your.gc@adelphia.net
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended December 31, 2005
Commission
file number 000-30426
LARGO
VISTA GROUP, LTD.
(Name
of
Small Business Issuer in its charter)
Nevada
|
76-0434540
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
4570
Campus Drive
Newport
Beach, California
|
92660
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer's
telephone number (949) 252-2180
Securities
registered under Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act: Common Stock
Check
whether the registrant (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 reports), and (2) has
been
subject to such filing requirements for the past 90 days. Yes [X] No [
]
Check
if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B 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. [___]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
The
revenues for the year ended December 31, 2005 were $367,108.
The
market value of the voting and non-voting common stock held by non-affiliates
of
the registrant as of May 15, 2006 was $9,717,239.
The
number of shares of Common Stock outstanding as of May 15, 2006 was
277,635,403.
LARGO
VISTA GROUP, LTD.
FORM
10-KSB
INDEX
Item
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Description
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Page
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Part
I
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Item
1.
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Description
of Business
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1
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Item
2.
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Description
of Property
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9
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Item
3.
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Legal
Proceedings
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10
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Item
4
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Submission
of Matters of a Vote of Security Holders
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10
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Part
II
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|
|
|
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Item
5.
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Market
for Common Equity and Related Stockholder Matters
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10
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|
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Item
6.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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|
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Item
7.
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Financial
Statements and Supplementary Data
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F-1
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Item
8.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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21
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Item
8A
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Controls
and Procedures
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21
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Part
III
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|
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Item
9.
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Directors
and Executive Officers, Promoters & Control Persons; Compliance with
Section 16(a) of the Exchange Act
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21
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Item
10.
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Executive
Compensation
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22
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Item
11.
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Security
Ownership of Certain Beneficial Owners and Management And Related
Stockholder Matters
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23
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Item
12.
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Certain
Relationships and Related Transactions
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23
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Part
IV
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Item
13.
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Exhibits
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24
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Item
14.
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Principal
Accountant Fees and Services
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25
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Signatures
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26
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ii
PART
I
Item
1. DESCRIPTION OF BUSINESS
Business
Development
Largo
Vista Group, Ltd. (“Largo Vista” or the "Company") was formed under the laws of
the State of Nevada on January 16, 1987 under the name, "The George Group".
On
January 9, 1989, The George Group acquired Waste Service Technologies, Inc.
("WST"), an Oregon corporation, and filed a name change in Nevada and changed
its name to WST, listed its stock, and began trading on OTC bulletin
Board.
On
April
15, 1994, WST acquired Largo Vista, Inc., a California corporation, and filed
a
name change in Nevada to change WST's name to Largo Vista Group, Ltd., OTC
bulletin Board symbol "LGOV". Largo Vista originally planned to develop housing
in China, but after shipping two factory built homes to China, never fully
implemented plans due to unanticipated financing, environmental and regulatory
complications.
Unless
the context otherwise requires, all references to the Company include its
wholly-owned subsidiaries, Largo Vista, Inc., an inactive California
corporation, Largo Vista Construction, Inc., an inactive Nevada corporation,
and
Largo Vista International, Corp., an inactive Panama corporation. Largo Vista
also has operations through Doing Business As (“DBA”) agreement first with Zunyi
Shilin Xinmao Petrochemical Industries Co. Ltd, (“Zunyi”) and later with Jiahong
Gas Co., Ltd. (“Jiahong”), both registered under the Chinese laws in the Peoples
Republic of China, Guizhou Province.
Business
of the Issuer
Through
DBA agreement with Jiahong, Largo Vista is engaged in the business of purchasing
and reselling liquid petroleum gas ("LPG") in the retail and wholesale markets
to both residential and commercial consumers. Largo Vista operated a storage
depot and has an office headquarters in the City of Zunyi. Largo Vista has
found
the storage depot operations to be unprofitable, and therefore has terminated
those operations in order to concentrate its resources on supplying LPG in
bottles and through pipelines.
In
February 2002, Largo Vista’s China operations entered into an agreement with the
Zunyi Municipal Government to design and install LPG pipeline systems in
residential areas in the city of Zunyi. In exchange for installing the pipeline,
the agreement provides for the Largo Vista to be the sole LPG supplier for
those
households for 40 years. Largo Vista substantially completed the installation
of
the LPG pipeline in 2002 and continues to operate the pipeline.
In
May
2003, Largo Vista’s China operations entered into its second agreement with
Zunyi Municipal Government to design and install more LPG pipeline systems
in
residential areas in the city of Zunyi, China. The pipeline project was
substantially completed in December of 2004. These two pipelines currently
serve
approximately 660customers. When natural gas becomes available to the area,
these pipelines will be in place to deliver that commodity to the same
customers.
1
In
addition, Largo Vista has contracted with a private developer to construct
four
additional pipelines in the same area. Pipeline Number 3 will serve 42
condominiums and was completed July, 2005.. Pipeline Number 4 will serve 60
condominiums. Construction schedules are still pending. Pipeline Number 5 will
serve 1,067 condominiums and the original plan was to build 16 buildings,
housing 1,067 residences. 15 buildings containing 994 residences were completed
in December, 2005. The developer is awaiting government approval to proceed
with
the 16th
building
of 73 residences. Pipeline Number 6 will serve 5,000 condominiums but the
developer is slow in civil engineering. All of these pipelines will be operated
by Largo Vista under long term supply contracts.
The
contracts that Largo Vista Group, Ltd. (the “Company”) has with the Zunyi
Municipal Government granted to the Company the exclusive right to supply liquid
petroleum gas (LPG) to project buildings through pipeline systems. These project
buildings are similar to large apartment or condominium complexes in the United
States. The Company contracts with independent third parties for all of the
design and construction of the pipelines. Generally, a central supply station
will be built close to the buildings to be served. LPG will be stored in this
facility and gasified before entering the pipeline system. The Company operates
these central supply stations and manages the relationships with the individual
customers in the buildings.
The
Zunyi
Municipal Government (“Zunyi”) agreed in its contracts with the Company to
reimburse the Company for the costs of constructing the LPG pipelines, fifty
percent (50%) after the signing of each contract and the remaining fifty percent
(50%) upon completion of each pipeline project. Zunyi did pay the Company the
first fifty percent (50%); but failed to pay the Company the remaining fifty
percent (50%) upon completion of the first two (2) pipeline projects. Zunyi
took
the position that the Company should collect the balance from the customers
as
they subscribe for LPG delivery. The Company has been collecting that amount
as
a connection or subscription fee and accounting for that revenue as it is
received.
Largo
Vista still seeks for the opportunities to supply petroleum products into
Vietnam.
In
addition, Largo Vista had two representative offices in the Far East area,
one
in Wuhan, China and another in Ho Chi Minh City, Vietnam, to supervise LPG
and
gas oil trading operations in China and Vietnam respectively. Largo Vista closed
its rep office in Vietnam at the end of December 2005.
Arrangement
to Sell Stock to Shanghai Offshore Oil Group
On
March
18, 2005, Largo Vista signed an Agreement and Assignment of Certain Contractual
Rights and Benefits (the “Agreement”), with Shanghai Offshore Oil Group (HK)
Co., Ltd. (“Shanghai Oil”). Under the Agreement, Shanghai Oil assigned to
Largo Vista all of its rights to receive payments under a prior contract with
Asiacorp Investment Holding Ltd. (“Asiacorp”), under which Shanghai Oil would
purchase from Asiacorp fuel oil produced in Russia and deliver it to entities
in
The People’s Republic of China at a rate of thirty thousand (30,000) metric tons
per month for three (3) months and continue for the following thirty-three
(33)
months at a rate of two hundred thousand (200,000) metric tons per month, for
a
total of six million, six hundred ninety thousand metric tons (the “Asiacorp
Contract”). The Agreement states that deliveries under the Asiacorp
Contract were to begin no later than May 18, 2005.
2
The
Agreement provides that Largo Vista will receive all of the profit realized
by
Shanghai Oil from the sale of fuel oil it acquires under the Asiacorp Contract,
after the deduction of costs associated with the purchase, transportation and
sale of the fuel oil, with a minimum payment of two dollars ($2.00) per metric
ton. In exchange for the receipt of payment from Shanghai Oil, Largo Vista
agreed to issue to Shanghai Oil one hundred million (100,000,000) shares of
Largo Vista’s common stock, deliverable in three equal increments over the term
of the Agreement, which amounts may be reduced based upon the amount, if any,
of
Shanghai Oil’s actual payments from its sale of the fuel oil. However,
Largo Vista has not received any payments from Shanghai Oil under the Agreement,
and cannot give absolute assurances that any fuel oil will be delivered under
the Asiacorp Contract.
Payments
received by Largo Vista based upon Shanghai Oil’s sale of the fuel oil, if
any, will be accounted for as a capital transaction as Largo Vista’s
transaction with Shanghai Oil represents, in substance, a stock subscription
under which Largo Vista would receive approximately $0.13 per share if the
total
projected amount of fuel oil is sold and the minimum guaranteed profit margin
is
paid to Largo Vista.
During
June of 2005, Shanghai Oil notified Largo Vista that it had not received any
fuel oil under the Asiacorp Contract. As Largo Vista had not received any
payments from Shanghai Oil, it did not release any of its shares of common
stock
to Shanghai Oil. On approximately July 1, 2005, Largo Vista sent Shanghai
Oil a written “Demand to Cure Delayed-Performance” giving Shanghai Oil until
July 18, 2005, later extended to August 31, 2005, to make its first payment
to
Largo Vista under the Agreement. Although Shanghai Oil has indicated to
Largo Vista that it intends to deliver payment pursuant to the Agreement, either
through performance under the Asiacorp Contract or through another contract
in
its place, investors should understand that delivery is far from certain. As
of
the date of filing of this Amendment, Largo Vista has not received any payments
from Shanghai Oil nor has it released any of the shares deliverable to Shanghai
Oil.
Resolution
with Shanghai Oil remains highly uncertain, and Largo Vista -does not foresee
any economic benefit materializing from the Agreement. While Largo Vista has
reserved its rights to pursue all available remedies it may have against
Shanghai Oil, actually pursuing these remedies may be prohibitively expensive.
On December 22, 2005, Largo Vista’s board of directors unanimously adopted a
resolution to cancel the 97,364,597 shares that were issued Shanghai Oil under
the Agreement and to return those shares to Largo Vista’s reserve of authorized
but unissued shares of capital stock.
Organizational
Chart
Largo
Vista Group, Ltd. (LVG)
Owns
100%
of Largo Vista Inc.
No
current operations
Owns
100%
of Largo Vista International Corp.
No
current operations
Owns
100%
of Largo Vista Construction Inc.
No
current operations
3
Principal
Products and Their Markets
The
Product
LPG
is
used by about 500 million people worldwide. As a form of energy, it is
considered a very efficient fuel. Its liquid state provides a significant supply
of energy in a comparatively small volume. LPG is recognized for its
transportability and ease-of-use. It is a clean and environmentally friendly
source of energy that has a variety of residential, commercial, industrial
and
transportation uses. It can be used at home for cooking and heating and can
therefore replace wood, kerosene, coal and other environmentally unfriendly
sources of energy. Environmental concerns have caused the outlaw of the use
of
coal in most of the larger cities in China. Since LPG is one of the only viable
sources of energy for cooking and heating in Southern China, management believes
the China LPG market is ripe for growth and expansion.
Most
Chinese consumers have used wood and coal all their lives, primarily for
cooking. They are, however, beginning to realize the ease and convenience of
using LPG for cooking and heating water. Most consumers obtain LPG in 15kg.
cylinders, very similar to those used for gas barbecues in the U.S. As LPG
delivery systems, such as pipelines, make use more convenient and simple, LPG
consumption per capita should increase significantly.
Markets:
The
China
market is broken down in two ways for purposes of analysis:
The
first
way to view the market is through the distribution method; that is, either
retail-direct or wholesale-indirect. Retail distribution is accomplished by
the
three major LPG companies that deal directly with the end user. In Zunyi, Largo
Vista distributes to both retail and wholesale customers, and to both
residential and commercial users. Retail customers, however, are far more
profitable for the Company than wholesale because sales prices are higher and
there are no middleman costs. The Company is implementing strategies to develop
and expand the retail customer base.
The
second way to view the market is through the method of delivery to the user;
such as by bottle or cylinder, by pipeline, or by tank truck.
The
bottle users may be either retail, purchasing directly from a major LPG company,
or wholesale, purchasing from a distributor of a major LPG company. Bottle
customers purchase LPG in 15 kg. cylinders or bottles that must, by law, be
filled to a minimum of 13.5 kg, which is considered full. Bottle users include
residential and commercial customers. Residential consumption is by far the
largest, with commercial restaurants and caterers following second. There has
been little industrial use of LPG to date.
Pipeline
users are considered retail-direct users. LPG flows directly into household
via
pipes from a central storage tank that is replenished when necessary by a major
LPG company. Pipeline users are billed according to usage based on a meter
in
their living unit. Management is pursuing a policy of expanding into this arena
due to the fact that once the retail customer is captured via a pipeline
connection, they will remain a profit center for the Company. Also, the usage
by
a pipeline customer is expected to be greater than a bottle retail customer
because of the expanding uses of LPG, such as heating of the
residence.
4
Tank
truck or bulk sales are made to wholesale distributors who operate small bottle
filling stations. These distributors represent lower profit margins, but sheer
volume of distribution makes-up some of the difference. Bulk sales are
encouraged to cultivate the small wholesale distributors because of the
potential of acquiring their customer base in the future.
During
the 1990s, world LPG demand has risen on average nearly 3.6% per year, compared
to 1.4% per year for the petroleum industry overall, as the world economy has
grown. LPG demand is expanding worldwide but most dramatically in the developing
countries of Asia. Demand in the region has been growing by an average of more
than 6% per year, as per-capita consumption increases with the increasing
standard of living in the region. For example, per-capita consumption of LPG
in
China in the 1990s increased from around 1 kg to more than 6 kg per-capita
and
expecting consumption to expand to more than 15 kg per-capita in the next
century.
Asian
markets are expanding rapidly, along with markets in other developing countries
as population continues to grow along with demand for clean-burning LPG. It
has
been estimated that y 2020, Asia should account for more than 70 million metric
tons per year of residential and commercial LPG demand, which represents more
than 40% of total world LPG demand. China will account for the greatest
percentage of the growth in overall LPG imports as a result of continued growth
of the domestic Chinese economy and per-capita consumption of LPG.
The
majority of dollars invested in the China LPG market have been invested in
large
"mega" depots by the major oil companies. Little to no focus has been placed
on
the retail end-user market. Put simply, the LPG "storage" infrastructure is
in
place, but it is overbuilt because the retail market has not been cultivated
at
the same pace. Management's primary objective is the development of this retail
consumer base.
From
the
mega-depots on the east and southeast coast of China, LPG is shipped to smaller
inland storage depots via railroad tank car. LPG is then pumped into large
storage tanks until it is distributed in bottles, pipelines or tank trucks
to
end users and distributors.
Inland
infrastructure development has not kept pace with coastal development. Inland
depot storage capacity must be expanded to serve the customers waiting for
LPG
service. More efficient distribution methods are also needed. The bottle
exchange system is labor intensive, a factor that currently does not
significantly affect overhead; but will have greater future impact as salaries
increase.
Distribution
of LPG via pipelines directly to end-users is very efficient; but one drawback
is the cost to install pipeline service to each household, which is
approximately $185.00 US per household. Some more affluent customers can afford
to pay the installation fee up front; but most of these have already purchased
pipeline service. Some new construction projects permit the cost of installation
to be incorporated into the cost of the home. Most customers, however, cannot
afford the up-front fee; but are willing and able to pay extra each month based
on usage.
Largo
Vista has a number of pipeline projects in various planning or construction
phases and it is management's belief that this area is one of the most
profitable in the long term. In November, 2002 Largo Vista’s Pipeline Project
Number 1 was completed
5
and
a
long term service contract to maintain and supply LPG to its customers along
the
pipeline was signed. In December of 2004, Largo Vista’s Pipeline Project Number
2 was substantially completed. Largo Vista has also signed contracts for
Pipeline Projects Number 3 through Number 6 (terms and details of some of the
contracts are not finalized), all in the same area, as discussed above under
“Business of the Issuer.” - Two of these new pipelines were completed during
2005.
Distribution
of LPG
There
are
four primary levels of LPG distribution:
Major
LPG
Companies
Major
LPG
Distributors
Medium
LPG Distributors
Small
Independent LPG Distributors
The
Major
LPG companies are characterized by the following: They purchase LPG directly
from refineries or major oil companies. They must be licensed. They have
railroad tank cars and storage depots. They typically serve over 10,000 retail
customers. These companies depend on distribution networks to get LPG to the
consumers.
Major
distributors are licensed by major LPG companies and generally serve more than
4,000 but less than 10,000 customers directly. They do not typically have any
railroad tank cars, and have little or no storage capacity.
Medium
distributors are also licensed by major LPG companies, generally serve more
than
1,500 but less than 4,000 customers directly and do not have any storage
capacity. At this time, Largo Vista would be considered as a medium
distributor.
Small
independent distributors are those who may or may not be licensed, do not have
any relationship or loyalty to any major oil company or distributor and usually
serve less than 1,500 customers.
Since
all
of these distributors serve a customer base, Zunyi is actively recruiting them
on an ongoing basis.
The
majority of Largo Vista's customer base is serviced with the help of agents
and
entity users. Largo Vista has a number of agents that are independent dealers
who exclusively represent the Company in an outlying county area that is
difficult for the Company to access on a regular basis. The consumers serviced
by the agent pay retail prices. The Company pays the agent a fee for his
services and the agent carries his own overhead expenses. As the LPG market
was
developing in the early 1990's, the Company was seeking to develop a customer
base in the most efficient and effective manner possible, and, as a result,
began to cultivate the "entity" user. Entity users were companies in other
industries, already providing housing for their employees who also desired
to
provide a convenience to their workers by distributing LPG as an additional
service. These entity users developed into distribution service to consumers
who
paid retail prices. As the market further developed, the entity user also began
to be a distribution outlet to other consumers in the local area that were
not
affiliated with the entity company. Today, the Company is actively seeking
to
cultivate and develop additional entity users to expand the consumer
base.
6
Raw
Materials
The
Chinese market is unique compared to other Asian countries. Japan and Korea
seek
security of supply through regular term contracts supported by long-term
relationships, but in China, low price and bargaining is the driving force
for
LPG purchases.
When
purchasing LPG, Largo Vista must weigh various factors including quality of
LPG,
price, and transportation costs. It generally purchases from domestic sources
inside China where prices are very low, but transportation costs are
higher.
Cost
of
goods can fluctuate widely and rapidly and can cause cash flow problems.
Competition
The
LPG
industry in the city of Zunyi, Guizhou Province, consists of three major LPG
companies with storage facilities that sell LPG in both the retail and wholesale
markets. All three companies depend on a network of distributors to help reach
and service the needs of their customers. Two are privately owned and operated
and the other is state owned. Competition is based principally on price and
service; however relationship and reputation are also important to consumers
of
LPG.
LPG
retail market prices have been relatively unstable during recent years,
characterized by oversupply and cutthroat competition.
In
the
residential wholesale market, many independent "black market" dealers have
been
operating without a license, and have ignored safety regulations. Another
flagrant violation of consumer fairness is the practice of short-filling
bottles. The "black market" dealer typically will fill a bottle with 10kg of
LPG, representing that it has 13.5kg of LPG. Short filling has permitted the
Company's competition to charge lower prices and unfairly compete with Largo
Vista. This practice of cheating the consumer has been prevalent over the past
several years. Largo Vista challenges customers to be aware of what they are
paying for by implementing of a "weight comparison program." The program permits
the consumer to weigh their bottles to expose the "short-fill"
problem.
Largo
Vista competes with others on both reputation and service. To differentiate
itself from its competition, Largo Vista stresses a long-term relationship
both
with the residential user and with the distributor to help them bring in and
keep new customers. Its reputation is excellent and is backed up by a record
of
good service, with the understanding that Largo Vista can be relied upon to
deliver honest weights and measures.
Governmental
Regulation
Largo
Vista’s operations in China are regulated on a day-to-day basis by the Zunyi
municipal government, which oversees all companies licensed to do business
and
enforces rules and regulations in the market place. The Zunyi government faces
many problems in this rapidly emerging chaotic market including the existence
of
many unlicensed small distributors, violations of safety regulations and short
filled bottles. Local government is working to correct some of these more
flagrant violations.
Patents,
Trademarks & Licenses
The
Company does not currently own any patents or trademarks.
7
Employees
Largo
Vista has no employees in the United States and relies on outside consultants
for legal, accounting and organizational services as needed. Operations in
Zunyi, Wuhan and Ho Chi Minh City have a total of 15 employees, including
management, all of whom are full-time employees.
Item
1A. CAUTIONARY STATEMENTS REGARDING FUTURE RESULTS, FORWARD-LOOKING INFORMATION
AND CERTAIN IMPORTANT FACTORS
Largo
Vista makes written and oral statements from time to time regarding its business
and prospects, such as projections of future performance, statements of
management's plans and objectives, forecasts of market trends, and other matters
that are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933. Statements containing the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimates,"
"projects," "believes," "expects," "anticipates," "intends," "target," "goal,"
"plans," "objective," "should" or similar expressions identify forward-looking
statements, which may appear in documents, reports, filings with the Securities
and Exchange Commission, news releases, written or oral presentations made
by
officers or other representatives made by Largo Vista to analysts, stockholders,
investors, news organizations and others, and discussions with management and
other representatives of Largo Vista. For such statements, Largo Vista claims
the protection of the safe harbor for forward-looking statements contained
in
the Private Securities Litigation Reform Act of 1995.
Largo
Vista’s future results, including results related to forward-looking statements,
involve a number of risks and uncertainties. No assurance can be given that
the
results reflected in any forward-looking statements will be achieved. Any
forward-looking statement made by or on behalf of Largo Vista speaks only as
of
the date on which such statement is made. Largo Vista’s forward-looking
statements are based upon assumptions that are sometimes based upon estimates,
data, communications and other information from suppliers, government agencies
and other sources that may be subject to revision. Except as required by law,
Largo Vista does not undertake any obligation to update or keep current either
(i) any forward-looking statement to reflect events or circumstances arising
after the date of such statement, or (ii) the important factors that could
cause
Largo Vista’s future results to differ materially from historical results or
trends, results anticipated or planned by Largo Vista, or which are reflected
from time to time in any forward-looking statement which may be made by or
on
behalf of Largo Vista.
In
addition to other matters identified or described by Largo Vista from time
to
time in filings with the SEC, there are several important factors that could
cause Largo Vista’s future results to differ materially from historical results
or trends, results anticipated or planned by Largo Vista, or results that are
reflected from time to time in any forward-looking statement that may be made
by
or on behalf of Largo Vista. Some of these important factors, but not
necessarily all important factors, include the following:
Largo
Vista has a history of losses, expects to incur additional losses and may never
achieve profitability. During Largo Vista’s fiscal year ended December 31, 2005,
the Company generated only $367,108 of revenue and realized a net loss $345,208.
Largo Vista has yet to generate profits from operations and consequently is
unable to predict with any certainty whether its operations will become a
commercially viable business. In order for Largo Vista to become profitable,
it
will need to generate and sustain a significant amount of revenue while
maintaining reasonable cost and expense levels.
8
Largo
Vista may require additional capital in order to meet its projected operating
costs and, if necessary, to finance future losses from operations as it
endeavors to build revenue, but largo vista does not have any commitments to
obtain such capital and cannot assure you that it will be able to obtain
adequate capital as and when required. Should Largo Vista be required to sell
additional equity securities or additional debt securities convertible into
equity, there will be additional dilution to Largo Vista’s
shareholders.
Largo
Vista is dependant on the stability of economic relations with the People’s
Republic of China for its current revenues. Nearly all of Largo Vista’s current
revenues are generated in China. Largo Vista cannot predict or guarantee the
stability of economic relations with China; and, therefore the operations of
Largo Vista are subject to disruption from a number of political and economic
causes.
Largo
Vista is owed a substantial portion of its accounts receivable from the single
source of the government of the city of Zunyi, china. Pursuant to the its
agreement with Largo Vista in February 2002, the government of Zunyi paid Largo
Vista 50% of the total contracted installation price, or $154,438. The Zunyi
government also has an obligation to collect the remaining 50% of contract
price
from the households obtaining LPG from the pipeline on behalf of the Company.
Management determined that the collectibility and length of time to collect
the
amount due can not be reasonably assured. Accordingly, revenues are recognized
as collected for the project. In May 2003, the Company entered into its Second
Agreement (“Second Agreement”) with the government of Zunyi to design and
install more LPG pipeline systems in residential areas in the city of Zunyi,
China. Pursuant to the Second Agreement, the government of Zunyi is obligated
to
pay to the Company 50% of the total contract price, or $87,258, which was paid
during 2004. Management determined that the collectibility and length of time
to
collect the amount due can not be reasonably assured. Accordingly, revenues
are
recognized as collected for the project.
Should
Largo Vista choose to grow through acquisitions, it will experience the
uncertainties associated with such a strategy. As part of Largo Vista’s business
strategy in the future, Largo Vista could acquire assets and businesses relating
to or complementary to its operations. Any acquisitions by Largo Vista would
involve risks commonly encountered in acquisitions of companies. These risks
would include, among other things, the following: Largo Vista could be exposed
to unknown liabilities of the acquired companies; Largo Vista could incur
acquisition costs and expenses higher than it anticipated; fluctuations in
Largo
Vista's quarterly and annual operating results could occur due to the costs
and
expenses of acquiring and integrating new businesses or technologies; Largo
Vista could experience difficulties and expenses in assimilating the operations
and personnel of the acquired businesses; Largo Vista's ongoing business could
be disrupted and its management's time and attention diverted; Largo Vista
could
be unable to integrate successfully.
Item
2. DESCRIPTION OF PROPERTY
Largo
Vista
Largo
Vista has corporate offices in Newport Beach, California. The base rent is
$755
per month on a month-to-month lease.
9
Wuhan
Representative Office
Largo
Vista maintains a representative office in Wuhan, Hubei Province, China, which
include three offices and access to common areas. The facilities are leased
from
Proton Enterprises.
Largo
Vista closed the Ho Chi Minh City, Vietnam office at the end of December,
2005.
Zunyi
Largo
Vista, through a contract agreement with Jiahong Gas Co., Ltd., operated its
primary service in the City of Zunyi, Guizhou Province. The Company also leases
office facilities and four distribution stores in Zunyi City.
Item
3. LEGAL PROCEEDINGS
In
August
2005, the staff of the Los Angeles office of the Securities and Exchange
Commission advised Largo Vista that it had initiated a formal, non-public
inquiry. Largo Vista and its officers have received document
subpoenas seeking documents related to the previously announced contract between
Largo Vista and Shanghai Oil and trading in the securities of Largo Vista,
among
other things.
While
the
Company is confident in its practices, there is a risk that an enforcement
proceeding will be recommended by the staff of the Commission as a result of
this formal investigation. An enforcement proceeding could include allegations
by the SEC that the Company and/or its officers violated, among
others, the anti-fraud and books and records provisions of
federal securities laws, and the rules thereunder. It cannot be predicted
with certainty what the nature of such enforcement proceeding would be, the
type
of sanctions that might be sought, or what the likelihood would be of reaching
settlement. The Company has been and expects to continue to cooperate with
the
ongoing SEC investigation.
Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART
II
Item
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The
Company's common stock is quoted on the OTC Bulletin Board under the symbol
LGOV.
The
following table sets forth the range of high and low bid information for the
Company's common stock for each quarterly period in 2005 and 2004. These
quotations are believed to be representative inter-dealer prices, without retail
mark-up, markdown or commission, and may not represent actual
transactions.
10
|
|
Bid
|
|
|
High
|
|
Low
|
4th
Quarter 2005
|
$
0.05
|
|
$
0.03
|
3rd
Quarter 2005
|
$
0.11
|
|
$
0.04
|
2nd
Quarter 2005
|
$
0.20
|
|
$
0.10
|
1st
Quarter 2005
|
$
0.33
|
|
$
0.05
|
|
|
|
|
4th
Quarter 2004
|
$0.08
|
|
$
0.01
|
3rd
Quarter 2004
|
$
0.02
|
|
$
0.01
|
2nd
Quarter 2004
|
$
0.03
|
|
$
0.01
|
1st
Quarter 2004
|
$
0.05
|
|
$
0.01
|
As
of May
15, 2006, the Company had approximately 663 shareholders of record.
We
have
never paid a cash dividend and do not anticipate doing so in the foreseeable
future.
Recent
sales of unregistered securities:
The
company issued unregistered shares of its common stock from January 1, 2004
to
December 31, 2005 as follows:
Fiscal
2004, a total of 5,348,576 shares of common stock valued at $97,478 and in
fiscal 2005, a total of 7,671,547 shares of common stock valued at $126,680
as
follows:
Issued
to
officers as compensation:
|
Number
of
|
|
Dollar
|
|
Common
Shares
|
Name
of Persons
|
Amount
of
|
Quarter
|
Issued
|
To
Whom Issued
|
Consideration
|
|
|
|
|
2004:
|
|
|
|
1st
Quarter
|
664,187
|
Albert
Figueroa
|
12,500
|
2nd
Quarter
|
None
Issued
|
|
|
3rd
Quarter
|
None
Issued
|
|
|
4th
Quarter
|
None
Issued
|
|
|
|
|
|
|
2005:
|
|
|
|
1st
Quarter
|
3,165,404
|
Albert
Figueroa
|
54,000*
|
2nd
Quarter
|
None
Issued
|
|
|
3rd
Quarter
|
None
Issued
|
|
|
4th
Quarter
|
None
Issued
|
|
|
*Accrual
from 4th quarter of 2004
11
Issued
to
consultants for services:
|
Number
of Common
|
Name
of Persons
|
Dollar
Amount
|
Quarter
|
Shares
Issued
|
To
Whom Issued
|
of
Consideration
|
|
|
|
|
2004:
|
|
|
|
1st
Quarter
|
945,536
|
Harold
Mclenden
|
18,000
|
|
598,839
|
Li
Chuming
|
11,400
|
|
1,470,833
|
Danny
Nguyen
|
28,000
|
|
664,187
|
Daniel
Mendez
|
12,500
|
2nd
Quarter
|
None
Issued
|
|
|
3rd
Quarter
|
None
Issued
|
|
|
|
None
Issued
|
|
|
|
None
Issued
|
|
|
|
None
Issued
|
|
|
|
None
Issued
|
|
|
4th
Quarter
|
None
Issued
|
|
|
2005:
|
|
|
|
1st
Quarter
|
1,758,559
|
Daniel
Mendez
|
30,000
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
2nd
Quarter
|
None
Issued
|
|
|
3rd
Quarter
|
None
Issued
|
|
|
4th
Quarter
|
None
Issued
|
|
|
Issued
to
service providers for past services:
|
Number
of Common
|
Name
of Persons
|
Dollar
Amount
|
Quarter
|
Shares
Issued
|
To
Whom Issued
|
of
Consideration
|
|
|
|
|
2004:
|
|
|
|
1st
Quarter
|
None
Issued
|
|
|
2nd
Quarter
|
None
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd
Quarter
|
None
issued
|
|
|
4th
Quarter
|
None
issued
|
|
|
2005:
|
|
|
|
1st
Quarter
|
None
Issued
|
|
|
2nd
Quarter
|
None
Issued
|
|
|
3rd
Quarter
|
None
issued
|
|
|
4th
Quarter
|
None
issued
|
|
|
12
Issued
as
loans to officers:
|
Number
of
|
|
Dollar
|
|
Common
Shares
|
Name
of Persons
|
Amount
of
|
Quarter
|
Issued
|
To
Whom Issued
|
Consideration
|
|
|
|
|
2004:
|
None
issued
|
|
|
2005:
|
None
issued
|
|
|
Issued
to
officers and shareholders for reimbursement of cash advances:
|
Number
of
|
|
Dollar
|
|
Common
Shares
|
Name
of Persons
|
Amount
of
|
Quarter
|
Issued
|
To
Whom Issued
|
Consideration
|
|
|
|
|
2004:
|
|
|
|
1st
Quarter
|
1,004,994
|
Danny
Nguyen
|
15,078
|
2nd
Quarter
|
None
issued
|
|
|
3rd
Quarter
|
None
Issued
|
|
|
4th
Quarter
|
None
issued
|
|
|
2005:
|
|
|
|
1st
Quarter
|
830,555
|
Danny
Nguyen
|
12,896
|
|
1,230,546
|
Daniel
Mendez
|
18,458
|
|
686,483
|
Albert
Figueroa
|
11,326
|
2nd
Quarter
|
None
issued
|
|
|
3rd
Quarter
|
None
Issued
|
|
|
4th
Quarter
|
None
issued
|
|
|
All
stock
issuances were conducted pursuant to section 4(2) under the 1933 Act without
the
involvement of underwriters. Stock issuances other than for cash were valued
at
market, generally determined by the low bid quotation.
Item
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Cautionary
Statement Regarding Forward-Looking Information
The
following is a discussion of the financial condition and results of operations
of the Company as of the date of this Annual Report. This discussion and
analysis should be read in conjunction with the accompanying audited
Consolidated Financial Statements of the Company including the Notes thereto
which are included elsewhere in this Form 10-KSB.
Overview
Largo
Vista is in the business of supplying liquid petroleum gas (LPG) through
pipelines and in bottles to consumers in the People’s Republic of China. Largo
Vista constructs and operates LPG pipelines in the City on Zunyi, China. Almost
all of Largo Vista’s current pipeline projects are under exclusive 40-year
supply contracts.
13
Arrangement
to Sell Stock to Shanghai Offshore Oil Group
On
March
18, 2005, Largo Vista signed an Agreement and Assignment of Certain Contractual
Rights and Benefits (the “Agreement”), with Shanghai Offshore Oil Group (HK)
Co., Ltd. (“Shanghai Oil”). Under the Agreement, Shanghai Oil assigned to
Largo Vista all of its rights to receive payments under a prior contract with
Asiacorp Investment Holding Ltd. (“Asiacorp”), under which Shanghai Oil would
purchase from Asiacorp fuel oil produced in Russia and deliver it to entities
in
The People’s Republic of China at a rate of thirty thousand (30,000) metric tons
per month for three (3) months and continue for the following thirty-three
(33)
months at a rate of two hundred thousand (200,000) metric tons per month, for
a
total of six million, six hundred ninety thousand metric tons. (the “Asiacorp
Contract”). The Agreement states that deliveries under the Asiacorp
Contract were to begin no later than May 18, 2005.
The
Agreement provides that Largo Vista will receive all of the profit realized
by
Shanghai Oil from the sale of fuel oil it acquires under the Asiacorp Contract,
after the deduction of costs associated with the purchase, transportation and
sale of the fuel oil, with a minimum payment of two dollars ($2.00) per metric
ton. In exchange for the receipt of payment from Shanghai Oil, Largo Vista
agreed to issue to Shanghai Oil one hundred million (100,000,000) shares of
Largo Vista’s common stock, deliverable in three equal increments over the term
of the Agreement, which amounts may be reduced based upon the amount, if any,
of
Shanghai Oil’s actual payments from its sale of the fuel oil. However,
Largo Vista has not received any payments from Shanghai Oil under the Agreement,
and cannot give absolute assurances that any fuel oil will be delivered under
the Asiacorp Contract.
Payments
received by Largo Vista based upon Shanghai Oil’s sale of the fuel oil, if
any, will be accounted for as a capital transaction as Largo Vista’s
transaction with Shanghai Oil represents, in substance, a stock subscription
under which Largo Vista would receive approximately $0.13 per share if the
total
projected amount of fuel oil is sold and the minimum guaranteed profit margin
is
paid to Largo Vista.
During
June of 2005, Shanghai Oil notified Largo Vista that it had not received any
fuel oil under the Asiacorp Contract. As Largo Vista had not received any
payments from Shanghai Oil, it did not release any of its shares of common
stock
to Shanghai Oil. On approximately July 1, 2005, Largo Vista sent Shanghai
Oil a written “Demand to Cure Delayed-Performance” giving Shanghai Oil until
July 18, 2005, later extended to August 31, 2005, to make
its
first
payment to Largo Vista under the Agreement. Although Shanghai Oil has
indicated to Largo Vista that it intends to deliver payment pursuant to the
Agreement, either through performance under the Asiacorp Contract or through
another contract in its place, investors should understand that delivery is
far
from certain. As of the date of this annual report,Largo Vista has not received
any payments from Shanghai Oil nor has it released any of the shares deliverable
to Shanghai Oil.
-Resolution
with Shanghai Oil remains highly uncertain, and Largo Vista -does not foresee
any economic benefit materializing from the Agreement. While Largo Vista has
reserved its rights to pursue all available remedies it may have against
Shanghai Oil, actually pursuing these remedies may be prohibitively expensive.
On December 22, 2005, Largo Vista’s board of directors unanimously adopted a
resolution to cancel the 97,364,597 shares that were issued Shanghai Oil under
the Agreement and to return those shares to Largo Vista’s reserve of authorized
but unissued shares of capital stock.
14
Basis
of Presentation
The
accompanying consolidated financial statements, included elsewhere in this
Annual Report on Form 10-KSB, have been prepared in conformity with accounting
principles generally accepted in the United States of America, which contemplate
continuation as a going concern. Largo Vista has incurred a net loss of $345,208
for the year ended December 31, 2005 and as of December 31, 2005, had a working
capital deficiency of $1,102,097.
These
conditions raise substantial doubt as to Largo Vista’s ability to continue as a
going concern. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty. These financial statements
do
not include any adjustments relating to the recoverability and classification
of
recorded asset amounts, or amounts and classification of liabilities that might
be necessary should Largo Vista be unable to continue as a going
concern.
Critical
Accounting Policies and Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect our reported assets, liabilities, revenues, and expenses,
and the disclosure of contingent assets and liabilities. We base our estimates
and judgments on historical experience and on various other assumptions we
believe to be reasonable under the circumstances. Future events, however, may
differ markedly from our current expectations and assumptions. While there
are a
number of significant accounting policies affecting our consolidated financial
statements; we believe the following critical accounting policies involve the
most complex, difficult and subjective estimates and judgments:
Stock-Based
Compensation
In
December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 (“SFAS No. 148”), "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation,"
to provide alternative methods of transition for a voluntary change to the
fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25 and related interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the fair market value of the Company's stock at the date of the
grant
over the exercise price of the related option. The Company has adopted the
annual disclosure provisions of SFAS No. 148 in its financial reports for
the year ended December 31, 2005 and 2004 and adopted the interim
disclosure provisions for its financial reports for the subsequent periods.
The
Company has no awards of stock-based employee compensation outstanding at
December 31, 2005 and 2004.
15
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), "Share-Based Payment" which is a revision
of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123. However, Statement 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro-forma disclosure is no longer an
alternative. On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company will have to comply with Statement 123R and use the Fair Value
based
method of accounting no later than the first quarter of 2006. The Company has
previously issued employee stock options for which no expense has been
recognized, and which will not be fully vested as of the effective date of
SFAS
No. 123R.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which
superseded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS ("SAB101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility
of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time
that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
SAB
104
incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"),
MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting
for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company's consolidated financial position and results of operations was
not
significant.
The
Company generally recognizes revenue upon delivery of LPG to the customer.
Revenue associated with shipments of petroleum products is recognized when
title
passes to the customer. There are no significant credit transactions.
In
February 2002, the Company entered into an agreement (“Agreement”) with Zunyi
Municipal Government (“Government”) to design and install LPG pipeline systems
in residential areas in the city of Zunyi, China on behalf of Government. In
exchange for installing the pipeline, the Agreement provides for the Company
to
be the sole LPG supplier for those households. The Company substantially
completed the installation of the LPG pipeline as of December 31, 2002. Pursuant
to the Agreement, Government
16
had
paid
to the Company 50% of the total contracted installation price, and the Company
has to collect the remaining 50% of contract price directly from the customers.
The Company’s management has determined that the collectibility and length of
time to collect the amount due from customers can not be reasonably assured.
Accordingly, revenues are recognized as collected in connection with the portion
of the contracted price to be collected from customers.
In
May
2003, the Company entered into its Second Agreement (“Second Agreement”) with
Government to design and install more LPG pipeline systems in residential areas
in the city of Zunyi, China on behalf of Government. In exchange for installing
the pipeline, the Second Agreement provides for the Company to be the sole
LPG
supplier for those households. Pursuant to the Second Agreement, Government
is
obligated to pay to the Company 50% of the total contracted installation price,
and the Company has to collect the remaining 50% of contracted price directly
from the customers. During the year ended December 31, 2003, the Company did
not
receive any payments from Government and thus delayed the installation of
pipelines. The Company accounted for installation fees of $5,888 received from
customers during the year ended December 31, 2003 as deferred revenue. During
the year ended December 31, 2004, the Company received 50% of the total
contracted price, or $87,258, from Government and additional $2,264 of payments
from customers. The Company substantially completed the installation of the
LPG
pipeline as of December 31, 2004, and accounted for the total receipt of $95,410
from Government and customers as of December 31, 2004 in connection with Second
Agreement as revenues during the year ended December 31, 2004. The Company
also
charged to income during the year ended December 31, 2004 the design and
installation costs of $105,903 incurred by the Company for the pipeline project.
Additionally, the Company management has determined that the collectibility
and
length of time to collect the remaining contracted price due from customers
can
not be reasonably assured. Accordingly, revenues will be recognized as collected
in connection with the portion of contracted price to be collected from
customers.
The
Zunyi
Municipal Government (“Zunyi”) agreed in its contracts with the Company to
reimburse the Company for the costs of constructing the LPG pipelines, fifty
percent (50%) after the signing of each contract and the remaining fifty percent
(50%) upon completion of each pipeline project. Zunyi did pay the Company the
first fifty percent (50%); but failed to pay the Company the remaining fifty
percent (50%) upon completion of the first two (2) pipeline projects. Zunyi
took
the position that the Company should collect the balance from the customers
as
they subscribe for LPG delivery. The Company has been collecting that amount
as
a connection or subscription fee and accounting for that revenue as it is
received.
Because
the Company has the exclusive right to deliver LPG to certain building projects;
and as the building projects are occupied, the occupants must obtain their
LPG
for cooking and heating from the Company. The cost of electricity is prohibitive
and regulations do not allow open fires or LPG canisters in buildings over
one
hundred meters tall. Meters are installed in each unit of each building project
for billing purposes.
17
Results
of Operations
The
following selected financial information has been derived from the Company's
consolidated financial statements. The information set forth below is not
necessarily indicative of results of future operations and cash flows and should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-KSB.
The
Company's 2005 revenues of $367,108 are attributable to liquid petroleum gas
sales at its Zunyi facility located in South China. This is a 16.46% decrease
from the revenues of $439,436 in 2004. We gave up the operation of leased deport
from April, 2004. That means we had one quarter’s wholesale business of depot in
2004. And the revenues of project #2 $95,410 (RMB 790,000) were included in
the
2004 revenues. All the revenues of 2005 are attributable to the LPG sales from
the shops and pipelines and the pipeline projects. There was no business of
big
wholesales of LPG in the year 2005.
The
following table shows the revenues reported by the Company for fiscal years
2004
and 2005 broken down by LPG Sales, Pipeline Projects and Pipeline Operations,
in
U. S. Dollars:
Fiscal
Year
|
LPG
Sales
|
Pipeline
Projects
|
Pipeline
Operations
|
TOTAL
|
|
|
|
|
|
2004
|
$
331,707
|
$
96,769
|
$
10,960
|
$
439,436
|
|
|
|
|
|
2005
|
$
308,505
|
$
28,567
|
$
30,036
|
$
367,108
|
The
Company incurred costs of sales of $341,235, or 93.0% of sales in connection
with the LPG revenues during 2005, compared to $434,864, or 99.0% in 2004.
This
decrease can be attributed to fluctuation in the cost of LPG supplies. This
resulted in an increase in gross profit to 7.0% in 2005 from 1.0% in
2004.
Selling
and administrative expenses increased from $262,860 during 2004 to $334,382
during 2005, an increase of 27.2%. This increase was due primarily to higher
attorney, consulting and other professional fees.
Interest
expense was $37,623 for 2005 compared to $31,396 in 2004.
The
net
loss from operations increased to $345,208, or 94.0% in 2005 from $276,551,
or
62.9%, in 2004.
Currency
Consideration
The
Company translates the foreign currency financial statements of its Chinese
subsidiary in accordance with the requirements of Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at the rates of exchange at the balance sheet date,
and related revenue and expenses are translated at average monthly exchange
rates in effect during the period. Resulting translation adjustments are
recorded as a separate component in stockholders' equity. Foreign currency
transaction gains and losses are included in the statement of
income.
18
Liquidity
and Capital Resources
As
of
December 31, 2005, the Company had a working capital deficit of $1,102,097.
We
generated a negative cash flow of $298,282 from operating activities during
2005. This was a result of our net loss of $345,208, adjusted principally for
$3,076 of depreciation, $29,069 of increase in assets, and $72,919 increase
in
accrued and other liabilities. We met our cash requirements during the year
through advances, loans and contributions of $252,706 from the Company's
Chairman and principal shareholder and officers, as well as $25,000 of proceeds
from common stock subscribed.
The
Company has experienced significant operating losses from inception and has
financed its activities to date through cash advances from affiliates and sales
of its common stock. Availability, source, amount and terms of any additional
financing are uncertain at this time, and by no means assured.
The
Company believes it will require at least an additional $1,000,000 of new
capital in order to fund its plan of operations over the next 12 months. The
Company expects to fund its working capital requirements over the next 12 months
from additional advances from its affiliates and the sale of its common
stock.
The
Company's independent certified public accountants have stated in their report
included in the Company's December 31, 2005 Form 10-KSB, that the Company has
incurred operating losses and that the Company is dependent upon management's
ability to develop profitable operations. These factors among others may raise
substantial doubt about the Company's ability to continue as a going
concern.
Recent
accounting pronouncements
In
March
2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143,” which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability’s
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact
on
its consolidated financial position.
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
("SFAS 154") which replaces Accounting Principles Board Opinions No. 20
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and a correction of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted by the Company in the first quarter
of
fiscal 2007. The Company is currently evaluating the effect that the adoption
of
SFAS 154 will have on its consolidated results of operations and financial
condition. Management does not expect the adoption of these pronouncements
to
have a material impact on the Company's financial position or results of
operations.
19
On
February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis. SFAS 155
also
clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
statement is effective for all financial instruments acquired or issued in
fiscal years beginning after September 15, 2006. The Company does not
expect its adoption of this new standard to have a material impact on its
financial position, results of operations or cash flows.
Off-Balance
Sheet Arrangements
Largo
Vista currently has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its financial condition,
revenue or expenses, results of operations, liquidity, capital expenditures
or
capital resources that is material to investors.
20
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FINANCIAL
STATEMENTS AND SCHEDULES
DECEMBER
31, 2005 AND 2004
FORMING
A PART OF ANNUAL REPORT
PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934
LARGO
VISTA GROUP, LTD.
LARGO
VISTA GROUP, LTD.
Index
to Financial Statements
|
Page
|
Report
of Independent Registered Certified Public Accounting Firm
|
F-3
|
Consolidated
Balance Sheets at December 31, 2005 and 2004
|
F-4
|
Consolidated
Statements of Operations for the years
ended
December 31, 2005 and 2004
|
F-5
|
Consolidated
Statements of Deficiency in Stockholders’ Equity for
the
years ended December 31, 2005 and 2004
|
F-6
|
Consolidated
Statements of Cash Flows for the years
ended
December 31, 2005 and 2004
|
F-7
|
Notes
to Consolidated Financial Statements
|
F-8~F-18
|
F-2
RUSSELL
BEDFORD STEFANOU MIRCHANDANI LLP
Certified
Public Accountants
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
To
the
Board of Directors
Largo
Vista Group, Ltd.
Newport
Beach, California
We
have
audited the accompanying consolidated balance sheets of Largo Vista Group,
Ltd.
and its wholly-owned subsidiaries (the “Company”) as of December 31, 2005 and
2004 and the related consolidated statements of operations, deficiency in
stockholders’ equity, and cash flows for each of the two years in the period
ended December 31, 2005. These financial statements are the responsibility
of
the Company’s management. Our responsibility is to express an opinion on these
financial statements based upon our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (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 misstatements. 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 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 the Company as of December
31, 2005 and 2004, and the results of its operations and its cash flows for
each
of the two years in the period ended December 31, 2005 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note M, the
Company is experiencing difficulty in generating sufficient cash flow to meet
it
obligations and sustain its operations, which raises substantial doubt about
its
ability to continue as a going concern. Management’s plans in regard to this
matter are described in Note M. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
Russell
Bedford Stefanou Mirchandani LLP
Certified
Public Accountants
McLean,
Virginia
April
20,
2006
F-3
LARGO
VISTA GROUP, LTD.
|
CONSOLIDATED
BALANCE SHEETS
|
DECEMBER
31, 2005 AND 2004
|
|
|
|
|
2005
|
2004
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
and cash equivalent
|
$
75,642
|
$
94,565
|
Accounts
receivable, net
|
287
|
6,865
|
Employee
advances
|
11,064
|
13,532
|
Inventories,
at cost (Note B)
|
17,689
|
8,834
|
Prepaid
expenses and other
|
129,764
|
12,541
|
Total
current assets
|
234,446
|
136,337
|
|
|
|
Property
and equipment, at cost (Note C)
|
16,636
|
16,221
|
Less:
accumulated depreciation
|
12,635
|
9,273
|
|
4,001
|
6,948
|
|
|
|
Deposits
|
755
|
755
|
|
|
|
Total
assets
|
$
239,202
|
$
144,040
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
Current
Liabilities:
|
|
|
Accounts
payable and accrued liabilities (Note D)
|
$
546,565
|
$
467,632
|
Customer
deposits
|
-
|
4,831
|
Notes
payable to related parties (Note E)
|
595,546
|
434,782
|
Due
to related parties (Note F)
|
194,432
|
157,393
|
Total
Current Liabilities
|
1,336,543
|
1,064,638
|
|
|
|
Commitment
and contingencies (Note K)
|
-
|
-
|
|
|
|
Preferred
stock, $0.001 par value; 25,000,000 shares authorized, none issued
and
outstanding at December 31, 2005 and December 31, 2004 (Note
G)
|
-
|
-
|
Common
stock, $0.001 par value; 400,000,000 shares authorized, 277,635,403
and
269,963,856 shares issued and outstanding at December 31, 2005 and
2004,
respectively (Note G)
|
277,635
|
269,964
|
Additional
paid-in capital
|
15,344,344
|
15,184,356
|
Subscription
payable
|
25,000
|
18,458
|
Accumulated
deficit
|
(16,742,284)
|
(16,397,076)
|
Accumulated
other comprehensive income:
|
|
|
Foreign
currency translation adjustment
|
(2,036)
|
3,700
|
Deficiency
in stockholders' equity
|
(1,097,341)
|
(920,598)
|
|
|
|
Total
liabilities and deficiency in stockholders' equity
|
$
239,202
|
$
144,040
|
See
accompanying notes to consolidated financial statements
F-4
LARGO
VISTA GROUP, LTD.
|
CONSOLIDATED
STATEMENTS OF LOSSES
|
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
|
|
2005
|
2004
|
Revenue
|
$
367,108
|
$
439,436
|
Cost
of sales
|
341,235
|
434,864
|
Gross
profit
|
25,873
|
4,572
|
|
|
|
Operating
expenses:
|
|
|
Selling
general and administrative
|
334,382
|
262,860
|
Depreciation
|
3,076
|
3,047
|
|
337,458
|
265,907
|
|
|
|
Loss
from operations
|
(311,585)
|
(261,335)
|
|
|
|
Other
income (expenses):
|
|
|
Other
income, net
|
4,000
|
16,180
|
Interest
(expense), net
|
(37,623)
|
(31,396)
|
Total
other (expenses)
|
(33,623)
|
(15,216)
|
|
|
|
Loss
from operations before income taxes
|
(345,208)
|
(276,551)
|
Provision
for income taxes
|
-
|
-
|
Net
loss
|
(345,208)
|
(276,551)
|
|
|
|
Other
comprehensive income: foreign currency translation loss
|
(5,736)
|
-
|
|
|
|
Comprehensive
(loss)
|
$(350,944)
|
$(276,551)
|
|
|
|
Loss
per common share (basic and assuming diluted) (Note J)
|
$
(0.00)
|
$
(0.00)
|
Weighted
average shares outstanding (Note J)
|
277,362,170
|
269,072,427
|
See
accompanying notes to consolidated financial statements
F-5
LARGO
VISTA GROUP, LTD.
|
CONSOLIDATED
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS'
EQUITY
|
YEARS
ENDED DECEMBER 31, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Additional
|
Stock
|
Currency
|
|
|
|
Common
|
Stock
|
Paid-In
|
Subscription
|
Translation
|
Accumulated
|
|
|
Shares
|
Amount
|
Capital
|
Payable
|
Adjustment
|
Deficit
|
Total
|
Balance
at December 31, 2003
|
264,615,280
|
$
264,615
|
$
15,049,352
|
$
-
|
$
3,700
|
$
6,120,525)
|
$
(802,858)
|
Shares
issued to consultants in exchange for accrued service fees
|
4,343,582
|
4,344
|
78,056
|
-
|
-
|
-
|
82,400
|
Shares
issued in exchange for expenses paid by shareholders
|
1,004,994
|
1,005
|
14,073
|
-
|
-
|
-
|
15,078
|
Common
stock subscribed in exchange for notes payable and accrued
interest
|
-
|
-
|
-
|
18,458
|
-
|
-
|
18,458
|
Capital
contributed by related parties
|
-
|
-
|
42,875
|
-
|
-
|
-
|
42,875
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(276,551)
|
(276,551)
|
Balance
at December 31, 2004
|
269,963,856
|
$
269,964
|
$
15,184,356
|
$
18,458
|
$
3,700
|
$
(16,397,076)
|
$
(920,598)
|
Shares
issued to consultants in exchange for accrued service fees
|
4,923,963
|
4,924
|
79,076
|
-
|
-
|
-
|
84,000
|
Shares
issued in exchange for expenses paid by shareholders
|
1,517,038
|
1,517
|
22,705
|
-
|
-
|
-
|
24,222
|
Shares
issued for stock subscribed
|
1,230,546
|
1,230
|
17,228
|
(18,458)
|
-
|
-
|
-
|
Common
stock subscription sold for cash
|
-
|
-
|
-
|
25,000
|
-
|
-
|
25,000
|
Capital
contributed by related parties
|
-
|
-
|
40,979
|
-
|
-
|
-
|
40,979
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
-
|
(5,736)
|
-
|
(5,736)
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(345,208)
|
(345,208)
|
Balance
at December 31, 2005
|
277,635,403
|
$
277,635
|
$
15,344,344
|
$
25,000
|
$
(2,036)
|
$
(16,742,284)
|
$
1,097,341)
|
See
accompanying notes to consolidated financial statements
F-6
LARGO
VISTA GROUP, LTD.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE YEARS ENDED DECEMBER 31 2005 AND 2004
|
|
|
|
2005
|
2004
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
(loss) from operations
|
$
(345,208)
|
$
(276,551)
|
Accumulated
other comprehensive income: Foreign currency translation
adjustment
|
|
|
-
|
Adjustments
to reconcile net (loss) to net cash provided by operating
activities:
|
|
|
Depreciation
|
3,076
|
3,047
|
Common
stock issued in exchange for debt and expenses paid by
shareholder
|
|
-
|
15,078
|
Changes
in assets and liabilities:
|
|
|
Accounts
receivable
|
6,585
|
46,426
|
Inventories
|
(8,413)
|
3,156
|
Employee
advances
|
2,744
|
35,559
|
Prepaid
expenses and other
|
(29,985)
|
20,762
|
Accounts
payable and other liabilities
|
77,626
|
160,796
|
Customer
Deposits
|
|
(4,707)
|
4,831
|
Deferred
revenue
|
-
|
(5,888)
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
(298,282)
|
7,216
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Sale
of commons stock subscription
|
|
25,000
|
-
|
Capital
contributions from related parties
|
40,979
|
42,875
|
Proceeds
from related parties, net of repayments
|
211,727
|
36,600
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
277,706
|
79,475
|
Effect
of exchange rates on cash
|
|
1,653
|
-
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(18,923)
|
86,691
|
Cash
and cash equivalents at the beginning of the year
|
94,565
|
7,874
|
Cash
and cash equivalents at the end of the year
|
$
75,642
|
$
94,565
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
Cash
paid during the period for interest
|
$
-
|
$
-
|
Income
taxes paid
|
-
|
-
|
Common
stock issued in exchange for debt and expenses paid by
shareholder
|
|
24,222
|
15,078
|
Common
stock issued for accrued service fees
|
84,000
|
82,400
|
Common
stock subscribed in exchange for notes payable to related
parties
|
-
|
15,000
|
Common
stock subscribed in exchange for accrued interest to related
parties
|
|
-
|
3,458
|
See
accompanying notes to consolidated financial statements
F-7
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
Business
and Basis of Presentation
Largo
Vista Group, Ltd. (the "Company") was incorporated under the laws of the State
of Nevada. The Company is principally engaged in the distribution of liquid
petroleum gas (LPG) in the retail and wholesale markets in South China and
in
the purchase of petroleum products for delivery to the Far East.
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Largo Vista, Inc., Largo Vista Construction, Inc.,
and Largo Vista International Corp. Largo Vista, Inc. is formed under the laws
of the State of California and is inactive. Largo Vista Construction, Inc.
is
formed under the laws of the State of Nevada and is inactive. Largo Vista
International Corp. is formed under the laws of Panama and is inactive. The
Company also has operations through DBA (Doing Business As) agreements with
Zunyi Jiahong Gas Co., Ltd. ("Jiahong"). Jiahong is registered under the Chinese
laws in the Peoples Republic of China.
All
significant intercompany balances and transactions have been eliminated in
consolidation. All amounts in these consolidated financial statements and notes
thereto are stated in United States dollars unless otherwise
indicated.
Foreign
Currency Translation
The
Company translates the foreign currency financial statements of its Chinese
subsidiary in accordance with the requirements of Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at the rates of exchange at the balance sheet date,
and related revenue and expenses are translated at average monthly exchange
rates in effect during the period. Resulting translation adjustments are
recorded as a separate component in stockholders' equity. Foreign currency
transaction gains and losses are included in the statement of
income.
Cash
and
Cash Equivalents
For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Property
and Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives (Note C).
F-8
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-Lived
Assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (“SFAS
144”). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or
a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon
forecasted undiscounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates
of
future discounted cash flows resulting from the use and ultimate disposition
of
the asset. SFAS No. 144 also requires assets to be disposed of be reported
at
the lower of the carrying amount or the fair value less costs to sell.
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income
Taxes
The
Company has implemented the provisions on Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (“SFAS 109”). SFAS 109 requires
that income tax accounts be computed using the liability method. Deferred taxes
are determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws.
Net
Earnings (Losses) Per Common Share
The
Company computes earnings per share under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (“SFAS 128”). Net earnings (losses) per
common share is computed by dividing net income (loss) by the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the year. Dilutive common stock equivalents consist of shares
issuable upon conversion of convertible preferred shares and the exercise of
the
Company's stock options and warrants (calculated using the treasury stock
method). During the year ended December 31, 2005 and 2004, common stock
equivalents are not considered in the calculation of the weighted average number
of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share.
F-9
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings, as reflected in the
balance sheets, approximate fair value because of the short-term maturity of
these instruments.
Inventories
Inventories
consist primarily of LPG. Cost is determined by the first-in, first-out method
for retail operations and specific identification method for wholesale
operations (Note B).
Reclassifications
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which
superceded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS ("SAB101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility
of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time
that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
F-10
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SAB
104
incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"),
MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting
for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company's consolidated financial position and results of operations was
not
significant.
The
Company generally recognizes revenue upon delivery of LPG to the customer.
Revenue associated with shipments of petroleum products is recognized when
title
passes to the customer. There are no significant credit transactions.
In
February 2002, the Company entered into an agreement (“Agreement”) with Zunyi
Municipal Government (“Government”) to design and install LPG pipeline systems
in residential areas in the city of Zunyi, China on behalf of Government. In
exchange for installing the pipeline, the Agreement provides for the Company
to
be the sole LPG supplier for those households. The Company substantially
completed the installation of the LPG pipeline as of December 31, 2002. Pursuant
to the Agreement, Government had paid to the Company 50% of the total contracted
installation price, and the Company has to collect the remaining 50% of contract
price directly from the customers. The Company’s management has determined that
the collectibility and length of time to collect the amount due from customers
can not be reasonably assured. Accordingly, revenues are recognized as collected
in connection with the portion of the contracted price to be collected from
customers.
In
May
2003, the Company entered into its Second Agreement (“Second Agreement”) with
Government to design and install more LPG pipeline systems in residential areas
in the city of Zunyi, China on behalf of Government. In exchange for installing
the pipeline, the Second Agreement provides for the Company to be the sole
LPG
supplier for those households. Pursuant to the Second Agreement, Government
is
obligated to pay to the Company 50% of the total contracted installation price,
and the Company has to collect the remaining 50% of contracted price directly
from the customers. During the year ended December 31, 2003, the Company did
not
receive any payments from Government and thus delayed the installation of
pipelines. The Company accounted for installation fees of $5,888 received from
customers during the year ended December 31, 2003 as deferred revenue. During
the year ended December 31, 2004, the Company received 50% of the total
contracted price, or $87,258, from Government and additional $2,264 of payments
from customers. The Company substantially completed the installation of the
LPG
pipeline as of December 31, 2004, and accounted for the total receipt of $95,410
from Government and customers as of December 31, 2004 in connection with Second
Agreement as revenues during the year ended December 31, 2004. The Company
also
charged to income during the year ended December 31, 2004 the design and
installation costs of $105,903 incurred by the Company for the pipeline project.
Additionally, the Company management has determined that the collectibility
and
length of time to collect the remaining contracted price due from customers
can
not be reasonably assured. Accordingly, revenues are recognized as collected
in
connection with the portion of contracted price to be collected from
customers.
F-11
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
The
Company follows the policy of charging the costs of advertising to expenses
as
incurred. The Company incurred no advertising costs during the years ended
December 31, 2005 and 2004.
Research
and Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board’s Statement of Financial Accounting
Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs.”
Under SFAS 2, all research and development costs must be charged to expense
as
incurred. Accordingly, internal research and development costs are expensed
as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company incurred no
expenditures on research and product development for 2005 and 2004.
Liquidity
As
shown
in the accompanying financial statements, the Company incurred a net loss from
operations of $345,208 and $276,551 during the year ended December 31, 2005
and
2004, respectively. The Company's current liabilities exceeded its current
assets by $1,102,097 as of December 31, 2005.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents
and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may
be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. The
allowance for doubtful accounts was $0 at December 31, 2005 and
2004.
Comprehensive
Income (Loss)
The
Company adopted Statement of Financial Accounting Standards No. 130, “Reporting
Comprehensive Income”. SFAS No. 130 establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income
is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities.
F-12
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock
Based Compensation
In
December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 (“SFAS No. 148”), "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation,"
to provide alternative methods of transition for a voluntary change to the
fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25 and related interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the fair market value of the Company's stock at the date of the
grant
over the exercise price of the related option. The Company has adopted the
annual disclosure provisions of SFAS No. 148 in its financial reports for
the year ended December 31, 2005 and 2004 and adopted the interim
disclosure provisions for its financial reports for the subsequent periods.
The
Company has no awards of stock-based employee compensation outstanding at
December 31, 2005 and 2004.
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), "Share-Based Payment" which is a revision
of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123. However, Statement 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro-forma disclosure is no longer an
alternative. On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company will have to comply with Statement 123R and use the Fair Value
based
method of accounting no later than the first quarter of 2006. The Company has
previously issued employee stock options for which no expense has been
recognized, and which will not be fully vested as of the effective date of
SFAS
No. 123R.
F-13
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment
Information
Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (“SFAS 131”) establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by
the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company’s principal operating segment.
New
Accounting Pronouncements
In
March
2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143,” which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability’s
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact
on
its consolidated financial position.
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
("SFAS 154") which replaces Accounting Principles Board Opinions No. 20
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and a correction of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted by the Company in the first quarter
of
fiscal 2007. The Company is currently evaluating the effect that the adoption
of
SFAS 154 will have on its consolidated results of operations and financial
condition. Management does not expect the adoption of these pronouncements
to
have a material impact on the Company's financial position or results of
operations
On
February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to
F-14
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
account
for the whole instrument on a fair value basis. SFAS 155 also clarifies and
amends certain other provisions of SFAS 133 and SFAS 140. This statement is
effective for all financial instruments acquired or issued in fiscal years
beginning after September 15, 2006. The Company does not expect its
adoption of this new standard to have a material impact on its financial
position, results of operations or cash flows.
NOTE
B -
INVENTORIES
Inventories
are stated at the lower of cost or market determined by the first-in, first-out
(FIFO) method. Inventories consist primarily of liquid petroleum gas available
for sale to contract clients and the public. Components of inventories as of
December 31, 2005 and 2004 are as follows:
|
2005
|
2004
|
Liquid
petroleum gas
|
$
6,670
|
$2,860
|
Packaging
bottles
|
10,417
|
4,428
|
Supplies
|
602
|
1,546
|
|
$17,689
|
$8,834
|
NOTE
C -
PROPERTY, PLANT AND EQUIPMENT
Property
and equipment are stated at cost. For financial statement purposes, property
and
equipment are recorded at cost and depreciated using the straight-line method
over their estimated useful lives of 5 years. The Company’s property and
equipment at December 31, 2005 and 2004 consists of the following:
|
2005
|
2004
|
Office
furniture and equipment
|
$3,632
|
$3,542
|
Transportation
equipment
|
13,004
|
12,679
|
Total
|
16,636
|
16,221
|
Accumulated
depreciation
|
(12,635)
|
(9,273)
|
|
$4,001
|
$6,948
|
Depreciation
expense included as a charge to income amounted to $3,076 and $3,047 for the
year ended December 31, 2005 and 2004, respectively.
NOTE
D -
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2005 and 2004 are as
follows:
|
2005
|
2004
|
Accrued
expenses
|
$385,518
|
$344,165
|
Accrued
interest
|
161,047
|
123,467
|
|
$546,565
|
$467,632
|
F-15
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
E -
NOTES PAYABLE TO RELATED PARTIES
Notes
payable to related parties at December 31, 2005 and 2004 consists of the
following:
|
2005
|
2004
|
Notes
payable on demand to Company’s Chairman; interest payable monthly at 7%
per annum; unsecured
|
$537,401
|
$434,782
|
Notes
payable on demand to Company’s Chief Financial Officer; interest payable
monthly at 7% per annum; unsecured
|
9,400
|
-
|
Notes
payable on demand to Company shareholders; interest payable monthly
at 10%
per annum; unsecured
|
12,000
|
-
|
|
|
|
Notes
payable on demand to Company shareholders; interest payable monthly
at 7%
per annum; unsecured
|
36,745
|
-
|
|
|
|
Total
|
595,546
|
434,782
|
Less:
current portion
|
(595,546)
|
(434,782)
|
|
$
-
|
$
-
|
(a)
In
December 2004, the Company entered into an agreement with the Company’s
shareholder to issue an aggregate of 1,230,546 shares of its common stock in
exchange for the note payable of $15,000 and all accrued unpaid interest of
$3,458. The Company accounted for the shares to be issued as stock subscription
payable at December 31, 2004 (Note G). The Company has issued the common shares
to the shareholder in January 2005.
NOTE
F -
RELATED PARTY TRANSACTIONS
In
addition to notes payable to related parties described in Note E, a consultant
(shareholder and former employee) of the Company has advanced funds to the
Company as working capital of its Vietnam representative office. No formal
repayment terms or arrangements exist. The net amount of advances due the
consultant at December 31, 2005 and 2004 was $29,082 and $14,708, respectively.
In March 2004, the Company issued an aggregate of 1,004,994 shares of common
stock to the consultant and former employee in exchange for the $15,078 of
expenses paid on behalf of the Company in 2003 (Note G).
F-16
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
The
Company’s Chief Financial Officer has advanced funds to the Company for working
capital purpose. No formal repayment terms or arrangements exist. The net amount
of advances due the Chief Financial Officer at December 31, 2005 and 2004 was
$4,803 and $11,326, respectively.
The
Company’s Chairman and Acting Chief Executive Officer has advanced funds to the
Company for working capital purposes. No formal repayment terms or arrangements
exist. The net amount of advances due the Company’s Chairman at December 31,
2005 and 2004 was $160,547 and $131,359, respectively.
During
the year ended December 31, 2005 and 2004, the Company Chairman and significant
shareholders contributed cash of $40,979 and $42,875, respectively to the
Company as working capital.
NOTE
G -
CAPITAL STOCK
The
Company has authorized 25,000,000 shares of Series A Preferred Stock, with
a par
value of $.001 per share. As of December 31, 2005 and 2004, the Company has
no
Series A Preferred Stock issued and outstanding. The company has authorized
400,000,000 shares of common stock, with a par value of $.001 per share. As
of
December 31, 2005 and 2004, the Company has 277,635,403 and 269,963,856 shares
of common stock issued and outstanding, respectively.
During
the year ended December 31, 2004, the Company issued an aggregate of 4,343,582
shares of common stock to consultants in exchange for accrued service fees
of
$82,400. All valuations of common stock issued for services were based upon
the
value of the services rendered, which did not differ materially from the fair
value of the Company's common stock during the period the services were
rendered.
NOTE
G -
CAPITAL STOCK (continued)
Additionally,
the Company issued an aggregate of 1,004,994 shares of common stock to a
consultant and former employee in exchange for $15,078 of expenses paid on
behalf of the Company (Note F). During the year ended December 31, 2004, the
Company Chairman and significant shareholders contributed cash of $42,875 to
the
Company as working capital. In December 2004, one of the Company’s significant
shareholders agreed to subscribe 1,230,546 shares of common stock in exchange
for $15,000 of notes payable and $3,458 of accrued interest due to the
shareholder (Note E). The common shares were issued in January
2005.
During
the year ended December 31, 2005, the Company issued an aggregate of 4,923,963
shares of common stock to consultants in exchange for accrued service fees
of
$84,000. All valuations of common stock issued for services were based upon
the
value of the services rendered, which did not differ materially from the fair
value of the Company's common stock during the period the services were
rendered. Additionally, the Company issued an aggregate of 1,517,038 shares
of
common stock to officers and consultants in exchange for $24,222 of expenses
paid on behalf of the Company.
F-17
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
During
the year ended December 31, 2005, the Company Chairman and significant
shareholders contributed cash of $40,979 to the Company’s working capital. The
Company also received proceeds of $25,000 in exchange for 1,166,666 shares
of
common stock subscribed. The Company has accounted for the $25,000 as common
stock subscription payable at December 31, 2005.
NOTE
H -
AGREEMENT TO SELL STOCK TO SHANGHAI OFFSHORE OIL GROUP
On
March
18, 2005, the Company signed an Agreement and Assignment of Certain Contractual
Rights and Benefits (the “Agreement”), with Shanghai Offshore Oil Group (HK)
Co., Ltd. (“Shanghai Oil”). Under the Agreement, Shanghai Oil assigned to
the Company all of its rights to receive payments under a prior contract with
Asiacorp Investment Holding Ltd. (“Asiacorp”), under which Shanghai Oil would
purchase from Asiacorp fuel oil produced in Russia and deliver it to entities
in
The People’s Republic of China at a rate of thirty thousand (30,000) metric tons
per month for three (3) months and continue for the following thirty-three
(33)
months at a rate of two hundred thousand (200,000) metric tons per month, for
a
total of six million, six hundred ninety thousand (6,690,000) metric tons (the
“Asiacorp Contract”). The Agreement states that deliveries under the
Asiacorp Contract were to begin no later than May 18, 2005.
The
Agreement provides that the Company will receive all of the profit realized
by
Shanghai Oil from the sale of fuel oil it acquires under the Asiacorp Contract,
after the deduction of costs associated with the purchase, transportation and
sale of the fuel oil, with a minimum payment of two dollars ($2.00) per metric
ton. In exchange for the assignment of the Asiacorp contract and subject to
the
receipt of payment(s) from Shanghai Oil, the Company agreed to issue to Shanghai
Oil one hundred million (100,000,000) shares of the Company’s common stock,
deliverable in three equal increments over the term of the Agreement, which
amounts may be reduced based upon the amount, if any, of Shanghai Oil’s actual
payments from its sale of the fuel oil. However, the Company has not received
any payments from Shanghai Oil under the Agreement, and cannot give absolute
assurances that any fuel oil will be delivered under the Asiacorp
Contract.
Payments
received by The Company based upon Shanghai Oil’s sale of the fuel oil, if any,
will be accounted for as a capital transaction as The Company’s transaction with
Shanghai Oil represents, in substance, a stock subscription under which the
Company would receive approximately $0.13 per share if the total projected
amount of fuel oil is sold and the minimum guaranteed profit margin is paid
to
the Company.
During
June of 2005, Shanghai Oil notified the Company that it had not received any
fuel oil under the Asiacorp Contract. As the Company had not received any
payments from Shanghai Oil, it did not release any of its shares of common
stock
to Shanghai Oil. On or about July 1, 2005, The Company sent Shanghai Oil a
written “Demand to Cure Delayed-Performance” giving Shanghai Oil until July 18,
2005, later extended to August 31, 2005, to make its first payment to the
Company under the Agreement. Although Shanghai Oil has indicated to the
Company that it intends to deliver payment pursuant to the Agreement, either
through performance under the Asiacorp Contract or through another contract
in
its place, investors should understand that delivery is far from certain. As
of
December 31, 2005, the Company has not received any payments from Shanghai
Oil
nor has it released any of the shares deliverable to Shanghai Oil.
F-18
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
H -
AGREEMENT TO SELL STOCK TO SHANGHAI OFFSHORE OIL GROUP (continued)
Resolution
with Shanghai Oil remains highly uncertain, and the Company does not foresee
any
economic benefit materializing from the Agreement. While the Company has
reserved its rights to pursue all available remedies it may have against
Shanghai Oil, pursuing these remedies may be prohibitively expensive. On
December 22, 2005, the Company’s board of directors unanimously adopted a
resolution to cancel the 97,364,597 shares that the Company agreed to issue
to
Shanghai Oil under the Agreement, none of these shares were released to Shanghai
Oil prior the cancellation of shares on December 22, 2005.
NOTE
I -
INCOME TAXES
The
Company has adopted Financial Accounting Standards No. 109, which requires
the
recognition of deferred tax liabilities and assets for the expected future
tax
consequences of events that have been included in the financial statement or
tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets
and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
At
December 31, 2005, the Company has available for federal income tax purposes
a
net operating loss carryforward of approximately $16,700,000, expiring in the
year 2025, that may be used to offset future taxable income. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history
of
the Company, it is more likely than not that the benefits will not be
realized.
Components
of deferred tax assets as of December 31, 2005 are as follows:
Non
Current:
|
|
Net
operating loss carryforward
|
$5,796,000
|
Valuation
allowance
|
(5,796,000)
|
Net
deferred tax asset
|
$
-
|
NOTE
J -
EARNINGS (LOSSES) PER SHARE
Basic
and
fully diluted losses per share are calculated by dividing net income (loss)
available to common shareholders by the weighted average of common shares
outstanding during the year. The Company has no potentially dilutive securities,
options, warrants or other rights outstanding. The following table sets forth
the computation of basic and diluted earnings (losses) per share:
|
2005
|
2004
|
Net
loss available to common stockholders
|
$(345,208)
|
$(276,551)
|
Basic
and diluted loss per share
|
$(0.00)
|
$(0.00)
|
Basic
and diluted weighted average number of common shares
outstanding
|
277,362,170
|
269,072,427
|
F-19
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
K -
COMMITMENTS AND CONTINGENCIES
Lease
Commitments
The
Company leases office space on a month-to-month basis at base rent of $755
per
month in Newport Beach, California for its corporate offices. The Company leases
distribution and office facilities in Zunyi City, Province of Guizhou, China
and
office facilities in Wuhan, China Commitments for minimum rentals under
non-cancelable leases at the end of 2005 are as follows.
Year:
|
Amount:
|
2006
|
$4,558
|
2007
|
$4,558
|
Rental
expense charged to operations was $12,959 and $17,182 for the year ended
December 31, 2005 and 2004, respectively.
Sublease
Agreement
The
Company leased an office suite on a month-to-month basis at base rent of $590
per month in Newport Beach, California and subleases the office to a third
party
for $2,000 per month starting May 2003 ending February, 2005. During the year
ended December 31, 2005 and 2004, the Company recorded $4,000 and $16,180 of
rentals received as other income, net of costs and expenses.
Consulting
Agreements
The
Company has several agreements with outside contractors to provide
organizational services, business development in China and Vietnam,
international petroleum, and other products trading consultation services.
The
agreements are generally for a term of 12 months from inception and renewable
from year to year unless either the Company or Consultant terminates such
engagement with written notice
Litigation
In
August
2005, the staff of the Los Angeles office of the Securities and Exchange
Commission advised the Company that it had initiated a formal, non-public
inquiry. The Company and its officers have received document
subpoenas seeking documents related to the previously announced contract between
the Company and Shanghai Oil (Note H) and trading in the securities of the
Company, among other things.
While
the
Company is confident in its practices, there is a risk that an enforcement
proceeding will be recommended by the staff of the Commission as a result of
this formal investigation. An enforcement proceeding could include allegations
by the SEC that the Company and/or its officers violated, among
others, the anti-fraud and books and records provisions of
federal securities laws, and the rules thereunder. It cannot be predicted
with certainty what the nature of such enforcement proceeding would be, the
type
of sanctions that might be sought, or what the likelihood would be of reaching
settlement. The Company has been and expects to continue to cooperate with
the
ongoing SEC investigation. F-20
LARGO
VISTA GROUP, LTD.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
K -
COMMITMENTS AND CONTINGENCIES (continued)
The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on its financial position,
results of operations, or liquidity.
NOTE
L -
PREPAID EXPENSES
During
the year ended December 31, 2005, the Company has contracted with a private
developer to construct pipelines in the city of Zunyi, China. Construction
and
completion schedules are uncertain, but all prepaid costs incurred by the
Company are expected to be fully reimbursed by the private developer. These
contracts provided for the Company to be the LPG supplier for the pipeline
users. Total outlays relating to on going and future pipeline development to
be
reimbursed by the developer totals $129,764 at December 31, 2005. This amount
has been reimbursed in full by the developer subsequent to the date of the
financial statements.
NOTE
M -
GOING CONCERN MATTERS
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in
the normal course of business. As shown in the financial statements during
the
years ended December 31, 2005 and 2004, the Company incurred losses from
operations of $345,208 and $276,551, respectively. The Company's current
liabilities exceeded its current assets by $1,102,097 as of December 31, 2005.
These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The
Company’s existence is dependent upon management’s ability to develop profitable
operations and resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through the
continued developing, marketing and selling of its products and additional
equity investment in the Company. The accompanying consolidated financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
In
order
to improve the Company’s liquidity, the Company is actively pursuing additional
equity financing through discussions with investment bankers and private
investors. There can be no assurance the Company will be successful in its
effort to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance can
be
given that management’s actions will result in profitable operations or the
resolution of its liquidity problems.
F-21
Item
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE - None.
Item
8A. CONTROLS AND PROCEDURES
a) |
Evaluation
of Disclosure Controls and Procedures.
As of December 31, 2005, our management carried out an evaluation,
under
the supervision of our Chief Executive Officer and Chief Financial
Officer
of the effectiveness of the design and operation of our system of
disclosure controls and procedures pursuant to the Securities and
Exchange
Act, Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on
that evaluation, our chief executive officer and chief financial
officer
concluded that our disclosure controls and procedures are effective
to
provide reasonable assurance that information we are required to
disclose
in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified
in
Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate,
to allow timely decisions regarding required
disclosure.
|
b) |
Changes
in internal controls.
There were no changes in internal controls over financial reporting
that
occurred during the period covered by this report that have materially
affected, or are reasonably likely to materially effect, our internal
control over financial reporting.
|
PART
III
Item
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH
SECTION 16(a) OF THE EXCHANGE ACT
Name
|
Age
|
Position
|
Albert
N. Figueroa
|
39
|
Director;
Principal Accounting Officer
|
Deng
Shan
|
54
|
Interim
Chief Executive officer and Chairman of the Board of
Directors
|
Directors
serve until the next annual meeting of shareholders, or until their successors
are elected.
Albert
N.
Figueroa, Secretary and Treasurer, is in charge of day-to-day business
operations of Largo Vista in the United States, as well as being a liaison
with
all outside service providers, and generally maintains the consistency of
information within the Company. Mr. Figueroa joined the Company in July
1991.
Deng
Shan, Chairman of the Board of Directors, is well versed in the business
practices of China. Early in his career Mr. Deng was a lecturer in Wuhan
Chemical Engineering School. Later he advanced to associate professor at
Huazhong University of Science and Technology. In 1989, Mr. Deng became the
Director, Science and Technology Commission, Nanshan District Government, China.
In 1994, Mr. Deng was appointed Chief Executive Officer/Chairman of the Board
of
four commercial companies. Mr. Deng joined the Company in April
1997.
The
Company does not have an audit committee and consequently the entire Board
of
Directors serves in that capacity. The Board’s pre-approval policy regarding
professional services provided by the Company’s principal accountant is to
pre-approve the engagement of the principal accountant for the performance
of
all professional services. The policy does provide a waiver of pre-approval
in
the event that such services, in the aggregate, will be less than 5% of the
audit fee, such services are not recognized as non-audit fees at the time of
the
engagement, and pre-approval is obtained from a designated member of the Board
prior to the engagement. Until such time as an audit committee is appointed,
the
designated individual is the Principal Executive Officer, currently the
President of the Company. 100% of the 2003 non-audit fees were pre-approved
by
the designated Board member and subsequently approved by the Board.
Section
16(a) of the Securities Exchange Act of 1934, as amended, and the rules
thereunder require the Company's officers and directors, and persons who own
more than 10% of a registered class of the Company's equity securities, to
file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies. Based solely on its review
of
the copies of the Section 16(a) forms received by it, or written representations
from certain reporting persons, the Company believes that, during the last
fiscal year, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied
with.
21
The
Company has adopted a Policy Statement on Business Ethics and Conflicts of
Interest, which was approved by the Board of Directors, applicable to all
employees, which is attached as an exhibit to this report.
Item
10. EXECUTIVE COMPENSATION
The
following table sets forth all compensation paid or accrued by the Company
during the last three years to its executive officers.
Name
|
|
|
|
Other
|
|
Securities
|
|
All
other
|
And
|
|
|
|
Annual
|
Restricted
|
Underlying
|
LTIP
|
Compen-
|
Principal
|
|
Salary
|
Bonus
|
Compen-
|
Stock
|
Options/
|
Payouts
|
sation
|
Position
|
Year
|
($)
|
($)
|
sation($)
|
Awards($)
|
SARs
(#)
|
($)
|
($)
|
|
|
|
|
|
|
|
|
|
Deng
Shan,
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Interim
CEO
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
Albert
|
2005
|
60,000
|
0
|
0
|
0
|
0
|
0
|
0
|
Figueroa,
|
2004
|
54,000
|
0
|
0
|
0
|
0
|
0
|
0
|
Secretary
|
2003
|
33,500
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
Daniel
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Mendez,
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Ex-President
|
2003
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
Edward
|
2005
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Deese,
|
2004
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Ex-Interim
|
2003
|
6,000
|
0
|
0
|
0
|
0
|
0
|
0
|
COO
|
|
|
|
|
|
|
|
|
Notes:
(1)
The
officers listed above were paid their salary in a combination of registered
stock options, unregistered stock and/or cash. Any issuance of unregistered
common stock was valued at market, generally determined by the closing price
on
the first day of trading of the following month.
(2)
Albert N. Figueroa, Secretary/Treasurer, serves under a semi- annual consulting
contract renewed effective January 1, 2005 at annualized compensation of $60,000
that may be terminated upon 30 days written notice of either party.
(3)
Deng
Shan, Interim CEO, serves under a semi- annual Agreement for Services renewed
effective January 1, 2005 at annualized compensation of $84,000 that may be
terminated upon 30 days written notice of either party. Mr. Deng agreed to
waived the unpaid salary during the year ended December 31, 2005 and
2004.
(4)
Daniel Mendez, President, served under an annual Agreement for Services for
an
annual compensation of $120,000. He resigned his position as president August
1,2002. Effective August 2,2002, Mr. Mendez agreed to provide consulting
services as the Company required. Mendez also served as a member of the Board
of
Directors until his resignation October 17, 2002
(5)
Edward Deese, Interim Chief Operating Officer, served under a semi-annual
Agreement for Services for an annualized compensation of $72,000. His agreement
terminated as of January 31, 2003. Deese also served as a member of the Board
of
Directors from August 1, 2002 to January 17, 2003
(6)
James
DeOlden, Director served on the Board of Directors from September 12, 2002
to
October 17, 2002
(7)
The
members of the Company's Board of Directors receive no additional compensation
for serving as directors.
22
Item
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AND
RELATED STOCKHOLDER MATTERS
The
following table sets forth information regarding beneficial ownership as of
April 14, 2006 of the Company's common stock by any person who is known to
the
Company to be the beneficial owner of more than 5% of the Company's voting
securities and by each director and officer of the Company.
|
Beneficial
|
Percentage
|
Name
and Address
|
Ownership
|
of
Class
|
|
|
|
Albert
Figueroa (1)
|
5,627,107
|
2.01%
|
Deng
Shan (1), (2)
|
81,150,285
|
29.23%
|
All
directors/officers as a group (2 persons)
|
86,777,392
|
31.24%
|
-
(1)
The
address for Messrs. Figueroa and Deng is 4570 Campus Drive, Newport Beach,
CA
92660. Mr. Figueroa owns 4,800,607 shares (1.72%) personally and his spouse
owns
826,500 shares (0.29%), which may be deemed to be beneficially owned by Mr.
Figueroa. Mr. Figueroa disclaims beneficial ownership of such
shares.
(2)
Mr.
Deng Shan owns 2,892,396 (1.04%) shares personally, and 78,257,889 (28.19%)
shares through his majority owned corporation, Proton Technology Corporation
Limited.
Item
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Notes
payable to related parties at December 31, 2005 and 2004 consists of the
following:
|
2005
|
2004
|
Notes
payable on demand to Company’s Chairman; interest payable monthly at 7%
per annum; unsecured
|
$537,401
|
$434,782
|
Notes
payable on demand to Company’s Chief Financial Officer; interest payable
monthly at 7% per annum; unsecured
|
9,400
|
-
|
Notes
payable on demand to Company shareholders; interest payable monthly
at 10%
per annum; unsecured
|
12,000
|
-
|
|
|
|
Notes
payable on demand to Company shareholders; interest payable monthly
at 7%
per annum; unsecured
|
36,745
|
-
|
|
|
|
Total
|
595,546
|
434,782
|
Less:
current portion
|
(595,546)
|
(434,782)
|
|
$
-
|
$
-
|
(a)
In
December 2004, the Company entered into an agreement with the Company’s
shareholder to issue an aggregate of 1,230,546 shares of its common stock in
exchange for the note payable of $15,000 and all accrued unpaid interest of
$3,458. The Company accounted for the shares to be issued as stock subscription
payable at December 31, 2004. The Company has issued the common shares to the
shareholder in January 2005.
23
A
consultant (shareholder and former employee) of the Company has advanced funds
to the Company as working capital of its Vietnam representative office. No
formal repayment terms or arrangements exist. The net amount of advances due
the
consultant at December 31, 2005 and 2004 was $29,082 and $14,708, respectively.
In March 2004, the Company issued an aggregate of 1,004,994 shares of common
stock to the consultant and former employee in exchange for the $15,078 of
expenses paid on behalf of the Company in 2003.
The
Company’s Chief Financial Officer has advanced funds to the Company for working
capital purpose. No formal repayment terms or arrangements exist. The net amount
of advances due the Chief Financial Officer at December 31, 2005 and 2004 was
$4,803 and $11,326, respectively.
The
Company’s Chairman and Acting Chief Executive Officer has advanced funds to the
Company for working capital purposes. No formal repayment terms or arrangements
exist. The net amount of advances due the Company’s Chairman at December 31,
2005 and 2004 was $160,547 and $131,359, respectively.
During
the year ended December 31, 2005 and 2004, the Company Chairman and significant
shareholders contributed cash of $40,979 and $42,875, respectively to the
Company as working capital.
Item
13. EXHIBITS
3.1*
|
Articles
of Incorporation of Largo Vista Group, Limited (filed Form 10SB,
11/2/99)
|
3.2*
|
Bylaws
of Largo Vista Group, Limited (filed Form 10SB,
11/2/99)
|
3.3*
|
Articles
of Incorporation of Largo Vista Inc. (filed Form 10SB,
11/2/99)
|
3.4*
|
Bylaws
of Largo Vista Inc. (filed Form 10SB, 11/2/99)
|
3.5*
|
Articles
of Incorporation of Everlasting International Limited (filed Form
10SB,
11/2/99)
|
3.6*
|
Bylaws
of Everlasting International Limited (filed Form 10SB,
11/2/99)
|
3.7*
|
Articles
of Incorporation of Kunming Xinmao Petrochemical Industry Co., Ltd.
(filed
Form 10SB, 11/2/99)
|
|
|
10
|
Material
Contracts
|
|
|
10.1*
|
Contract.
Largo Vista Group, Ltd. and Sentio Corporation, December 28, 1998,
(filed
Form 10SB, 11/2/99)
|
10.2*
|
Contract.
Hong Kong De Xiang Tuo Yi Industrial Company, August 28, 1992 (filed
Form
10SB, 11/2/99)
|
10.3*
|
Plan
and Agreement of Reorganization between Largo Vista Group, Ltd.,
Proton
Technology Corporation, Ltd. and Everlasting International, December
21,
1996 (filed Form 10SB, 11/2/99)
|
10.4*
|
Joint
Venture Agreement of Kunming Xinmao Petrochemical Industry Co., Ltd.,
August 8, 1992 (filed Form 10SB, 11/2/99)
|
10.5*
|
Approval
Certificate of Enterprise with Foreign Investment in the People's
Republic
of China (filed Form 10SB, 11/2/99)
|
10.6*
|
Business
License of Enterprise in the Peoples Republic of China (filed Form
10SB,
11/2/99)
|
10.7*
|
Business
Permit to Engage in LPG Business in Yunnan Province (filed Form 10SB,
11/2/99)
|
10.8*
|
Notice
of Subsidiaries of the Agriculture Bank of China, Yunnan Provincial
Branch, Acting as Agents for Collection and Receipt of Payment for
Kunming
Xinmao Petrochemical Industry Co., Ltd. (filed Form 10SB,
11/2/99)
|
10.9*
|
Agreement
of Supply of Liquefied Petroleum Gas, March 18, 1996 (filed Form
10SB,
11/2/99)
|
10.10*
|
Method
of Insurance for LPG Credit, August 26, 1997 (filed Form 10SB,
11/2/99)
|
10.11*
|
Memorandum
of Understanding Kunming Xinmao Petrochemical Industry Co., Ltd.
and Wuhan
Minyi Fuel Gas Petrochemical Company Limited, March 14, 1999 (filed
Form
10SB, 11/2/99)
|
10.12*
|
Memorandum
of Understanding Kunming Xinmao Petrochemical Industry Co., Ltd.
and
Guilin Municipal Garden Fuel Gas Pipelines Limited, March 29, 1999
(filed
Form 10SB, 11/2/99)
|
10.13*
|
Approval
Certificate of Enterprises with Foreign Investment in the Peoples
Republic
of China, August 21, 1992 (filed Form 10SB, 11/2/99)
|
10.14*
|
Contract.
Enterprise Ownership Transfer Agreement "Ten Year Leasing Contract",
Seller Chen Mao Tak, Purchaser Everlasting International, Ltd., third
party Kunming Fuel General Company, November 8, 1995 (filed Form
10SB-A1,
1/14/2000 as EX-10.D)
|
10.15*
|
Joint
Venture Agreement. , Largo Vista with the United Arab Petroleum
Corporation ("UAPC"), known as Largo Vista/UAPC Partners (filed Form
10SB-A1, 1/14/2000 as EX-10.F)
|
24
10.16*
|
Memorandum
of Association Limited Liability Company. Largo Vista Group, Ltd.,
LLC,
Dubai, UAE, October 12, 1999, Largo Vista Group, Ltd., UAPC, and
Sheik Al
Shabani, named Largo Vista Group Limited, Limited Liability Company
of the
UAE (filed Form 10SB-A1, 1/14/2000 as EX-10.G)
|
10.17*
|
Contract:
Mekong Petroleum Joint Venture Co., Ltd. (PETROMEKONG) Buyer, and
United
Arab Petroleum Corporation Seller, November 25, 1999 (filed Form
10SB-A1,
1/14/2000 as EX-10.H)
|
10.18*
|
Contract:
Mekong Petroleum Joint Venture Co., Ltd. (PETROMEKONG), Buyer, and
United
Arab Petroleum Corporation Seller, December 18, 1999 (filed Form
10SB-A1,
1/14/2000 as EX-10.H)
|
10.19*
|
Employment
Agreement Daniel J. Mendez 1999 (filed Form 10SB-A1 as Ex-3.iv,
1/14/2000)
|
10.20*
|
Consultant
Agreement Deng Shan 1999 (filed Form 10SB-A1, as Ex-3.v
1/14/2000)
|
10.21*
|
Contract.
"Enterprise Ownership Transfer Agreement", November 8, 1995, new
translation (filed Form 10SB-A2, 3/20/2000 as
EX-10.E.1)
|
10.22*
|
Contract.
"Agreement on Payment", November 8, 1995 (filed Form 10SB-A2, 3/20/2000
as
EX-10.E.2)
|
10.23*
|
Contract.
"Agreement on Supply of Liquified Petroleum Gas", March 18, 1996
(filed
Form 10SB-A2, 3/20/2000 as EX-10.E.3)
|
10.24*
|
Employment
Agreement Albert N. Figueroa 1999 (filed as Ex-3.vi
3/21/2000)
|
10.25*
|
Agreement
on Zunyi Pipeline Project No.1 Largo Vista Group, Ltd - Proton Enterprise
(Wuhan) LTD., China (Agent Agreement)
|
10.26*
|
Zunyi
Pipeline #1 Contract Proton Enterprise (Wuhan) LTD. & Construction
Headquarters of Zunyi Municipal Government, Dated February 2,
2002
|
10.27*
|
Gas
Supply Contract Between Proton Enterprise (Wuhan) LTD. and Zunyi
Government Administration Construction Team, Dated October 15, 2002
40
Years Exclusive Right
|
10.28*
|
Zunyi
Jiahong Gas Co., Ltd. & Largo Vista Group, Ltd. Lease Agreement
No.JHLGOV0802 Dated August 27, 2002
|
10.29*
|
Policy
Statement on Business Ethics and Conflicts of Interest
|
10.30*
|
Agreement
and Assignment of Certain Contractual Rights and Benefits between
Largo
Vista Group, Ltd. and Shanghai Offshore Oil Group (HK) Co.,
Ltd.
|
31.1**
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
Executive Officer.
|
31.2**
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
Financial Officer
|
32.1**
|
Certification
of Deng Shan Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2**
|
Certification
of Albert Figueroa Pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002
|
*
Previously filed with the Securities and Exchange Commission **Filed
herewith
ITEM
14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth fees billed to the Company by our auditors during
the
fiscal years ended December 31, 2005 and 2004:
|
DECEMBER
31, 2005
|
DECEMBER
31, 2004
|
|
|
|
1.
Audit Fees
|
$
106,104
|
$
56,400
|
|
|
|
2.
Audit Related Fees
|
--
|
--
|
|
|
|
3.
Tax Fees
|
--
|
--
|
|
|
|
4.
All Other Fees
|
--
|
--
|
|
|
|
Total
Fees
|
$
106,104
|
$
56,400
|
Audit
fees consist of fees billed for professional services rendered for the audit
of
the Company's consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by Russell Bedford Stefanou Mirchandani LLP in
connection with statutory and regulatory filings or engagements.
25
Audit-related
fees consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
consolidated financial statements, which are not reported under "Audit Fees."
There were no Audit-Related services provided in fiscal 2005 or 2004.
Tax
fees
consists of fees billed for professional services for tax compliance, tax advice
and tax planning.
All
other
fees consist of fees for products and services other than the services reported
above. There were no management consulting services provided in fiscal 2005
or
2004.
Audit
Committee’s Pre-Approval Policies and Procedures
--------------------------------------------------------------------------
The
Company currently does not have a designated Audit Committee, and accordingly,
the Company's Board of Directors' policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Company's Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed
to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LARGO
VISTA GROUP, LTD.
Signature
|
Title
|
Date
|
|
|
|
/s/Albert
N. Figueroa
|
Secretary/Treasurer
|
May
15, 2006
|
Albert
N. Figueroa
|
|
|
|
|
|
/s/Deng
Shan
|
Interim
CEO
|
May
15, 2006
|
Deng
Shan
|
|
|
26