U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1943
For the transition period from ____________ to ______________
Commission File Number 0-33215
EMPS CORPORATION
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(Name of Small Business Issuer in its charter)
NEVADA 87-0617371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2319 Foothill Blvd. Suite 250, Salt Lake City, Utah 84109
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(Address of principal executive Offices) (Zip Code)
Issuer's telephone number: (801) 746-3700
Securities registered pursuant to section 12(b)of the Exchange Act: None
Securities registered pursuant to section 12(g) of the Exchange Act: Common,
$.001 par value
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenue for its most recent fiscal year was: $5,534,687.
The aggregate market value of the issuer's voting stock held as of March 28,
2003, by non-affiliates of the issuer was approximately: $7,574,580.
As of March 28, 2003, issuer had 30,000,000 shares of its $.001 par value common
stock outstanding.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
Documents incorporated by reference: none
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TABLE OF CONTENTS
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PART I
ITEM 1. DESCRIPTION OF BUSINESS......................................... 3
ITEM 2. DESCRIPTION OF PROPERTY......................................... 12
ITEM 3. LEGAL PROCEEDINGS............................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS........... 14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........ 14
ITEM 6. PLAN OF OPERATIONS.............................................. 16
ITEM 7. FINANCIAL STATEMENTS............................................ 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................ 22
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ..... 22
ITEM 10. EXECUTIVE COMPENSATION.......................................... 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 28
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................ 29
ITEM 14. CONTROLS AND PROCEDURES......................................... 29
SIGNATURES................................................................. 29
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In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements in this
report, which provide other than historical information and which are forward
looking, involve risks and uncertainties that may impact the company's actual
results of operations. The Company faces many risks and uncertainties, many of
which are beyond the control of the company, including: fluctuations in oil and
gas prices; level of fleet additions by competitors; changes in capital spending
by customers in the energy industry for exploration, development and production;
unsettled political conditions, civil unrest and governmental actions,
especially in higher risk countries of operations; foreign currency
fluctuations; and environmental and labor laws. Other risk factors are discussed
elsewhere in this Form 10-KSB.
Forward-looking statements, which can generally be identified by the
use of such terminology as "may," "expect," "anticipate," "estimate,"
"forecast," "believe," "think," "could," "will," "continue," "intend," "seek,"
"plan," "should," "would" and similar expressions contained in this report, are
predictions and not guarantees of future performance or events. The
forward-looking statements are based on current industry, financial and economic
information, which the company has assessed but which by its nature is dynamic
and subject to rapid and possibly abrupt changes. The Company's actual results
could differ materially from those stated or implied by such forward-looking
statements due to risks and uncertainties associated with our business. The
forward-looking statements should be considered in the context of the risk
factors listed above and discussed elsewhere in this Form 10-KSB. Investors and
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. Management disclaims any obligation to update or
revise the forward-looking statements contained herein to reflect new
information, future events or developments.
PART I
Item 1. Description of Business
Company History and Business
EMPS Corporation (the "Company"or "EMPS") was incorporated under the
laws of the state of Nevada on July 14, 1998, for the purpose of researching and
developing commercial applications for patented technology for a high frequency
eddy current separator, which may be used to separate nonmagnetic particulate
materials from other materials without chemicals, heat or water.
On February 28, 2002, the Company entered into an Agreement and Plan of
Reorganization whereby it acquired all of the issued and outstanding shares of
Caspian Services Group Limited, ("Caspian") in exchange for 27,089,700
restricted common shares of the Company. Caspian became a wholly owned
subsidiary of the Company and the Caspian shareholders assumed the controlling
interest in EMPS. The Agreement was approved by the shareholders of both
companies.
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Since the reorganization, the principal operations of the Company have
been providing and operating vessels for use in the oil and gas industry in the
Kazakhstan sector of the Caspian Sea.
Information about Caspian Services Group Limited
Caspian Services Group Limited was incorporated in the British Virgin
Islands on December 22, 1999, and has been primarily engaged in providing
services to the oil and gas industry in the Republic of Kazakhstan. Caspian
carries out its primary business activities from its branch located in Aktau,
Kazakhstan, which has been registered with the Ministry of Justice of the
Republic of Kazakhstan since April of 2000.
In recent years, the Republic of Kazakhstan has undergone substantial
political and economic change. As an emerging market, Kazakhstan does not
possess the well-developed business infrastructure that generally exists in more
mature free market economies. As a result, operations carried out in Kazakhstan
can involve significant risks that are not typically associated with developed
markets. Instability in the market reform process could subject Caspian to
unpredictable changes in the basic business infrastructure in which it currently
operates. Uncertainties regarding the political, legal, tax or regulatory
environment, including the potential for adverse changes in any of these factors
could significantly affect Caspian's ability to operate commercially. Management
is unable to estimate what changes may occur or the resulting effect of any such
changes on Caspian's financial condition or future results of operations.
Offshore Marine Services Industry
Caspian's customers employ Caspian's vessels to provide services
supporting the exploration, construction, positioning and ongoing operation of
offshore oil and natural gas drilling rigs and platforms ("Offshore Marine
Services"). This industry employs various types of vessels, referred to broadly
as offshore support vessels, that are used to transport materials, supplies and
personnel. Offshore Marine Service providers are employed by companies that
engage in the offshore exploration and production of oil and natural gas and
related services. Services provided by companies in this industry are performed
in numerous locations worldwide. The Gulf of Mexico, the North Sea, offshore
Southeast Asia, offshore West Africa and offshore Brazil are each major markets.
Vessel usage is also significant in other international areas, including India,
Australia, the Persian Gulf and the Mediterranean Sea. While the Caspian Sea is
not currently considered one of the major markets, it is believed to have
significant petroleum reserves.
After Russia, Kazakhstan was the second largest oil-producing republic
in the former Soviet Union at the time of its collapse, with production of over
half a million barrels per day (bbl/d) in 1991. According to the Energy
Information Association of the United States Department of Energy, Kazakhstan
has significant petroleum reserves, with proven reserves estimated at 5.4
billion barrels of oil. In addition, Kazakhstan's possible hydrocarbon reserves,
both onshore and offshore, dwarf its proven reserves, with estimated possible
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reserves--mostly in the Kazakh sector of the Caspian Sea--of between 30 billion
and 50 billion barrels. Oil consortium operators have recently said that the
offshore Kashagan field alone may contain geological reserves of up to 38
billion barrels of oil, and recoverable reserves of 7-9 billion barrels of oil.
The Offshore Marine Services industry is directly impacted by the level
of activity in worldwide offshore oil and natural gas exploration, development
and production, which, in turn, is impacted by trends in oil and natural gas
prices. Oil and natural gas prices are affected by a host of geopolitical and
economic forces, including the fundamental principles of supply and demand. Each
of the major geophysical offshore oil and gas production regions has unique
characteristics that influence the economics of exploration and production and
consequently the market for vessels in support of these activities. While there
is some vessel interchangeability between geographic regions, barriers such as
mobilization costs and vessel suitability restrict migration of vessels between
regions. The effect of these restrictions on vessel migration has segmented
various regions into separate markets.
Caspian's Vessel Fleet
Caspian currently owns a fleet of five specialized shallow draft
vessels designed for use in the shallow waters of the Caspian Sea. Caspian has
one accommodation/work barge, the "Baskunchak." This vessel is used to house
personnel working on offshore production platforms, artificial islands, and
rigs. The Baskunchak can house up to 64 client personnel and 17 crew members.
The Baskuchak also has a heli-deck.
Subsequent to December 31, 2002, Caspian acquired a self-propelled
accommodations vessel, the "Caspian Dinara." This vessel will also be used to
transport and house personnel working on offshore production. The Caspian Dinara
can house up to 61 client personnel and 16 crew members. The Caspian Dinara is
not currently under charter although interest has been received to charter the
vessel for an extended period commencing in May 2003. The Company is currently
making renovations to the Caspian Dinara, which should be finished during the
second quarter 2003.
Caspian also owns two shallow draft landing craft supply vessels, the
"Caspian Maria" and the "Caspian Yelena." Supply vessels serve drilling and
production facilities and support offshore construction and maintenance work.
They are differentiated from other vessels by their shallow draft, ro-ro cargo
handling capabilities, particularly their large capacity, approximately 1,000
tons and versatility. These vessels are used to transport supplies such as fuel,
water, drilling fluids, equipment and provisions.
Finally, Caspian owns one shallow draft multi purpose supply and
tugboat, the "Caspian Eva." The Caspian Eva is suitable for a variety of
applications including towing/pushing operations, supply and survey work.
Caspian's fleet is time chartered to customers who rent the vessels and
hire Caspian to provide all necessary staffing and support for its safe and
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efficient operation. Vessel operating expenses are typically Caspian's
responsibility except that the customer generally provides water, fuel,
lubricants and anti-freeze. In return for providing time-chartered services,
Caspian is paid a daily rate of hire. Caspian also provides additional support
services for the Baskunchak and the Caspian Dinara. These services include:
o Room and board for the customer's personnel housed on the
vessel;
o Laundry and related services to the customer's personnel; and
o Heli-deck operations on the Baskunchak.
Caspian plans to expand its marine fleet to include additional supply,
work and survey vessels and barges. As part of a natural progression Caspian
plans to develop a marine base in the Port of Bautino. Eventually Caspian
desires to develop an emergency response service that would react to offshore
oil spills on the Caspian Sea.
Customers, Contract Terms and Competition
Caspian's customers are oil and natural gas exploration and production
companies working in the Kazakhstan sector of the Caspian Sea. Currently all of
Caspian's fleet, with the exception of the Caspian Dinara are chartered to Agip
Kazakhstan North Caspian Operating Company N.V., ("Agip KCO") for use in their
oil and gas explorations in Kazakhstan sector of the Caspian Sea. Agip KCO is
the operator of the Kashagan and Kalamkas fields that lie in the north eastern
sector of the Caspian Sea. Agip KCO operates the fields on behalf of a
consortium of seven international oil companies - Eni's Agip Caspian Sea, BG
Group, ExxonMobil, Inpex, Phillips, Shell, and TotalFinaElf.
The Baskunchak and the Caspian Eva are chartered to Agip KCO through
the end of May 2003, with a one month extension option. The Company is confident
it will have new contracts in place on the Baskunchak and the Caspian Eva,
either with Agip KCO or another oil and gas exploration company before the
current contracts expire. The Caspian Maria and the Caspian Yelena are chartered
to Agip KCO through the end of the work season 2003, with two 1-year extension
options. The charters are industry standard time charters. The contracts are not
cancelable except for unsatisfactory performance of the vessel. The loss of Agip
KCO as a customer would severally adversely impact Caspian's financial condition
and results of operations if replacement contracts were not obtained.
Substantially all of Caspian's charters are fixed in U.S. dollars.
Caspian attempts to reduce currency risk by matching each vessel's contract
revenue to the currency matching its operating expenses.
Caspian's competition includes varying local companies to large
worldwide corporations. Competition is intense. Caspian currently has no known
local Kazakhstan competition, but does have to compete with many larger foreign
companies. Caspian believes that offsetting its small size, it may have an
advantage over some larger companies because it has extensive experience
operating vessels in the Caspian Sea and conducting business within and
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complying with the laws and regulations of the Republic of Kazakhstan. In
addition, Caspian has developed strong relationships with government authorities
and other local companies.
Operating Risks and Insurance
Caspian's operations are subject to various operating hazards and risks
including:
o adverse sea and weather conditions;
o mechanical failure;
o navigation errors;
o collision;
o oil and hazardous substance spills, containment and clean up;
o labor shortages and strikes;
o damage to and loss of drilling rigs and production facilities;
and
o war, sabotage and terrorism risks.
These risks present a threat to the safety of personnel and to
Caspian's vessels, cargo, equipment in tow and other property, as well as the
environment. Caspian could be required to suspend its operations or request that
others suspend their operations as a result of these hazards. Third parties may
have significant claim against Caspian for damages due to personal injury,
death, property damage, pollution and loss of business.
Caspian's vessels are covered by Hull and Machinery Insurance, which
insures the vessels for their estimated market value against damage or loss.
Caspian carries Protection and Indemnity Insurance, including pollution as
customary in the industry.
The terrorist attacks on the United States on September 11, 2001, the
war in Iraq, the United States-led military response to counter terrorism and
the continued threat of terrorist activity and other acts of war or hostility
have created uncertainty in the insurance markets and have significantly
increased the political, economic and social instability in the geographic area
in which Caspian operates. It is possible that further acts of terrorism against
the United States domestically or abroad could be directed against properties
and personnel of U.S.-owned companies such as Caspian. The attacks and the
resulting economic and political uncertainties, including the potential for
further terrorist acts, have caused premiums charged for insurance coverage to
increase, some dramatically. After the events of September 11, 2001, occurred,
insurance underwriters imposed higher premiums for all types of insurance,
including war risk coverage, on vessels. To date, Caspian has not experienced
any property loss as a result of political, economic or social instability or
terrorism.
Caspian believes that its insurance coverage is adequate. Caspian has
not experienced a loss in excess of insurance policy limits; however, there is
no assurance that Caspian's liability coverage will be adequate to cover all
potential claims that may arise nor that it will be able to maintain adequate
insurance in the future at rates considered reasonable, especially with the
current level of uncertainty in the market.
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Business Risks
Oil and Gas Prices are Highly Volatile. Commodity prices for crude oil
and natural gas are highly volatile. Prices are extremely sensitive to the
supply/demand relationship for the respective natural resources. High demand for
crude oil and natural gas and/or low inventory levels for the resources as well
as any perceptions about future supply interruptions can cause commodity prices
for crude oil and natural gas to rise, while generally, low demand for natural
resources and/or increases in crude oil and natural gas supplies cause commodity
prices for the respective natural resources to decrease.
Factors that affect the supply of crude oil and natural gas include but
are not limited to the following: the Organization of Petroleum Exporting
Countries' ("OPEC") ability to control crude oil production levels and pricing,
as well as, the level of production by non-OPEC countries; political and
economic uncertainties; advances in exploration and development technology;
worldwide demand for natural resources; and governmental restrictions placed on
exploration and production of natural resources.
Changes in Level of Capital Spending by our Customers. Caspian's
principal customers are oil and natural gas exploration, development and
production companies. Caspian's results of operations are highly dependent on
the level of capital spending by the energy industry. The energy industry's
level of capital spending is substantially related to the prevailing commodity
price of natural gas and crude oil. Low commodity prices have the potential to
reduce the amount of crude oil and natural gas that Caspian's customers can
produce economically. When this market dynamic occurs, it is expected that
Caspian's customers will generally reduce their capital spending budgets for
offshore drilling, exploration and development until commodity prices for
natural resources increase to levels that can support increases in production
and development and sustain growth.
Foreign Operations
Caspian derives all of its revenues from foreign sources. Caspian
therefore faces risks inherent in conducting business internationally, such as:
o Foreign currency exchange fluctuations or imposition of
currency exchange controls;
o Legal and governmental regulatory requirements;
o Potential vessel seizure or nationalization of assets;
o Import-export quotas or other trade barriers;
o Difficulties in collecting accounts receivable and longer
collection periods;
o Political and economic instability;
o Difficulties and costs of staffing and managing international
operations; and
o Language and cultural differences.
Any of these factors could materially adversely affect Caspian's
operations and consequently, its business, operating results and financial
condition.
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Caspian also faces a significant potential risk of unfavorable tax
treatment and currency law violations. Legislation and regulations regarding
taxation, foreign currency transactions and licensing of foreign currency loans
in the Republic of Kazakhstan continue to evolve as the central government
manages the transformation from a command to a market-oriented economy. The
legislation and regulations are not always clearly written and their
interpretation is subject to the opinions of local tax inspectors. Instances of
inconsistent opinions between local, regional and national tax authorities are
not unusual.
The current regime of penalties and interest related to reported and
discovered violations of Kazakhstan's laws, decrees and related regulations are
severe. Penalties include confiscation of the amounts at issue for currency law
violations, as well as fines of generally 100% of the taxes unpaid. Interest is
assessable at rates of generally .3% per day. As a result, penalties and
interest can result in amounts that are multiples of any unreported taxes.
Caspian's operations and financial condition may be adversely affected
by Kazakh political developments, including the application of existing and
future legislation and tax regulations.
Environmental Regulations
Caspian must comply with extensive government regulation in the form of
international conventions, federal and state laws and regulations in
jurisdictions where its vessels operate and/or are registered. These
conventions, laws and regulations govern matters of environmental protection,
worker health and safety, and the manning, construction and operation of
vessels. Moreover, the International Maritime Organization recently made the
regulations of the International Safety Management ("ISM") Code mandatory. The
ISM Code provides an international standard for the safe management and
operation of ships, pollution prevention and certain crew and vessel
certifications. The risks of incurring substantial compliance costs, liabilities
and penalties for non-compliance are inherent in offshore maritime operations.
Compliance with environmental, health and safety laws and regulations increases
our cost of doing business. Additionally, environmental, health and safety laws
change frequently. Therefore, Caspian may be unable to predict the future costs
or other future impact of environmental, health and safety laws on its
operations. There is no assurance that Caspian can avoid significant costs,
liabilities and penalties imposed as a result of environmental regulation in the
future.
Caspian Subsidiaries
Caspian is a partner in two joint ventures located in the Port of
Bautino on the Caspian Sea. The Port of Bautino is the northernmost bay in the
Caspian Sea that does not freeze during the winter months, and the main marine
base for the oil companies conducting oil exploration and drilling operations in
the Kazakhstan sector of the north Caspian Sea.
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Caspian is a joint venture partner, through its subsidiary CSJC Bauta,
in a water desalinization plant that purifies, bottles and markets drinking
water. The CSJC Bauta ("Bauta") facility is currently operational. It provides
bulk water to the local community at cost under its infrastructure agreement and
provides water to the local Agip KCO base and to others in the region. Bauta
also bottles and sells water in five liter and one liter bottles. Bauta is
currently producing approximately 20,000 five liter bottles per week and 30,000
one liter bottles per week. The bottled water is primarily sold to the
surrounding oil field camps and in retail locations in Aktau. Bauta also
provides the fresh water for the hotel owned by Capsian's other joint venture
company. Bauta was incorporated on February 27, 1998. Caspian owns a 56%
interest.
Caspian is also a joint venture partner with Chagala Hotel Group, in a
development company, Bautino Development Company LLP, ("Bautino"). Bautino has
constructed and is operating a 48 room seaside hotel. The Company is finalizing
rental agreements with Agip KCO. Agip has committed to rent 36 rooms for a
period of two years beginning April 15, 2003. Agip has also committed to rent
the remaining 12 rooms for a period of two years beginning August 1, 2003.
Bautino is currently considering construction of the second phase of the hotel.
Bautino was established under the laws of Kazakhstan on June 22, 2000. Caspian
acquired its 50% interest in Bautino in April 2001.
EMPS Subsidiaries
On January 30, 2001, the Company incorporated EMPS Research Corporation
("Research") under the laws of the state of Utah, for the purpose of researching
and developing commercial applications for patented technology for a high
frequency eddy current separator, which may be used to separate nonmagnetic
particulate materials from other materials without chemicals, heat or water.
Research is currently a majority owned subsidiary of EMPS Corporation and is in
the development stage. Through Research, the Company has been working to develop
and demonstrate a High-Frequency Eddy-Current Separator ("HFECS") prototype.
With the change in its primary business focus to pursue the business of
Caspian, the Company has determined it to be in the best interest of both
Research and EMPS for EMPS to spin-off the Research shares it owns to the
shareholders of EMPS. This spin-off would be accomplished by making a pro-rata
distribution of the 3,000,000 shares of Research common stock held by EMPS to
the EMPS shareholders (the "spin-off"). The shares held by EMPS represent 90.9%
of the currently issued and outstanding common shares of Research. The proposed
spin-off will be effected without registering the distribution of shares to the
shareholders of EMPS with the Securities and Exchange Commission pursuant to its
Staff Bulletin 4. Staff Bulletin 4 sets forth the conditions to be met by
corporations effecting spin-off distributions without registration of the
shares.
Management of the EMPS and Research agree that the business focuses of
the corporations are distinct and each may have greater success in their
particular industry if Research is no longer a subsidiary of EMPS.
It is believed that a spin-off will allow Research to pursue needed
financial investment and attract management assistance suited for a technology
development company if the spin-off is effected. Each corporation will be able
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to concentrate attention and financial resources on its respective business
activities, without regard to the objectives and policies of the other business.
As independent businesses each will be able to offer employee incentives tied
directly to the results of the respective business activities. In addition, the
spin-off will allow investors to better evaluate each business, negotiate
financing terms focused on the distinct activities of each business and thereby
improve the likelihood that each corporation will achieve its objectives.
The EMPS shareholders will not be required to provide consideration for
the Research shares received in the spin-off distribution. Following the
distribution, each EMPS shareholder would have the same proportionate interest
in EMPS and Research both before and after the spin-off.
The spin-off distribution will be subject to furnishing certain
information regarding Research to both the EMPS shareholders and to the trading
markets. For this purpose, Research has filed a Form 10-SB Registration
Statement with the Securities and Exchange Commission to register the common
shares of Research pursuant to section 12(g) of the Securities Exchange Act of
1934, to provide information regarding Research to the trading markets prior to
affecting the spin-off distribution.
Employees
EMPS and its subsidiaries currently employs a total of 183 full time
employees and may add up to 30 additional employees to staff the Caspian Dinara
once it is under contract. Caspian is committed to maximizing the
nationalization of its workforce in Kazakhstan. Currently 66% of Caspian's
employees are Kazakh nationals; 28% are Russian nationals; and 6% are nationals
of other countries. Caspian hires its employees under local labor contracts
complying with the governing law of the Republic of Kazakhstan. Typically, these
employment contracts are for renewable one year terms. Caspian believes it has
satisfactory relations with its employees. To date, Caspian's operations have
not been interrupted by strikes or work stoppages.
Research currently has no full time employees. The officers and
directors work on a part time, as needed, basis with no commitment for full time
employment. Research also has a part time project manager. Raj Rajamani and
Vladimir Saveliev have agreed to consult with Research on an as needed basis.
Rajamani and Saveliev will be compensated on an as used hourly basis. Rajamani
is to be compensated at a rate of $45.10 per hour and will be compensated
through the subcontract agreement with the University of Utah. Saveliev is to be
compensated at a rate of $31.75 per hour. To date, Research has not used the
services of Saveliev, nor has he received any compensation from the Company. The
Company does not foresee Research hiring any employees until revenues and
operations warrant the addition of employees.
Research and Development
The research and development activities of the Company have been
undertaken primarily by Research. On or about January 16, 2001, the Company
received a research grant in the amount of $199,000 from the Department of
Energy ("DOE"), through its Office of Industrial Technologies 2000 Inventions
and Innovation ("I&I") program for use in developing an HFECS prototype.
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As of December 31, 2002, the Company had spent approximately $140,000
of the I&I grant money in research and development of the HFECS technology. The
Company paid $20,000 to Stephen Smoot, a related party, in project management
fees. The Company does not expect to pay any additional project management fees.
As of December 31, 2002, the Company had paid Altaire Systems approximately
$71,820 and the University of Utah approximately $47,692.
Altaire Systems is assisting the Company in designing, fabricating and
assembling the prototype HFECS. Altaire Systems will also be responsible for
field testing and training. Altaire Systems began work on the prototype in
February 2001 and has finished much of the design, fabrication and assembly of
the initial prototype. Based on the work remaining to be completed, the Company
expects Altaire Systems to finish the initial prototype for testing during the
third quarter of 2003.
The University of Utah has been retained to test and analyze equipment
design and implementation, test working scale models and perform the needed data
analysis and computer modeling once the prototype is fully functional. The
University of Utah will also assess and develop a plan for commercializing the
technology.
The Company anticipates that the prototype will be a fully operational
piece of machinery by the end of the third quarter of 2003.
Reports to Security Holders
The Company files annual and quarterly reports with the Securities and
Exchange Commission ("SEC"). The public may read and copy any materials filed by
the Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company
is an electronic filer and the SEC maintains an Internet site that will contain
reports and other information regarding the Company which may be viewed at
http://www.sec.gov.
Item 2. Description of Property
Property & Facilities
The Company maintains corporate offices at 2319 Foothill Boulevard,
Suite 250 in Salt Lake City, Utah. The Company leases this space for $991 per
month pursuant to a three-year lease that expires December 31, 2005. The Company
also maintains offices in Almaty and Aktau, Kazakhstan. Both spaces are leased
for six month terms. Both leases expire on June 30, 2003. The Company pays
$1,570 per month for the space in Almaty, and $1,000 per month for the space in
Aktau.
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The Company also leases four apartments in Aktau and one in Almaty.
Each of the apartments in Aktau is leased for a one year term. The first of
these leases expires on November 1, 2003, and the final lease expires on
February 24, 2004. The leases may be terminated at any time following the
expiration of the lease period upon one month written notice. The Company pays
$1,700 per month for these four apartments. The lease on the apartment in Almaty
is for a six month term and expires June 30, 2003. The lease payment on this
apartment was paid in full at the time the lease was entered into. The total
lease payment was $6,852.
Item 3. Legal Proceedings.
To the knowledge of management, there is no material litigation or
governmental agency proceeding pending or threatened against the Company or its
management. Further, the Company is not aware of any material pending or
threatened litigation or governmental agency proceeding to which the Company or
any of its directors, officers or affiliates are or would be a party.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended December 31, 2002.
PART II
Item 5. Market Price of and Dividends on Registrants Common Equity and Other
Shareholder Matters.
The Company's shares are currently traded on the Over-the-Counter
Bulletin Board ("OTCBB") under the symbol EPSC. As of March 31, 2003, the
Company had 85 shareholders holding 30,000,000 common shares. Of the issued and
outstanding common stock, approximately 2,850,300 are free trading, the balance
are "restricted securities" as that term is defined in Rule 144 promulgated by
the Securities and Exchange Commission.
The published bid and ask quotations from the first available date
through December 31, 2002 are included in the chart below. These quotations
represent prices between dealers and do not include retail markup, markdown or
commissions. In addition, these quotations do not represent actual transactions.
Bid Ask
2001 High Low High Low
---- ---- --- ---- ---
Dec 26 (First Available Price)
Through Dec. 31 1.25 1.00 None None
2002
----
Jan. 1 thru Mar. 31 1.50 .40 2.00 1.00
Apr. 1 thru June 30 .67 .55 1.25 1.25
July 1 thru Sep. 30 1.70 .67 2.00 1.25
Oct. 1 thru Dec. 31 1.30 .25 2.00 1.00
The above information was obtained from the Over-the-Counter Bulletin
Board, NASDAQ Data Products, Historical Data Service.
Currently, none of the Company's common shares are subject to
outstanding options or warrants to purchase, or securities convertible into,
common equity of the Company. The Company has no agreements to register shares
on behalf of shareholders currently holding unregistered securities. The Company
has not paid, nor declared, any dividends since its inception and does not
intend to declare any such dividends in the foreseeable future. The Company's
ability to pay dividends is subject to limitations imposed by Nevada law. Under
Nevada law, dividends may be paid to the extent that the corporation's assets
exceed it liabilities and it is able to pay its debts as they become due in the
usual course of business.
Recent Sales of Unregistered Securities.
The Company sold no securities during the quarter ended December 31,
2002.
Description of Common Stock.
The Company's authorized capital stock consists of 150,000,000 shares
of common stock with a $.001 par value. As of the date of this Form 10-KSB
report, the Company has 30,000,000 outstanding shares of common stock, all of
which is validly issued, fully paid and nonassessable.
Holders of the Company's common stock are entitled to receive dividends
when declared by the Board of Directors out of funds legally available
therefore. Any such dividends may be paid in cash, property or shares of the
Company's common stock. All dividends are subject to the discretion of the Board
of Directors, and will depend upon, among other things, the Company's operating
and financial conditions, its capital requirements and its general business
conditions. Therefore, there can be no assurance that any additional dividends
on the Company's common stock will be paid in the future.
All shares of the Company's common stock have equal voting rights and,
when validly issued and outstanding, have one vote per share on all matters to
be voted upon by the shareholders. Cumulative voting in the election of
directors is not allowed, and a quorum for shareholder meetings shall result
from a majority of the issued and outstanding shares present in person or by
proxy. Accordingly, the holders of a majority of the shares of common stock
present, in person or by proxy at any legally convened shareholders' meeting at
which the Board of Directors is to be elected, will be able to elect all
directors and the minority shareholders will not be able to elect a
representative to the Board of Directors.
14
There are no pre-emptive or conversion rights, no redemption or sinking
fund provisions, and shares are not liable for further call or assessment. Each
share is entitled to share pro rata any assets available for distribution to
holders of its equity securities upon liquidation.
Description of Stock Options.
The Board of Directors has adopted and the Company's shareholders have
approved the EMPS Corporation 2002 Stock Option Plan (the "Plan") allowing it to
offer key employees, officers, directors, consultants and advisors, an
opportunity to acquire a proprietary interest in the Company. The various types
of incentive awards which may be provided under the Stock Option Plan will
enable the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its business. The Company
has not granted any options pursuant to the Plan as of the date of this report.
The total number of shares reserved and available for distribution under the
Plan is 1,000,000. These shares would underlie options and other awards issued
by the Company pursuant to the Plan. Option holders will not be protected
against dilution if the Company issues additional shares in the future. Neither
the options, nor the shares underlying the option have preemptive rights.
In the case of any reclassification, change, consolidation, merger,
sale or conveyance of our shares to another corporation, the Company will make
adequate provision whereby the registered holder of any outstanding option will
have the right thereafter to receive an exercise of the options immediately
prior to the reclassification, change, consolidation, merger, sale or conveyance
of the Company shares.
Other provisions of the options are set forth below. This information
is subject to the provisions of the Plan and the Stock Option Certificates
representing the options. The following information is a summary of the EMPS
Corporation 2002 Stock Option Plan and is qualified by reference to the plan.
1. The shares underlying the Options offered pursuant to the Plan are
subject to the same rights and restrictions as other shares.
2. Once an option is granted, it may not be called by the Company.
3. The options may not be sold prior to six months from the date of the
grant of the related award without our prior approval.
4. Unless exercised within the time provided for exercise, the options
will automatically expire.
5. The exercise price per share purchasable under a stock option shall
be determined by the Committee at the time of grant and may not be less that
100% of Fair Market Value of the shares, provided however, that the exercise
price of an Incentive Stock Option granted to a 10% Stockholder shall not be
less than 110% of the Fair Market Value of the shares.
15
6. There is no minimum number of shares which must be purchased upon
exercise of the option.
7. The option holders, in certain instances, are protected against
dilution of their interest represented by the underlying shares upon the
occurrence of stock dividends, stock splits, reclassifications and mergers.
Transfer Agent.
The Company's transfer agent and registrar is Interwest Transfer
Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117,
Telephone (801) 272-9294.
Item 6. Management's Discussion and Analysis or Plan of Operations
Overview
The Company primarily provides services to the offshore energy industry
in the north Caspian Sea through the operation of a diversified fleet of marine
service vessels, through its wholly owned subsidiary Caspian. Caspian provides
its services through its registered foreign branch office in the Republic of
Kazakhstan. Revenues from marine operations are dependent upon the activity
level of the vessel fleet, which is dependent upon the level of oil and gas
exploration and production in the region, ultimately driven by the oil and
natural gas prices.
In addition to the provision of marine services, Caspian has share
holdings in two joint venture companies in the Republic of Kazakhstan, both
providing onshore infrastructure related services aimed at the offshore energy
industry. CJSC Bauta is a joint venture project that owns and operates a water
desalinization plant and sells purified water. Bautino Development Company
operates a 48-room seaside hotel in the Port of Bautino.
The Company, through its wholly owned subsidiary, EMPS Research
Corporation, also continues to develop its High-Frequency Eddy-Current Separator
("HFECS"). The anticipated primary use of the HFECS prototype will be to recover
metals in foundries and smelters that may otherwise be lost.
Forward Looking Information and Cautionary Statement
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements set
forth in Item 6 and elsewhere in this report, which provide other than
historical information and which are forward looking, involve risks and
uncertainties that may impact the company's actual results of operations. The
Company faces many risks and uncertainties, many of which are beyond the control
of the company, including: fluctuations in oil and gas prices; level of fleet
additions by competitors; changes in capital spending by customers in the energy
industry for exploration, development and production; unsettled political
16
conditions, civil unrest and governmental actions, especially in higher risk
countries of operations; foreign currency fluctuations; and environmental and
labor laws. Other risk factors are discussed elsewhere in this Form 10-KSB.
Forward-looking statements, which can generally be identified by the
use of such terminology as "may," "expect," "anticipate," "estimate,"
"forecast," "believe," "think," "could," "will," "continue," "intend," "seek,"
"plan," "should," "would" and similar expressions contained in this report, are
predictions and not guarantees of future performance or events. The
forward-looking statements are based on current industry, financial and economic
information, which the company has assessed but which by its nature is dynamic
and subject to rapid and possibly abrupt changes. The Company's actual results
could differ materially from those stated or implied by such forward-looking
statements due to risks and uncertainties associated with our business. The
forward-looking statements should be considered in the context of the risk
factors listed above and discussed elsewhere in this Form 10-KSB. Investors and
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. Management disclaims any obligation to update or
revise the forward-looking statements contained herein to reflect new
information, future events or developments.
The information contained in this analysis should be read in
conjunction with the audited consolidated financial statements contained herein
and related disclosures. All dollar amounts stated in this Item 7 are presented
in thousands, unless stated otherwise.
Results of Operations
Comparison of the year ended December 31, 2002 and 2001
Offshore service vessels provide a diverse range of services and
equipment to the energy industry. Fleet size, utilization and vessel day rates
primarily determine the amount of revenues and operating profit because
operating costs and depreciation do not change proportionally when revenue
changes. Operating costs primarily consist of crew costs, repair and
maintenance, insurance, fuel, lube oil and supplies. Fleet size and utilization
are the major factors which affect crew costs. The timing and amount of repair
and maintenance costs are influenced by customer demands, vessel age and
scheduled drydockings to satisfy safety and inspection requirements mandated by
regulatory agencies. Whenever possible, vessel drydockings are done during
seasonally slow periods to minimize any impact on vessel operations and are only
done if economically justified, given the vessel's age and physical condition.
Vessel utilization is determined primarily by market conditions and to
a lesser extent by drydocking requirements. Vessel day rates are determined by
the demand created through the level of offshore exploration, development and
production spending by energy companies relative to the supply of offshore
service vessels. Suitability of equipment and the degree of service provided
also influence vessel day rates.
Vessel charter revenue increased by approximately $1,772 for the twelve
months ended December 31, 2002, over the twelve months ended December 31, 2001.
The Baskunchak was in service during the full year ended December 31, 2001, the
17
Caspian Yelena was placed into service on September 19, 2001, and the Caspian
Maria was not placed into service until May 2002. The Caspian Eva was not placed
into service until 2003, and the Caspian Dinara has not yet been placed into
service Charter revenues are affected by day rates and utilization. The average
day rates did not change significantly during the twelve months ended December
31, 2002, compared to the same period in 2001. The Caspian Yelena and Caspian
Maria are under charter through the end of the production season 2003, with two
one-year options. The Baskunchak and the Caspian Eva are under charter through
May 2003, with a one month option. The Company anticipates these options to be
exercised. The Company is confident it will have new charters in place before
the current contracts expire. The Company also expects to have the Caspian
Dinara under contract by May 2003.
During the twelve months ended December 31, 2002, vessel direct
operating expenses were approximately $2,116 compared to $1,485 for the same
period 2001. The increase in direct operating expenses during the twelve months
ended December 31, 2002, compared to the same period 2001, is due to the
addition of the Caspian Yelena and Caspian Maria to our fleet.
Operating profit for fiscal 2002, increased approximately 66% as
compared to fiscal 2001, as a result of having the Baskunchak, Caspian Yelena
for the full 2002 season and the Caspian Maria for part of the 2002 season.
During fiscal 2002, the Company acquired the Caspian Eva for
approximately $1,445 by entering into a note payable for approximately $1,286
and paying cash of approximately $159. In February 2003, the Company acquired
the Caspian Dinara for approximately $365. The Company paid the full purchase
price in cash.
Product sales are from the sale of bottled and non-bottled water from
the Company's desalinization plant. Revenues from product sales for the twelve
months ended December 31, 2002, increased over the same period in the prior year
by approximately $265. Operating profit from product sales also increased by
$141 from 2001 to 2002. The revenue increases were due primarily to increased
demand for water and increased water production.
During fiscal 2002, the Company realized net income of approximately
$248 compared to a net loss of $117 during the same period 2001.
General and administrative expenses increased approximately $103 for
twelve months ended December 31, 2002, up from $933 for the same period 2001.
General and administrative expenses increased in 2002, due to increases in
taxes, personnel costs, travel, professional fees, and other expenses related to
the expansion of the Company's operations.
Depreciation expense increased to $656 during twelve months ended
December 31, 2002, compared to $314 for the same period 2001. The increase in
depreciation is due to placing the Caspian Yelena and the Caspian Maria into
service during 2002.
Interest expense of approximately $782 during the twelve months ended
December 31, 2002, compared to $434 for the comparable period 2001. The increase
is due to increases in loans to acquire additional vessels and equipment.
18
Liquidity and Capital Resources
The Company's current ratio, level of working capital and amount of
cash flows from operations for any year are directly related to fleet activity,
vessel day rates and water sales. Variations from year-to-year in these items
are primarily the result of market conditions. Fiscal year 2002, net income from
operating activities was higher than the previous fiscal year due to higher net
earnings as a result of increased business activity. The Company, however, had
negative working capital in 2002 and 2001, and had accumulated deficits of $90
and $749 as of December 31, 2002 and 2001, respectively.
In the past, the Company has had to rely on loans from related parties
to supplement cash flows to meet its operating expenses. Based on contracts in
place and in negotiation, management believes that in fiscal 2003, cash from
operations should provide the Company adequate resources to satisfy its current
operating and financing requirements. If needed, however, the Company believes
certain stockholders would be prepared to assist the Company on a short-term
basis with cash advances. These stockholders, however, are under no obligation
and have made no commitments to fund the Company.
During the year the Company realized no revenue from the research and
development efforts on its electromagnetic particle separation technology.
In prior years, the Company has borrowed certain amounts from a
stockholder and from certain companies related through common management to help
fund its aggressive fleet expansion, to purchase equipment and for working
capital. In December 2002, $1,502 of this debt was forgiven including $100 in
2002 advances.
In December 2002, the Company's majority owned subsidiary, Bauta, had a
note payable of $1,827 and accrued interest of $531 to the minority shareholder.
During December 2002, the note and accrued interest was converted to equity of
Bauta by issuing Bauta common stock. On the date of the conversion, EMPS also
converted intercompany notes receivable from Bauta for which it received
additional Bauta common stock. EMPS owns approximately 56% of the issued and
outstanding capital stock of Bauta.
The minority interest presented on the balance sheet of the
accompanying financial statements represents the historical costs incurred by
the minority shareholder of Bauta in connection with its investment in Bauta -
the amount paid by the minority shareholder in connection with its 44% interest
in Bauta. The minority interest does not represent a debt obligation of the
Company and the Company is under no obligation to repay this amount to the
minority shareholder of Bauta.
As a result of the debt forgiveness by related parties and the
conversion of the Bauta note and accrued interest to equity, the Company reduced
its indebtedness to related parties from $3,929 on December 31, 2001, to $700 on
December 31, 2002.
19
As part of a debt restructuring that took place in February 2002, the
Company entered into a note payable agreement with a financing company. The
Company borrowed approximately $3,333 and agreed to repay $3,700 in February
2003. Approximately $2,200 of the proceeds were used to payoff the bank note
collateralized by the Caspian Maria and $1,134 was used as a payment on the
related party note collateralized by the Caspian Yelena. The new note is
collateralized by the Caspian Maria and Caspian Yelena. The difference between
the face amount of the note and the amount borrowed of $367 is being recognized
over the life of the loan as interest expense. This note became due in February
2003. The loan has not been repaid. The bank has agreed to extend the term of
the loan to August 15, 2004, while the Company and the bank negotiate a longer
repayment period. The accompanying financial statements show the entire amount
of the loan as a current liability because of its February 2003, due date and
because the negotiations with the bank have not been concluded.
During August 2002, the Company entered into a note payable agreement
with a financing company for the purchase of the Caspian Eva. The Company
borrowed approximately $1,286. Interest accrues at 16% per annum and quarterly
payments of $322 begin in March 2003. The note is due on December 29, 2003.
The Company is working to have all of its long-term debt combined into
one loan with structured principal and interest payments extending into the
future. Such a restructuring could significantly reduce the Company's current
liabilities.
Effects of Inflation
Day-to-day operating costs are generally affected by inflation.
However, because the energy services industry requires specialized goods and
services, general economic inflationary trends may not affect the Company's
operating costs. The major impact on operating costs is the level of offshore
exploration, development and production spending by energy exploration and
production companies. As spending increases, prices of goods and services used
by the energy industry and the energy services industry will increase. Future
increases in vessel day rates may shield the Company from the inflationary
effects on operating costs.
Environmental Matters
The Company must comply with extensive government regulation in the
form of international conventions, federal and state laws and regulations in
jurisdictions where our vessels operate and/or are registered. These
conventions, laws and regulations govern matters of environmental protection,
worker health and safety, and the manning, construction and operation of
vessels. Moreover, the International Maritime Organization recently made the
regulations of the International Safety Management ("ISM") Code mandatory. The
ISM Code provides an international standard for the safe management and
operation of ships, pollution prevention and certain crew and vessel
certifications. The risks of incurring substantial compliance costs, liabilities
and penalties for non-compliance are inherent in offshore maritime operations.
Compliance with environmental, health and safety laws and regulations increases
our cost of doing business. Additionally, environmental, health and safety laws
change frequently.
20
Therefore, the Company may be unable to predict the future costs or other future
impact of environmental, health and safety laws on its operations. There is no
assurance that the Company can avoid significant costs, liabilities and
penalties imposed as a result of environmental regulation in the future.
Contingencies and Commitments
In recent years, Kazakhstan has undergone substantial political and
economic change. As an emerging market, Kazakhstan does not possess a
well-developed business infrastructure, which generally exists in a more mature
free market economy. As a result, operations carried out in Kazakhstan can
involve significant risks, which are not typically associated with those in
developed markets. Instability in the market reform process could subject the
Company to unpredictable changes in the basic business infrastructure in which
it currently operates. Uncertainties regarding the political, legal, tax or
regulatory environment, including the potential for adverse changes in any of
these factors could significantly affect the Company's ability to operate
commercially. Management is unable to estimate what changes may occur or the
resulting effect on such changes on the Company's financial condition or future
results of operations.
Legislation and regulations regarding taxation, foreign currency
translation, and licensing of foreign currency loans in the Republic of
Kazakhstan continue to evolve as the central Government manages the
transformation from a command to a market-oriented economy. The various
legislation and regulations are not always clearly written and their
interpretation is subject to the opinions of the local tax inspectors. Instances
of inconsistent opinions between local, regional and national tax authorities
are not unusual.
Item 7. Financial Statements
21
EMPS CORPORATION
AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
EMPS CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 2002 and 2001 F-3
Consolidated Statements of Operations for the years
ended December 31, 2002 and 2001 F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the year ended December 31, 2002 and 2001 F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 2002 and 2001 F-6
Notes to Consolidated Financial Statements F-7
F-1
HANSEN, BARNETT & MAXWELL (801) 532-2200
A Professional Corporation Fax (801) 532-7944
CERTIFIED PUBLIC ACCOUNTANTS 5 Triad Center, Suite 750
Salt Lake City, Utah 84180
www.hbmcpas.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
EMPS Corporation and Subsidiaries
We have audited the consolidated balance sheets of EMPS Corporation and
Subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 EMPS Corporation and
Subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
March 20, 2003
a independent member of Member of AICPA Division of Firms
BAKER TILLY Member of SECPS
INTERNATIONAL
F-2
EMPS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(in thousands)
2002 2001
---------------- ---------------
(Restated)
ASSETS
Current Assets
Cash $ 132 $ 259
Trade accounts receivable, net of allowance of
$37 and $76, respectively 1,242 335
Advances to related parties 85 195
Inventories 74 46
Prepaid expenses and other current assets 338 34
---------------- ---------------
Total Current Assets 1,871 869
---------------- ---------------
Patents and Intangible Assets, net 2 --
Investments 96 96
Vessels and Equipment, net 9,061 8,192
---------------- ---------------
Total Assets $ 11,030 $ 9,157
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Advances from related parties $ 30 $ --
Accounts payable and accrued expenses 1,404 1,708
Income tax payable 357 101
Deferred revenue 11 --
Notes payable - related parties 700 3,929
Current portions of long-term debt 4,865 --
---------------- ---------------
Total Current Liabilities 7,367 5,738
---------------- ---------------
Long-Term Debt 322 4,200
---------------- ---------------
Minority Interest 1,959 --
---------------- ---------------
Stockholders' Equity (Deficit)
Common stock, $0.001 par value, 150,000,000 shares
authorized, 30,000,000 and 27,089,700 shares issued and
outstanding, respectively 30 27
Additional paid-in capital 1,450 (27)
Accumulated other comprehensive income (8) (32)
Accumulated deficit (90) (749)
---------------- ---------------
Total Stockholders' Equity (Deficit) 1,382 (781)
---------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $ 11,030 $ 9,157
================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
F-3
EMPS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(in thousands, except share and per share data)
2002 2001
---------------- ---------------
(Restated)
Revenues
Vessel revenues $ 4,969 $ 3,197
Product sales 566 301
---------------- ---------------
Total Revenues 5,535 3,498
---------------- ---------------
Operating Expenses
Vessel operating costs 2,116 1,485
Cost of product sold 255 131
Depreciation 656 314
General and administrative 1,036 933
---------------- ---------------
Total Operating Expenses 4,063 2,863
---------------- ---------------
Income from Operations 1,472 635
---------------- ---------------
Other Income (expense)
Interest expense (782) (434)
Exchange loss (69) (23)
Grant revenue 116 --
Grant expense (116) --
Other income (expense) 25 (28)
Minority interest in loss of consolidated subsidiary --
---------------- ---------------
Net Other Expense (826) (485)
---------------- ---------------
Net Income Before Income Tax and Minority Interest 646 150
Provision for income tax (451) (267)
Minority interest 53 --
---------------- ---------------
Net Income (Loss) $ 248 $ (117)
================ ===============
Income (Loss) Per Common Share $ 0.01 $ (0.00)
================ ===============
Weighted Average Common Shares Outstanding 29,094,573 27,089,700
================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
F-4
EMPS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2002
(in thousands except share data)
Cumulative
Other Total
Common Stock Additional Compre- Stockholders'
-------------------------- Paid-In hensive Accumulated Equity
Shares Amounts Capital Loss Deficit (Deficit)
---------- ---------- ---------- ---------- ------------ -------------
Balance, December 31, 2000
(Restated) 27,089,700 $ 27 $ (27) $ - $ (632) $ (632)
-------------
Net Loss for the year ended
December 31, 2001 (restated) - - - - (117) (117)
Currency translation
adjustment (restated) - - - (32) - (32)
-------------
Comprehensive Loss (restated) (149)
---------- ---------- ---------- ---------- ------------ -------------
Balance, December 31, 2001
(Restated) 27,089,700 27 (27) (32) (749) (781)
-------------
Net Income for the year ended
December 31, 2002 - - - - 248 248
Currency translation
adjustment - - - 18 - 18
-------------
Comprehensive Income 266
-------------
Acquisition of EMPS
Corporation - July 30, 2002 2,910,300 3 (26) - - (23)
Conversion of related party
debt to equity - no shares
issued - - 1,503 - - 1,503
Recapture of minority interest
Losses - - - 6 411 417
---------- ---------- ---------- ---------- ------------ -------------
Balance, December 31, 2002 30,000,000 $ 30 $ 1,450 $ (8) $ (90) $ 1,382
========== ========== ========== ========== ============ =============
The accompanying notes are an integral part of these consolidated financial statements.
F-5
EMPS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(in thousands)
2002 2001
------------ ------------
(Restated)
Cash flows from operating activities:
Net (loss) income $ 248 $ (117)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on disposal 140 -
Depreciation and amortization 658 310
Minority interest (53) -
Foreign currency exchange loss (69) (23)
Changes in current assets and liabilities net of purchase of EMPS:
Trade accounts receivable (899) (187)
Prepaid expenses and other current assets (304) (8)
Inventories (28) (21)
Accounts payable and accrued expenses 310 747
Deferred revenue 11 -
Income taxes payable 256 (136)
------------ ------------
Net cash from operating activities 270 565
------------ ------------
Cash flows from investing activities:
Cash received in the purchase of EMPS Corporation 9 -
Investment in equity method investee - (96)
Purchase of vessels and equipment (379) (4,555)
------------ ------------
Net cash from investing activities (370) (4,651)
------------ ------------
Cash flows from financing activities:
Change in advances to/from related parties 48 (197)
Proceeds from issuance of debt to related parties 596 4,314
Principal payments on debt to related parties (703) -
Proceeds from sale of subsidiary stock 30 -
------------ ------------
Net cash from financing activities (29) 4,117
------------ ------------
Effect of exchange rate changes on cash 2 82
------------ ------------
Net change in cash (127) 113
Cash at beginning of period 259 146
------------ ------------
Cash at end of period $ 132 $ 259
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 296 $ 55
============ ============
Cash paid for income taxes $ 85 $ 86
============ ============
Supplemental disclosure of non-cash investing and financing activities:
See Note 11.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization and Merger - On May 29, 2002, the stockholders of EMPS
Corporation ("EMPS" or the "Company") and the stockholders of Caspian Services
Group Limited ("Caspian") ratified an Agreement and Plan of Reorganization (the
"Agreement") with EMPS whereby EMPS agreed to acquire all of the issued and
outstanding shares of Caspian in exchange for 27,089,700 restricted common
shares of EMPS. EMPS had 2,910,300 shares of common stock outstanding
immediately prior to the transaction and had negative stockholders' equity of
($23). Pursuant to the terms of the Agreement, Caspian became a wholly owned
subsidiary of EMPS and the Caspian shareholders assumed the controlling interest
in EMPS.
The agreement was accounted for as the reorganization of Caspian and the
issuance of 2,910,300 common shares to the EMPS shareholders. Those shares were
recorded at ($23), which was the fair value of the net assets held by EMPS at
the date of reorganization. The 27,089,700 shares of common stock issued in the
transaction to the Caspian shareholders were accounted for in the accompanying
historical financial statements in a manner similar to a stock split,
retroactively restated for all periods presented. The accompanying consolidated
financial statements include the operations of EMPS and its subsidiary, EMPS
Research, since the date of the reorganization.
Nature of Operations -- The Company's principal operations are carried out by
its wholly-owned subsidiary, Caspian Services Group, Limited ("Caspian").
Caspian was incorporated in the British Virgin Islands on December 22, 1999 and
operates an administrative branch in Aktau, and vessel operations out of the
Port of Bautino, Kazakhstan where its activities consist of the operation and
maintenance of one accommodation/work barge, the "Baskunchak," and two shallow
draft landing vessels, the "Caspian Yelena" and the "Caspian Maria,"
(collectively, the "Vessels"). During September 2002, the Company purchased a
shallow draft tug/survey/supply vessel, the "Caspian Eva," but has not yet
placed it into service pending completion of its reflagging. The Vessels operate
under contract in the Kazakh Sector of the North Caspian Sea. EMPS leases its
vessels to providers of engineering, procurement, installation and commissioning
(EPIC) to the transition zone offshore energy support service companies. The
EMPS's primary current contract is with Agip Kazakhstan North Caspian Operating
Company N.V ("Agip KCO"), a consortium of international oil companies with oil
and gas operations in the Caspian Sea. Agip KCO leases the vessels from EMPS and
makes the leased vessels available to its EPIC providers. The Company's services
provided in connection with the leases are as follows:
.. Maintenance and upkeep of the Vessels,
.. Staffing of the Vessels with the Company's marine crew,
.. Provision of accommodation and meals for customer's and Company's
personnel on the Vessel,
.. Laundry and other services.
In addition to operating the Vessels, the Company, through its 56% owned
subsidiary CJSC Bauta ("Bauta"), operates a desalinization plant and water
bottling operation in the Port of Bautino, on the Caspian Sea. The Company's
majority owned U.S. Subsidiary, EMPS Research Corporation is engaged in
furthering development and marketing of patented technology for commercially
separating nonmagnetic particulate material from other materials without heat or
water.
The Company also owns a 50% interest in Bautino Development Company LLP
("Bautino") which is accounted for on the equity method. Bautino's operations
consist of the development and operation of a hotel located at the Port of
Bautino in close proximity to the Agip KCO base of operations. The first phase
of the hotel contains 48 rooms. The hotel opened for business near the end of
February 2003. The Company's investment in Bautino through December 31, 2002
represents its initial investment as all of the activity through that period
consisted of building construction and land improvements.
F-7
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
Business Condition -- The Company has accumulated deficits of $90 and $749 as of
December 31, 2002 and 2001, respectively, and has negative working capital for
both years. As part of a debt restructuring that took place in February 2002,
bank debt of $3,333 together with accrued interest of $367 became due during
February 2003, at which time the Company and the bank were to renegotiate
payment terms for the total amount of $3,700. The Company and the bank intend to
structure the payments to extend beyond 2003. However, the Company is still
involved in negotiations with the bank to structure the term of the debt.
Discussions are expected to be resolved soon. At December 31, 2002, the entire
amount of the $3,333 loan is shown as a current liability because of its
February 2003 due date and because the negotiations with the bank have not been
concluded. In addition, management is working to have all of its long-term debt
combined into one loan with structured principal and interest payments extending
into the future. This aspect of the loan payment structuring is also being
discussed with the bank.
The Company was successful in converting debt due to related parties into equity
during 2002. The Company has generated both income and cash from operations for
each of the years ended December 31, 2002 and 2001. Through negotiations with
the bank to structure its debt payments, and generation of cash from operations,
management believes it will be able to meet its operating and debt cash
requirements through the new year. If needed, certain stockholders are prepared
to assist the company on a short-term basis with cash advances.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities 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.
Principles of Consolidation -- The accompanying consolidated financial
statements include operations and balances of EMPS Corporation and its wholly
owned subsidiary Caspian Services Group Limited, and majority owned
subsidiaries, CJSC Bauta, and EMPS Research Corporation, collectively ("EMPS" or
the "Company"). EMPS has a non-controlling 50% interest in Bautino Development
Company, LLC, for which it accounts for by the equity method. Intercompany
balances and transactions have been eliminated in consolidation.
Minority Interest -- Minority interest presented on the balance sheet refers to
the minority shareholder's investment in the voting stock of Bauta. In the
statement of operations, consolidated net income is increased by the minority
shareholder's proportionate share of losses. Prior to the December 10, 2002
conversion to equity of Bauta's note payable to the minority shareholder,
minority interests were not presented because of negative equity. Following the
conversion and restoration of positive equity, minority interests are shown and
a recapture adjustment, presented in the statement of stockholders equity
(deficit) reclassifies prior losses allocable to the minority shareholder
previously not presented.
Inventories -- Inventory consists of bulk and bottled water related to the Bauta
desalinization plant, and are stated at the lower of cost or market, cost being
determined by an average cost method, which approximates the first-in, first-out
(FIFO) method.
Property and Equipment -- Property and equipment is recorded at cost.
Expenditures for maintenance and repairs are expensed; expenditures for renewals
and improvements are capitalized. Upon sale or retirement of property and
equipment, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is credited or charged to operations.
F-8
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
Depreciation of property and equipment is calculated by using the straight-line
method based on the following estimated useful lives:
Years
-----
Vessels 10 - 12
Machinery and equipment 2 - 6
Office equipment and furniture 2 - 3
Depreciation expense was $656 and $314 for the years ended December 31, 2002 and
2001 respectively.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of --
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount that the carrying amount
of the assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
Revenue Recognition -- Vessel revenue is generally recorded when services are
rendered, the Company has a signed charter agreement or other evidence of an
arrangement, pricing is fixed or determinable and collection is reasonably
assured. Revenues are recorded on a daily basis as services are rendered, and
are recorded net of value added taxes. Product sales revenue is recorded upon
delivery or shipment to the customer.
Foreign Currency Transactions -- The Company makes its principal investing and
financing transactions in United States dollars and the United States dollar is
therefore its functional currency. Transactions and balances denominated in
other currencies have been translated into United States dollars using
historical exchange rates. Exchange gains and losses from holding foreign
currencies and having liabilities payable in foreign currencies are included in
the results of operations. The Kazakh Tenge is Bauta's functional currency. The
effect of changes in exchange rates with respect to Bauta is recognized as a
separate component of accumulated other comprehensive loss. The translation of
Kazakh Tenge denominated assets and liabilities into United States dollars for
the purpose of these condensed consolidated financial statements does not
necessarily mean that EMPS could realize or settle, in United States dollars,
the reported values of these assets and liabilities. Likewise it does not mean
that EMPS could return or distribute the reported United States dollar value of
its Kazakh subsidiaries capital to its shareholders.
Income Taxes -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences in the balances of existing
assets and liabilities on the Company's financial statements and their
respective tax bases and attributable to operating loss carry forwards. Deferred
taxes are computed at the enacted tax rates for the periods when such amounts
are expected to be realized or settled. Because of differences which result in
calculation of income under accounting principles generally accepted in the
United States of America, and income calculated under Kazakh income tax
regulations it is possible for operations to result in local taxable income
while reflecting operating losses in the accompanying financial statements.
F-9
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
Comprehensive Income -- The Company uses SFAS No. 130, "Reporting Comprehensive
Income," which requires the reporting and display of total comprehensive income
and its components in the financial statements. Total comprehensive income
represents the net change in stockholders' equity (deficit) during a period from
sources other than transactions with stockholders and as such, includes net
earnings. For the Company, accumulated other comprehensive income is comprised
of accumulated foreign currency translation adjustments.
Earnings (Loss) Per Share -- Income (Loss) per common share is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding during the period.
Concentrations of Credit Risk -- The Caspian Sea offshore operations are
contracted primarily with one customer, Agip KCO. Loss of this customer could
have a material negative effect on the Company. Vessel charter services provided
to this customer are under contract with varying terms and dates during 2003.
However, it is always at least possible that a loss of business could occur in
the short or long term. While Management expects to renew the contracts
periodically, there is no assurance that the customer will renew, or will renew
on terms favorable to the Company.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade and other receivables. The Company
manages its exposure to risk through ongoing credit evaluations of its customers
and generally does not require collateral. The Company maintains an allowance
for doubtful accounts for potential losses and does not believe it is generally
exposed to concentrations of credit risk that are likely to have a material
adverse impact on the Company's financial position or results of operations.
New Accounting Standards - In April 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections." Among other provisions, the statement modifies
the criteria classification of gains and losses on debt extinguishments such
that they are not required to be classified as extraordinary items if they do
not meet the criteria for classification as extraordinary items in APB Opinion
No. 30. The Company elected to adopt this standard during the year ended
December 31, 2002. The adoption of this standard has had no material effect on
the Company's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal activities." The statement requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
plan severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. The Company will
be required to apply this statement prospectively for any exit or disposal
activities initiated after December 31, 2002. The adoption of this standard is
not expected to have a material effect on the Company's financial position or
results of operations.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." This statement amends Statement No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock-based employee compensation. It also amends the disclosure
provisions of Statement No. 123 to require prominent disclosure about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. Statement No. 148 also requires
disclosure about those effects in interim financial information. The adoption of
this standard has had no material effect on the Company's financial position or
results of operations.
F-10
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
NOTE 2 - RESTATEMENT OF PREVIOUSLY ISSUED RESTATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements as of December 31, 2001 and
for the year then ended have been restated to reflect the correction of errors.
Previously issued financial statements which were included in a Form 8-K, filed
October 7, 2002 were previously restated in an amended Form 8-K, filed November
4, 2002 to consolidate the majority owned subsidiary, Bauta. During 2000,
Caspian acquired Bauta as described in Note 3. The accompanying consolidated
financial statements reflect the allocation of the purchase price to the
acquired net assets based upon appraised fair values on the purchase date. The
previously issued restated consolidated financial statements allocated the
purchase price only to debt and goodwill. The accompanying consolidated
financial statements also reflect correctly a $1,803 note payable to a related
party denominated in Kazakh Tenge without remeasurement into U.S. dollars. The
previously issued restated consolidated financial statements reflected a $3,527
note payable to a related party as denominated in U.S. Dollars and a currency
exchange loss of $1,724, which was not reflective of the note agreement. In
addition, the accompanying consolidated financial statements exclude
inter-company interest income while the previously restated consolidated
financial statements reflected interest income of $348 relating to a note
receivable from a consolidated subsidiary. Intercompany transactions have been
eliminated in the accompanying consolidated financial statements. The effects of
the restatements are as follows:
As of and for the Year ended
As of December 31, 2000 December 31, 2001
-------------------------------- ---------------------------------
As Previously As Previously
Reported As restated Reported As restated
--------------- --------------- --------------- ---------------
Current Assets $ 394 $ 349 $ 894 $ 869
Total Assets $ 1,783 $ 4,296 $ 6,771 $ 9,157
Current Liabilities $ 2,055 $ 4,973 $ 7,450 $ 5,738
Total Liabilities $ 7,213 $ 4,976 $ 12,531 $ 9,938
Accumulated Deficit $ (5,452) $ (632) $ (5,760) $ (749)
Revenues $ 3,498 $ 3,498
Net Loss $ (412) $ (117)
Basic Loss per Common Share $ (0.02) $ -
NOTE 3 - ACQUISITION OF BAUTA
On September 8, 2000 Caspian acquired a 56 percent interest in Bauta, a water
desalinization plant located in the Port of Bautino on the Caspian Sea. The
results of Bauta's operations have been included in the Caspian consolidated
financial statements since that date. The desalinization plant purifies sea
water with equipment originally installed in 1996. Bauta supplies water in
bottles to consumers, in bulk to local municipal users and to oil exploration
companies and their contractors that require fresh water for their crews,
facilities, and to conduct oil field operations. Caspian purchased 56 percent of
the outstanding stock of Bauta from European Bank for Reconstruction and
Development (EBRD) for a cash payment of $432.
F-11
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. The fair value of the
property and equipment was determined by an independent appraiser.
Net current assets.......................................$ 136
Desalinization equipment................................. 1,470
Land and other property and equipment.................... 1,117
Notes payable and accrued interest to related parties.... (2,783)
Goodwill (Note 4)........................................ 492
------------
Total Purchase Price.....................................$ 432
============
Prior to the acquisition, Caspian purchased from EBRD a $960 non-performing note
receivable from Bauta for a cash payment of $568. The note was included in the
liabilities assumed at the purchase date and was converted to equity in December
2002 as further described in Note 8. The balance of the above notes payable and
accrued interest to related parties of $2,215 was due to the Bauta minority
shareholder. The minority shareholder converted their note to equity in December
2002, as described in Note 8.
NOTE 4 - GOODWILL
Goodwill arose from the September 8, 2000 purchase of Bauta. During 2000 Caspian
evaluated the goodwill and determined that the carrying value was unrecoverable.
Accordingly, an impairment charge was recognized during 2000 for the $492
carrying amount.
NOTE 5 - TRADE ACCOUNTS RECEIVABLE
The Company's trade accounts receivable are principally from Agip KCO relating
to vessel charters. Agip KCO is a consortium of world-leading petroleum
exploration and production companies operating in the Caspian Sea. The
receivables are current, collectable in 45 days from date of invoice, and
management expects to collect them in full. Receivables from vessel charter
revenues are approximately $1,187 and $296 at December 31, 2002 and 2001,
respectively.
A portion of the December 31, 2002 and 2001 accounts receivable, represent
activity relating to the desalinization plant. An allowance for doubtful
accounts equal to $18 and $36 has been applied to these gross receivables of $73
and $75 resulting in a net $55 and $39, respectively.
NOTE 6 - VESSELS AND EQUIPMENT
In September 2002, the Company acquired a shallow draft multi-purpose supply and
tugboat, the "Caspian Eva," valued at $1,445 including vessel and accompanying
equipment, by entering into a note payable for $1,286, and paying cash of $159.
The vessel was originally constructed in 1994 and has been specially modified to
work in the shallow waters of the Caspian Sea. The Caspian Eva is suitable for a
variety of applications including towing-pushing operations, supply, and survey
work. The vessel is currently on charter to the Agip KCO until the end of May
2003 with a 1-month extension option.
F-12
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
In October 2001, the Company acquired a shallow draft landing craft design
supply vessel, the "Caspian Maria", specially modified to operate in the shallow
waters of the Caspian Sea, valued at $1,950 including vessel and accompanying
equipment, by entering into a note payable for $1,755 and paying cash of $195.
Built in 1998, the vessel has cargo carrying capacity of 1,000 ton, and was
purchased as a result of being awarded a tender by Agip KCO. The charter term
expires at the end of the work season in 2003 with two 1-year extension options.
In September 2001, the Company acquired a shallow draft landing craft design
supply vessel, the "Caspian Yelena", specially modified to operate in the
shallow waters of the Caspian Sea, valued at $2,200, including vessel and
accompanying equipment, by entering into a note payable for $1,980 and paying
cash of $220. Built in 2001, the vessel has cargo carrying capacity of 1,000
ton, and was purchased as a result of being awarded a tender by Agip KCO. The
charter term expires at the end of the work season in 2003 with two 1-year
extension options.
In June 2000, the Company acquired a shallow draft accommodation/work barge, the
"Baskunchak", specially modified to operate in the shallow waters of the Caspian
Sea, valued at $1,500, including vessel and accompanying equipment, by paying
cash of $750 and thereafter 6 monthly installments of $125. The vessel was
converted in 1996 and is equipped with a helicopter landing deck and has
accommodation facilities for up to 64 client personnel and 17 crew. The vessel
has been regularly chartered since purchase by Agip KCO, or contractor companies
working for the consortium. The current charter term expires at the end of May
2003 with a 1-month extension option. Other interest has been received to
charter the vessel following the current term.
In February 2003, the Company acquired a shallow draft accommodation/work
vessel, the "Caspian Dinara", specially modified to operate in the shallow
waters of the Caspian Sea, valued at $365 by paying cash of $365. Built in 1977
and converted in 1995, the vessel has accommodation facilities for up to 61
client personnel and 16 crew. The "Caspian Dinara" is currently not on charter,
although interest has been received to charter the vessel for an extended period
commencing May 2003 for operations in the north Caspian Sea.
The desalinization operations are located in Bautino and consist of production
and administrative buildings, two 500 meter capacity desalinization units,
filtration systems, bulk storage tank, productions lines, packaging equipment,
warehouse space and various other production and administrative equipment,
furniture and fixtures.
F-13
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
Vessels and equipment consisted of the following at December 31:
2002 2001
-------------- -------------
Marine vessels.........................$ 6,947 $ 5,474
Machinery and equipment................ 2,405 2,446
Office equipment and furniture......... 113 77
Land................................... 595 595
-------------- -------------
10,060 8,592
Accumulated depreciation............... (999) (400)
-------------- -------------
Net Property and Vessels...............$ 8,132 $ 8,192
============== =============
NOTE 7 - NOTES PAYABLE
During February 2002, the Company entered into a note payable agreement with a
financing company. The Company borrowed $3,333 and agreed to repay $3,700 on
February 12, 2003. $2,200 of the proceeds were used to payoff the bank note
collateralized by the Maria and $1,134 was used as a payment on the related bank
note collateralized by the Yelena. The new note is collateralized by the Maria
and Yelena. The difference between the face amount of the note and the amount
borrowed of $367 is being recognized over the life of the loan and recorded in
the accompanying financial statements as interest expense. The note carries an
effective annual interest rate of 11%. At December 31, 2002, the Company
recognized $290 as interest expense with the balance of $76 to be recognized
during 2003.
As part of a debt restructuring that took place in February 2002, bank debt of
$3,333 together with accrued interest of $367 became due during February 2003,
at which time the Company and the bank were to renegotiate payment terms for the
total amount of $3,700. The Company and the bank intend to structure the
payments to extend beyond 2003. However, the Company is still involved in
negotiations with the bank to structure the term of the debt; discussions are
expected to be resolved soon. At December 31, 2002, the entire amount of the
$3,333 loan is shown as a current liability because of its February 2003 due
date and because the negotiations with the bank have not been concluded.
During August 2002, the Company entered into a note payable agreement with a
financing company for the purchase of the Caspian Eva. The Company borrowed
$1,286. Interest accrues at 16% per annum and quarterly payments of $322 begin
in March 2003. The note is due on December 29, 2003.
Notes payable consist of the following at December 31:
2002 2001
------------- -------------
(Restated)
Notes payable to a bank bearing interest at 16%; The notes
were refinanced at market rates in part During 2002: due
in December 2003 and August 2004; secured by vessels $ 1,853 $ 4,200
Note payable to a bank bearing interest at 11%;
Due February 2003; secured by vessels 3,333 --
------------- -------------
Total Notes Payable 5,186 4,200
Less: Current Portion 4,865 --
------------- -------------
Total Notes Payable - Long-Term $ 322 $ 4,200
============= =============
Annual maturities of notes payable as of December 31, 2002 are as follows:
Year Ending December 31:
2003 $ 4,865
2004 322
F-14
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
NOTE 8 - NOTES PAYABLE TO RELATED PARTIES
The Company has borrowed certain amounts from a stockholder and from certain
companies related through common management for the purchase of equipment and
for working capital. In December 2002, $1,502 of this debt was forgiven
including $100 in 2002 advances. Due to the debt holders being related parties,
the amount was recorded as additional paid-in capital with no shares issued.
In December 2002, the Company's majority owned subsidiary, Bauta, had a note
payable of $1,827 and accrued interest of $531 to the minority shareholder.
During December 2002, the note and accrued interest was converted to equity of
Bauta by issuing Bauta common stock. On the date of the conversion, EMPS also
converted intercompany notes receivable from Bauta for which it received
additional Bauta common stock. The conversions of debt to equity resulted in no
change to the established ownership percentages and the Company retained its
56.35% interest in Bauta.
Notes payable to related parties consist of the following at December 31:
2002 2001
------------- --------------
(Restated)
Notes payable to companies related through common management
bearing interest at 0%; no set payments required; due upon
demand; unsecured. $1,428 of these debts were forgiven in
December 2002 $ 300 $ 1,728
Note payable to a stockholder bearing interest at 0% until
January 1, 2003, at which time the note will bear interest
at 10%; no set payments required; due upon demand;
unsecured; during 2002, $100 was borrowed from this
shareholder, and in December 2002 $74 was forgiven 400 374
Note payable to minority shareholder bearing interest at
10%; The Company has defaulted on these payments. Secured
by equipment. During December 2002, this debt was forgiven -- 1,827
------------- --------------
Total Notes Payable to Related Parties $ 700 $ 3,929
============= ==============
F-15
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
NOTE 9 - INCOME TAXES
Kazakh tax legislation and practice is in a state of continuous development and
therefore is subject to varying interpretations and frequent changes, which may
be retroactive. Further, the interpretation of tax legislation by tax
authorities as applied to the transactions and activities of the Company may not
coincide with that of management. As a result, tax authorities may challenge
transactions and the Company may be assessed additional taxes, penalties and
interest. Tax periods remain open to review by the tax authorities for five
years.
Management believes it has paid or accrued for all taxes that are applicable.
Where practice concerning the provision of taxes is unclear, management has
accrued tax liabilities based on its best estimate.
EMPS has not recognized a deferred tax liability of $67 for the undistributed
earnings of Caspian that arose in prior years because EMPS currently does not
expect those unremitted earnings to reverse and become taxable to EMPS in the
foreseeable future. A deferred tax liability will be recognized when EMPS
expects that it will realize those undistributed earnings in a taxable manner,
such as through receipt of dividends or sale of investments. As of December 31,
2002, those undistributed earnings were $191.
Earnings and losses before income taxes derived from United States and
international operations for the years ended December 31 are as follows:
December 31,
2002 2001
----------- ------------
United States $ (106) $ -
Kazakhstan 752 150
----------- ------------
$ 646 $ 150
=========== ============
Deferred tax assets and liabilities are as follows at December 31,:
2002 2001
----------- ------------
Tax loss carry forwards $ 682 $ 300
Property and Equipment 78 55
Valuation Allowance (719) (355)
----------- ------------
41 -
Other (41) -
----------- ------------
Net deferred tax liabiltiy $ - $ -
=========== ============
F-16
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
The following is a reconciliation of the amount of tax that would result from
applying the federal statutory rate to pretax income with the provision for
income taxes:
2002 2001
----------- ------------
Tax at statutory rate (34%) $ 219 $ 51
Non-deductible expenses (157) 90
Deferred tax asset valuation change 419 132
Effect of lower foreign tax rates (30) (6)
----------- ------------
$ 451 $ 267
=========== ============
As of December 31, 2002 EMPS has loss carry forwards of approximately $106 and
$1,141 in the United States and Kazakhstan, respectively. Tax loss carry
forwards available in the United States expire in 2022, and loss carry forwards
in Kazakhstan, which related solely to Bauta, expire in 2005.
NOTE 10 - OPERATING LEASES
The Company maintains its corporate offices in Salt Lake City, Utah. This lease
agreement expires December 2005. The Company leases office space in Almaty and
Aktau Kazakhstan. Both of these leases expire in June 2003. The Company also
leases five apartments in Almaty and Aktau Kazakhstan. These leases expire
between November 2003 and February 2004. Rent expense for the year ended
December 31, 2002 was $34.
Following is a schedule by years of the future minimum rental payments required
under these operating leases described above as of December 31, 2002:
2003 $ 46
2004 13
2005 11
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
In December 2002, certain stockholders forgave notes payable to related parties
in the amount of $1,502. There were no additional shares issued in connection
with this forgiveness. The entire amount was recorded as contributed capital.
During September 2002 the Company purchased the vessel Caspian Eva, valued at
$1,445 for cash of $159 and a note payable to a bank of $1,286. On July 30, 2002
Caspian completed a "reverse merger" acquisition of EMPS Corporation wherein
EMPS issued common stock valued at ($23) to the owners of Caspian. Caspian
acquired assets with a fair value of $12, cash of $9 and assumed liabilities of
$44. During February 2002, EMPS partially refinanced a note payable with a new
note in the amount of $3,334.
During September 2001, Caspian purchased the vessel Caspian Yelana, valued at
$2,200 for cash of $220 and a note payable of $1,980.
F-17
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Charter Contracts -- The Company is committed to make the Vessels available in
accordance with the Vessel Charter Contracts between the Company and Agip KCO.
Economic Environment -- In recent years, Kazakhstan has undergone substantial
political and economic change. As an emerging market, Kazakhstan does not
possess a well-developed business infrastructure, which generally exists in a
more mature free market economy. As a result, operations carried out in
Kazakhstan can involve significant risks, which are not typically associated
with those in developed markets. Instability in the market reform process could
subject the Company to unpredictable changes in the basic business
infrastructure in which it currently operates. Uncertainties regarding the
political, legal, tax or regulatory environment, including the potential for
adverse changes in any of these factors could significantly affect the Company's
ability to operate commercially. Management is unable to estimate what changes
may occur or the resulting effect on such changes on the Company's financial
condition or future results of operations.
Legislation and regulations regarding taxation, foreign currency translation,
and licensing of foreign currency loans in the Republic of Kazakhstan continue
to evolve as the central Government manages the transformation from a command to
a market-oriented economy. The various legislation and regulations are not
always clearly written and their interpretation is subject to the opinions of
the local tax inspectors. Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual.
Environmental Uncertainties -- Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be reasonably
estimated based on ongoing engineering studies, discussions with the
environmental authorities and assumptions as to the areas that may have to be
re-mediated along with the nature and extent of the remediation that may be
required. Ultimate cost to the Company is primarily dependent upon factors
beyond its control such as the scope and methodology of the remedial action
requirements to be established by environmental and public health authorities,
new law or government regulations, and the outcome of any potential related
litigation.
NOTE 13 - RELATED PARTY TRANSACTIONS
For the years ended December 31, 2002 and 2001, the Company paid another company
owned by a shareholder, note holder and an officer of Caspian, $112 and $99,
respectively for services related to corporate travel, Kazakh visas, and entry
and exit services.
For related party notes payable, see Notes 2 and 8.
F-18
NOTE 14 - SEGMENT INFORMATION
Accounting principles generally accepted in the United States of America
establish disclosures related to components of a company for which separate
financial information is available and evaluated regularly by a company's chief
operating decision makers in deciding how to allocate resources and in assessing
performance. They also require segment disclosures about products and services
as well as geographic area.
The Company has operations in three segments of its business, namely: Vessel
Operations, Water Desalinization and Research. The vessel operations and the
water desalinization are located in the Republic of Kazakastan. The research
operations are located in the United States of America. Information regarding
the operations and assets of these reportable business segments follows:
EMPS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Dollars in thousands, except share and per share data)
Research and
Vessel Water Corporate
Operations Desalinization Administration Total
---------- -------------- -------------- --------------
For the Year Ended December 31, 2002
Revenues $ 4,969 $ 566 $ - $ 5,535
Segment income (loss) 476 (122) (106) 248
Segment assets 9,602 2,449 84 12,135
For the Year Ended December 31, 2001
(Restated)
Revenues $ 3,197 $ 301 $ - $ 3,498
Segment income (loss) 141 (258) - (117)
Segment assets 7,655 2,507 - 10,162
2002 2001
----------- ------------
(Restated)
Total Assets
Total Assets for reportable segments $ 12,135 $ 10,162
Elimination of intersegment assets (1,105) (1,005)
----------- ------------
Consolidated total assets $ 11,030 $ 9,157
=========== ============
F-19
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure
On October 28, 2002, the Company received the resignation of David T.
Thomson, P.C., as the Company's independent auditor. Mr. Thomson's resignation
was not the result of any disagreement between the Company and Mr. Thomson on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures.
On October 31, 2002, the Company retained the services of Hansen,
Barnett and Maxwell to replace David T. Thomson, P.C. as the Company's
independent auditors.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
22
The following table sets forth the Company's directors, executive
officers, promoters and control persons, their ages, and all offices and
positions held within EMPS. Directors are elected for a period of one year and
thereafter serve until their successor is duly elected by the stockholders and
qualified. Officers and other employees serve at the will of the Board of
Directors.
Name of Director Age Term Served as Positions with EMPS
---------------- --- -------------- -------------------
Marat Cherdabayev 27 Since July 2002 Secretary and Director
Laird Garrard 38 Since October 2002 Vice President, Chief
Financial Officer and
Treasurer
Mirgali Kunayev 45 Since December 2002 Chief Executive Officer
Since July 2002 Chairman of the Board of
Directors
Louis Naegle 38 Since August 1998 President
Paul Roberts 45 Since July 2002 Director
The above individuals will serve as the Company's officers and/or
directors. A brief description of their positions, proposed duties and their
background and business experience follows:
Marat Cherdabayev, Secretary and Director. Prior to relocating to Utah
in January 2003, Mr. Cherdabayev worked for the Department of Project Finance at
OJSC Kazakhtelecom in Almaty, Kazakhstan. Mr. Cherdabayev served as the Head of
Project Planning and Monitoring, with responsibility for analyzing the financial
feasibilty of investment projects. He began working for OJSC Kazakhtelecom in
January 2001. From October 2000 to January 2001, Mr. Cherdabayev served as the
Advisor to the President of TNS Plus, a private telecommunications company in
Almaty, Kazakhstan. In that capacity, he developed and advised the president on
marketing strategies, marketing analysis and optimization issues. From January
1999 to June 1999, Mr. Cherdabayev was a Mutual Fund Accountant for State Street
Corporation, in Boston, Massachusetts. His primary duties included producing and
verifying daily financial statements, monitoring general ledger activity and
pricing and reconciling five mutual funds on a daily basis. From January 1998 to
June 1998, Mr. Cherdabayev was a Financial Reporting Assistant at Boston Edison
in Boston Massachusetts. Mr. Cherdabayev graduated with a Bachelor of Science in
Business Adminstration from Northeastern University in June 2000.
Laird Garrard, Vice President, Chief Financial Officer and Treasurer.
In addition to his duties with the Company, Mr. Garrard serves as a Vice
President and Director of Caspian Services Group Limited. Mr. Garrard joined
Caspian in August 2002. From July 1999 to July 2002, Mr. Garrard was the Eastern
23
Hemisphere Financial Manager, for PGS Onshore, Inc., a company specializing in
oilfield services. At PGS Onshore, Mr. Garrard was primarily responsible as the
regional financial manager for Africa, the Middle East and Central Asia. Prior
to joining PGS Onshore, Mr. Garrard was employed with Western Geophysical from
1990 to July 1999. During his time at Western Geophysical, Mr. Garrard held a
number of overseas accounting management positions including from 1994 to 1999
the position of Financial Controller Kazakhstan. As Financial Controller he was
responsible for all aspects of finance and administration. From 1983 to 1987,
Mr. Garrard worked in Somalia for Resource Management and Research, a company
specializing in land use surveys. Initially employed as a field research
assistant, Mr. Garrard was promoted to Project Manager in 1986. Mr. Garrard
earned a Bachelor of Arts degree in Business Administration from Westminster
University, London, England in 1990.
Mirgali Kunayev, Chief Executive Officer and Chairman of the Board of
Directors. Mr. Kunayev has been a Vice President for Caspian Services Group
Limited since 2000. Mr. Kunayev's primary responsibilities include marine oil
operations support, construction of infrastructure within the Caspian region and
negotiation of service contracts. From 1998 to 2000, Mr. Kunayev was the
President of OJSC Kazakhstancaspishelf. During that time he worked
collaboratively on the international project JNOC-KazakhOil with geophysical
companies including, JGI, Schlumberger, Western Geophysical and PGS. From 1995
to 1998, Mr. Kunayev served as President of International Geophysics, Ltd. He
was primarily responsible to oversee geological-geophysical operations and
exploratory drilling. In January 2002, Mr. Kunayev earned a Ph.D. under the
discipline of Geological and Mineralogical Science from the Moscow Geological
University in Moscow, Russia.
Louis Naegle, President. Mr. Naegle graduated from the University of
Utah in 1991 with a Bachelor of Arts degree in Political Science. Mr. Naegle
brings over 13 years experience in marketing and sales. He earned top sales
awards while working for a large international home builder. In 1996-1997, he
owned a successful sales consulting business with annual sales revenue of about
$70,000. From 1994 through 1998, Mr. Naegle was employed as a sales agent for
Equimark Properties, Inc. Since 1998, he has been a licensed real estate broker.
Mr. Naegle has sold over $30,000,000 in real estate. He currently owns LISN
Investments, LC., a limited liability company used for the purchase and sale of
real estate. He also brings experience from the international arena where he
served as liaison in the former Soviet Union for SATCO International, a trading
company specializing in tourism and sales of consumer products.
Paul A. Roberts, Director. Mr. Roberts has worked for Caspian Services
Group Limited since 2001. He was appointed President and Chairman of the Board
of Caspian Services in February 2002 where he oversees Caspian's operations.
Prior to that time, Mr. Roberts served as a Vice President. As such, he was
responsible for business development, financial planning, contracts, marketing
and operations in Kazakhstan and Central Asia. In this position, he worked
closely with government authorities and state and local businesses. From 1999 to
2001, Mr. Roberts was an Area Manager for PGS Onshore, Inc., in Almaty
Kasakhstan. As Area Manager, he was responsible for seismic exploration. He also
performed many of the same duties he performed in his capacity as Vice President
of Caspian. From 1997 to 1999, Mr. Roberts was the Resident Manager for
PetroAlliance (WGC) in Almaty, Kazakhstan. He was responsible for land and
marine seismic exploration. He also oversaw business and financial planning,
contract negotiations and operations in Kazakhstan and Central Asia.
24
Compliance with Section 16(a) of the Exchange Act
Directors and executive officers are required to comply with Section
16(a) of the Securities Exchange Act of 1934, which requires generally that such
persons file reports regarding ownership of and transactions in securities of
the Company on Forms 3, 4, and 5. A Form 3 is an initial statement of ownership
of securities, which is to be filed by the officers and directors owning shares
in the Company within 10 days after the effective date of the Company's filing
on Form 10-SB. Form 4 is to report changes in beneficial ownership and is due on
or before the tenth day of the month following any month in which they engage in
any transaction in the Company's common stock. Form 5 covers annual statement of
changes in beneficial ownership which is due 90 days after the fiscal year end
of the Company.
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during its most recent fiscal year, it appears that all
reports were timely filed.
Indemnification of Directors and Officers.
There are no provisions in the Nevada corporation law or the Articles
of Incorporation of the Company requiring the Company to indemnify any of its
officers and directors. The Articles of Incorporation of the Company provide for
indemnification as follows:
1) No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any action
taken or any failure to take any action as a director, except as
provided in this Article.
2) The limitation of liability contemplated in this Article shall not
extend to (a) the amount of a financial benefit received by a director
to which he is not entitled, (b) an intentional infliction of harm on
the corporation or the shareholders, (c) an intentional violation of
criminal law, or (d) unlawful distributions.
3) Any repeal or modification of this Article by the stockholders of
the corporation shall not adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to officers and directors of the Company pursuant
to the provisions of the Company's Certificate of Incorporation, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
25
Item 10. Executive Compensation.
The following chart sets forth the compensation paid by the Company to
each of its Executive Officers and Directors during the last three fiscal years:
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
----------------------- ------------------------- ---------------------
Restricted
Name and Principal Bonus Other Annual Stock Options/ LTIP All Other
Position Year Salary $ Compensation Awards SARs Payout Compensation
-------- ---- ------ --- ------------ ------------ ----------- ------ --------------
Mirgali Kunayev(1) 2002 60,000 -0- -0- -0- -0- -0- -0-
CEO, Director
Louis Naegle(2) 2002 -0- -0- -0- -0- -0- -0- -0-
President, 2001 -0- -0- -0- -0- -0- -0- -0-
Former CEO 2000 -0- -0- -0- -0- -0- -0- -0-
Laird Garrard(1) 2002 97,500 -0- -0- -0- -0- -0- -0-
Vice President, CFO
Paul Roberts(1) 2002 150,000 -0- -0- -0- -0- -0- -0-
Director
-------------------
(1) Compensation paid to these individuals was paid to them by Caspian in connection with services provided
to Caspian.
(2) Mr. Naegle served as the chief executive officer of the Company from August 1998 until December 2002.
No other compensation has been paid directly or accrued to any other
officer or director of the Company to date. The Company has no policy for
compensating its directors for attendance at Board of Directors meetings or for
other services as directors.
Compensation of officers and directors is determined by the Company's
Board of Directors and is not subject to shareholder approval. While none of the
officers and directors of the Company have employment agreements with the
Company, several of them do have agreements with Caspian regarding employment
with Caspian and compensation for services.
In the past three years no executive officer has received any amounts
in connection with his resignation, retirement, or other termination. No
executive officer received any amounts in the last three years in connection
with a change in control of the Company of a change in the executive officer's
responsibilities after a change in control.
The Company has no retirement, pension, or benefit plan at the present
time, however, the Board of Directors may adopt plans as it deems to be
reasonable under the circumstances.
26
Item 11. Security Ownership of Certain Beneficial Owners and Management
The term "beneficial owner" refers to both the power of investment and
the right to buy and sell shares of EMPS. It also refers to rights of ownership
or the right to receive distributions from EMPS and proceeds from the sale of
EMPS shares. Since these rights may be held or shared by more than one person,
each person who has a beneficial ownership interest in shares is deemed to be
the beneficial owners of the same shares because there is shared power of
investment or shared rights of ownership.
The following table sets forth as of March 31, 2003, the name and the
number of shares of the Registrant's Common Stock, par value of $0.001 per
share, held of record or beneficially by each person who held of record, or was
known by the Registrant to own beneficially, more than 5% of the 30,000,000
issued and outstanding shares of the Company's Common Stock, and the name and
shareholdings of each director and of all officers and directors as group.
Type of Amount & Nature of % of
Security Name and Address Beneficial Ownership Class
-------- ---------------- -------------------- -----
Common Marat Cherdabayev -0- -0-
2319 Foothill Blvd., Suite 250
Salt Lake City, Utah 84109
Common Dora International Limited 3,250,764 11%
P.O. Box 357
Pirouet House, Union Street
St. Helier, Jersey, Channel Islands
JE4 9WQ, United Kingom
Common Laird Garrard 3,250,764 11%
Dostyk 63-65/ Shevchenko 13
Almaty 480100
Republic of Kazakhstan
Common Mirgali Kunayev -0- -0-
Dostyk 63-65/ Shevchenko 13
Almaty 480100
Republic of Kazakhstan
Common Louis Naegle -0- -0-
2319 Foothill Blvd., Suite 250
Salt Lake City, Utah 84109
Common Paul Roberts 3,250,764 11%
27
Dostyk 63-65/ Shevchenko 13
Almaty 480100
Republic of Kazakhstan
Common Petroleum Services Group Limited 14,086,644 47%
P.O. Box 544
14 Britania Place Bath Street
St. Helier, Jersey, Channel Islands
JE2 4SU, United Kingdom
Common Satco International Limited 2,460,000 8%
Room 304, Arion Commercial Centre
2-12 Queens Road West
Hong Kong, People's Republic of China
Common Techgrand Company Limited 3,250,764 11%
Room 304, Arion Commercial Centre
2-12 Queens Road West
Hong Kong, People's Republic of China
All officers and directors 6,501,528 22%
as a group (5 persons) ---------
TOTAL 29,546,700 98%
==========
Mr. Cherbadayev, Mr. Garrard, Mr. Kunayev and Mr. Naegle are officers
of EMPS. Mr. Cherdabayev, Mr. Kunayev and Mr. Roberts are directors of EMPS.
Change in Control
To the knowledge of the management, there are no present arrangements
or pledges of the Company's securities that may result in a change in control of
the Company.
Item 12. Certain Relationships and Related Transactions.
During the years ended December 31, 2002 and 2001, the Company paid
$112,000 and $99,000 respectively, to another company owned by a shareholder,
note holder and officer of Caspian, Yevgeniy Kurguzkin, for services relating to
corporate travel, Kazakh visas and entry and exit services.
28
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K.
On November 4, 2002, the Company filed a Current Report on Form 8-K to
report that its independent auditor, David T. Thomson, P.C. had resigned. Mr.
Thomson's resignation was not the result of any disagreement between the Company
and Mr. Thomson on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures. The 8-K also disclosed
that the Company had retained the services of Hansen, Barnett and Maxwell to
replace David T. Thomson, P.C. as the Company's independent auditors.
(b) Exhibits. The following exhibits are included as part of this
report:
Exhibit 99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Item 14. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer has conducted an evaluation
of the Company's disclosure controls and procedures as of a date (the
"Evaluation Date") within 90 days before the filing of this annual report. Based
on their evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the applicable Securities and Exchange Commission rules and forms.
(b) Changes in Internal Controls and Procedures. Subsequent to the
Evaluation Date, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls, nor
were any corrective actions required with regard to significant deficiencies and
material weaknesses.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf,
thereunto duly authorized.
EMPS CORPORATION
Date: April 15, 2003 /s/ Mirgali Kunayev
----------------------------------------
Mirgali Kunayev, Chief Executive Officer
Date: April 15, 2003 /s/ Laird Garrard
----------------------------------------
Laird Garrard, Chief Financial Officer
29
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mirgali Kunayev, certify that:
(1) I have reviewed this annual report on Form 10-KSB of EMPS
Corporation (the "Company");
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this annual report;
(4) The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5) The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons fulfilling the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
(6) The Company's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 15, 2003 By: /s/ Mirgali Kunayev
--------------------------------------------
Mirgali Kunayev, Principal Executive Officer
30
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Laird Garrard, certify that:
(1) I have reviewed this annual report on Form 10-KSB of EMPS
Corporation (the "Company");
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this annual report;
(4) The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5) The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons fulfilling the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
(6) The Company's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 15, 2003 By: /s/ Laird Garrard
------------------------------------------
Laird Garrard, Principal Financial Officer
31