UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) January 28, 2005
Commission File Number 000-50218
BEKEM METALS, INC.
---------------------------------------------
(formerly known as EMPS Research Corporation)
(Exact Name of Registrant as Specified in its Charter)
UTAH 87-0669131
-------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
875 Donner Way, Unit 705, Salt Lake City, Utah
----------------------------------------------
(Address of principal executive offices)
84108
----------
(Zip Code)
(801) 582-1881
-----------------------------------------------
(Registrant's Executive Office Telephone Number)
Check the appropriate box below if the Form 8-K/A filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act
Item 2.01 Completion of Acquisition of Assets
This Form 8-K/A amends the Current Report on Form 8-K (the "Initial
Report") of Bekem Metals, Inc., (formerly known as "EMPS Research Corporation")
(the "Company"), filed on February 2, 2005, disclosing that on January 28, 2005,
the Company had acquired 100% of the outstanding capital stock of Condesa
Pacific S.A. The sole purpose of this amendment is to provide the audited
financial statements for the period from March 4, 2004 (date of inception)
through December 31, 2004, of Condesa Pacific S.A. as required by Item 7(a) and
the pro forma financial information required by Item 7(b), which financial
statements and information were excluded from the original filing in reliance on
Items 7(a)(4) and 7(b)(2), respectively, of Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) Bekem Metals, Inc., (formerly known as "EMPS Research Corporation")
- Unaudited Pro Forma Financial Information
(b) Condesa Pacific S.A. - Report of Registered Public Accounting Firm
and Financial Statements
(c) Bekem Metals, Inc. - Report of Registered Public Accounting Firm
and Financial Statements
(d) Exhibits:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K/A to be signed on
its behalf by the undersigned hereunto duly authorized.
Bekem Metals, Inc.
Date: April 13, 2005 By: /s/ James Gunnell
--------------------------
James Gunnell, Secretary
2
BEKEM METALS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
UNAUDITED PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet -
December 31, 2004
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Period from March 5, 2004 through December 31, 2004
Notes to Unaudited Pro Forma Financial Information
CONDESA PACIFIC S.A. AND SUBSIDIARY
Report of Registered Certified Public Accounting Firm
Consolidated Balance Sheet - December 31, 2004
Consolidated Statement of Operations for the Period from
March 5, 2004 through December 31, 2004
Consolidated Statement of Shareholders' Deficiency for the
Period from March 5, 2004 through December 31, 2004
Consolidated Statement of Cash Flow for the Period from
March 5, 2004 through December 31, 2004
Notes to the Consolidated Financial Statements
BEKEM METALS, INC.
Report of Registered Public Accounting Firm
Balance Sheets as of December 31, 2004 and 2003
Statements of Operations for the Years Ended December 31, 2004
and 2003 and for the Cumulative Period from January 31, 2001
(Date of Inception) through December 31, 2004
Statements of Shareholders' Equity (Deficiency) for the Cumulative
Period from January 31, 2001 (Date of Inception) through
December 31, 2004
Statements of Cash Flows for the Years Ended December 31, 2004
and 2003 and for the Cumulative Period from January 31, 2001
(Date of Inception) through December 31, 2004
Notes to Financial Statements
BEKEM METALS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On December 3, 2004 Bekem Metals, Inc. (formerly EMPS Research, Inc.), ("Bekem")
entered into a Plan and Agreement of Reorganization with Condesa Pacific S.A.
("Condesa") a British Virgin Islands international business company, which was
completed on January 28, 2005, the Company completed the closing of the
Agreement. Bekem acquired 100% of the outstanding capital stock of Condesa in
exchange for the issuance of 35,000,000 common shares. As a result of the
issuance, the shareholders of Condesa now own 91% of the outstanding common
stock of Bekem. The transaction resulted in a change of control of Bekem and a
change in the reporting entity to Condesa.
Condesa's primary asset is an exploration and production contract held by its
wholly-owned subsidiary Kaznickel, LLP. The exploration and production contract,
which was issued by the Ministry of Energy and Mineral Resources of the Republic
of Kazakhstan, grants Kaznickel the exclusive right to explore for and produce
nickel, cobalt, and other minerals in the 616 hectare (1,522 acre)
Gornostayevskoye field located in the East Beskaragaiskiy Region, of East
Kazakhstan in the Republic of Kazakhstan. Condesa intends to pursue the
exploration and development of the Gornostayevskoye field.
Bekem had 3,300,000 shares of common stock outstanding prior to the transaction
that remained outstanding. For financial reporting purposes, Condesa was
considered to have been the acquirer. The acquisition was recognized as a
forwars stock split of Condesa's 50,000 shares of capital stock outstanding
prior to the reorganization for 35,000,000 common shares, or a 700-for-1 stock
split. Condesa's financial statements will continue to present its assets and
liabilities at their historical cost. The assets of Bekem were considered to
have been acquired by Condesa in exchange for the assumption of Bekem's
liabilities and the issuance of 3,300,000 common shares. The assets consisted of
cash of $2,841.
The following unaudited pro forma condensed consolidated balance sheet as of
December 31, 2004 has been prepared to present the effects of the acquisition of
Bekem Metals, Inc. and as though the acquisition had occurred and the common
stock had been issued on December 31, 2004. The unaudited pro forma condensed
consolidated statement of operations for the period from March 5, 2005 (date of
inception of Condesa) through December 31, 2004 has been prepared to present the
effects of the acquisition of Bekem as though the acquisition had occurred and
the common stock had been issued on March 5, 2004. The unaudited pro forma
financial information is illustrative of the effects of the acquisition and does
not necessarily reflect the financial position or results of operations that
would have resulted had the acquisition actually occurred at those dates. In
addition, the pro forma financial information is not necessarily indicative of
the results that may be expected for the year ending December 31, 2005, or any
other period.
BEKEM METALS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
Bekem Condesa Pro Forma Pro Forma
Metals, Inc. Pacific, S.A. Adjustements Results
----------------------------------------------- ------------
ASSETS
Cash $ 2,841 $ 4,190 $ - $ 7,031
Prepaid expenses - 21,337 - 21,337
------------ ----------- ------------ ------------
Total current assets 2,841 25,527 - 28,368
Property and equipment, net - 45,044 - 45,044
Mineral property rights, net - 1,182,007 - 1,182,007
Patents and deferred patent costs 1,840 - - 1,840
Long-term deferred expenses - 15,117 - 15,117
------------ ----------- ------------ ------------
Total assets $ 4,681 $1,267,695 $ - $ 1,272,376
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Accounts payable $ 12,992 $ 85,384 $ - $ 98,376
Accrued liabilities 100 26,959 - 27,059
Deferred revenue 2,568 - 2,568
Loan payable to a related party - 92,308 - 92,308
------------ ----------- ------------ ------------
Total current liabilities 15,660 204,651 - 220,311
------------ ----------- ------------ ------------
Asset retirement obligation, net - 675,460 675,460
------------ ----------- ------------
Stockholders' Equity (Deficiency)
Common stock; $0.001 par value 3,300 50,000 35,000 (A) 38,300
(50,000) (C)
Additional paid-in capital 224,503 704,456 (35,000) (A) 705,177
(238,782) (B)
50,000 (C)
Deficit accumulated during the development stage (238,782) (366,872) 238,782 (B) (366,872)
------------ ----------- ------------ ------------
Total Shareholders' Equity (Deficiency) (10,979) 387,584 - 376,605
------------ ----------- ------------ ------------
Total Liabilities and Stockholders' Equity
(Deficiency) $ 4,681 $1,267,695 $ - $ 1,272,376
============ =========== ============ ============
See the accompanying notes to unaudited pro forma financial information.
BEKEM METALS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM MARCH 5, 2004 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2004
Bekem Condesa Pro Forma
Metals, Inc. Pacific, S.A. Adjustments Pro Forma
---------------- -------------- --------------------- ----------------
Exploratory costs $ - $ 271,099 $ - $ 271,099
General and administrative 214,305 83,440 - 297,745
Amortization of intangibles 206 16,069 - 16,275
---------------- -------------- -------------- ----------------
Total operating expenses 214,511 370,608 - 585,119
---------------- -------------- -------------- ----------------
Other income 6,622 - - 6,622
Other expense (6,622) 3,736 - (2,886)
---------------- -------------- -------------- ----------------
Net loss $ 214,511 $ 374,344 $ - $ 588,855
================ ============== ============== ================
Basic net loss per common share $ 0.07 $ 0.02
================ ================
Common shares outstanding used in calculation
of basic loss per common share 3,300,000 38,300,000
================ ================
See the accompanying notes to unaudited pro forma financial information.
BEKEM METALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
A. The issuance of 35,000,000 shares of Bekem in exchange for the
outstanding capital stock of Condesa.
B. The elimination of Bekem's retained earnings.
C. The elimination of Condesa's common stock.
HANSEN, BARNETT & MAXWELL Registered with the Public Company
A Professional Corporation Accounting Oversight Board
CERTIFIED PUBLIC ACCOUNTANTS
5 Triad Center, Suite 750 an independant member of
Salt Lake City, UT 84180-1128 BAKER TILLY
Phone: (801) 532-2200 INTERNATIONAL
Fax: (801) 532-7944
www.hbmcpas.com
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Condesa Pacific S.A.
We have audited the accompanying consolidated balance sheet of Condesa Pacific
S.A. and subsidiary (the "Company") as of December 31, 2004 and the related
statements of operations, stockholders' equity, and cash flows for the period
from March 5, 2004 (Date of Inception) to December 31, 2004. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Condesa Pacific,
S.A. and subsidiary as of December 31, 2004 and the results of their operations
and cash flows for the period From March 5, 2004 through December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company currently has no
proved mineral reserves and has not yet entered the development stage with
respect to its mineral interests and has no production, and therefore
insufficient cash flows to sustain operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to those matters are described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
February 17, 2005
CONDESA PACIFIC S.A. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2004
ASSETS
Current Assets
Cash $ 4,190
Prepaid expenses 21,337
-------------------------------------------------------------------------------------------------------------------------
Total Current Assets 25,526
-------------------------------------------------------------------------------------------------------------------------
Non-Current Assets
Property, plant and equipment (net of accumulated depreciation of $1,412) 45,044
Long term deferred expenses 15,117
Mineral property rights (net of depletion on asset retirement obligation of $6,133) 1,182,007
-------------------------------------------------------------------------------------------------------------------------
Total Non-Current Assets 1,242,168
-------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,267,695
=========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 85,384
Accrued liabilities 26,959
Short term loan to a related party 92,308
-------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 204,651
-------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Asset retirement obligation 675,460
-------------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 675,460
-------------------------------------------------------------------------------------------------------------------------
Total Liabilities 880,111
-------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $1 par value, 50,000 shares authorized
and issued 50,000
Additional paid-in capital 704,456
Deficit accumulated during the exploration stage (366,872)
-------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 387,584
-------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,267,695
=========================================================================================================================
The accompanying notes are an integral part of these financial statements.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 5 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2004
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Revenue $ -
--------------------------------------------------------------------------------------------------------
Operational Expenses
Exploratory costs 271,099
General and administrative expenses 99,509
--------------------------------------------------------------------------------------------------------
Total Expenses 370,608
--------------------------------------------------------------------------------------------------------
Loss From Operations (370,608)
--------------------------------------------------------------------------------------------------------
Other Income (Expense)
Exchange rate gain 3,736
--------------------------------------------------------------------------------------------------------
Net Loss $ (366,872)
========================================================================================================
The accompanying notes are an integral part of these financial statements.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 5 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2004
--------------------------------------------------------------------------------------------------------------------------------
Deficit
Common Shares Accumulated Total
----------------------------- Additional During the Stockholders'
Shares Amount Paid-in Capital Exploration Stage Equity
--------------------------------------------------------------------------------------------------------------------------------
Balance - March 5, 2004
(Date of inception) - $ - $ - $ - $ -
Shares issued for cash, August 12, 2004 20,000 20,000 284,456 - 304,456
Shares exchanged for 60% interest
in Kaznickel, November 19, 2004 30,000 30,000 420,000 450,000
Net loss for period - - - (366,872) (366,872)
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 50,000 $ 50,000 $ 704,456 $ (366,872) $ 387,584
================================================================================================================================
The accompanying notes are an integral part of these financial statements.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE PERIOD FROM MARCH 5 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net loss $ (366,872)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 1,398
Depreciation and accretion expense on asset retirement obligation 16,069
Foreign currency exchange gain 3,736
Change in operating assets and liabilities:
Prepaid expenses and other current assets 79,838
Accounts payable and accrued liabilities 81,457
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities (184,374)
----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of property and equipment (24,641)
Cash used in acquisition of Kaznickel (300,000)
Cash acquired in purchase of Kaznickel 121,059
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (203,582)
----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from short-term note payable 91,404
Proceeds from issuance of common stock 304,456
----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities 395,860
----------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (3,714)
Net Increase (Decrease) in Cash 4,190
----------------------------------------------------------------------------------------------------------------------
Cash at Beginning of Year -
----------------------------------------------------------------------------------------------------------------------
Cash at End of Year $ 4,190
======================================================================================================================
Supplemental Cash Flow Information
Acquisition of Kaznickel
Fair value of the assets acquired $1,441,387
Cash paid for a 40% equity interest (300,000)
Fair value of 30,000 shares of stock issued to acquire the remaining 60% interest (450,000)
-------------
Liabilities assumed $ 691,387
The accompanying notes are an integral part of these financial statements.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Condesa Pacific S.A. is engaged through its wholly-owned subsidiary, Kaznickel
LLP, (collectively, the "Company") in the acquisition and exploration of mineral
resource properties, specifically the Gornostay nickel and cobalt deposit (the
"Deposit") located in the East Kazakhstan Oblast of the Republic of Kazakhstan
("RK"). Kaznickel acquired the rights to explore and develop the Gornostay
Deposit on April 22, 2004 and is active in exploration of the Mineral Property.
Condesa was incorporated under the laws of the British Virgin Islands on March
5, 2004. Condesa acquired Kaznickel on September 22, 2004 in a purchase business
combination as further described in Note 2.
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of Condesa Pacific S.A. since its inception and
Kaznickel LLP ("Kaznickel"), a Kazakh partnership, since the date of its
acquisition by Condesa. Intercompany transactions are eliminated upon
consolidation.
Use of Estimates - The preparation of financial statements in accordance with
accounting principles generally accepted in the Unites States of America
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Business Condition - The Company has no proven mineral reserves and has not yet
entered the development stage with respect to its mineral interests, and has no
production. There has been no revenue from operations, and it has incurred a net
loss of $362,435 for the period ended December 31, 2004. In addition, current
liabilities exceeded current liabilities by $179,144 at December 31, 2004.
Management expects to generate sufficient cash to fund its current activities by
issuing equity securities and receiving financial assistance, if needed, from
its shareholders. There is no assurance, however, that funds can be raised or
that the shareholders will have the ability to provide financial assistance to
the Company. These matters raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Exploration Stage Company - The Company is considered to be in the exploration
stage. Since its inception March 5, 2004, the Company has devoted substantially
all of its efforts in raising capital and acquiring Kaznickel, and then
exploring for mineral property under its exploration contract. The mineral
property has not reached a development or production stage and accordingly, no
revenues from production of the property have been recorded. The Company is
considered to be in the development stage for financial reporting purposes. A
separate disclosure of additional information including presentation of
cumulative amounts of revenues and expenses and cash flows from inception, and
deficits accumulated during the development stage are required under FAS 7,
Accounting and Reporting by Development Stage Enterprises. However, the
cumulative amounts are not described in the accompanying consolidated financial
statements during this, the first reporting year from the Company's inception
because these amounts are the cumulative amounts.
Currency Translation - The consolidated financial statements are presented in
U.S. dollars, the functional currency of the Company's subsidiary operating in
Kazakhstan. Non-monetary assets and liabilities of Kaznickel are translated into
U.S. dollars using historical exchange rates and monetary assets and liabilities
are translated into U.S. dollars using exchange rates on the date of the
financial statements. Results of operations are translated at the average
exchange rates during the reporting period. Exchange gains and losses resulting
from financial statement translation and from holding foreign currencies are
included in the results of operations.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
Prepaid Expenses -- Prepaid expenses relate to office rent, subscriptions, and
insurance. Prepaid expenses are charged to operations in the period the related
service or work is performed.
Mineral Property Rights -- Mineral property acquisition costs, site restoration
costs and development costs on mineral properties with proven and probable
reserves are capitalized and will be depleted using the units-of-production
method over the estimated life of the reserves. If there are insufficient
reserves to use as a basis for depleting such costs, they are written off as a
mineral property or mineral interest impairment in the period in which the
determination is made. Site restoration costs are depleted over the term of
their expected life. Interest costs are capitalized on mineral properties and
mineral interests in development. The development potential of mining properties
is established by the existence of proven and probable reserves, reasonable
assurance that the property can be permitted as an operating mine and evidence
that there are no metallurgical or other impediments to the production of
saleable metals.
Exploration costs incurred on mineral interests, other than acquisition costs,
prior to the establishment of proven and probable reserves are charged to
operations as incurred. Development costs incurred on mineral interests with
proven and probable reserves will be capitalized as mineral properties. The
Company regularly performs evaluations of its investment in mineral interests to
assess the recoverability and / or the residual value of its investments in
these assets. All mineral interests and mineral properties are reviewed for
impairment whenever events or circumstances change which indicate the carrying
amount of an asset may not be recoverable, utilizing established guidelines
based upon undiscounted future net cash flows from the asset or upon the
determination that certain exploration properties do not have sufficient
potential for economic mineralization.
Management's estimates of mineral prices, recoverable probable reserves, and
operating, capital and reclamation costs, when available, are subject to certain
risks and uncertainties which may affect the recoverability of mineral property
costs. Although management has made its best estimate of these factors, it is
possible that changes could occur in the near term, which could adversely affect
the future net cash flows to be generated from the properties.
Property, and Equipment - Property, plant and equipment are carried at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis over
the following estimated useful lives of the assets:
Buildings and constructions 12.5 years
Machinery and equipment 7 years
Vehicles 10 years
Other fixed assets 3 - 10 years
----------------------------------------------------
Revenue Recognition - Revenues, which will arise from the sale of cobalt and
nickel ore or processed cobalt and nickel will be recorded when persuasive
evidence of an arrangement exists, title to product transfers to the customer,
and collectibility is reasonably assured. Produced, but unsold minerals or ore
will be recorded as inventory until sold.
Financial Instruments - The nature of the Company's operation exposes the
Company to fluctuations in commodity prices, foreign currency exchange risk and
credit risk. The Company recognizes these risks and manages its operation in a
manner such that exposure to these risks is minimized to the extent practical.
The Company is not exposed to fluctuations in interest rates because its loans
are interest free, as a general requirement under Kazakh law for non-financial
institutions.
Income taxes - Income taxes are calculated using the liability method of tax
accounting. Under this method, future income tax assets and liabilities are
computed based on temporary differences between the tax basis and carrying
amount on the balance sheet for assets and liabilities. Future income tax assets
and liabilities are calculated using tax rates anticipated to apply in the
periods that the temporary differences are expected to reverse.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 2 - ACQUISITION OF KAZNICKEL LLP
On July 9, 2004 Condesa entered into an investment agreement under which Condesa
provided a $300,000 convertible loan to Kaznickel LLP, which was immediately
converted into a new 40 percent equity interest in Kaznickel. On September 22,
2004, Brisa Equities, a British Virgin Islands holding company, acquired a
controlling interest in Kaznickel by purchasing 60 percent of the founding
partners' 60 percent interests. As consideration for the purchase, the original
partners' obtained a commitment from Brisa to facilitate a reverse merger with a
U.S. public company, and a commitment to obtain funding enabling Kaznickel to
further develop its mineral property rights. The value of the commitment was
estimated to be $450,000 based on the percent of Kaznickel obtained for the cash
investment of $300,000 previously. On November 19, 2004, Brisa and the remaining
Kaznickel partners exchanged their 60% interest in Kaznickel for a new 60%
interest in Condesa, thereby making Kaznickel a wholly-owned subsidiary of
Condesa. The acquisition of a controlling interest in Kaznickel by Brisa and
Condesa was considered the purchase of Kaznickel with a measurement date of
September 22, 2004, the date Brisa and Condesa obtained control from the
original Kaznickel partners.
Condesa has accounted for the acquisition of Kaznickel as a purchase business
combination with a purchase price of $750,000. The purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values. Negative goodwill was not recognized in connection with the acquisition
of Kaznickel. Instead, the excess of the fair value of the net assets over the
purchase price was allocated as a pro rata reduction of the amounts that
otherwise would have been assigned to the long-term assets. The Company is in
the process of obtaining an independent valuation of the net assets acquired.
Accordingly the allocation of the purchase price is subject to refinement. At
September 22, 2004, the purchase price was allocated to the assets acquired and
the liabilities assumed as follows:
Current assets $ 231,674
Mineral property rights 713,204
Asset retirement costs of the mineral rights 474,937
Property and equipment 21,572
-------------------------------------------------------------
Total assets acquired 1,441,387
-------------------------------------------------------------
Current liabilities (25,468)
Asset retirement obligation (665,919)
-------------------------------------------------------------
Total liabilities assumed (691,387)
-------------------------------------------------------------
Net Assets Acquired $ 750,000
=============================================================
Intangibles assets acquired include the mineral property rights, which are
capitalized until the production phase begins, subject to impairment
considerations. Other intangible assets include the asset retirement costs of
the mineral rights, which has a 20-year estimated life and is subject to
amortization at a planned rate of $24,291 per year, and the asset retirement
obligation is accreted over its 20-year life with a current estimated expense of
$43,274 per year.
NOTE 3 - MINERAL PROPERTY RIGHTS
Kaznickel acquired its interest in the Contract on Exploration and Development
of Gornostay Cobalt and Nickel Deposit (the "Contract") issued by the Ministry
of Energy and Mineral Resources of the Republic of Kazakhstan (the "Ministry")
dated February 26, 2004. By virtue of the Contract, Kaznickel acquired the right
to exploit the mineral property including the right to explore, develop and
produce the cobalt and nickel mineral resources on the Deposit through February
26, 2026. The Company has the right to re-negotiate the contract at that time
for an additional 30 years. The government of Kazakhstan retains the title to
the property; accordingly, the Company's mineral interest is considered to be an
intangible asset. As more fully described in Note 2, the Company capitalized the
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
acquisition costs of its mineral interest upon the purchase business combination
with Kaznickel. The allocated purchase price included a capitalized amount of an
acquired asset retirement obligation. While the property is not in production,
the asset retirement cost is depleted over the life of the contract from the
date of acquisition. Capitalized costs and related accumulated amortization at
December 31, 2004 is as follows:
-----------------------------------------------------------------------------------------------
Mineral Property Depletion of Asset Net Mineral
Rights Retirement Cost Property Rights
-----------------------------------------------------------------------------------------------
Cost as of September 22, 2004 $ - $ - $ -
Acquisitions:
Mineral property 713,204 713,204
Asset retirement obligation 474,936 6,073 481,009
-----------------------------------------------------------------------------------------------
Net Carrying Value $ 1,188,140 $ 6,073 $ 1,194,213
===============================================================================================
The Contract provides the Company certain rights and also imposes certain
obligations and commitments. The rights include exploration through February
2006, and development and production of minerals through February 26, 2026. The
Company may transfer its right to third parties in accordance with Kazakh laws
and regulations and has a right to renegotiate and extension of the Contract.
Significant rights and obligations and commitments of the Contract include
monetary commitments for exploration of $200,000 in 2005 and 2006, and
expenditures to support social projects amounting to $300,000 during the
production stage. In addition, the Company was required to pay a fee of $2,000
upon award of the Contract, and a fee for the use of Kazakh owned technical data
of $835,759 of which $4,179 was paid on award of the Contract and $831,580 will
be due upon a finding of commercial deposits. Royalties of 0.5% of ores
extracted and sold will be required. The Contract subjects the Company to pay
regular income tax of 30 percent and requires and excess profits tax of 15 to 60
percent if its net profits exceed 20 percent of gross profit. Obligations also
include the establishment and funding of a reclamation fund that includes the
cost of removing buildings and equipment used in the Deposit area. The Company
is also required to comply with Kazakh environmental laws and regulations.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment consist of the following:
Balance at March 4, 2004 $ -
Additions 46,456
Less: Accumulated Depreciaiton (1,412)
-----------------------------------------------------
Balance at December 31, 2004 $ 45,044
=====================================================
NOTE 5 - LONG TERM DEFERRED EXPENSES
The Company completed a remodel of its Semeypalatinsk, Kazakhstan offices, which
costs are applied against monthly office rent charges through May 1, 2007. The
current portion of long term deferred expenses is included in other current
assets.
NOTE 6 - INCOME TAXES
In accordance with the laws and regulations of the Republic of Kazakhstan income
taxes are calculated at the statutory rate of 30 percent. Net operating losses
for development companies in the exploration and development may be carried
forward for the 7 subsequent years from the date the losses are incurred.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
Therefore, the Company has deferred tax assets due to the savings of income tax
in future periods. However, the Company assessed the recoverability of these
deferred tax assets and created a provision against them until it has more
evidence of its recoverability in the future periods.
Deferred tax assets and liabilities are as follows:
2004
------------------------------------------------------------------------
Tax loss carryforward $ 102,253
Property and equipment (4,457)
Asset retirement obligation 202,638
Valuation allowance (300,434)
------------------------------------------------------------------------
Total deferred tax assets $ -
========================================================================
The following is a reconciliation of the amount of tax that would result from
applying the federal rate to pretax income with the provision for income taxes:
2004
------------------------------------------------------------------------
Tax at US Federal statutory rate (34%) (123,479)
Non-deductible expenses 1,840
Deferred tax asset valuation change 107,112
Effect of lower foreign tax rates 14,527
------------------------------------------------------------------------
Income tax provision -
------------------------------------------------------------------------
NOTE 7 - RELATED PARTY TRANSACTIONS
On December 2, 2004 the Company borrowed $92,308 from CJSC Kazmorgeophysika, a
Kazakh company related by virtue of several common shareholders. The short-term
loan is interest free and was due on its original terms by December 31, 2004.
During January 2005 the Company borrowed an additional $92,300 from CJSC
Kazmorgeophysica, as an interest-free, due on demand note.
NOTE 8 - ASSET RETIREMENT OBLIGATION
Upon purchase of Kaznickel, the Company recorded the effects of an asset
retirement obligation in accordance with SFAS No. 143, "Accounting for Asset
Retirement Obligations," and related interpretations, which requires entities to
record the fair value of a liability for an asset retirement obligation when it
is incurred which, for the Company, is obliged as part of Kaznickel's Contract
with the Ministry. Under the Contract, the Company is required to remediate the
property from the effects of the open pit mining process. The standard applies
to legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal use of the
asset. The Company's asset retirement obligations relate primarily to the
obligation to fill mining pits and restore surface conditions at the conclusion
of term of the Contract.
SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made. When the liability is initially recorded,
the related cost is capitalized by increasing the carrying amount of the related
mineral interest rights. Over time, the liability is accreted upward for the
change in its present value each period until the obligation is settled. The
initial capitalized cost is amortized as a component of mineral rights interests
as described in Note 1.
The reconciliation of the asset retirement obligation for the period through
December 31, 2004 is as follows:
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
Acquisition of Kaznickel $665,919
Liabilities incurred -
Accretion expense 9,996
--------------------------------------------------------------------------
Balance December 31, 2004 $675,915
==========================================================================
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Concentration of Risk Relating to Foreign Mining Operations -- All of the
Company's properties are located within the Republic of Kazakhstan in Central
Asia. In addition to general industry risks of nickel and cobalt price
fluctuations, and potential lack of economic viability of the claims, the
Company has a concentration of risk related to its foreign properties and
interests which are subject to political uncertainty, changes in government,
unilateral renegotiation of licenses, claims or contracts, and nationalization,
or other uncertainties. In addition, the validity of mining claims which
constitute the Company's property holdings in Kazakhstan, may, in certain cases,
be uncertain and are subject to being contested.
Kazakhstan business environment - Kazakhstan, as an emerging market, has a legal
and regulatory infrastructure that is not as mature and stable as those usually
existing in more developed free market economies. As a result, operations
carried out in Kazakhstan can involve risks and uncertainties that are not
typically associated with those in developed markets. The instability associated
with the ongoing transformation process to a market economy can lead to changes
in the business conditions in which the Company currently operates. Changes in
the political, legal, tax or regulatory environment could adversely impact the
Company's operations.
Tax matters - The local and national tax environment in the Republic of
Kazakhstan is subject to change and inconsistent application, interpretation and
enforcement. Non-compliance with Kazakhstan laws and regulations, as interpreted
by the Kazakh authorities, can lead to the imposition of fines, penalties and
interest.
Environmental matters - Extensive national, regional and local environmental
laws and regulations in Kazakhstan affect the Company's operations. These laws
and regulations set various standards regulating certain aspects of health and
environmental quality, provide for user fees, penalties and other liabilities
for the violation of these standards and establish, in some circumstances,
obligations to remediate current and former facilities and off-site locations.
The Company believes it is currently in compliance with all existing Republic of
Kazakhstan environmental laws and regulations. However, as new environmental
laws and legislation are enacted and the old laws are repealed, interpretation,
application and enforcement of the laws may become inconsistent. Compliance in
the future could require significant expenditures, which may adversely affect
the Company's operations.
Operating Leases - The Company rented a number of cars for operational purposes
and has potential commitment of $99,000 in case of loss for any reason, which is
not covered by any insurance.
NOTE 10 - COMMON STOCK
The Company's authorized capital consists of 50,000 shares of $1 per share par
value. The Company entered into an investment agreement with investors on July
9, 2004 under which the Company issued 20,000 common shares for cash proceeds of
$304,456, or $15 per share, received through August 12, 2004. The remaining
30,000 shares, or 60% of the authorized capital, were issued on November 19,
2004 in exchange for 60% of the equity of Kaznickel as further described in Note
2. The shares issued in exchange for the equity of Kaznickel were valued at
$450,000, or $15 per share, based upon the value for which investors received
common shares for cash.
CONDESA PACIFIC S.A. AND SUBSIDIARY
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENTS
On January 28, 2005, the Company completed the closing of the Plan and Agreement
of Reorganization (the "Agreement"), among the Company, and its shareholders,
and Bekem Metals, Inc. ("Bekem"), a U.S. publicly traded company. With the
completion of the closing, Bekem acquired 100% of the outstanding capital stock
of Condesa in exchange for the issuance of 35,000,000 of Bekem common shares. As
a result of the issuance, the shareholders of Condesa now hold 91% of the
outstanding common stock of Bekem. The reverse merger transaction constitutes a
change of control and a change in the reporting entity for Bekem because the
shareholders of Condesa maintained their control of Condesa before the merger
and control of Bekem after the closing.
HANSEN, BARNETT & MAXWELL Registered with the Public Company
A Professional Corporation Accounting Oversight Board
CERTIFIED PUBLIC ACCOUNTANTS
5 Triad Center, Suite 750 an independant member of
Salt Lake City, UT 84180-1128 BAKER TILLY
Phone: (801) 532-2200 INTERNATIONAL
Fax: (801) 532-7944
www.hbmcpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders
Bekem Metals, Inc.
We have audited the balance sheets of Bekem Metals, Inc. as of December 31, 2004
and 2003 and the related statements of operations, shareholders' equity
(deficiency) and cash flows for the years then ended and for the cumulative
period from January 31, 2001 (date of inception) through December 31, 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Bekem Metals, Inc. as of December
31, 2004 and 2003, and the results of its operations and cash flows for the
years then ended, and for the cumulative period from January 31, 2001 (Date of
Inception) through December 31, 2004 in conformity with U.S. generally accepted
accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 31, 2005
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
BALANCE SHEETS
December 31, 2004 2003
-----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 2,841 $ 22,531
-----------------------------------------------------------------------------------------------------------------
Total Current Assets 2,841 22,531
-----------------------------------------------------------------------------------------------------------------
Patents and deferred patent costs, net of amortization
of $796 and $590 1,840 2,046
-----------------------------------------------------------------------------------------------------------------
Total Assets $ 4,681 $ 24,577
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable $ 12,992 $ 2,413
Franchise tax payable 100 100
Deferred revenue 2,568 9,190
-----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 15,660 11,703
-----------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Deficiency)
Common stock; $0.001 par value, 50,000,000
shares authorized, 3,300,000 and 3,300,000 shares
issued and outstanding, respectively 3,300 3,300
Additional paid-in capital 224,503 33,845
Deficit accumulated during the development stage (238,782) (24,271)
-----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity (Deficiency) (10,979) 12,874
-----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity (Deficiency) $ 4,681 $ 24,577
=================================================================================================================
The accompanying notes are an integral part of these financial statements.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the
Cumulative
Period From
January 31, 2001
(Date of
Inception)
through
December 31,
For the year ended December 31, 2004 2003 2004
--------------------------------------------------------------------------------------------------------------------------------
Revenue $ - $ - $ -
--------------------------------------------------------------------------------------------------------------------------------
Expenses
General and administrative 214,305 14,999 237,945
Amortization expense 206 205 795
--------------------------------------------------------------------------------------------------------------------------------
Total Expenses 214,511 15,204 238,740
--------------------------------------------------------------------------------------------------------------------------------
Net Loss From Operations (214,511) (15,204) (238,740)
Other Income (Expense)
Grant revenue 6,622 2,042 148,744
Grant expense (6,622) (2,042) (148,774)
Interest expense - - (42)
--------------------------------------------------------------------------------------------------------------------------------
Net Other Income (Expense) - - (42)
--------------------------------------------------------------------------------------------------------------------------------
Net Loss $ (214,511) $ (15,204) $ (238,782)
================================================================================================================================
Basic and Diluted Loss Per Share $ (0.07) $ (0.00)
==============================================================================================================
Weighted Average Common
Shares Outstanding 3,300,000 3,300,000
==============================================================================================================
The accompanying notes are an integral part of these financial statements.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FROM INCEPTION (JANUARY 31, 2001) TO DECEMBER 31, 2OO4
Deficit
Accumulated Total
Common Stock Additional During the Shareholders'
------------------------- Paid-in Development Equity
Shares Amount Capital Stage (Deficiency)
----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 2001 (date of inception) - $ - $ - $ - $ -
Shares issued to EMPS Corp. in
exchange for patents and other
consideration, February 14, 2001 3,000,000 1,000 4,000 - 5,000
Capital contributed by former parent
company upon forgiveness of debt,
September 30, 2002 - - 2,145 - 2,145
Shares issued for cash consideration
at $0.10 per share, December 31, 2002 300,000 300 29,700 - 30,000
Net loss for the year ended
December 31, 2002 - - - (9,067) (9,067)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 3,300,000 3,300 33,845 (9,067) 28,078
======================================================================================================================
Net loss for the year ended
December 31, 2003 - - - (15,204) (15,204)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 3,300,000 3,300 33,845 (24,271) 12,874
======================================================================================================================
Options granted to non-employees for
services valued at $0.10 per share,
February 16, 2004 - - 190,658 - 190,658
Net loss for the year ended
December 31, 2004 - - - (214,511) (214,511)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 3,300,000 $ 3,300 $ 224,503 $ (238,782) $ (10,979)
======================================================================================================================
The accompanying notes are an integral part of these financial statements.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the
Cumulative
Period From
January 31,
2001 (Date of
Inception)
through
December 31,
For the years ended December 31, 2004 2003 2004
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Cash from grant $ - $ - $ 151,312
Cash paid for grant expenses (5,122) (2,042) (147,244)
Cash paid for interest - - (42)
Cash paid for non grant expense (14,568) (9,864) (33,285)
=====================================================================================================================
Cash Used in Operating Activities (19,690) (11,906) (29,259)
---------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from sale of common stock - - 32,100
---------------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities - - 32,100
---------------------------------------------------------------------------------------------------------------------
Net Change in Cash (19,690) (11,906) 2,841
Cash at the Beginning of the Period 22,531 34,437 -
---------------------------------------------------------------------------------------------------------------------
Cash at the End of the Period $ 2,841 $ 22,531 $ 2,841
=====================================================================================================================
Reconciliation of Net Loss to Cash
Used in Operating Activities
Net Loss $ (214,511) $ (15,204) $ (238,782)
Adjustments to reconcile net loss to
cash used in operating activities
Options granted for services 190,658 - 190,658
Amortization of patent costs 206 205 796
Organization costs paid by issuance of common stock - - 264
Impairment of patent - - 2,145
Change in assets and liabilities:
Prepaid assets - 3,441 -
Accounts payable 10,579 1,694 12,992
Franchise tax payable - - 100
Deferred revenue (6,622) (2,042) 2,568
---------------------------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities $ (19,690) $ (11,906) $ (29,259)
=====================================================================================================================
Supplemental disclosure of noncash investing and financing activities
Common stock issued for assignment of patents
from former Parent $ - $ - $ 2,636
=====================================================================================================================
The accompanying notes are an integral part of these financial statements.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Bekem Metals, Inc. (The Company) was organized as EMPS Research
Corporation under the laws of the State of Utah on January 31, 2001 and elected
a fiscal year end of December 31st. EMPS Corporation, the Company's former
parent, formed the Company by contributing cash and patented technology in
exchange for all of the issued and outstanding shares of EMPS Research
Corporation. The Company was formed to further develop and market patented
technology for commercially separating nonmagnetic particulate material from
other materials without heat or water. The Company has three patents having to
do with its business purpose but has not commenced planned principal operations
and is considered a development stage company. On January 28, 2005 the Company
acquired Condessa Pacific S.A. by issuing stock in a reverse merger transaction
resulting in a change of control and a change in the reporting entity, as more
fully described in Note 9 - Subsequent Events. On February 9, 2005 the Company
changed its name to Bekem Metals, Inc.
Basis of Presentation - The accompanying financial statements include the
accounts of EMPS Research Corporation since its inception and are not presented
on a consolidated basis with its former Parent, EMPS Corporation. EMPS Research
Corporation was spun-off from EMPS Corporation effective May 23, 2003. The
3,000,000 shares of the Company owned by EMPS Corporation were distributed to
shareholders of EMPS Corporation and from that date the Company was no longer a
subsidiary of EMPS Corporation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Amortization of Patent Rights - The Company is amortizing its cost associated
with the acquisition of its patents over a period of 12.8 years, the legally
remaining protected lives of the patents, using the straight-line method. The
patents are reviewed for impairment annually. Impairment would be recognized if
the carrying amount is not recoverable and the carrying amount exceeds the fair
value of the intangible asset. At December 31, 2004 and 2003, the Company
patents have a carrying value of $1,840, and $2,046 respectively.
Grant revenue recognition - The Company's Department of Energy (DOE) grant is
funded on a cost reimbursement basis and payments received from the grant are
treated as earned and recognized as revenue at the time expenditures
reimbursable under the grant are incurred. The grant has provisions for advance
payments. Grant receivables represent the amount by which expenditures exceed
amounts received from the DOE under the grant; deferred revenues represent
payments received from the DOE which exceed costs expended under the grant.
Income Taxes - Due to losses at December 31, 2004 and 2003 and since inception,
the Company has no provisions for income taxes. Deferred income tax results from
timing differences in recognition of income and expense for financial accounting
and tax reporting purposes. Timing differences arise from organization costs
recognized currently for financial statement purposes as compared to
amortization over 60 months for tax purposes and operating loss carry forwards.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Share-Based Compensation - The Company adopted a share-based compensation plan
on March 12, 2003. The Company accounts for employee options using the intrinsic
value method in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. The Company accounts for options
granted to non-employees at their fair value in accordance with FAS 123,
Accounting for Stock-Based Compensation. Under FAS No. 123, stock-based
compensation is determined as the fair value of the equity instruments issued.
The measurement date for these issuances is the earlier of the date at which a
commitment for performance by the recipient to earn the equity instruments is
reached or the date at which the recipient's performance is complete.
Share-based compensation to non-employees totaled $190,658 for the year ended
December 31, 2004, and $-0- for 2003.
Net Loss Per Share - The computation of net loss per common share is based on
the weighted-average number of shares outstanding during the periods presented.
As of December 31, 2004 there were outstanding stock equivalents to purchase
2,000,000 shares of common stock that were not included in the computation of
diluted loss per share as their effect would have been anti-dilutive, thereby
decreasing the net loss per common share.
Recent Accounting Pronouncements - In December 2004, the FASB issued Statement
No. 123 (Revised 2004), Share-Based Payment ("Statement 123(R)"). Statement
123(R) revises Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
Statement 123(R) requires the recognition of the cost of employee services
received in exchange for stock options and awards of equity instruments based on
the grant-date fair value of such options and awards, over the period they vest.
Under the modified-prospective basis alternative, which has been selected by the
Company to adopt Statement 123(R), the Company is required to adopt Statement
123(R) on January 1, 2006 and the Company will the recognize employee
compensation from stock options and awards equal to their unamortized grant-date
fair value over their remaining vesting period. As of December 31, 2004, no
employee options have been granted under the Company's Plan. Accordingly, the
effect of adopting Statement 123(R) on options outstanding at December 31, 2004
will not result in the recognition of additional after-tax compensation during
the year ending December 31, 2006.
NOTE 2 - COMMON SHARES
EMPS Corporation formed the Company as a wholly owned Subsidiary by contributing
$2,100 cash, paying $264 in expenses on behalf of the Company, and by assigning
three patents it owned to the Company. As consideration, the Company issued
3,000,000 shares of its common stock to EMPS Corporation, representing all of
the issued and outstanding common shares of the Company at the formation date.
The patents assigned to the Company were valued at their historical cost to EMPS
Corporation of $2,636.
On December 31, 2002, the Company issued 300,000 common shares for $30,000. or
$0.10 per share to Techgrand Company Ltd., a Hong Kong limited company, which
also owns shares of the common stock of the Company's former Parent.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company has no employees. Officers and directors have provided a small
amount of services since inception; however no compensation has been paid or
accrued due to the nominal value of such services. During the first six months
of 2001, compensation of $20,000 was paid to the Company's DOE grant project
manager, related by virtue of his ability to enter into business transactions
with the Company not at arms length.
The Company is receiving free office space through a related party. The value of
the free rent to date has been of nominal value.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
On February 16, 2004 the Company issued options for one million common shares to
current shareholders for services provided to the Company more fully described
in Note 7.
The Company decided to abandon its continuation-in-part (CIP) patent application
during the quarter ended September 30, 2002. At December 31, 2001, the costs
associated with this application were recorded as deferred patent costs. At the
time of the abandonment, the costs for the CIP patent application had no future
value and the $2,145 carrying amount of the deferred patent costs were charged
to operations. The deferred patent costs had been paid on behalf of the Company
by its Parent. At the time of abandonment, the Parent forgave the debt advanced
and the Company recorded a $2,145 capital contribution.
NOTE 4 - INCOME TAXES
The Company has paid no federal or state income taxes since its incorporation.
As of December 31, 2004, the Company had net operating loss carry forwards for
federal income tax reporting purposes of $86,311 which, if unused, will expire
between 2022 and 2023. The tax effect of the operating loss carry forwards at
December 31, 2004 and 2003 is as follows:
December 31, 2004 2003
---------------------------------------------------------------------
Operating loss carry forward $ 89,053 $ 9,040
Valuation allowance (89,053) (9,040)
---------------------------------------------------------------------
Total Deferred Tax Asset $ - $ -
=====================================================================
The following is a reconciliation of the income taxes computed using the federal
statutory rate to the provision for income taxes:
For the years ended December 31, 2004 2003
---------------------------------------------------------------------
Tax at federal statutory rate (34%) $ (72,934) $ (5,169)
State tax benefit (7,079) (502)
Change in valuation allowance 80,013 5,671
---------------------------------------------------------------------
Provision for Income Taxes $ - $ -
=====================================================================
NOTE 5 - DEPARTMENT OF ENERGY AWARD
The Department of Energy (DOE), through its Office of Industrial Technologies
(OIT) 2000 Inventions and Innovation (I&I) Program, awarded a $199,000 grant to
the Company during 2001 for the Company's project entitled "Development of a
High-Frequency Eddy-Current Separator".
The grant is a DOE small business grant and thus the Company has no financial
obligation to DOE under the award. The Company is not required to compensate DOE
upon successful (or unsuccessful) commercialization of a prototype (such as for
royalties or commissions). Prior to entering into the award the Company had the
option to identify technical data that was proprietary and to elect to retain
title to this proprietary data. In so doing, the unlimited right to such
technical data by DOE was voided per DOE regulations. In accordance with DOE
regulations, a small business concern has a "subject invention" related to work
done under the award, it can obtain unlimited rights to the technical data for
the "subject invention", and has license to use the invention only for
government use and not commercial use. Even so, if proper application and
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
reporting is done for the "subject invention" the small business concern can
retain title to the "subject invention" and the above rights to DOE to use the
invention or technical data is voided. Management intends to perform the proper
reporting and application process to retain title to any "subject invention"
that may arise, if any, during the course of the award.
The original project period was from February 1, 2001 to January 31, 2003 but
has been extended to June 30, 2005. Research assistance conducted under the
grant has been subcontracted to two entities. During the years ended December
31, 2004 and 2003 the Company incurred grant expenses in the amount of $6,622
and $2,042, respectively. Total grant expense from inception through December
31, 2004 is $148,744.
NOTE 6 - PATENTS
The Company received three patents by assignment from it parent at formation.
The three patents related to the Company's particle separation technology and
were valued at their historical cost to its parent of $2,636. Amortization
expense is being recognized on a straight-line basis through 2013. Amortization
expense for the years ending December 31, 2004 and 2003 was $206 and $205. The
parents are currently carried at a value of $1,840, net of accumulated
amortization expense of $796. The amortization expense for each of the next five
years is anticipated to be $205 per year.
NOTE 7 - STOCK OPTION PLAN
On March 12, 2003, the Board of Directors approved the EMPS Research Corporation
2003 Stock Option Plan (the "Plan"), which allows for the grant of up to
5,000,000 incentive stock options or nonqualified stock options. The exercise
price of the incentive stock options granted under the Plan will be determined
by the Stock Option Committee of the Board of Directors at the time of grant and
may not be less than 100% of the fair value of the stock. The exercise price of
an incentive stock option granted to a 10% shareholder shall not be less than
110% of the fair value of the stock. Expiration and vesting terms of options
will be determined at the time of the grant.
On February 16, 2004, the Company issued two non-qualified options to purchase
an aggregate of 2,000,000 common shares at an exercise price of $0.10 per share.
The options, which expire on February 16, 2009, were issued to an outside
consultant and to a current shareholder. The exercise price was determined by
the board of directors and was equal to the cash price of the Company's most
recent sale of common shares and the value for which the Company agreed to sell
shares to Techgrand in the private placement equity agreement described below.
The option had a fair value on the award date of $190,658 and the Company
recognized a charge to operations on that date of $190,658. The options were
valued on the grant date using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 3.02%; expected dividend yield
of 0.0%; expected life of 5 years and estimated volatility of 175%.
NOTE 8 - PRIVATE EQUITY CREDIT AGREEMENT
On November 12, 2003, the Company entered into a Private Equity Credit Agreement
with Techgrand Company Limited, a Hong Kong limited company ("Techgrand"), a
current shareholder. Techgrand has agreed to provide the Company an equity
credit line of up to $470,000. Pursuant to the Agreement, the Company can
require Techgrand to purchase restricted common shares of the Company in
increments of $75,000 to $100,000, up to a total of $470,000 worth of restricted
Company common stock at the greater of $0.10 per share or 85% of the prevailing
market price as defined in the Agreement. The Company intends to use these funds
for operational expenses and to further its business activities. No funds have
been advanced and no shares of the Company's common stock have been issued under
this Agreement.
BEKEM METALS, INC.
(formerly EMPS Research Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 9 - SUBSEQUENT EVENT
On December 3, 2004 the Company entered into a Plan and Agreement of
Reorganization with Condesa Pacific S.A., a British Virgin Islands international
business company and on January 28, 2005, the Company completed the closing of
the Agreement. The Company acquired 100% of the outstanding capital stock of
Condesa Pacific, S.A. (Condesa) in exchange for the issuance of 35,000,000
common shares of the Company. As a result of the issuance, the shareholders of
Condesa now own approximately 90% of the outstanding common stock of the
Company. The consideration exchanged in connection with this transaction was
determined through negotiation by the parties. The transaction resulted in a
change of control of the Company and a change in the reporting entity.
Condesa is a British Virgin Islands international business company whose primary
asset is an exploration and production contract held by its wholly-owned
subsidiary Kaznickel, LLP. The exploration and production contract, which was
issued by the Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan, grants Kaznickel the exclusive right to explore for and produce
nickel, cobalt, and other minerals in the 616 hectare (1,522 acre)
Gornostayevskoye field located in the East Beskaragaiskiy region of Kazakhstan
in the Republic of Kazakhstan. The Company intends to pursue the exploration and
development of the Gornostayevskoye field.
None of the Condesa shareholders were shareholders of the Company immediately
prior to the completion of the closing of the Agreement. None of the Company's
executive officers or directors has changed as a result of this transaction and
no change in the executive officers or directors of the Company is required
under the terms of the Agreement.
On February 9, 2005, the Company's Board of Directors approved, and holders of a
majority of the outstanding shares of the Company approved and ratified a change
in the Company's name from EMPS Research Corporation to Bekem Metals, Inc., and
on March 16, 2005 the Company filed an amendment to its Articles of
Incorporation changing its name to Bekem Metals, Inc. The Company changed its
name to better reflect its efforts to explore and develop the Gornostayevskoye
mineral field in East Kazakhstan.