Malta Shipyards yesterday described Cala Corporation as a company which, quoting its own report, in 2006 had not established revenues sufficient to cover its operating costs.

In a statement, Malta Shipyards (MSL) said that it had been in discussion with Joseph Cala and the Cala Corporation over the past few months on the possibility of building a number of ships at the Marsa shipyard.

The project was estimated to be worth $5 billion, or about Lm1.7 billion.

MSL and Cala Corporation were bound by a non-disclosure agreement while the discussions were taking place. However, in a discreet way “we kept the interested parties, including officials of the GWU”, informed about the shipyards’ concern over Cala’s financial position.

“Since Mr Cala felt that he could ignore the agreement that we had in place, and used certain sections of the media to repeat certain unfounded allegations more than once, we will reveal the facts about this case,” the Shipyards said.

A quick search on the internet revealed that Cala Corporation, which was previously named Magnolia Foods Inc., was a company that operated in the restaurant business. It employed four people and its chairman and CEO was Joseph Cala.

This company had recently decided to diversify its business by building hotels, casinos and other recreational facilities on structures that are submerged in the sea. Some months ago, Joseph Cala asked the shipyards whether they could build the structures in Malta, said MSL.

“The shipyard management, as it invariably does in such cases, examined the technical and financial feasibility of this project. We started by researching the background of Cala Corporation, which we were aware had not convinced the Tourism Ministry to grant it facilities to locate an underwater casino in St Paul’s Bay,” the shipyards said.

According to a report submitted by Joseph Cala on 27 December 2006 to the US financial regulators, the US Securities and Exchange Commission, in 2006 Cala Corporation had equity capital of $184,305, or Lm60,000. Between January and September 2006 it had sales of $31,834, or Lm10,000. The net loss for this period was $213,231 or Lm70,000.

“In this report,” said the MSL, “Joseph Cala stated: ‘The company has not established revenues sufficient to cover its operating costs’.”

The Shipyards added that Joseph Cala also stated: “The company has cash of $34,830 (Lm11,000)... The company has an accumulated deficit of $11,195,790 (Lm3,7 million) as of September 30 2006... These factors raise substantial doubt as to the company’s ability to continue as a going concern. In fact, the company’s independent accountants audit report included in the Form 10KSB for the year ended December 31, 2005 includes a substantial doubt paragraph regarding the company’s ability as a going concern.”

In another part of the report Joseph Cala states: “The company is in final discussion with the Maltese government regarding taking over the Marsa Shipyard located in the country of Malta.” The shipyards’ management said it was informed by its shareholder, the government, that no discussion had taken place with Cala regarding taking over the shipyard in Marsa.

On 13 April 2007, ie before the latest meetings with MSL, the Cala Corporation issued a statement, reported in the international financial media, which stated that Cala Corporation was reconsidering the proposal to build the Undersea Resort ships at Marsa Shipyard because of serious issues relating to the Malta Shipyard facilities that needed to be resolved before the ships could be built. These issues, according to Cala Corporation included:

• The dock in Marsa was too narrow by about two metres;

• The Marsa shipyard cannot handle the amount of steel needed for this project;

• The need for a technical assessment to be paid for by Cala Corporation;

• The need to increase the number of workers in the Malta shipyard from 1,700 to 6,000 just for this project.

Despite worrying factors that were emerging from the report submitted by Joseph Cala himself about the financial situation of Cala Corporation, and despite the technical problems that Cala himself felt should be communicated to the financial markets, the MSL had continued with discussions in the hope that a solution could be found.

Cala had never submitted any proof of how he intended to finance this $5 billion project through a company with a capital of Lm60,000, said MSL. He just stated that he had a “gentlemen’s agreement” with a renowned Swiss bank that had promised to finance part of the costs of the project once Cala “acquired” the Marsa shipyard from the Maltese government. Cala never produced any evidence that this bank was really interested in financing the project, MSL said.

As is the practice of every shipyard, before MSL issues a quotation it needs to have sufficient technical information about the project, as well as ascertaining that the facilities are adequate for the needs of the project and that the client has sufficient financial backing to finance the building of the vessels. None of these conditions had been satisfied so far, it said.

Cala also seems to be “less than serious about the way that the technical problems of this project could be resolved. In one of his meetings with the management of MSL, he remarked that we should blow up the sides of the Marsa dock to accommodate his proposed structure which does not fit in the present dock”.

In the light of developments, the shipyards’ management has decided that Joseph Cala must withdraw all the allegations he has made about the officials of the shipyards and provide written references from his bankers confirming that Cala Corporation has financing in place to build these vessels. The Shipyards said that if Cala did not withdraw the allegations, discussions would be stopped and legal action instituted.

Malta Shipyards said: “We regret that this matter had to come to this point. We do not want the shipyard to again find itself in a situation where it builds a number of ships but then does not get paid, as has happened in the past. The Maltese shipyards, like most other shipyards today, are fully occupied, and if we improve our productivity from the present levels the prospects for future work will be good.”

The Shipyards’ statement was signed by chief executive officer Chris Bell, and chairman John Cassar White.