26 April, 2007
Management Discussion and Analysis for Twelve Months Ended December 31, 2006
PACIFIC GEOINFO CORP.
Management Discussion and Analysis
For The Year Ended December 31, 2006
Management of Pacific Geoinfo Corp. (the "Company") is pleased to present to the shareholders a summary of the Company's activities for the year ended December 31,2006 and any pertinent events up to the date of this report.
The following discussion and analysis of the results of operations and financial condition ("MD&A ") for the Company should be read in conjunction with the Audited Consolidated Financial Statements for the year ended December 31, 2006 and related notes thereto. The financial information in this MD&A is derived from the Company's Audited Consolidated Financial Statements prepared in accordance with Canadian generally accepted accounting principles. The effective date of this MD&A is April 26, 2007.
This MD&A may contain forward looking statements based on assumptions and judgments of management regarding events or results that may prove to be inaccurate as a result of operations or other risk factors beyond its control. Actual results may differ materially from the expected results.
DESCRIPTION OF BUSINESS
EDPC -Joint Venture with EarthData International Inc.
EarthData Pacifica, Co. ("EDPC"), a joint venture between the Company and EarthData International, Inc. of Maryland, USA ("EarthData"), owns 90% of the voting rights and profit sharing and 49% of the equity interest of EarthData Pacifica (Qinhuangdao) Co. Ltd. (formerly Qinhuangdao CASW Data Technology Co., Ltd.) (the "Production Facility") in China.
EDPC was formed to jointly (a) develoJ> a Chinese domestic and international geospatial processing business, (b) further develop the Production Facility as a "Pan Chinese" and international airborne remote sensing and geospatial processing business based in strategic regional locations throughout China, and (c) to further utilize the services of the Production Facility for the benefit of the EDPC's international geospatial processing business.
These geospatial services support a wide range of domestic Chinese and international land and resource management and infrastructure development activities, including road and railway route selection and design, oil and gas pipeline planning and routing, electric transmission routing, and environmental impact assessment and protection. Sectors such as water quality and supply management and routing, forest management, economic development, and minerals mining also benefit greatly from accurate, current geospatial information.
EarthData is a leader in the airborne imaging, mapping, and Geographic Information Systems (GIS) profession. With its fleet of. aircraft, EarthData collects information -data -about the earth's surface using aerial photography and a variety of other airborne sensors. EarthData transforms that data into customized mapping and GIS products and services. For 50 years, EarthData's clients have used this
geospatial infonnation to design infrastructure and better understand the land and its resources. (www.earthdata.com)
On December 29, 2006 the Company sold all of its interests in EDPC to EarthData for $2 million. The Company intends to use the cash proceeds to acquire and manage an operating business with significant growth opportunities.
The sale constituted a disposition of all or substantially all of the undertakings of the Company. The Company's listing on the TSX Venture Exchange was transferred to NEX, effective January 3, 2007 until such time as regulatory approval is obtained for a new business.
Scope of Business
Upon establishment of the joint venture company, EDPC, effective January 1, 2005, both Venturers had agreed that all of their respective geospatial marketing and sales activities in China will be undertaken through EDPC. EarthData had also agreed that it will, except in certain circumstances, subcontract data processing work to EDPC.
Starting from January 1, 2005 the Company incorporated the operating results generated by EDPC, including the Production Facility, into the Company's audited consolidated financial statements.
With the sale of its interests in EDPC at year-end, the Company's activities in 2007 will be focused on acquiring a new operating business.
SELECTED ANNUAL INFORMATION
The following selected financial infonnation is derived from the Company's audited consolidated financial statements prepared in accordance with Canadian generally accepted accounting principles and should be read in conjunction with Company's audited financial statements for each of the three most recently completed financial periods and related notes thereto.
Year ended ended Year ended December 31 December 31 AQril 30
2006 2005 2005
Total Revenue 1,494,643 852,879 402,685 Loss before discontinued operations and extraordinary
items (117,437) (54,106) (369,843) Basic and diluted loss per share before
discontinued operations and extraordinary items (0.00) (0.00) (0.03) Net Income (Loss) 809,655 (54,106) (369,843) Basic and diluted income (loss) per share 0.06 (0.00) (0.03) Total Assets 2,400,461 2,724,542 1,755,510 Total long tenD liabilities 0 0 0 Cash dividends per share 0 0 0
RESULTS OF OPERATIONS
Selected Financial Information for the Year Ended December 31. 2006
The following selected financial infonnation is derived from the Company's Audited Consolidated Financial Statements prepared in accordance with Canadian generally accepted accounting principles and should be read in conjunction with Company's Audited Consolidated Financial Statements for the year ended December 31, 2006 and related notes thereto. Comparative amounts are for the eight months ended December 31, 2005.
Revenues $ 1,494,643 Net Income 809,655 Working Capital 2,245,063 Total Assets 2,400,461
The Company's revenue of $1,494,643 (2005 -$852,879) represents 17% growth over that of the previous period, on an annually adjusted basis. The revenue was generated primarily from sales from its operation in China and by providing services to clients from USA and Europe through EDPC. The growth occurred both within China and overseas.
Operating expenses of $1,547,518 (2005 -$901,765) were incurred during the year ended December 31, 2006. This represents a 14% increase over that of the previous period, on an annually adjusted basis. The costs related to production and training, administrative, legal and regulatory costs in connection with the Company's expansion of operations and its endeavor to seek business opportunities for further growth. Considerable funds were spent on consulting fees but significant improvements were achieved in gross
The Company incurred a net operating loss before discontinued operations and extraordinary items of $117,437 (2005 -net loss of $54,106). The company incurred higher compensation, office costs and consulting fees during the year which were partially offset by improved operating results of the joint venture company, EDPC, and its operation in China.
On December 29, 2006 the company sold all of its interests in the operating business for $2 million, resulting in a gain on sale of $927,000. As a result the net income for the year is $809,655.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with Canadian generally
accepted accounting principles and reflect the following significant accounting policies:
(a) Basis of consolidation
According to Accounting Guideline 15, Consolidation of Variable Interest Entities (AcG 15), the consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its investments in joint ventures.
All material intercompany balances and transactions are eliminated on consolidation.
At December 31, 2006 the balance sheet does not reflect the assets of EDPC, as the Company no longer has an ownership interest in EDPC. However the operating results of EDPC up to the date of sale are included in the consolidated operating results.
(b) Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(c) Foreign currency translation
Monetary assets and liabilities denominated in a foreign currency have been translated into Canadian dollars at the period end exchange rate. Revenues and expenses denominated in a foreign currency have been translated at the rate of exchange prevailing at the transaction date. Exchange gains or losses arising on these transactions are included in the statement of operations.
(d) Income (Loss) per share
The basic income per share is computed by dividing the net income by the weighted average number of common shares outstanding during the year. The diluted income per share reflects the potential dilution of common share equivalents, such as outstanding stock options, in the weighted average number of common shares outstanding during the year, if dilutive. For this purpose, the "treasury stock method" is used whereby the assumed proceeds upon the exercise of stock options are used to purchase common shares at the average market price during the year.
AUDITED FINANCIAL STATEMENTS
The Audited Consolidated Financial Statements for the year ended December 31, 2006 have been prepared in accordance with Canadian generally accepted accounting principles. Effective May 1,2005, the Company's investment in the Production Facility was accounted for using the consolidation method in accordance with Accounting Guideline 15.
CHANGE OF FINANCIAL YEAR END
The Company has changed its fmancial year end from April 30th to December 31 SI, so that the Company's financial year end would end on the same date as that of its subsidiaries and associated companies. The financial period ended December 31 sl 2005 consists of eight months and the financial period ended December 31 sl 2006 consists of twelve months.
RELATED PARTY TRANSACTIONS
The Company's transactions with related parties are disclosed in note 11 of the Audited Consolidated Financial Statements for the year ended December 31, 2006. In particular, transactions with related parties for the reporting period were as follows:
1. incurred management fees of $56,000 (2005 -$56,000) payable to a director;
2. incurred interest expense of $885 (2005 -$590) payable to a majority shareholder;
3. incurred rent of $36,000 (2005 -$16,000) payable to a company with a common director;
4. incurred legal fees and disbursements of $395 (2005 -$225) payable to a law firm where a
director is a member;
5. sales of$I,331,810 (2005 -$664,348) to EarthData International Inc., an investor in EDPC.
6. sales of $164,488 (2005 -$126,342) to companies in China controlled by a director and
These transactions are in the normal course of operations and are measured at the exchange amount,
which is the amount of consideration agreed to by the related parties.
On December 29,2006 the Company sold its interests in EDPC to EarthData for $2,000,000. Of this total $500,000 was paid on the closing date. The balance of $1,500,000 was secured by a promissory note and is payable in three equal instalments in April, July and September 2007. The gain on sale of the Company's interest in EDPC was $927,000.
At December 31, 2006, due to the sale of the Company's interest in EDPC, EarthData, EDPC and certain companies in China are no longer related parties However, the amounts due from these companies at the end of the year are as follows:
Accounts receivable -EarthData International, Inc. -$1,500,000 (2005 -$Nil),
EDPC -$62,693 (2005 -$Nil)
SUMMARY OF QUARTERLY RESULTS
The following selected consolidated financial data has been prepared in accordance with Canadian generally accepted accounting principles and should be read in conjunction with the Company's consolidated financial statements. Note that the quarter listed as '12/31/2005' is for a two month period.
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8lded 12/31/2006 9/30/2006 6/30/2006 3/31/2006 12/31/2005 10/31/2005 7/31/2005 4/30/2005 1/31/2005 Sales revenue 596,496 266,380 204,362 427,405 289,420 244,603 318,856 97,302 235,144
Net A"ofit (loss) 986,985 (54,400) (127,477) 4,547 (76,750) 22,943 (299) (90,296) (70,895) Basic & diluted $0.066 ($0.004) ($0.009) $0,000 ($0.006) $0,002 $0,000 ($0,008) ($0,006) loss Der share
OUTSTANDING SECURITY DATA
Securities Issued and Outstandin2
The number of the Company's securities issued and outstanding as at April 26, 2007 was as follows:
Common shares 14,889,937 Stock options 1,400,000
On October 31, 2004, the Company completed its purchase of an additional 30% voting and profit sharing
in the Production Facility for 1,011,250 common shares at a price of$0.12 per share based on the closing
share price as at October 31, 2004. Half of these shares (505,625) were issued on December 30, 2005,
and the remaining amount (505,625) were issued on September 15,2006.
As at December 31, 2006, options to purchase up to 1.4 million common shares of the Company at a price
of $0.275 each were outstanding, exercisable until December 2,2008.
As at December 31,2006, there were 1,975,734 shares reserved for issuance under the Company's stock
All investor relation activities during the reporting period were carried out by the Company's personnel.
LIST OF DIRECTORS AND OFFICERS AS AT April 26, 2007
The following individuals are the directors and officers of the Company as of April 26, 2007:
Michael Eric Hotung Director
Lian Li Director and President
(Paul) Guo Qing Liu Chairman
Paul Stevenson Chief Financial Officer
Daniel Sung Director
Harry Reck Corporate Secretary
Chenghu Zhou Director
LIQUIDITY AND SOLVENCY
At December 31, 2006 the Company did not have an operating business. Instead the Company had working capital of $2.2 million and no long-term debt. The company intends to use its net assets to acquire a new business.
The Company will also look into the possibility to raise further capital through the public market in due
EFFECTIVENESS OF THE DISCLOSURE CONTROLS AND PROCEDURES
As at December 31, 2006, an evaluation was carried out on the effectiveness of the Company's disclosure controls and procedures, as defined in Multilateral Instrument 52-109. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the design and operation of
these disclosure controls and procedures were effective.
Management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting to provide reasonable assurance regarding the reliability of fmancial reporting
and the preparation of financial statements for external purposes in accordance with GAAP. Internal
financial controls and procedures have been designed under the supervision of management of the
It should be noted that while the Company believes that the current disclosure controls and procedures
over financial reporting provide a reasonable level of assurance, it cannot be expected that existing
disclosure controls and procedures or internal financial controls will prevent all human error and
circumvention or overriding of the controls and procedures. A control system, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.