U. S. Securities and Exchange Commission
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-54375
Issuer's Telephone Number: 305-610-8000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer Accelerated filer _Non-accelerated filer Smaller reporting company [X]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:
January 22, 2013
Common Voting Stock: 8,512,681
PANAM TERRA, INC.
QUARTERLY report on Form 10-Q
for the fiscal QUARTER ended JUNE 30, 2012
Table of Contents
PanAm Terra, Inc. And Subsidiary
See accompanying notes to condensed consolidated financial statements.
PANAM TERRA, INC.
(F/K/A DUNCAN TECHNOLOGY GROUP AND ASCENTIAL
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
PanAm Terra, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on October 9, 2001. The Company’s incorporation name was Bellweather Corporation. The Company did not conduct any significant operations until December 15, 2004 when the Company acquired 100% of the outstanding common stock of Ascentia Biomedical Technologies, Inc. (“ABTI”), at which time the Company changed its name to Ascentia Biomedical Corporation. Upon completion of the merger with ABTI, the Company’s original shareholders owned only 20.2% of the post-merger outstanding common shares. Accordingly, the transaction was accounted for as a “reverse merger” whereby the Company was treated as the accounting acquiree and ABTI as the accounting acquirer. ABTI was in the business of pharmaceutical and biomedical research. However, by the third quarter of year 2006 the operations of ABTI had ceased. On March 16, 2011, ABTI was dissolved. See Note 10.
On December 13, 2006, the Company amended its articles of incorporation to change its name to Duncan Technology Group. On April 14, 2011, the Company amended its articles of incorporation to change its name to PanAm Terra, Inc.
On November 3, 2006, the Company acquired 100% of the common and preferred stock of Fortress Technology Systems, Inc. (“Fortress”) in a transaction accounted for as a “reverse merger”. The Company agreed to issue 2,545,310 common shares and 8,000,000 preferred shares in the share exchange agreement. The Company issued the 2,545,310 common shares on May 18, 2011. In December, 2007, Fortress agreed that the 8,000,000 preferred shares would not be part of the acquisition consideration.
Fortress was an operating, revenue generating company conducting business through its wholly-owned subsidiary, Zephyr Communications, Inc. (“Zephyr”). Zephyr primarily sold, installed and maintained a proprietary secure cable infrastructure system. On February 15, 2007, Fortress and Zephyr were “spun-off” to a foreign entity in which the Company’s CEO was a director. At the time of the spin-off, the liabilities of Fortress and its wholly-owned subsidiary exceeded their combined assets by $1,157,436. The Company did not receive any other compensation as part of the spin-off; accordingly, the Company recorded the elimination of the net liabilities of $1,157,436 from its consolidated financial statements as a capital contribution.
Since the February 15, 2007 spin-off, the Company has not conducted any significant operations and has not generated any operating revenue. Accordingly, the consolidated financial statements indicate that as of February 15, 2007 the Company is considered a development stage enterprise.
The Company plans to be a real estate land owning entity with the primary purpose of acquiring, leasing and controlling farm land in Latin America. Initially the Company will focus its efforts in the countries of Argentina, Brazil, and Uruguay. The business model being pursued is to acquire farmland currently producing net positive cash flows from crops such as soybeans, corn, rice and grains which are readily exportable to countries with significant demand for agricultural products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, ABTI. All significant intercompany accounts and transactions have been eliminated.
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
PANAM TERRA, INC.
(F/K/A DUNCAN TECHNOLOGY GROUP AND ASCENTIAL
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES AND BASIS OF PRESENTATION
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in its consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with the Company’s Form 10 Registration Statement. These consolidated financial statements are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the Company’s consolidated balance sheets, operating results, changes in shareholders’ deficit, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
DEVELOPMENT STAGE COMPANY
The Company is a development stage enterprise as defined by ASC 915-10, “Development Stage Entities”. The development stage commenced on February 15, 2007, the date the Company’s operating subsidiary was spun-off. Accordingly, the financial statements reflect all losses accumulated since February 15, 2007 as incurred during the Company’s development stage activities.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at historical cost which consists of the purchase price and any costs directly attributable to the acquisition. Subsequent costs are included in the asset’s carrying amount only when it is probable that the asset’s useful life will be extended. Maintenance and repairs that do not extend the life of an asset are charged to expense.
Depreciation is computed using the straight-line method over the useful life of each asset. Farmland is not depreciated. The Company did not own any property and equipment as of June 30, 2012.
In accordance with ASC 360-10, “Property, Plant, And Equipment”, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the Company determines that the sum of the undiscounted cash flows expected from the asset’s use and eventual disposal is less than the carrying amount of the asset, an impairment charge is recorded to the extent that the carrying amount exceeds the asset’s fair value.
CONCENTRATION OF CREDIT RISK
The Company does not have any off-balance-sheet concentrations of credit risk. The Company expects cash and accounts receivable to be the two assets most likely to subject the Company to concentrations of credit risk. The Company’s policy is to maintain its cash with high credit quality financial institutions to limit its risk of loss exposure. The Company plans to minimize its accounts receivable credit risk by transacting contractual arrangements with customers that have been subjected to stringent credit evaluations and structuring the contracts in a manner that lessens inherent credit risks.
PANAM TERRA, INC.
(F/K/A DUNCAN TECHNOLOGY GROUP AND ASCENTIAL
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company utilizes the asset and liability method to account for income taxes pursuant to ASC 740 “Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is used to reduce net deferred tax assets to the amount that, based on management’s estimate, is more likely than not to be realized.
ASC 740 provides guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If the Company determines that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. A liability for uncertain tax positions would then be recorded if the Company determined it is more likely than not that a position would not be sustained upon examination or if a payment would have to be made to a taxing authority and the amount is reasonably estimable. We do not believe any uncertain tax positions exist that would result in the Company having a liability to the taxing authorities. The Company classifies interest and penalties related to unrecognized tax benefits, if and when required, as part of interest expense and other expense in the consolidated statements of operations.
BASIC AND DILUTED LOSS PER SHARE
The Company has computed net loss per share in accordance with ASC 260 “Earnings per Share” which mandates that basic and diluted earnings per share “EPS” be presented on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period, including contingently issuable shares where the contingency has been resolved. Diluted EPS gives effect to all dilutive stock options and warrants outstanding during the period using the treasury stock method and dilutive convertible securities using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted loss per share excludes all dilutive potential shares as their effect is anti-dilutive.
FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 – Valuations based on observable inputs other than quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The Company recognizes revenue from product sales or services rendered when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company has not recognized any revenue since inception.
PANAM TERRA, INC.
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard update (ASU No. 2011-04), which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012 and its implementation did not have a material impact on the Company’s financial statements and disclosures.
In June 2011, the FASB issued a new accounting standard (ASU No. 2011-05), which eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. Instead, an entity will be required to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. The standard is effective for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012 without any material impact on the financial statements.
In September 2011, FASB issued amendments to its accounting guidance on testing goodwill for impairment. The amendments allow entities to use a qualitative approach to test goodwill for impairment. This permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment test performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company did not early adopt this guidance and there was no material impact to the consolidated financial statements upon adoption in the first quarter of 2012.
In December 2011, the FASB issued a new accounting standard (ASU No. 2011-11), which modifies the disclosures of offsetting assets and liabilities. The standard is effective for reporting periods beginning on or after January 1, 2013. The Company will adopt this standard in the first quarter of 2013 and does not anticipate that the implementation thereof will have a material impact on the Company’s consolidated financial statements.
NOTE 2 – GOING CONCERN
The Company is not currently generating any revenues and is incurring losses. The existence of negative cash flows from operations raises substantial doubt about the Company’s ability to continue as a going concern. Management plans to finance the Company’s operating cash flow requirements through the issuance of equity and debt securities. However, there can be no assurances that management will be successful in raising sufficient capital to meet its budgetary cash flow requirements. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and to obtain the necessary financing to execute its business plan and pay its liabilities arising from normal business operations.
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations. The financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern.
NOTE 3 – DUE FROM RELATED PARTY
The Company, while in the process of paying a $1,048 vendor bill in 2011, inadvertently paid a related party instead of the intended vendor. In the second quarter of 2012, the related party refunded to the Company the full amount of the erroneous payment.
PANAM TERRA, INC.
NOTE 4 – NOTES PAYABLE
$25,000 Convertible Note:
The Company entered into a $25,000 note payable dated December 20, 2010. Interest accrued at the rate of ten percent (10%) per annum. The principal amount of the note and all accrued interest were payable on August 15, 2012. Interest expense for the six months ended June 30, 2011 (prior to the modification described below) totaled $466.
On March 10, 2011, the Company executed an “On Demand Convertible Note” in the principal amount of $25,000 that replaced and superseded the terms of the $25,000 note payable that was outstanding as of December 31, 2010. The terms of the note stipulated that the entire principal and accrued interest shall be payable on September 10, 2012 with interest accruing at a 10% annual rate. The holder of the note payable was given the option to convert the $25,000 principal amount and the related accrued interest at any time prior to September 10, 2012 in exchange for 1,935,284 common shares. The note holder may convert less than 100% of the amount of the note and the related accrued interest and receive common shares on a pro-rata basis. Upon the conversion of the note, or a portion thereof, the note holder’s common stock ownership may not exceed 4.99% of the then outstanding common shares of the Company after giving effect to the shares issuable upon conversion. On September 10, 2012, the new note was modified to extend the maturity and note conversion deadline dates to September 10, 2015.
The Company considers this new debt instrument to be substantially different from the replaced note payable pursuant to ASC 470 because its modification added a substantive conversion option whose exercise is considered to be at least reasonably possible. Accordingly, because substantially different terms exist, the old debt instrument is considered to be extinguished and the new debt instrument is valued at $105,279 for purposes of determining the loss on extinguishment of debt. A loss on extinguishment of debt of $79,738 resulting from the difference between the fair value of the new note and the carrying value of the old note at the time of the transaction is included in the consolidated statement of operations for the six months ended June 30, 2011. The new note fair value of $105,279 was determined by multiplying the number of convertible shares (1,935,284) by the estimated per share value ($0.0544) of the common stock on March 10, 2011. The $0.0544 valuation price used is the per share cash price (Level 1 input) obtained by the Company in its only equity offering prior to this transaction. The difference between the estimated fair value of the common stock issuable upon conversion of the new note and the face amount of the new note results in a beneficial conversion feature of $80,279 which was recorded as a reduction to the fair value of the new debt instrument and an increase to additional paid-in capital.
Interest expense on the modified note for the six months ended June 30, 2011 and 2012, totaled $774 and $1,246; respectively, all of which is accrued and unpaid. As of June 30, 2012, the note payable balance that is included in the consolidated balance sheet totals $28,280 which includes the $3,280 of accrued interest.
$28,000 Convertible Note:
On March 15, 2011, the Company executed an “On Demand Convertible Note” in the principal amount of $28,000 that replaces and supersedes a $28,156 vendor invoice that was accrued as of December 31, 2010. The note and any accrued interest was payable on September 15, 2012 with interest accruing at 10% per annum. The holder of the note had the option to convert the $28,000 principal amount and the related accrued interest at any time prior to September 15, 2012 in exchange for 473,204 common shares. The note holder may convert less than 100% of the amount of the note and the related accrued interest and receive common shares on a pro-rata basis. Upon conversion of the note, or a portion thereof, the note holder’s common stock ownership may not exceed 4.99% of the then outstanding common shares of the Company after giving effect to the shares issuable upon conversion. On September 15, 2012, the note was modified to extend the maturity and note conversion deadline dates to September 15, 2015.
PANAM TERRA, INC.
NOTE 4 – NOTES PAYABLE (CONTINUED)
The Company considers this new debt instrument to be substantially different from the replaced note payable pursuant to ASC 470 because its modification added a substantive conversion option whose exercise is considered to be at least reasonably possible. Accordingly, because substantially different terms exist, the old debt instrument is considered to be extinguished and the new debt instrument is valued at $28,000 for purposes of determining the gain on extinguishment of debt. A gain on extinguishment of debt of $156 resulting from the difference between the fair value of the new note and the carrying value of the old note at the time of the transaction is included in the statement of operations for the six months ended June 30, 2011. The new note value of $28,000 was determined by the Company to be reasonable although the value of the convertible shares is less than the face value of the new note. The Company believes that because the note interest rate is representative of the rate the Company would have to pay for similarly termed debt instruments from third parties, the appropriate valuation is the $28,000 face amount of the note. This is a valuation using a Level 3 input and the market approach.
Interest expense for the six months ended June 30, 2011 and 2012, totaled $828 and $1,396, respectively; all of which is accrued and unpaid. As of December 31, 2011, the note payable balance that is included in the consolidated balance sheet totals $30,240 which includes the $2,240 of accrued interest. As of June 30, 2012, the note payable balance that is included in the consolidated balance sheet totals $31,636 which includes $3,636 of accrued interest.
NOTE 5 – STOCK OPTION PLAN
In year 2004 and effective for year 2005, the Company’s Board of Directors adopted the Company’s “2005 Combined Incentive and Non-Qualified Stock Option Plan” (Plan). The maximum aggregate number of common shares that may be subject to option and sold under the Plan is twenty thousand (20,000) shares. The Board of Directors or a Committee appointed by the Board shall administer the Plan. The Plan became effective upon its adoption by the Board and shall continue in effect for a term of ten (10) years unless sooner terminated by the Board. The term of each option shall not exceed more than ten (10) years from the grant date. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall not exceed five (5) years from the date of grant. The per share exercise price shall be subject to the following: In the case of an Incentive Stock Option (a) granted to an employee who owns more than 10% of the voting power of all classes of stock, the exercise price shall be no less than 110% of the fair market value per share on the date of grant (b) granted to any other employee, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. In the case of a Non-statutory Stock Option, the per share exercise price shall be determined by the Plan administrator.
The Company did not have any outstanding stock options as of June 30, 2012 and December 31, 2011 respectively.
NOTE 6 – FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2012, the Company’s financial instruments consist principally of accounts payable and accrued expenses and two term notes payable. The recorded value of the Company’s accounts payable and accrued expenses approximates their current fair values due to the relatively short-term settlement period of these instruments. The fair value of the convertible notes is based on the cash value received for the private offering sale of common stock on December 16, 2011 ($0.20 per share) as no sales of common stock have occurred subsequent to said date and as of June 30, 2012. Accordingly, the fair value as of June 30, 2012 of the $25,000 note is $387,057 and the fair value of the $28,000 note is $94,641.
PANAM TERRA, INC.
NOTE 7 – INCOME TAXES
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
The components of the Company’s deferred tax asset are as follows as of June 30, 2012 and December 31, 2011:
The potential deferred tax asset is computed utilizing a 34% federal statutory tax rate as the states in which the Company operated had no corporate income tax. No deferred tax asset has been reported in the financial statements because the Company believes there is a 50% or greater chance the net operating loss (NOL) carryforwards will expire unused. Accordingly, the potential tax benefits of the NOL carryforwards are offset by a valuation allowance of the same amount.
The increases in the 2012 and 2011 valuation allowances of $45,830 and $89,935, respectively, are solely attributable to deferred tax assets arising from the tax benefit of the NOL carryforward.
As of June 30, 2012, the Company had NOL carryforwards for income tax reporting purposes of approximately $1,239,101, which may be offset against future taxable income through year 2032.
The Company has not filed any income tax returns since inception. The Company is in the process of preparing all delinquent tax returns and we will file the tax returns upon their completion. Accordingly, all of the Company’s tax returns are subject to examination by the federal tax authorities. The states in which the Company has operated do not have any income tax filing requirements.
NOTE 8 – COMMITMENTS
Effective March 1, 2011, the Company entered into a three year employment agreement with its Chief Executive Officer (CEO). The CEO’s annual compensation shall be $120,000. The salary shall be increased to an annual rate of $200,000 if the Company receives an aggregate financing of $500,000 calculated starting October 1, 2010. Compensation may be increased by the Company in its sole discretion. For work performed in year 2011 but prior to this employment agreement, the CEO shall be paid a signing bonus of $50,000. The bonus will be payable to the CEO at the earlier of directors’ approval or upon the Company receiving aggregate financing of a minimum of $500,000 calculated starting January 1, 2011. The CEO shall be eligible for a performance bonus based upon certain objectives established by the Board of Directors. The targeted amount of the initial performance bonus is $50,000 annually. The CEO shall also be entitled to certain other fringe benefits such as insurance coverage under employee benefit plans that the Company may establish. Under certain circumstances the CEO may be entitled to a termination payment equal to twelve months of the CEO’s salary at the time of termination. The agreement subjects the CEO to certain non-interference, non-disclosure and non-competition terms. As of December 31, 2011, the CEO has not been paid any compensation and his accrued and unpaid salary of $100,000 is shown on the consolidated balance sheet in the “accounts payable and accrued expenses” category and is included in payroll costs in the consolidated statement of operations.
PANAM TERRA, INC.
NOTE 8 – COMMITMENTS (CONTINUED)
Subsequent to June 30, 2012, the aforementioned employment agreement was terminated; however, certain covenants therein remain in effect such as the Company’s obligation to provide health insurance to the terminated CEO and his dependents. The terminated CEO shall assume the role of Chairman of the Board of Directors. The Company shall be obligated to pay $50,000 upon the Company receiving an aggregate financing of $500,000 calculated starting October 1, 2010. In full satisfaction of all accrued obligations of the Company pursuant to the employment agreement, the Company shall be obligated to issue 750,000 common shares to an entity related to the terminated CEO.
On March 25, 2011, the Company executed two separate “Non-Executive Letters of Appointment” with identical terms for each of the two directors named therein. Under the terms of the agreements, each director will be entitled to 40,000 shares of common stock that vested upon the execution of the agreements. Furthermore, each director will be entitled to an additional 40,000 shares that will vest ratably over three years. In addition to the granting of the aforementioned common shares, the Company will determine a directors’ fee once the Company has raised a cumulative of $1,000,000. On May 18, 2011, the Company issued 80,000 shares in the aggregate to the two directors pursuant to the terms of the agreements. The Company’s consolidated statements of operations for the six months ended June 30, 2012 and 2011 includes directors’ fees of $20,724 and $4,734, respectively. The directors’ fees of $20,724 for the six months ended June 30, 2012, includes $20,000 attributable to 100,000 common shares granted to the directors on June 18, 2012 (see Note 9). As of June 30, 2012 and December 31, 2011, the directors had earned 133,756 and 20,458 common shares, respectively, that have not been issued and are reflected on the consolidated balance sheet as “common stock issuable” at par value of $133 and $20, respectively.
On October 1, 2011, effective as of January 1, 2011, the Company approved a stock compensation agreement with its chief financial officer (CFO). In exchange for CFO services during the year ending December 31, 2011, the Company is obligated to issue its CFO 750,000 restricted shares of common stock. Per the agreement, the shares were earned quarterly in 2011 as follows: (a) first quarter, 175,000 shares (b) second quarter, 200,000 shares (c) third quarter, 225,000 shares (d) fourth quarter, 150,000 shares. None of the shares have been issued. In 2012, the CFO was receiving compensation of $1,000 per month.
The shares were valued based on the average per share private placement stock price on January 14, 2011 of $0.0544 since no other stock cash sale transactions occurred prior to October 1, 2011. The consolidated statement of operations for the six months ended June 30, 2011 includes payroll costs related to this transaction of $20,400. The June 30, 2012 and December 31, 2011 consolidated balance sheets include as “common stock issuable”, at par value of $750; the 750,000 unissued shares.
Subsequent to June 30, 2012, the Company entered into an advisory agreement with an entity related to the terminated CEO. In exchange for financial and management consulting services, the Company shall pay $5,000 monthly until the Company obtains $2,000,000 in financing (including all financing completed since October 1, 2010), thereafter, the monthly consulting fee shall be $10,000. The Company shall also issue 900,000 restricted common shares that shall vest on the first anniversary of the agreement (July 6, 2013) but said shares shall be surrendered and cancelled if the agreement is terminated prior to that date. If during the term of this agreement, the Company owns or contracts to manage farmland, and the aggregate value of said farmland (determined by the most recent purchase price) is at least $200,000,000, then the Company will issue to the consulting entity a warrant to purchase 900,000 shares of common stock at a strike price of $2 per share during the period of five years from the date of issuance. The term of the agreement is five years; however, either party may terminate the agreement with or without cause after twenty-four months or at any time if the terminated CEO ceases to be affiliated with the entity providing the advisory services.
PANAM TERRA, INC.
NOTE 8 – COMMITMENTS (CONTINUED)
Subsequent to June 30, 2012, the Company hired a President/CEO by entering into a one year employment agreement that may be renewed annually by mutual written consent. The agreement contains a non-compete clause effective for twelve months after termination thereof. The agreement is conditional on the Company’s commitment to obtain a directors’ and officers’ insurance policy as soon as is reasonable and the Company executing an Indemnification Agreement satisfactory to the employee. The CEO shall receive monthly compensation of $5,000 increasing to $10,000 in the event the Company receives $2,000,000 from the sale of equity securities (including all financing completed since October 1, 2010). However, for the quarter ending December 31, 2012, the CEO’s monthly compensation is $10,000 as an incentive to achieve the aforementioned $2,000,000 equity raise. The CEO shall receive 900,000 restricted common shares of which 450,000 shall be fully vested upon contract start date (July 6, 2012); the remaining 450,000 shares will vest on July 6, 2013 unless the agreement is terminated prior to that date. If during the term of this agreement (but not after the fifth anniversary of the date of this agreement), the Company owns or contracts to manage farmland, and the aggregate value of said farmland (determined by the most recent purchase price) is at least $200,000,000, then the Company shall issue to the CEO a warrant to purchase 900,000 shares of common stock at a strike price of $2 per share during the period of five years from the date of issuance. The Board of Directors shall determine the amount the CEO’s bonus, if any, based on factors such as the achievement of company goals and plans, capital raising, purchase of land, and hiring of key employees in key locations.
NOTE 9 - COMMON STOCK ACTIVITY AND REVERSE STOCK SPLIT
The Company’s common stock activity for the year ended December 31, 2011 and for the six months ended June 30, 2012 is reflected below.
On May 18, 2011, the Company issued 2,545,310 shares of common stock pursuant to a “Share Exchange Agreement” dated November 7, 2006 (see Note 1).
Effective January 14, 2011, the Company entered into three separate stock subscription agreements for the private offering of common stock. The stock subscription terms stipulate that in the aggregate 1,286,638 unregistered (restricted) common shares will be issued for $70,000. The Company received $70,000 of proceeds from the sale of the common shares in January and February of year 2011. The Company issued the 1,286,638 shares on May 18, 2011.
On March 28, 2011, the Company settled a $60,000 debt obligation owed to an entity wholly owned by the Company’s chief executive officer. The Company agreed to issue 751,117 restricted shares of its common stock as consideration for the settlement of the debt. The shares were issued on May 18, 2011.
On May 18, 2011, the Company issued 80,000 shares of common stock pursuant to the terms of a March 25, 2011 agreement with two of its directors (see Note 8).
On May 18, 2011, the Company issued 2,000 shares of common stock to settle debt pursuant to an agreement on September 6, 2010. The December 31, 2010 consolidated balance sheet reflected the $2 par value of the 2,000 shares as “Common Stock Issuable”.
On October 1, 2011, the Company agreed to issue for year 2011 CFO services, 750,000 shares of common stock. See Note 8.
On November 18, 2011, the Company sold 250,000 shares of common stock for $50,000 cash.
On November 21, 2011, the Company sold 50,000 shares of common stock for $10,000 cash.
On December 16, 2011, the Company sold 200,000 shares of common stock for $40,000 cash.
PANAM TERRA, INC.
NOTE 9 - COMMON STOCK ACTIVITY AND REVERSE STOCK SPLIT (CONTINUED)
Effective June 18, 2012, the Company granted a total of 100,000 common shares of stock to two directors for services rendered through said date. The stock was valued at $20,000 based on the $0.20 per share value of common stock sold for cash on December 16, 2011, the date closest to this transaction date. The statement of operations for the six months ended June 30, 2012 includes the $20,000 as directors’ fees. The shares were unissued as of June 30, 2012; accordingly, the $100 par value of the stock is included on the June 30, 2012 balance sheet as common stock issuable.
Effective April 15, 2011, the Company’s Board of Directors approved a 1 – for – 100 reverse split of its common stock. The Company’s majority shareholder voted in favor of the reverse stock split motion. Fractional shares resulting from the reverse split were rounded up to the next whole number. The consolidated financial statements have been retroactively restated to reflect share and per share data related to the reverse split for all periods presented.
NOTE 10 – DISSOLUTION OF SUBSIDIARY
On March 16, 2011, the Company filed Articles of Dissolution with the State of Washington for the dissolution of the Company’s 100% owned subsidiary, Ascentia Biomedical Technologies, Inc. As of December 31, 2010, the Company’s consolidated financial statement balances attributable to its subsidiary included accounts payable to vendors of $60,932. Since there was no recourse against the Company for the $60,932 of accounts payable, the statement of operations for the six months ended June 30, 2011 includes that sum as a “gain on dissolution of subsidiary”. The subsidiary did not have any assets. The parent did not guarantee any of the debts of its subsidiary. Eliminated in the consolidation process and therefore not reflected in the consolidated financial statement balances as of December 31, 2010 is an intercompany balance of $558,482 that the subsidiary owed to its parent. The Company wrote-off the $558,482 intercompany balance on March 16, 2011, however, the write-off did not affect the consolidated statement of operations due to the offsetting nature of the intercompany balance.
NOTE 11 – SUBSEQUENT EVENTS
Effective July 6, 2012, the Company terminated the March 1, 2011 CEO employment agreement. The terms of the terminated agreement are disclosed in Note 8.
Effective July 6, 2012, the Company entered into an advisory agreement with an entity related to the terminated CEO, the terms of which are disclosed in Note 8.
Effective July 6 2012, the Company entered into an employment agreement with its new President/CEO. The terms of the employment agreement are disclosed in Note 8.
In July, 2012, the Company sold 300,000 shares of common stock for $150,000 cash.
In September, 2012, the convertible notes referred to in Note 4 were modified to extend the maturity and note conversion deadline dates until September, 2015.
On December 11, 2012, the Company issued for cash a $25,000 “on demand convertible note” bearing interest at 10% per annum. The note gives the holder the right to convert, within the two year maturity date of December 11, 2014, the note and any accrued interest in exchange for 300,000 common shares. On January 10, 2013, the holder of the note elected to convert the full amount of the note in exchange for the aforementioned common shares.
On December 13, 2012, the Company sold 40,000 shares of common stock for $10,000 cash.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
Forward-Looking Statements: No Assurances Intended
In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of PanAm Terra, Inc. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A titled “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2011. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.
Outline of Our Business
Our current business plan contemplates that we will function as an agricultural asset management company by acquiring, leasing and controlling approximately 20,000 hectares of farmland in Latin America, with an initial focus primarily in Uruguay and Brazil and secondarily in Peru, Columbia, Chile and Paraguay. The acquired farmland is anticipated to be utilized for permanent crops that can be readily transported to countries that cannot produce sufficient staples at a competitive cost, such as China, Korea and the countries of Eastern Europe. Our initial plans are (i) to acquire existing farmland from farmers as real estate investments and (ii) to lease back the land to the selling farmer or an independent operator, thereby providing investors a current yield through rental income as well as participating in the long term asset appreciation. In particular, the Company is focused on high quality arable land with water assets and good infrastructure access.
To date, the Company has acquired no farmland nor identified any specific parcel of land that it will acquire, as we will need to secure adequate funding before we can commence our acquisition program. Currently, the Company’s operations consist of developing the relationships in Latin America that will be necessary for our business and developing relationships with potential funding sources.
Results of Operations
PanAm Terra is in its organizational phase at this time. During the three and six months ended June 30, 2012, the Company had no revenue and incurred operating expenses totaling $87,223 and $135,126, respectively. The primary component of expenses was salary accrued to compensate our Chief Executive Officer and Chief Financial Officer, who are the Company’s only employees, for their services in developing our business plan and initiating the organization of our business, as well as compensation accrued for our directors. In addition, in the second quarter of 2012 we incurred $12,528 in travel expenses related to our efforts to develop contacts in South America. The remainder of our expenses in the first half of 2012 was legal, accounting and administrative expenses incurred in organizing the affairs of PanAm Terra.
The components of our operating expenses in the first half of 2011 were similar to our operating expenses in the first half of 2012, as our operations were not significantly different. Our legal and accounting expenses were higher in 2011, as we initiated reporting with the Securities and Exchange Commission in that period. On the other hand, our directors fees were lower in the first half of 2011, as the board had not yet developed compensation arrangements for itself. As a result, our operating expenses for the second quarter of 2012 were 17% higher than operating expenses during the second quarter of 2011, while our operating expenses for the first half of 2012 were 3% greater than operating expenses for the first half of 2011.
During the first quarter of 2011 we completed the liquidation of a subsidiary named Ascentia Biomedical Technologies, Inc. The subsidiary had no assets and its creditors had no legal right of access to the assets of the Company. For that reason, we recorded the liabilities of the subsidiary on the date of dissolution, which totaled $60,932, as a gain on dissolution of subsidiary, representing other income on our Statements of Operations for the six months ended June 30, 2011. This was offset by the $79,738 loss on extinguishment of debt that we recorded in March 2011. The loss arose when we replaced a $25,000 note payable with a $25,000 convertible note. As a result of the conversion feature, the fair value of the convertible note when issued was $105,279. Accordingly we recorded the difference between the fair value of the note payable and the fair value of the convertible note as a loss on extinguishment of debt.
The gain on dissolution of subsidiary and loss on extinguishment of debt were recorded as other income (expense) during the six months ended June 30, 2011. We had no similar events during the six months ended June 30, 2012, and our only other income (expense) for the first half of 2012 was an interest expense of $2,643.
As a result of the several expenses described above, the Company recorded a net loss of $88,845 ($.01 per share) for the three months ended June 30, 2012, compared to a net loss of $75,901 ($.02 per share) for the three months ended June 30, 2011. We also recorded a net loss of $137,769 ($.02 per share) for the six months ended June 30, 2012, compared to a net loss of $151,988 ($.03 per share) for the six months ended June 30, 2011.
Liquidity and Capital Resources
The Company’s operations during the first six months of 2012 used $70,183 in cash. Our cash usage was less than our net loss primarily because, due to lack of cash, $59,743 of the expenses we incurred during the first six months of 2012 was accrued as of June 30, 2012. We financed that cash flow from the cash resources we held at the beginning of 2012.
Our operations during the first six months of 2011 used $74,997 in cash, as we accrued $78,422 of the $131,167 in expenses incurred during that period. We financed that cash flow by issuing 1,286,638 shares of common stock in January 2011, for which we received a cash payment of $70,000.
We plan to acquire the capital required to initiate our business plan by issuing equity securities, either capital stock or convertible debt. Since June 30, 2012, we have received $160,000 from the sale of 340,000 shares of common stock and $25,000 from the issuance of a 10% two year note convertible into 300,000 shares of common stock. We have received no other commitments for funds. Accordingly, the opinion of our independent registered public accounting firm with respect to our 2011 financial statements stated that there is substantial doubt about the Company’s ability to continue as a going concern. That doubt will be alleviated only when we obtain the funds necessary to purchase farmland and initiate profitable operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) promulgated by the Securities and Exchange Commission) as of June 30, 2012. The evaluation revealed that there is a material weakness in our disclosure controls, specifically that the small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of June 30, 2012.
Changes in Internal Controls. There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s second fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
There have been no material changes from the risk factors included in our Form 10-K for the year ended December 31, 2011.
Item 2. Unregistered Sale of Securities and Use of Proceeds
(a) Unregistered sales of equity securities
(c) Purchases of equity securities
The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the 2nd quarter of 2012.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.