognized for this granted option. Had compensation cost for the Company=s
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company=s net income and earnings per share would also not
have been reduced, due to the nature and terms of these options.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes American option-pricing model with the following weighted-average
assumptions used for grant in 1997: dividend yield of zero percent for all
years; no expected volatility, risk-free interest rates of 6.5 percent; and
expected lives of 10 years.
A summary of the status of the Company=s fixed stock option grant as of December
31, 1997 and changes during the year ending at the date is presented below.
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ---------------
<S> <C> <C>
Fixed Options
Outstanding at beginning of year. -0- $ -0-
Granted . . . . . . . . . . . . . 1,000,000 .10
--------- ---------------
Outstanding at end of year. . . . 1,000,000 .10
========= ===============
Options exercisable at year-end
Weighted-average fair value of
Options granted during the year -0- $ -0-
========= ===============
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Outstanding at Remaining Average Outstanding at Average
Exercise Prices Exercise Price Contractual Life Exercise Price December 31, 1997 Exercise Price
- ---------------- -------------- ---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
9.00. . . . . . 1,000,000 10 $ 9.00 $ 9.00
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
MIDLAND AGRICULTURAL, S.A. Page
- ------------------------------------------------------------------------------------------------------ ----
<S> <C>
Financial Statements:
- ------------------------------------------------------------------------------------------------------
Independent Auditors= Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
----
Balance Sheets at December 31, 1996 and 1995 (Audited), and October 31, 1997 (Unaudited) . . . . . F-2
----
Statements of Operations for the Year Ended December 31, 1996 and for the Period from October 1,
1995 to December 31, 1995 (Audited) and for the Ten Months Ended October 31, 1997 and 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
----
Statements of Stockholders= Equity for the Period from October 1, 1995 to December 31, 1995
and for the Year Ended December 31, 1996 (Audited) and for the Ten Months Ended October 31,
1997 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
----
Statements of Cash Flows for the Year Ended December 31, 1996 and for the Period from October 1,
1995 to December 31, 1995 (Audited) and for the Ten Months Ended October 31, 1997 and 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
----
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
----
MIDLAND STEAMSHIPPING COMPANY
Financial Statements:
- ------------------------------------------------------------------------------------------------------
Independent Auditors= Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11
----
Balance Sheets at December 31, 1996 (Audited), and October 31, 1997 (Unaudited) . . . . . . . . . F-12
----
Statements of Operations for the Period from October 8, 1996 to December 31, 1996 (Audited),
and for the Ten Months Ended October 31, 1997 (Unaudited). . . . . . . . . . . . . . . . . . . . F-13
----
Statements of Stockholders= Equity for the Period from October 8, 1996 to December 31,
1996 (Audited), and for the Ten Months Ended October 31, 1997 (Unaudited). . . . . . . . . . . . F-14
----
Statements of Cash Flows for the Period from October 8, 1996 to December 31, 1996 (Audited),
and for the Ten Months Ended October 31, 1997 (Unaudited). . . . . . . . . . . . . . . . . . . . F-15
----
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
----
ESSCO (USA), INC.
Unaudited Proforma Consolidated Financial Statements:
- ------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Balance Sheet at October 31, 1997 . . . . . . . . . . . F-20
----
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
Ten Months Ended October 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
----
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements . . . . . . . . . . . . . F-22
- ------------------------------------------------------------------------------------------------------ ----
</TABLE>
F-1
INDEPENDENT AUDITORS= REPORT
To the Board of Directors and Shareholders of
Midland Agricultural, S.A.
We have audited the accompanying balance sheets of Midland Agricultural, S.A. as
of December 31, 1996 and 1995, and the related statement of operations, cash
flows and stockholders= equity for the periods then ended. These financial
statements are the responsibility of the Company=s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midland Agricultural, S.A. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the periods then ended, in conformity with generally accepted
accounting principles.
BROWN ARMSTRONG RANDALL & REYES
ACCOUNTANCY CORPORATION
Bakersfield, California
November 1, 1997
The accompanying notes are an integral part of these financial statements.
F-6
MIDLAND AGRICULTURAL, S.A.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995, AND OCTOBER 31, 1997
<TABLE>
<CAPTION>
December 31, December 31, October 31,
1996 1995 1997
------------- ------------- -------------
(Unaudited)
-------------
<S> <C> <C> <C>
ASSETS
Current Assets
$ 365,390
Cash and cash equivalents $ 10,000 $ 356,556
------------- -------------
Accounts receivable . . . . . . . . . . . . . . . . . 2,530,883 - 644,400
------------- ------------- -------------
Related party receivable. . . . . . . . . . . . . . . - - 6,800
------------- ------------- -------------
Total Current Assets. . . . . . . . . . . . . . . . 2,896,273 10,000 1,007,756
------------- ------------- -------------
Fixed Assets - net of depreciation. . . . . . . . . . . . 28,640 - 23,011
------------- ------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 2,924,913 $ 10,000 $ 1,030,767
============= ============= =============
LIABILITIES AND STOCKHOLDERS= EQUITY
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . $ 12,484 $ - $ 86,430
------------- ------------- -------------
Accrued employee benefits . . . . . . . . . . . . . . . - - 10,000
------------- ------------- -------------
Total Current Liabilities . . . . . . . . . . . . . . 12,484 - 96,430
------------- ------------- -------------
Commitments and Contingencies
Stockholders= Equity
Common stock, $100 par value, 10,000 shares authorized,
100 shares issued and outstanding . . . . . . . . . . 10,000 10,000 10,000
------------- ------------- -------------
Retained earnings . . . . . . . . . . . . . . . . . . . 2,902,429 - 924,337
------------- ------------- -------------
Total Stockholders= Equity. . . . . . . . . . . . . . 2,912,429 10,000 934,337
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS= EQUITY. . . . . . $ 2,924,913 $ 10,000 $ 1,030,767
- --------------------------------------------------------- ============= ============= =============
</TABLE>
MIDLAND AGRICULTURAL, S.A.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
FROM OCTOBER 1, 1995 TO DECEMBER 31, 1995 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Ten Months Ended Ten Months Ended
Period from October 31, October 31,
Year Ended October 1, 1995 to 1997 1996
------------------ ------------------
December 31, 1996 December 31, 1995 (Unaudited) (Unaudited)
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . $ 23,169,860 $ 2,224,000 $ 13,440,860 $ 19,303,010
- ---------------------------- ------------------ ------------------- ------------------ ------------------
Cost of Sales. . . . . . . . 19,708,525 1,909,296 12,287,600 16,612,170
------------------ ------------------- ------------------ ------------------
Gross Profit . . . . . . . 3,461,335 314,704 1,153,260 2,690,840
------------------ ------------------- ------------------ ------------------
Operating Expenses
General and administrative
expenses . . . . . . . . 558,906 71,200 228,923 304,114
------------------ ------------------- ------------------ ------------------
Provision for doubtful
accounts . . . . . . . . . - - 300,000 -
------------------ ------------------- ------------------ ------------------
Total Operating Expenses 558,906 71,200 528,923 304,114
------------------ ------------------- ------------------ ------------------
Net Income . . . . . . . $ 2,902,429 $ 243,504 $ 624,337 $ 2,386,726
================== =================== ================== ==================
Net Income per Common
Share. . . . . . . . . . . $ 29,024.29 $ 2,435.04 $ 6,243.37 $ 23,867.26
================== =================== ================== ==================
Weighted Average Common
Shares Outstanding. . . . . 100 100 100 100
- ---------------------------- ================== =================== ================== ==================
</TABLE>
MIDLAND AGRICULTURAL, S.A.
STATEMENT OF STOCKHOLDERS= EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1995 TO DECEMBER 31, 1995 AND
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
Common Stock Common Stock Total Stockholders=
Number of Shares Amount Retained Earnings Equity
---------------- ------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Balance at October 1, 1995. . . . . . . . - $ - $ - $ -
- ----------------------------------------- ---------------- ------------- ------------------- ---------------------
Issuance of stock . . . . . . . . . . . 100 10,000 - 10,000
---------------- ------------- ------------------- ---------------------
Dividends . . . . . . . . . . . . . . . - - (243,504) (243,504)
---------------- ------------- ------------------- ---------------------
Net income. . . . . . . . . . . . . . . - - 243,504 243,504
---------------- ------------- ------------------- ------------------
Balance at
December 31, 1995 . . . . . . . . . . . 100 10,000 - 10,000
---------------- ------------- ------------------- ------------------
Net income. . . . . . . . . . . . . . . - - 2,902,429 2,902,429
---------------- ------------- ------------------- ------------------
Balance at
December 31, 1996 . . . . . . . . . . . 100 10,000 2,902,429 2,912,429
---------------- ------------- ------------------- -----------------
Dividends (unaudited) . . . . . . . . . - - (2,602,429) (2,602,429)
---------------- ------------- ------------------- ------------------
Net income (unaudited). . . . . . . . . - - 624,337 624,337
---------------- ------------- ------------------- ------------------
Balance at
October 31, 1997 (unaudited) 100 $ 10,000 $ 924,337 $ 934,337
================ ============= =================== ===================
</TABLE>
MIDLAND AGRICULTURAL, S.A.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
FROM OCTOBER 1, 1995 TO DECEMBER 31, 1995 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Ten Months Ten Months
Year Ended Year Ended Ended Ended
December 31, December 31, October 31, October 31,
1996 1995 1997 1996
-------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
- ----------------------------------------
Net income . . . . . . . . . . . . . . $ 2,902,429 $ 243,504 $ 624,337 $ 2,386,726
-------------- -------------- ------------- -------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation . . . . . . . . . . . 6,360 - 5,629 1,000
-------------- -------------- ------------- -------------
Changes in assets and liabilities:
Decrease (increase) in trade
receivables. . . . . . . . . . (2,530,883) - 1,886,483 (1,548,600)
-------------- -------------- ------------- -------------
Decrease (increase) in related
party receivables. . . . . . . - - (6,800) -
-------------- -------------- ------------- -------------
Increase (decrease) in accounts
payable. . . . . . . . . . . . 12,484 - 73,946 12,484
-------------- -------------- ------------- -------------
Increase (decrease) in accrued
employee benefits. . . . . . . - - 10,000 -
-------------- -------------- ------------- -------------
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . 390,390 243,504 2,593,595 851,610
-------------- -------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to fixed assets. . . . . . . (35,000) - - (35,000)
-------------- -------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from common stock issuance. . - 10,000 - -
-------------- -------------- ------------- -------------
Dividends. . . . . . . . . . . . . . . - (243,504) (2,602,429) -
-------------- -------------- ------------- -------------
NET CASH USED BY INVESTING
ACTIVITIES. . . . . . . . . . . . . . . - (233,504) (2,602,429) -
-------------- -------------- ------------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . 355,390 10,000 (8,834) 816,610
-------------- -------------- ------------- -------------
Cash and cash equivalents, beginning of
Period. . . . . . . . . . . . . . . . . 10,000 - 365,390 10,000
-------------- -------------- ------------- -------------
Cash and cash equivalents, end of period $ 365,390 $ 10,000 $ 356,556 $ 826,610
- ---------------------------------------- ============== ============== ============= =============
</TABLE>
F-12
MIDLAND AGRICULTURAL, S.A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
FROM OCTOBER 1, 1995 TO DECEMBER 31, 1995 AND FOR THE
TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
NATURE OF OPERATIONS
Midland Agricultural, S.A. (the ACompany@), a Republic of Panama Corporation,
was formed on October 1, 1995. The Company was incorporated according to the
laws of the Republic of Panama on November 11, 1995, and registered at the
corporations= registry on November 21, 1995. The Company=s headquarters is in
Athens, Greece. The Company was formerly known as Mill-AGRO Hellas, SA; however,
on May 3, 1997, the Company name was changed to Midland Agricultural, S.A. The
Company is involved in the trade of agricultural products such as wheat,
wheat-flour, corn, and barley. The Company has processing, storage,
transportation and an office in Taganrog Port (Russia) and acts as the link
between farmers in Russia and the food manufacturers in the Mediterranean
countries. The Company exclusively uses the related shipping entity, Midland
Steamshipping Company. All accounts are settled with letters of credit with
U.S. dollars.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
REVENUE RECOGNITION
The Company recognizes revenues from the sales of agricultural products in the
period of shipping and issuing of invoices. Virtually all sales are transacted
in U.S. dollars.
FIXED ASSETS
Furniture and fixtures are recorded at cost. Depreciation on furniture and
fixtures is determined using the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are expensed when
incurred and betterments are capitalized.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
NET INCOME PER COMMON SHARE
Net income per common share has been computed by dividing net earnings by the
weighted average number of shares outstanding during the period.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash includes all cash and
investments with maturities of three months or less.
INCOME TAXES
According to Greek and Panamanian Law the Company is not subject to income
taxes.
INTERIM FINANCIAL STATEMENTS
The interim financial information as of October 31, 1997, and for the ten months
ended October 31, 1997 and 1996, is unaudited. However, in the opinion of
management, these interim financial statements include all necessary adjustments
to fairly present the results of the interim periods, and all such adjustments
are of a normal recurring nature. The interim financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 1996 and for the period from October 1, 1995 to December 31, 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), AEarnings Per
Share,@ which will be effective for the Company beginning December 31, 1997.
SFAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share based upon the weighted average number
of common shares for the period. It also requires dual presentation of basic and
diluted earnings per share for companies with complex capital structures. Prior
period financial statements provided for comparative purposes will require
restatement. This statement will not have a material effect on financial
statements presented by the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130), AReporting Comprehensive Income.@ This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 will
be adopted by the Company for the year ended December 31, 1998. Prior period
financial statements provided for comparative purposes will be reclassified, as
required. This statement has no effect on financial statements traditionally
presented by the Company, but increases required disclosures.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 (SFAS 131), ADisclosures about Segments of an Enterprise and Related
Information.@ The statement requires the Company to report income/loss, revenue,
expense and assets by business segment including information regarding the
revenues derived from specific products and services and about the countries in
which the Company is operating. The Statement also requires that the Company
report descriptive information about the way that operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the Company=s general purpose financial statements, and changes in
the measurement of segment amounts from period to period. SFAS 131 will be
adopted by the Company for the year ended December 31, 1998.
NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------------
The carrying amount of cash, accounts receivable, accounts payable and accrued
liabilities approximates fair value because of the short maturity of these
instruments. Virtually all accounts receivable are settled with letters of
credit within eight days from loading.
NOTE 3 - RELATED PARTY TRANSACTIONS
------------------------------
At October 31, 1997, the Company has $6,800 of related party receivables, which
is receivable from Midland Liners, Co., a company owned by the Company=s major
shareholder.
At October 31, 1997, the Company had paid to C & K Capital Corporation fees in
total of $100,000 for services rendered in relation to the acquisition of
Midland Steamshipping and Midland Agricultural. In addition, the Company had
reimbursed certain legal, travel, and office expenses incurred as a result of
these services provided.
At this time, the Company continues to sublease office space from C & K Capital
Corporation at a rate of $2,000 per month, plus any extraordinary expenses such
as telephone charges, etc.
C & K Capital Corporation is a corporation owned by Mr. Alexander G. Montano,
the Chief Financial Officer of the Company, and employs Mr. Daniel C. Montano,
Vice Chairman as a managing director (see Note 7).
The Company will from time to time purchase agricultural commodities in Russia
at prevailing market prices from an agricultural company in which Mr. Christos
Traios is a shareholder.
NOTE 4 - CONCENTRATIONS
--------------
SALES
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of sales. In the normal course, the Company
provides credit terms to its customers. Accordingly, the Company performs
ongoing credit evaluations of its customers and, if necessary, maintains
allowances for possible losses.
The following purchasers accounted for 10% or more of the Company=s sales for
the periods ended:
<TABLE>
<CAPTION>
Ten Months
For the Year Ended Ended
December 31, 1996 October 31, 1997
------------------- -----------------
(Unaudited)
-----------------
<S> <C> <C>
Purchaser A 12% 20%
------------------- -----------------
Purchaser B 24% 25%
------------------- -----------------
Purchaser C 38% 11%
------------------- -----------------
Purchaser D 20% -
- ------------- ------------------- -----------------
</TABLE>
MARKETS
Midland Agricultural primarily handles agricultural goods that are harvested and
delivered in Southern Russia. As a result, the business of the Company is
impacted by items such as weather patterns, and political risk associated with
Russia.
The bulk of the Company=s agricultural goods are in turn sold to various
purchasers around the Mediterranean Sea, with a predominance in nations such as
Italy, Greece, Israel, Lebanon and Egypt.
NOTES 5 - CONTINGENCIES
-------------
The Company is involved in legal actions arising in the ordinary course of
business. In the opinion of management, the Company has adequate legal defenses
or insurance coverage with respect to each of these actions and does not believe
that they will materially affect the Company=s results of operations or
financial position.
NOTE 6 - LEASE COMMITMENTS
------------------
The Company pays approximately $2,500 per month for 100 square meters of office
space in Taganrog. The Company just completed its first year of a four year
lease, with annual increases of 15%. The Company has the choice to exercise an
option to extend the lease for an additional four years.
NOTE 7 - SUBSEQUENT EVENT
-----------------
On October 8, 1997, the Company entered into an acquisition agreement whereby
ownership was transferred from Mr. Christos Traios, to Essco (USA), Inc. for
3,250,000 shares of common stock.
Additionally, 49% of Midland Steamshipping Company common stock was acquired by
Essco (USA), Inc. Essco (USA), Inc. was formed by officers of C & K Capital
Corporation (see Note 3), who will continue as officers and board members for
Essco (USA), Inc.
INDEPENDENT AUDITORS= REPORT
To the Board of Directors and Shareholders of
Midland Steamshipping Co.
We have audited the accompanying balance sheets of Midland Steamshipping Co. as
of December 31, 1996 and 1995, and the related statement of operations, cash
flows and stockholders= equity for the years then ended. These financial
statements are the responsibility of the Company=s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midland Steamshipping Co. as of
December 31, 1996 and 1995, the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
BROWN ARMSTRONG RANDALL & REYES
ACCOUNTANCY CORPORATION
Bakersfield, California
November 1, 1997
The accompanying notes are an integral part of these financial statements.
F-18
MIDLAND STEAMSHIPPING CO.
BALANCE SHEETS
DECEMBER 31, 1996 AND OCTOBER 31, 1997
<TABLE>
<CAPTION>
December 31, October 31,
1996 1997
------------- -------------
(Unaudited)
-------------
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 219,436 $ 302,822
------------- -------------
Related party receivables . . . . . . . . . . . . . . . . . . . . . . 155,055 -
------------- -------------
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . - 68,064
------------- -------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . 374,491 370,886
------------- -------------
Property and Equipment
Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 1,200,000
------------- -------------
Furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . . 55,727 55,727
------------- -------------
1,255,727 1,255,727
------------- -------------
Less: accumulated deprecation . . . . . . . . . . . . . . . . . . . . 125,600 334,886
------------- -------------
Total Property and Equipment. . . . . . . . . . . . . . . . . . . . 1,130,127 920,841
------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,504,618 $ 1,291,727
============= =============
LIABILITIES AND STOCKHOLDERS= EQUITY
Current Liabilities
Loan payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000 $ -
------------- -------------
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 45,015 5,100
------------- -------------
Accrued employee benefits payable . . . . . . . . . . . . . . . . . . - 10,000
------------- -------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 245,015 15,100
------------- -------------
Commitments and Contingencies
Stockholders= Equity
Common stock, $42 par value, 100 shares authorized, 100 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200 4,200
------------- -------------
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,000,000
------------- -------------
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 255,403 272,427
------------- -------------
Total Stockholders= Equity . . . . . . . . . . . . . . . . . . . . . 1,259,603 1,276,627
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS= EQUITY . . . . . . . . . . . . . $ 1,504,618 $ 1,291,727
- ----------------------------------------------------------------------- ============= =============
</TABLE>
MIDLAND STEAMSHIPPING CO.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION ON OCTOBER 8, 1996 TO
DECEMBER 31, 1996 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
Ten Months
October 8, 1996 to Ended
December 31, 1996 October 31, 1997
------------------- ------------------
(Unaudited)
------------------
<S> <C> <C>
Revenues from voyages. . . . . . . . . . . $ 1,321,275 $ 832,715
- ------------------------------------------ ------------------- ------------------
Operating expenses
Vessel expenses. . . . . . . . . . . . . 779,258 469,320
------------------- ------------------
General and administrative expenses. . . 286,614 90,968
------------------- ------------------
Total Operating Expenses . . . . . . . 1,065,872 560,288
------------------- ------------------
Net Income . . . . . . . . . . . . . . . . $ 255,403 $ 272,427
=================== ==================
Net Income per Common Share. . . . . . . . $ 2,554.03 $ 2,724.27
=================== ==================
Weighted Average Common Shares Outstanding 100 100
- ------------------------------------------ =================== ==================
</TABLE>
MIDLAND STEAMSHIPPING CO.
STATEMENTS OF STOCKHOLDERS= EQUITY
FOR THE PERIOD FROM OCTOBER 8, 1996 TO DECEMBER 31, 1996 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
Common
Stock Common Additional Total
Number of Stock Paid-in Retained Stockholders
Shares Amount Capital Earnings Equity
--------- ------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance at October 8, 1996. . . . . . . - $ - $ - $ - $ -
--------- ------- ----------- ---------- --------------
Issuance of stock . . . . . . . . . . 100 4,200 - - 4,200
--------- ------- ----------- ---------- --------------
Assets contributed at book value. . . - - 1,000,000 - 1,000,000
--------- ------- ----------- ---------- --------------
Net Income. . . . . . . . . . . . . . - - - 255,403 255,403
--------- ------- ----------- ---------- --------------
Balance at December 31, 1996. . . . . . 100 4,200 1,000,000 255,403 1,259,603
--------- ------- ----------- ---------- --------------
Dividends (unaudited) . . . . . . . . - - - (255,403) (255,403)
--------- ------- ----------- ---------- --------------
Net income (unaudited) . . . . . . . . - - - 272,427 272,427
--------- ------- ----------- ---------- --------------
Balance at October 31, 1997 (unaudited) 100 $ 4,200 $ 1,000,000 $ 272,427 $ 1,276,627
- --------------------------------------- ========= ======= =========== ========== ==============
</TABLE>
MIDLAND STEAMSHIPPING CO.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION ON OCTOBER 8, 1996 TO
DECEMBER 31, 1996 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
October 8, 1996 Ten Month
to Ended
December 31, October 31,
1996 1997
----------------- -------------
(Unaudited)
-------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 255,403 $ 272,427
----------------- -------------
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 125,600 209,286
----------------- -------------
Changes in assets and liabilities:
Decrease (increase) in related receivables. . . . . . . . . (155,055) 155,055
----------------- -------------
Decrease (increase) in prepaid expenses . . . . . . . . . . - (68,064)
----------------- -------------
Increase (decrease) in accrued liabilities. . . . . . . . . 45,015 (29,915)
----------------- -------------
Net Cash Provided by Operating Activities . . . . . . . . . . . . 270,963 538,789
----------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of furniture and fixtures . . . . . . . . . . . . . (55,727) -
----------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on note payable. . . . . . . . . . . . . . . . . . . . - (200,000)
----------------- -------------
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . - (255,403)
----------------- -------------
Proceeds from stock issuance . . . . . . . . . . . . . . . . . 4,200 -
----------------- -------------
Net Cash Provided (Used) by Financing Activities. . . . . . . . . 4,200 (455,403)
----------------- -------------
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . 219,436 83,386
----------------- -------------
Cash and cash equivalent at beginning of period . . . . . . . . . - 219,436
----------------- -------------
Cash and cash equivalent at end of period . . . . . . . . . . . . $ 219,436 $ 302,822
- ----------------------------------------------------------------- ================= =============
</TABLE>
F-22
MIDLAND STEAMSHIPPING CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION ON OCTOBER 8, 1996 TO
DECEMBER 31, 1996 AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
NATURE OF OPERATIONS
Midland Steamshipping Co. (the Company), a Greek Maritime Corporation,
headquartered in Athens, was formed on September 17, 1996. The Company was
formerly known as Megahel Nautical, however, its name was changed on March 13,
1997, to Midland Steamshipping. The Company is involved in the shipping of
agricultural products. The Company primarily ships the products of a related
party Midland Agricultural, S.A. Virtually all sales are done in U.S. dollars.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
REVENUE AND EXPENSE RECOGNITION
Voyage revenues and expenses are included in income at the time each voyage leg
commences. This method of accounting does not differ materially from other
acceptable accounting methods.
PROPERTY AND EQUIPMENT
Furniture and fixtures are recorded at cost. Depreciation on furniture and
fixtures is determined using the straight-line method over the estimated useful
lives of the assets, which is five years.
The Company owns one shipping vessel, which is recorded at cost and has an
estimated useful life of five years. Vessel depreciation is computed using the
straight-line method. Expenditures for maintenance and repairs of vessels are
expensed when incurred and betterments are capitalized.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
NET INCOME PER COMMON SHARE
Net income per common share has been computed by dividing net earnings by the
weighted average number of shares outstanding during the period.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash includes all cash and
investments with maturities of three months or less.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, AAccounting for the Impairment
of Long-Lived Assets and/or Long-Lived Assets to be Disposed of.@ This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment loss under SFAS No. 121 is calculated as the
difference between the carrying amount of the asset and its fair value.
Management reviews carrying amounts of significant assets, e.g., vessels,
quarterly.
INCOME TAXES
According to Greek Law the Company is not subject to income taxes.
INTERIM FINANCIAL STATEMENTS
The interim financial information as of October 31, 1997, and for the ten months
ended October 31, 1997, is unaudited. However, in the opinion of management,
these interim financial statements include all necessary adjustments to present
fairly the results of the interim periods, and all such adjustments are of a
normal recurring nature. The interim financial statements should be read in
conjunction with the audited financial statements for the period from inception
on October 8, 1996 to December 31, 1996.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), AEarnings Per
Share,@ which will be effective for the Company beginning December 31, 1997.
SFAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share based upon the weighted average number
of common shares for the period. It also requires dual presentation of basic and
diluted earnings per share for companies with complex capital structures. Prior
period financial statements provided for comparative purposes will require
restatement. This statement will not have a material effect on financial
statements presented by the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130), AReporting Comprehensive Income.@ This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 will
be adopted by the Company for the year ended December 31, 1998. Prior period
financial statements provided for comparative purposes will be reclassified, as
required. This statement has no effect on financial statements traditionally
presented by the Company, but increases required disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 (SFAS 131), ADisclosures about Segments of an Enterprise and Related
Information.@ The statement requires the Company to report income/loss, revenue,
expense and assets by business segment including information regarding the
revenues derived from specific products and services and about the countries in
which the Company is operating. The Statement also requires that the Company
report descriptive information about the way that operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the Company=s general purpose financial statements, and changes in
the measurement of segment amounts from period to period. SFAS 131 will be
adopted by the Company for the year ended December 31, 1998.
NOTE 2 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------------
The carrying amount of cash, accounts receivable, accounts payable and accrued
liabilities approximates fair value because of the short maturity of these
instruments.
NOTE 3 - RELATED PARTY TRANSACTIONS
------------------------------
At December 31, 1996, the Company had $155,055 of related party receivables.
These receivables are from companies owned by the Company=s major shareholder.
NOTE 4 - CONCENTRATIONS
--------------
The largest single customer of Midland Steamshipping is its sister Company,
Midland Agricultural. This single customer accounts for approximately 60% of
voyages made during the period of 1996 through October 31, 1997.
The Company is comfortable that there is sufficient demand for river/sea going
vessels that its fleet could be employed at prevailing Aday rates@ should
Midland Agricultural not require the level of service it has historically
chartered.
NOTE 5 - NOTE PAYABLE
---------------
The note payable a December 31, 1996 is composed of a note due for the purchase
of Company vessels.
NOTE 6 - CONTINGENCIES
-------------
The Company is involved in legal actions arising in the ordinary course of
business. In the opinion of management, the Company has adequate legal defenses
or insurance coverage with respect to each of these actions and does not believe
that they will materially affect the Company=s results of operations or
financial position.
NOTE 7 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
-----------------------------------------------------
During October 1996, the Company received a vessel valued at $1,200,000 in
exchange for an increase in capital of $1,000,000 and a note payable of
$200,000.
NOTE 8 - SUBSEQUENT EVENT
-----------------
On October 8, 1997, the Company entered into an acquisition agreement whereby
49% of the ownership of the Company was transferred from Mr. Christos Traios, to
Essco (USA), Inc. for 3,250,000 shares of common stock. The sister company,
Midland Agricultural, was 100% acquired by Essco (USA), Inc. in the simultaneous
transaction. The overall acquisition was structured by C & K Capital
Corporation of Irvine, California.
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
F-24
ESSCO (USA), INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
<TABLE>
<CAPTION>
ESSCO (USA),
ESSCO Inc. Consolidated
(USA), Midland Midland Pro Forma Pro Forma
-------------------
Inc. Agricultural Steamshipping Adjustments
---------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents. . . $ 5,393 $ 356,556 $ 302,822 $ - $ 664,771
---------- -------------- --------------- -------------- -------------------
Related party receivables. . . - 6,800 - - 6,800
---------- -------------- --------------- -------------- -------------------
Receivables. . . . . . . . . . 200,000 644,400 - (98,000) (2) 746,400
---------- -------------- --------------- -------------- -------------------
Prepaid expenses . . . . . . . - - 68,064 - 68,064
---------- -------------- --------------- -------------- -------------------
Total Current Assets . . . . 205,393 1,007,756 370,886 (98,000) 1,486,035
---------- -------------- --------------- -------------- -------------------
Vessels. . . . . . . . . . . . . - - 1,200,000 - 1,200,000
---------- -------------- --------------- -------------- -------------------
Furniture and fixtures . . . . . - 35,000 55,727 - 90,727
---------- -------------- --------------- -------------- -------------------
-
Less: accumulated depreciation . - (11,989) (334,886) - (346,875)
---------- -------------- --------------- -------------- -------------------
Total Property and Equipment - 23,011 920,841 - 943,852
---------- -------------- --------------- -------------- -------------------
TOTAL ASSETS . . . . . . . . $ 205,393 $ 1,030,767 $ 1,291,727 $ (98,000) $ 2,429,887
========== ============== =============== ============== ===================
LIABILITIES AND
STOCKHOLDERS= EQUITY
Loan payable . . . . . . . . . $ 250,000 $ - $ - $ (98,000) (2) $ 152,000
---------- -------------- --------------- -------------- -------------------
Accrued liabilities. . . . . . 29,683 96,430 15,100 - 141,213
---------- -------------- --------------- -------------- -------------------
Total Current Liabilities. . 279,683 96,430 15,100 (98,000) 293,213
---------- -------------- --------------- -------------- -------------------
Minority interest in subsidiary. - - - 651,080 (1) 651,080
---------- -------------- --------------- -------------- -------------------
Stockholders= Equity
Common stock . . . . . . . . . 1,000 10,000 4,200 (2,142) (1) 13,058
---------- -------------- --------------- -------------- -------------------
Paid-in capital. . . . . . . . 49,000 - 1,000,000 (510,000) (1) 539,000
---------- -------------- --------------- -------------- -------------------
Retained earnings. . . . . . . (124,290) 924,337 272,427 (138,938) (1) 933,536
---------- -------------- --------------- -------------- -------------------
Total Stockholders= Equity . (74,290) 934,337 1,276,627 (651,080) 1,485,594
---------- -------------- --------------- -------------- -------------------
TOTAL LIABILITIES AND
STOCKHOLDERS= EQUITY . . . $ 205,393 $ 1,030,767 $ 1,291,727 $ (98,000) $ 2,429,887
- -------------------------------- ========== ============== =============== ============== ===================
</TABLE>
ESSCO (USA), INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
ESSCO
ESSCO Midland Midland Pro Forma (USA), Inc.
(USA), Inc. Agricultural Steamshipping Adjustments Pro Forma
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Sales of agricultural
products . . . . . . . . . $ - $ 13,440,860 $ - $ - $ 13,440,860
------------- ------------- -------------- -------------- -------------
Revenue from voyages . . . . - - 832,715 - 832,715
------------- ------------- -------------- -------------- -------------
Total Revenues . . . . . - 13,440,860 832,715 - 14,273,575
------------- ------------- -------------- -------------- -------------
Cost of sales. . . . . . . . - 12,287,600 469,320 - 12,756,920
------------- ------------- -------------- -------------- -------------
General, administrative and
selling. . . . . . . . . . 124,290 228,923 90,968 - 444,181
------------- ------------- -------------- -------------- -------------
Provision for doubtful
accounts . . . . . . . . . - 300,000 - - 300,000
------------- ------------- -------------- -------------- -------------
Total Expenses . . . . . 124,290 12,816,523 560,288 - 13,501,101
------------- ------------- -------------- -------------- -------------
Income before minority
interests in subsidiary
earnings . . . . . . . . . (124,290) 624,337 272,472 - 772,474
------------- ------------- -------------- -------------- -------------
Minority interests in
subsidiary earnings. . . . - - - (138,938) (1) (138,938)
------------- ------------- -------------- -------------- -------------
Net Income (Loss). . . . . . $ (124,290) $ 624,337 $ 272,427 $ (138,938) $ 633,536
============= ============= ============== ============== =============
Net Income (Loss) per
Share. . . . . . . . . . . $ $ 6,243.37 $ 2,724.27 $ .13
============= ============= ============== =============
Weighted Average Shares
Outstanding 100 100 4,904,000
- ---------------------------- ============= ============== =============
</TABLE>
F-26
ESSCO (USA), INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997
NOTE 1 - BASIS OF PRESENTATIONS
--------------------------
The unaudited pro forma condensed consolidated balance sheet at October 31, 1997
and the unaudited pro forma condensed consolidated statement of operations for
the ten months ended October 31, 1997(collectively the AEssco (USA), Inc.
Unaudited Pro Forma Financial Statements@) have been prepared from the
historical financial statements of Midland Agricultural, S.A. (Agricultural) and
Midland Steamshipping Co. (Steamshipping). The unaudited pro forma condensed
consolidated financial statements have been prepared as if Essco (USA), Inc. had
merged with Agricultural and Steamshipping on January 1, 1997. The merger has
been accounted for in the Essco (USA), Inc. Pro Forma Financial Statements using
the pooling method of accounting.
The agricultural subsidiary is 100% owned, and the steamshipping subsidiary is
49% owned, the maximum allowable under Greek law to be owned by a non-Greek
company. The majority shareholder of Essco owns the 51% unconsolidated interest
of steamshipping; however, Essco management consolidates the 49% interest
because virtually all of agricultural=s shipping business is done with
steamshipping.
The Essco (USA), Inc. Pro Forma Financial Statements are not necessarily
indicative of the current future financial position or results of Essco (USA),
Inc. Management believes the estimates and assumptions provide a reasonable
basis for presenting the significant effects of the transactions and that the
pro forma adjustments give appropriate effect to these estimates and assumptions
and are properly applied in the Essco (USA), Inc. Pro Forma Financial
Statements.
NOTE 2 - PRO FORMA ADJUSTMENTS
-----------------------
Unaudited pro forma condensed consolidated balance sheet and unaudited pro forma
condensed consolidated statement of operations:
(1) To effect the merger, Essco (USA), Inc. issued three million one hundred
fifty thousand (3,150,000) shares in exchange for all the issued and outstanding
shares of agricultural and 49% of the issued and outstanding shares of
steamshipping.
(2) To eliminate the loan payable to Essco by Midland Steamshipping.
NOTE 3 - INCOME TAXES
-------------
These statements contain no deferred taxes nor provision for income taxes
because the subsidiaries are completely exempt from Greek income tax, while the
parent, Essco (USA), Inc., has taxable losses from its inception on October 8,
1996 to October 31, 1997. As the parent and subsidiaries continue into the
future, management anticipates income taxes to be provided only for the parent
company earnings as the foreign subsidiaries and the U.S. parent will most
likely be majority owned by non-U.S. citizens, and it is managements intent to
re-invest earnings of its foreign subsidiaries in foreign owned assets and
business activities.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 284,338
<SECURITIES> 0
<RECEIVABLES> 1,032,454
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,316,792
<PP&E> 21,705
<DEPRECIATION> 6,935
<TOTAL-ASSETS> 1,830,912
<CURRENT-LIABILITIES> 535,370
<BONDS> 0
0
0
<COMMON> 11,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,830,912
<SALES> 19,930,128
<TOTAL-REVENUES> 20,017,396
<CGS> 18,485,998
<TOTAL-COSTS> 18,485,998
<OTHER-EXPENSES> 730,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 800,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 000,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800,895
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
