UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


__________________





FORM 20-F/A


AMENDMENT NO. 1





_________________________





 ̈
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934





OR





S
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2010





OR





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





OR





 ̈
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Date of event requiring this shell company report _____________________





For the year ended December 31, 2010





Commission File Number 0-20420





CALCITECH LTD.


(Exact name of Registrant as specified in its charter)





A CORPORATION FORMED UNDER THE LAWS OF BERMUDA


(Jurisdiction of Incorporation or Organization)





10 route de l’aeroport


1215 Geneva


Switzerland


(Address of principal executive offices)








10 route de l’aeroport


1215 Geneva, Switzerland




Fax: + 41 22 7883092




Securities registered or to be registered pursuant to Section 12(b) of the Act:  NONE





Securities registered or to be registered pursuant to Section 12(g) of the Act





Common Shares


(Title of Class)





Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  NONE










The number of outstanding Common Shares as of December 31, 2010 is 200,933,204





Indicate by check mark if the Company is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   ̈Yes  SNo





Indicate by check mark if the Company is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ̈Yes  SNo





Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


SYes   ̈No





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ̈Yes   ̈No





Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer or a non-accelerated filer.  ̈Large accelerated filer  ̈Accelerated filer S Non-accelerated filer





Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


U.S. GAAP  ̈
International Financial Reporting Standards as issued S

by the International Accounting Standards Board
Other  ̈





If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.


Item 17   ̈                                 Item 18   ̈





Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act.


 ̈ Yes   S  No





(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)





Indicate by check mark whether the Company has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  NOT APPLICABLE





TABLE OF CONTENTS


PART I

PageItem 1.
Identity of Directors, Senior Management and Advisors
1Item 2.
Offer Statistics and Expected Timetable
1Item 3.
Key Information
13A.
Selected Financial Data
13B.
Capitalization and Indebtedness
23C.
Reasons for the Offer and Use of Proceeds
23D.
Risk Factors
2Item 4.
Information on the Company
54A.
History and Development of the Company
54B.
Business Overview
64C.
Property, Plant and Equipment
17Item 5.
Operating and Financial Review and Prospects
175A.
Operating Results
195B.
Liquidity and Capital Resources
205C.
Research and Development, Patents and Licenses, etc.
205D.
Trend Information
205E.
Off Balance Sheet Arrangements
215F.
Tabular Disclosure of Contractual Obligations
21Item 6.
Directors, Senior Management and Employees
226A.
Directors, Senior Management
226B.
Compensation
236C.
Board Practices
246D.
Employees
246E.
Share Ownership
24Item 7.
Major Shareholders and Related Party Transactions
257A.
Major Shareholders
257B.
Related Party Transactions
257C.
Interest of Experts and Counsel.
26Item 8.
Financial Statements
268A.
Consolidated Statements and Other Financial Information
268B.
Significant Changes
26Item 9.
The Offer and Listing
279A.
Price History of Stock
279B.
Plan of Distribution
289C.
Markets
289D.
Selling Shareholders
289E.
Dilution
289F.
Expenses of the Issue
28Item 10.
Additional Information
2810A.
Share Capital
2810B.
Memorandum and Articles of Association
2810C.
Material Contracts
2910D.
Exchange Controls
2910E.
Taxation
3010F.
Dividends and Paying Agents.
3310G.
Statement of Experts.
3310H.
Documents on Display.
3410I.
Subsidiary Information
34Item 11.
Quantitative and Qualitative Disclosures About Market Risk
34Item 12.
Description of Securities Other than Equity Securities
34Item 13.
Defaults, Dividend Arrearages and Delinquencies
34Part II

34Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
34Item 15.
Controls and Procedures.
34Item 16.

3616A
Audit Committee Financial Report
3616B
Code Of Ethics
3616C
Principal Accountant Fees And Services
3616D
Exemptions From The Listing Standards For Audit Committees
3616E
Purchases Of Equity Securities By The Issuer And Affiliated Purchasers
37Part III

37Item 17.
Financial Statements
37Item 18.
Financial Statements
37Item 19.
Exhibits
37










EXPLANATORY NOTE
 
 CalciTech Ltd. (“we” or  “our”) is filing this Amendment No. 1 on Form 20-F/A (this “Amendment”) to our Annual Report on Form 20-F for the fiscal year ended December 31, 2010 (the “Original Filing”), filed with the Securities and Exchange Commission (the “SEC”) on July 11, 2011, in response to comments received from the SEC.  We are filing this Amendment to revise the Facing Page; Item 4B. Business Overview; Item 15. Controls and Procedures; and Exhibits 12.1, 12.2, and 13.1. Except for the matters described above, this Amendment does not modify or update our disclosures in the Original Filing.


PART I





The following discussion contains forward-looking statements regarding events and financial trends, which may affect CalciTech Ltd’s (“CalciTech,” the “Company,” “we,” “our” or “us”) future operating results and financial position.  Such statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially from those anticipated in forward-looking statements.  These factors include, but are not limited to, the fact that we are in the commercialization stage, will need additional financing to build our proposed plants and will be subject to certain technological risks associated with scaling up production to a commercial level, all of which factors are set forth in more detail in the section entitled “Risk Factors” in Item 3.D. and “Operating and Financial Review and Prospects” at Item 5.





Item 1.                                Identity of Directors, Senior Management and Advisors





Not Applicable.





Item 2.                                Offer Statistics and Expected Timetable





Not Applicable.





Item 3.                                Key Information





3A.           Selected Financial Data





The following tables set forth selected consolidated financial data of the Company for the years ended December 31, 2010, 2009 and 2008 and 2007, and the 10 months ended December 2006. We derived all figures from our financial statements, which were audited by our independent auditor and prepared in accordance with International Financial Reporting Standards (IFRS).





This information should be read in conjunction with our audited financial statements for the years ended December 31, 2010, 2009 and 2008 included in this annual report. Historical information for periods prior to the year ended December 31, 2007 are not included in this annual report.





All financial information is presented in U.S. dollars, unless indicated otherwise.





year to


Year to


Year to


Year to


10 Months toDec 31, 2010


Dec 31, 2009


Dec 31, 2008


Dec 31, 2007


Dec 31, 2006Operations Data

$



$



$



$



$Revenue


0



0



0



58,291



47,649Income (loss) from operations


(699,000
)


(965,000
)


(1,234,000
)


(314,000
)


(394,000
)Net loss


(870,000
)


(1,081,000
)


(2,025,000
)


(678,000
)


(620,000
)Number of shares


185,639,086



150,858,348



99,998,665



88,656,114



88,899,675Loss per Common Share


(0.004
)


(0.007
)


(0.02
)


(0.008
)


(0.07
)Balance Sheet DataDevelopment Expenditure


0



0



0



0



0Total Assets


9,612,000



8,206,000



7,157,000



5,450,000



3,244,000Long Term Obligations


1,121,000



2,206,000



5,545,000



1,782,000



1,993,000Capital stock


1,899,000



1,898,000



1,846,000



1,824,000



1,813,000Total Stockholders’ Equity/ (Deficiency)


5,546,000



5,236,000



609,000



2,267,000



(77,000
)


1


3B.           Capitalization and Indebtedness





Not Applicable.





3C.           Reasons for the Offer and Use of Proceeds





Not Applicable.





3D.           Risk Factors





In addition to the other information presented in this Annual Report, the following should be considered carefully in evaluating us and our business. This Annual Report contains forward-looking statements that involve risk and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Annual Report.





Notwithstanding the foregoing, our future success will be affected by many factors that are frequently associated with the development of a new business, which include, but are not limited to, the following:





We Have Incurred Net Losses Since Our Inception and Expect Losses to Continue.  Except for net income of $732,000 for fiscal year ended February 28, 1996, we have not been profitable since our inception. During the year ended December 31, 2010, we earned $NIL from the sale of Synthetic Calcium Carbonate (“SCC”) samples. As our marketing activities have been concentrated during 2010 in other industrial sectors, no sample sales were possible with new products. For the year ended December 31, 2010, we had a net loss of $870,000 and an accumulated deficit of $48,344,000. The report of independent auditors on our December 31, 2010 financial statements includes an explanatory paragraph assuming the Company will continue as a going concern.Lack of operating funds may result in staff reductions and curtailing the construction currently planned.





If We Are Unable to Raise Funds Our Growth May Be Adversely Affected.  Historically, we have had to seek capital for research and development of our SCC products due to lack of revenues.  Based on the available amount of $18,000 in cash and together with its working capital credit facility, and the continuing control of expenses, we believe that we have sufficient working capital to meet its obligations up to the next 12 months following the date of the approval of these financial statements. Due to the global financial crisis and the difficulties in the banking sector in Germany, we were unable secure the endorsement of a House Bank in Germany of our application to secure a grant from the European Regional Structural Fund towards a 50% of the capital expenditure (CapEx) of our planned 100,000 tonnes per annum plant in Leuna, Germany, nor were we able to find a strategic partner on terms which we considered to be acceptable to our shareholders. Through this process of finding a strategic partner, we have determined that the best approach is to maintain 100% ownership of our plants in the early stages of the building plan. As such, we recently changed our strategy and are now seeking to raise funding of Euro 35 million in the UK market for our European licensee, CalciTech Synthetic Minerals Europe Ltd. (“CSME”). This would enable CSME, with the help of European Union grants, to build two commercial plants in mainland Europe producing circa 80,000 tonnes per annum of SCC and provide working capital until revenue earning. However, we may not be able to raise funds, or to raise funds on commercially reasonable terms. If we are unable to raise additional funds, we may not be able to build the plants or to implement our business plans as described in this Annual Report.





Uncertainty over carrying value of the Intangible assets.The majority of our assets are intangible assets. Ourability to recover the carrying value of the intangible assets is dependent upon our ability to raise sufficient funds to build the production plants required for the commercial exploitation of our intangible assets. We have commenced discussions with a number of AIM Nominated Adviser/brokers to secure the appropriate funding and an admission of the Company’s European operations subsidiary, CSME, to the AIM market of the London Stock Exchange (“AIM market”). In addition, we continue to pursue other funding opportunities including potential commercial partners to fund our commercialization of our intangible assets and funding in the US and European financial markets. We believe that we will be able to secure the appropriate funding to commercially exploit our intangible assets. However as of this date, such funding has not been secured and therefore there is a significant possibility that commercialisation cannot proceed and that ultimately we may not be able to recover the carrying value of our intangible assets as they are stated in our consolidated financial statements. Our consolidated financial statements do not include any adjustments that would be necessary if we were unable to secure the appropriate funding for the commercial utilization of the intangible assets.





2




Uncertainty of continuing as a going concern.Our continuation as a going concern depends upon our ability to raise sufficient capital to build its first full scale SCC plants, attain profitable operations and generate cash flow from operations.  Our consolidated financial statements do not include the adjustments that would be necessary if we were unable to continue as a going concern.





New investors or commercial partners may require participation interests which could decrease future profitability.In order to build our commercial plant, we require additional funding or commercial partners. Under this type of arrangement, an investor or commercial partner would invest in specific commercial plant and receive a negotiated interest in that specific commercial plant. This could reduce the potential profitability of the remaining interest in the commercial plant and reduce our ability to control and manage the commercial plant. We expect that entering into these partnering relationships would entail transferring a portion of our interest in CSME to such partner.





Our Inability to Protect Our Patents and Other Proprietary Rights Could Adversely Impact Our Competitive Position.  We believe that our patents and other proprietary rights are important to our success and our competitive position. Accordingly, we devote substantial resources to the establishment and protection of our patents and proprietary rights. We currently hold patents for processes and have patents pending for additional processes that we intend to use to market our SCC technology. However, our actions to establish and protect our patents and other proprietary rights may be inadequate to prevent others from using our process outside of the jurisdiction of our patent or to prevent others from claiming violations of their patents and proprietary rights by us. If our processes are challenged as infringing upon patents of other parties, we will be required to modify our processes, obtain a license or litigate the issue, all of which may have an adverse effect on our business.





Failure to Protect Our Trade Secrets May Assist Our Competitors. We protect our trade secrets and proprietary know-how for our processes by various methods, including the use of confidentiality agreements with employees and strategic partners. However, such methods may not provide complete protection and there can be no assurance that others will not obtain our know-how or independently develop the same or similar technology. We prepare and file for patent protection on aspects of our technology, which we think will be integrated into final processes early in research phases, thereby limiting the potential risks.




We Have Never Produced SCC on a Commercial Scale.We operated a small process pilot plant based in Norway, which was moved to Leuna in Germany in 2002.  The equipment was scaled up on a ratio of approximately 60:1 but still requires to be scaled up on a ratio of approximately 20:1 for the commercial plant. Although specialist suppliers of filtration and drying equipment have conducted trials for us and found the scale up ratio to be within acceptable limits, there are no guarantees that the technology will operate as planned or that costs for additional modifications will not occur. In addition, if we are unable to produce SCC on a commercial scale we will be unable to successfully commercialise our SCC technology as planned in our business plan.





Our Competitors May Develop a Competing Technology. One of our competitive advantages depends on our ability to use waste lime, low quality lime and paper sludge ash which is available at little or no cost. If competitors are able to develop a competing technology, we may no longer have the free or low cost source of raw material.





Our SCC Product is at Initial Market Introduction and We Are Not Sure the Market Will Accept it.We intend to target our SCC products in the following markets: paper; food and pharmaceutical, plastic, sealants and adhesives industries. The market acceptance of SCC products produced by our process for use in pharmaceutical and food additives will depend upon consumers and regulatory authorities accepting them. Moreover, although our process can produce pure SCC from waste lime and letters of intent from paper and other industrial producers for the supply from the first commercial plant have been signed, there is no assurance that we will be able to convince customers to convert these to contracts of purchase, limiting the number of potential customers for our product to paper or chemical producers. Failure to achieve market share in these industries could have material adverse effects on our long-term business, financial condition and results of operation.





3




All of our operations are located outside of the United States, substantially all of our sales from samples are generated outside of the United States and  all of our assets are located outside of the United States, subjecting us to risks associated with international operations.Our operations are in Europe and we have no operations in the United States.  100% of our revenue from our samples was generated from outside of the United States. The international nature of our business subjects us to the laws and regulations of the jurisdictions in which we operate and sell our products. In addition, we are subject to risks inherent in international business activities, including:




·
difficulties in collecting accounts receivable and longer collection periods,
 ·
changes in overseas economic conditions,
 ·
fluctuations in currency exchange rates,
 ·
potentially weaker intellectual property protections,
 ·
changing and conflicting local laws and other regulatory requirements,
 ·
political and economic instability,
 ·
war, acts of terrorism or other hostilities,
 ·
potentially adverse tax consequences,
 ·
difficulties in staffing and managing foreign operations, or
 ·
tariffs or other trade regulations and restrictions.





Litigation.Although we are not currently subject to litigation, we may become involved in disputes with other parties in the future which may result in litigation.  Any litigation could be costly and time consuming and could divert our management from our business operations.  In addition, if we are unable to resolve any litigation favorably, it may have a material adverse impact on our financial performance, cash flow and results of operations.





Our results of operations may be adversely impacted by currency fluctuations.Our revenue is in currencies other than United States dollars, primarily in Euros. Because our financial statements are reported in United States dollars, fluctuations in Euros against the United States dollar may cause us to recognise foreign currency transaction gains and losses, which may be material to our operations and impact our reported financial condition and results of operations.





Penny stock rules may make it more difficult to trade our Common Shares.The Securities and Exchange Commission has adopted regulations which generally define a “penny stock” to be any equity security that has a market price, as defined, less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as, institutions with assets in excess of $5,000,000 or an individual with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser’s written agreement of the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.





FINRA rules will make it more difficult to trade our Common Shares. The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may limit a stockholder’s ability to buy and sell our stock. In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares





4




Potential litigation or environmental exposure may have a material adverse effect on our financial condition or results of operation. Our operations are subject to international, federal, state and local governmental, tax and other laws and regulations, and potentially to claims for various legal, environmental and tax matters. While we carry liability insurance, which we believe to be appropriate to our business, an unanticipated liability, arising out of such a litigation matter or a tax or environmental proceeding could have a material adverse effect on our financial condition or results of operations.





Our share has been thinly traded and we cannot predict the extent to which a trading market will develop. Our Common Shares trades on the “OTCBB” and is thinly traded compared to larger, more widely known companies.  Thinly traded common stock can be more volatile than common stock trading in an active public market.  We cannot predict the extent to which an active public market for our Common Shares will develop or be sustained.








We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to U.S. holders.  We believe that we were not a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes for our taxable year ending on December 31, 2010, and we do not expect to become one for our current taxable year or in the future, although there can be no assurance in this regard. A non-U.S. corporation will be considered a PFIC for any taxable year if either (1) at least 75.0% of its gross income is passive income or (2) at least 50.0% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. The market value of our assets may be determined in large part by the market price of our Common Shares, which is likely to fluctuate. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we receive. If we are treated as a PFIC for any taxable year during which U.S. holders hold our shares, certain adverse United States federal income tax consequences could apply to U.S. holders. See “Special United States Federal Income Tax Considerations - Passive Foreign Investment Company.”





Item 4.                      Information on the Company





4A.           History and Development of the Company





CalciTech Ltd., a Bermuda Company, has developed a new process for manufacturing high quality Synthetic Calcium Carbonate (“SCC”).  Our process produces SCC from waste lime and air polluting carbon dioxide.  SCC is a white pigment.  It is also a calcium source for pharmaceuticals and food. As of the date of this report, we do not have facilities to commence production of SCC on a full commercial scale.





Originally, we were formed on November 9, 1978, under the laws of British Columbia, Canada with the name Cornwall Petroleum & Resources Ltd.  We then changed our name to Rexplore Resources International Limited and which was engaged in petroleum and resource development.  In December of 1987, we were restructured and the prior management replaced in connection with the acquisition of a license to develop Trylene Gas. In July 1994, we changed our domicile from British Columbia, Canada to Bermuda and changed our name from Kemgas Sydney Ltd. to Kemgas Ltd. On July 25, 2000, we changed our name from Kemgas Ltd. to our present name, CalciTech Ltd., to better reflect our change in business to the production and sale of SCC.





5




For the purpose of commercialising our technology, we established CalciTech Synthetic Minerals Ltd., a Bermuda company (“CSM”) that is wholly owned by us. On February 1, 2003, we transferred all of our entire SCC intellectual property rights and associated business activity to CalciTech Synthetic Minerals Ltd. CalciTech Synthetic Minerals Ltd. has two wholly-owned companies, CalciTech Group Services SA, a Swiss corporation, and CalciTech Synthetic Minerals Europe Ltd., a UK corporation. CalciTech Synthetic Minerals Europe Ltd. (“CSME”). The projected European business has been independently valued at Euro 64 million. On October 1, 2010, the business undertaking for the European territory was transferred to CSME and the consideration was satisfied by the issue of 80 million shares of CSME, with a par value of Euro 0.10 per share, at a price of Euro 0.80 per share. CSME, as part of the transfer, has been granted a license covering all of Europe, for the exclusive use of the Company’s SCC technology. This license is for a period of 30 years with a royalty payable of 5% of net revenues.





Our administration headquarters are located at World Trade Centre, 10 Route de l’Aeroport, Geneva, Switzerland. We currently do not have full-scale commercial plants. We are currently engaged in the commercialisation and project development stage using sample material produced by a small-scale production plant located in Leuna, Germany. This small-scale plant was initially built for commercial purposes. It produces samples for all future plants, tests input materials from around the world and will provide the necessary training for staff to be employed on the future commercial plants. The small-scale plant has also been used in the design development of future commercial plants and has supported the development of a 100,000 tonnes per annum plant originally planned in Germany. However, as a result of the global financial crisis and difficulties in the banking sector in Germany, we were unable to secure financing for our planned 100,000 tonnes per annum plant. Currently, we have deferred the development of the planned 100,000 tonnes per annum plant in Germany, and through CMSE, looking to develop a number of circa 40,000 tonnes per annum plants throughout Europe.





The Company, through CSME, is now planning a matrix of plants in Europe and has made presentations to the European Investment Bank (“EIB”) to confirm that such projects will qualify under its technological innovation program for financial support. The Company’s financial advisors are currently in negotiations with a number of UK banks, in the context of the EIB borrowing for funding of all European plants. CSME is now envisioning a number of circa 40,000 tonnes per annum plants and these could be in Germany, France, Spain, the Benelux or the United Kingdom.





We are also evaluating new product developments for new market applications and testing various feedstocks. It is intended that the small-scale plant, now operated through CSME,  will continue to test and trial all feed materials, and produce our sample material to support other projects in other regions. See “4B.  Business Overview – Business Activities.” No assurance can be given that the planned plants will be economically or technically feasible. We have generated no cash flows from our operations, other than those generated through limited sample sales. See "Item 3D Risk Factors."





4B.           Business Overview





Synthetic Calcium Carbonate (“SCC”)





Since June 1999, we have actively pursued our plan to develop and commercialize SCC from waste lime using our own proprietary process.  Acutely aware of the industrial waste created from the production of acetylene gas, one of our former businesses, we have moved forward to develop a method to extract a commercial product from what is considered to be waste product: waste lime.  Waste lime is generated from (i) the production of acetylene gas, (ii) manufacture of dicyandiamide from calcium cyanamide, (iii) the manufacture of paper sludge ash from recycled paper, and (iv) the manufacture of other chemical and mineral processes.  In our pursuit to turn an environmental problem into a commercially viable business, we have developed our proprietary process to extract and produce quality SCC from waste lime. SCC is a white filler pigment and is used for paper filling and coating, as well as in, for example paint, polymers, food and pharmaceuticals.





6




In September 2010, we signed a Cooperation Agreement with leading research institutes in Germany and launched the project with the participation of the largest paper and cement companies in Europe: Stora Enso and Heidelberg Cement.





The aim of the project is to optimise our process for converting the waste stream from recycled paper production into industrially valuable Synthetic Calcium Carbonate (SCC) and Sustainable Metakaolin (SMK).





This project has now passed its first milestones successfully which triggers the next phase of funding. The project is expected to be completed by the middle of 2013.





The Cooperation Agreement is with a group of partners including the Papiertechnische Stiftung (“PTS”), the German Paper Research Centre and Verein Deutscher Zementwerke (“VDZ”), the German Cement Works Association, together with two of the largest paper and cement companies in Europe.





Due to the environmental benefits, the project received a research grant in the amount of  approximately $627,436 from Bundesministerium für Wirtschaft und Technologie (German Federal Ministry for Research and Technology). The grant is for a period of three years from September 2010 to May 2013 and is in the form of reimbursements for costs incurred in the project. Our obligation under the project is  approximately $371,476, of which 45% is reimbursable under the grant. As of December 31, 2010, we have expended approximately $13,177 and received approximately $5,930 from the grant.


Currently, we are seeking to establish our first full scale commercial merchant plants and are engaged in sales activity within the paper, polymers, paints, food, pharmaceutical and cosmetic industries to seek commitment from potential customers to purchase SCC products from the first full scale commercial plants. In addition, we will have to seek to raise additional funds through loans from business partners, debt or equity financing and/or through environmental grants from authorities to build our initial plants. Assuming we have the capital to proceed, we intend to build up to 20 commercial plants over the next 15 years in Europe, some through joint ventures with financial or industry partners.





Below is a discussion of our proprietary SCC process, conventional Precipitated Calcium Carbonate (“PCC”) production, our products and a summary of our current activities by site. We refer to the PCC produced by our technology as Synthetic Calcium Carbonate, SCC.





Our SCC Process





Our SCC process can utilise most grades of lime, including low quality lime or industrial waste lime such as carbide lime. In our process, the waste lime is mixed with a solution of water and a proprietary promoter in a digester, which selectively dissolves the calcium and leaves the impurities behind as insoluble solids, which are readily removed by subsequent flocculation. The clear calcium solution is then pumped into a reactor into which carbon dioxide from any industrial emission source is passed to produce synthetic calcium carbonate by precipitation. After the SCC product is filtered off, the promoter solution is recycled back into the digester. The SCC can be supplied directly as slurry or dried and bagged for market.





By the use of this process, we reduce waste lime and carbon dioxide emissions into the environment. Carbide lime is a waste problem in many countries. Currently, this waste lime is stored in large ponds with no or very limited disposal processes available. Its high pH has potential pollution impacts to soil and ground water. This is a common environmental problem in the former Eastern Block countries, including the eastern section of Germany and Slovakia and remains a problem in other industrial nations. Many of these governments have regulations for the clean up of these ponds, which gives us the opportunity to have sources of free or low cost waste lime. Many private companies are also willing to supply waste lime at little or no cost because they have limited storage for the waste lime. Additionally, each year over a million tonnes of waste lime is created as a by-product of on-going acetylene plants in China alone. Although availability of new waste carbide lime from acetylene production will reduce in the future, we expect to utilise other available waste lime sources. In particular paper sludge ash (“PSA”). The usage of recycled paper has reached 50 million tonnes in Europe and continues to grow as the demand for sustainable products increases. However it is not generally realised that paper contains up to 40% minerals, which remain as a waste sludge after the recovery of the cellulose fibres. The elimination of this sludge is a growing problem following the new EU Waste Directive. Similar problems exist with recycled paper in North America and China. By enabling the raw material to be renewed in a closed loop, the paper industry can move closer towards the goal of zero waste, zero environmental impact and carbon footprint-free production. This will significantly reinforce their sustainability credentials.





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Our new process overcomes the problem of impurities that has hitherto hindered the re-use of the minerals. The new process uses our original technology for treating waste lime and applies it to solve a growing environmental problem. Trials have been successfully completed with waste from a range of paper mills. The SCC produced from this waste is of exceptionally high brightness and low abrasivity. Extensive trials are being carried out with potential customers.




Conventional PCC Process





Other PCC producers must use the conventional method for producing their PCC starting from high-grade limestone, which has limited availability. High-grade limestone deposits are found in quarries that must be mined, creating dust and noise pollution and leaving scars on the land. The conventional process involves calcining high quality white limestone to produce high purity quicklime. The quicklime is slaked with water to create milk of lime. PCC is produced by sparging carbon dioxide through a batch reactor containing the milk of lime, then the PCC is filtered and sold dried at low solids or, more normally, as slurry in paper filling.





SCC Versus PCC Production Process





The SCC Process





There are a number of ways in which the SCC process differs from the conventional process. The advantages resulting from the differences between the SCC process and the PCC process are as follows:





·
The SCC process does not require lime slaking and classification steps. This gives us significant advantages in both quality and cost effectiveness.





·
The SCC process includes a digester circuit that facilitates the use of any waste lime, such as carbide lime, thereby removing the need to purchase lime as is required in the conventional process.





·
The SCC process includes a promoter recycle loop to enhance the process economics. Any impurities in the lime feed are rejected as insolubles in the digester resulting in a final SCC product of the highest purity. SCC is less dependent on the purity of the starting material and is always superior to that of the starting material.





·
In the SCC process, the total lime content is present in solution whereas in the conventional process the lime is present in suspension (milk-of-lime). The reaction times in the SCC process are therefore much shorter than in the conventional process as the SCC process eliminates the slow lime dissolution step. This advantage allows for the use of smaller equipment as well as providing a much higher degree of control over the process. The SCC solution process is therefore more flexible and easier controlled than the conventional suspension process enabling a narrower particle size distribution. Additionally, the higher level of control enables us to tailor make SCC products to serve a wide range of markets.





Recycling of Paper Minerals using the CalciTech process





In 2009 and 2010, we have broadened the basic technology by developing a new application that addresses the growing problem of mineral waste from recycled paper plants. In Europe the total paper and board consumption in Europe is about 100 million tonnes per annum of which 82 million tonnes per annum is cellulose fibre and about 16 million tonnes per annum is mineral filler and pigments. While 34 million tonnes per annum of the fibre is recovered and recycled, the minerals are not recycledand have to be quarried, ground, treated and transported to mills across Europe. A significant portion of the white minerals has to be transported from remote sources to the centres of production and consumption. For example ultra white ground calcium carbonate for paper coating is mined and ground in northern Norway and shipped to north and central Europe. Special clays are imported from Brazil to provide properties that European clays cannot. Calcined clays are produced using an energy intensive process.





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At present, when paper is recycled, these minerals are treated as a waste stream and disposed of as landfill or low value applications in agriculture. The EU Waste Directive 2008/98/EC classifies the mineral sludge as waste and unsuitable for agricultural use as it contains organics. This Directive has to be transposed into national law by all member states before 12 December 2010. Many recycled paper mills therefore incinerate this sludge to make Paper Sludge Ash (PSA), which has a disposal cost of over €60 per tonne.





PSA can be converted economically to SCC using the CalciTech patented processes. This is an additional source of raw material that CSME can use in its planned plant expansion. We have identified a large number of sites where plants at a higher tonnage could be applied to using PSA as a source.





In addition to producing SCC, the metakaolin in the PSA can be separated and used as an additive to high strength cement. After incineration, the kaolin and talcs become a form of metakaolin which we name Sustainable MetaKaolin or SMK. The cement industry is very interested in using  SMK as a cement substitute as it is free of calcium oxide and is sourced from recycled materials. The German cement industry is supporting the qualification of SMK through the German Cement Institute (VDZ) in a joint project with us.





The recycling of PSA brings very significant benefits for the paper mill: disposal costs of waste minerals, generally in excess of €60 per tonne, are eliminated; remotely sourced mined minerals are eliminated; carbon dioxide from the incineration is recaptured in the manufacture of SCC; the SCC has better performance than the original mineral with its higher brightness, opacity and printability. Furthermore, the use of recycled minerals will enable paper companies to reinforce their claims of sustainability.





Where an on-site plant is not feasible, CSME will build a plant in the center of a cluster of ash producers and SCC users.





Patents and other Intellectual Properties





We first applied to patent our process of transforming waste lime into high quality SCC in 1998 and subsequently a patent was granted the United Kingdom. An international application was filed under the European Patent Cooperation Treaty in December of 1999 to expand the protection of our intellectual property on an international level. The patent examination was completed in May 2001 and patents were granted on July 31, 2003 in 13 European countries. Since then, patents have also been granted in Eurasia (Russia and the independent states formerly part of the Soviet Union), South Africa, Hong Kong, Indonesia, China, Republic of Korea, Slovakia, Australia, New Zealand and Poland. During 2008 further patents were granted in The United States, Canada, Brazil, Czech Republic, Hungary and India.




In October 2009, we filed an application for a new patent at the UK Patent Office. This new patent will protect the processes to be used by us to produce SCC with exceptional features including, but not limited to, a unique morphology (rice grain shape), a very narrow particle size distribution and exceptional purity, which itself gives very high brightness. Typically, we produce particles in the sub-micron range which satisfies the large majority of potential applications, as demonstrated by extensive trials with future customers. However, we can use the same process to produce other particle sizes in the nano and micron range but as there is further development work required, this has been delayed until market demand dictates. This wide range of capability opens up new applications in growing markets.





In December 2009, we filed a new patent at the United Kingdom Patent Office for a technology that enables paper producers to recycle all the minerals used in paper, in particular PSA. In December 2009, CSM filed another patent application in the UK covering the conversion of waste sludge, especially from paper mills using recycled paper, into two valuable product streams, SCC and Synthetic Metakaolin (“SMK”).





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When granted, these patents will extend patent protection of our process and product in terms of lifetime and coverage.





Development of the SCC Technology





The research and development of our SCC process began in 1994 with J.W. Bunger & Associates, a technical research company based in Salt Lake City, USA. This led to a research project associated with the Swiss Federal Institute of Technology in Lausanne, Switzerland and University of Lyon in France. We began a pilot project in Manchester, England, which ran between September 1998 and November 1999.  During the pilot project, we were successful in converting waste-lime into high quality SCC. The Recherche et Valorisation des Mineraux (“RVM”) of Paris, France confirmed the application as a superior quality paper coating pigment, a market currently dominated by GCC and kaolin. The pilot plant was moved to the site of an industrial partner at Odda in Norway, where the SCC development program continued.





In 2007, worldwide PCC capacity was 13 million tonnes, of which two-thirds was utilised by the paper industry. Within the paper industry, SCC is aimed at the coatings sector, currently dominated by Kaolin and GCC. In Western Europe, consumption of kaolin and GCC for coating was 2.6 million tonnes and 3.7 million tonnes respectively in 2002, representing around $1.5 billion in sales.





On July 8, 2002, we announced that we had commissioned and fine-tuned our Synthetic Calcium Carbonate “SCC” small scale production plant at Leuna, Germany. Presentations were held at Leuna in September 2002 to introduce the new small plant and our SCC technology to a variety of interested parties, including potential project partners, financial institutions and those from the region that may be involved with the project. A laboratory facility was also installed adjacent to the plant. Confirmation and fine-tuning of the key operational parameters of this plant was necessary as a result of the large scale-up from the original pilot plant. The plant has been used to test raw materials from various other sites located around the world in order to ascertain not only their suitability to the SCC process but also the quality of SCC that can be produced and for the ongoing production of samples for sales purposes and product developments with certain customers.





This plant has consistently produced a range of SCC products primarily in the sub micron range, all with a brightness of over 96% ISO and a steep particle size distribution. The SCC process produces particles of uniform size and shape, tailor made to the needs of our end markets.  For the paper industry this means that a new pigment will be available that addresses key issues such as quality and runnability improvements.





In October 2002, we completed trials at the Centre Technique du Papier at Grenoble in France and with a paper manufacturer. These results met our expectations and led to the design and launch in February 2003 of our first two SCC products: CalciLSTM and CalciSGTM.





Development and Marketing of SCC Product





The SCC products manufactured by the use of our SCC process involves the selective dissolution of calcium from industrial waste and its subsequent precipitation from solution with waste CO2 into pure calcium carbonate. The high calcium selectivity at the initial dissolution step guarantees the final purity of the product at a unique level. The solution environment assures the exceptional uniformity of the final precipitate with easy control of the desired particle size, particle size distribution and crystal morphology.





We initially developed SCC products for the paper industry. However, since the introduction of our SCC products to the paper industry in February 2003, we have developed three non-paper SCC products targeting the food, pharmaceutical and cosmetic industry, and the plastic, sealant, rubber and adhesives industries.





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Paper Industry





We currently have three SCC products targeting the paper industry: CalciLSTM, CalciSGTM and CalciRGTM.   All three are directed at the high value end of the paper pigment market.





CalciLSTMProducts.CalciLSTM is designed to maximize light scattering. CalciLSTM is targeted to partially replace and extend costly Titanium Dioxide “TiO2”, Aluminium TriHydrate “ATH” and Precipitated Silica “PS” and substitute calcined clay in fine paper applications and Super Calendered A+ (“SCA+”) on a cost effective basis. Examples of such applications are Bible paper, security paper, laminating paper, auto-adhesive labels, flexible packaging etc. Several trial runs on various applications confirmed the high performance of CalciLSTM. Using CalciLSTM in pre-coating, allows board producers to totally replace calcined clay, while finished product quality remains at the high levels required.  CalciLSTM used as filler in SCA+ grades shows similar impressive results. Brightness increases of around 2.5 units can be expected, while opacity is maintained at levels reached with standard PCC filler.  Porosity, a very important parameter for this type of paper grade, will also improve significantly.





CalciLSTM is also very suitable for pigmentation applications. Adding CalciLSTM to a starch based formulation helps the papermaker to increase brightness and opacity. The low binder demand due to the absence of fines will maintain paper dusting levels at normal levels.





CalciSGTMProducts.  CalciSGTM, is designed to provide a super gloss coating for premium grade printing and writing papers including both Ultra Light Weight Coated (“ULWC”) and Light Weight Coated (“LWC”) and coated folding boxboard. In the latter application, CalciSGTM allows for a reduction in calendaring nips to improve bulk at no loss in gloss.





CalciRGTMProducts.  In October 2004, we launched  CalciRGTM for the paper coatings market.  CalciRGTM is a performance-enhancing additive aimed at the rotogravure market.  For the launch of this product, we worked closely with our potential customers to identify specific needs.  CalciRGTM was designed and developed in collaboration with these customers, and thoroughly tested in commercial trials, showing the unique properties of our SCC based products.





Rotogravure is a printing method used, among others, for LWC and ULWC. These paper grades are predominantly aimed at the highly competitive catalogue and magazine markets, where bulk is an important factor contributing to costs. Lightweight papers typically consist of approximately 30% coating material.  The worldwide market for LWC and ULWC papers is estimated to be around 10 million tonnes of which approximately 7 million tonnes is produced in Europe, with the US and Japan accounting for the balance. This market segment of the paper industry is intensely competitive. Other market segments using rotogravure are super calendared papers and lightweight papers for flexible packaging.





First commercial tests have shown that substituting as little as 10% of the original coatings mix with CalciRGTM show a significant improvement in opacity, a very important quality parameter in this segment due to the thinness of the paper and the demands for high quality prints. Other characteristics such as brightness, roughness reduction, and smoothness also showed a significant improvement in performance.





In addition to the normal quality parameters, CalciRGTM has the same rheological characteristics as our other SCC related products. With typical machine speeds for these paper types of around 1,200 m/min (45 mph), rheology of the coatings mix is extremely important. Using CalciRGTM as an additive to an existing coating product for the LWC and ULWC can provide a paper producer and its supplier of coating material with important cost and quality related competitive advantages.





In November 2004, we announced the results of the most exhaustive trial programme to date of our SCC based products, carried out by BASF. BASF is the dominant supplier to the paper coating industry for various additives. These additives do not have a pigment related function such as SCC but impart certain properties on the coatings mix and typically contribute up to 15%. A good example of this group of additives is a binding agent. BASF approached us in order to ascertain whether its additives would be compatible with SCC based products.





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In the trials our SCC product was benchmarked against leading products in the mineral pigments for paper industry.  It was shown that our SCC:





·
Is the only product to show consistent low viscosity at all shear levels: applying our SCC in a coatings mix will positively influence the running behaviour of the paper producing machinery, leading to increased productivity and lower costs.





·
Imparts superior whiteness and brightness: these are essential product quality parameters, required to produce high quality high-end paper.





·
Leads to greater opacity: another very important quality parameter, especially important for light-weight papers.





·
Has superior print gloss: this parameter greatly determines the quality of the printed product.  Our SCC imparts a higher gloss on the coated paper, but over and above that, the contrast between the print and background shows superiority as well.





·
Gives slow ink settling: this leads to lower ink consumption and hence significant cost savings for the printer.





·
Provides superior rotogravure printability:this has shown printability performance superior to industry standard calcium carbonates with superior whiteness, brightness and opacity.





Following these tests using CalciSGTM, we developed our latest product, CalciRGTM for the rotogravure market as a high-end additive to Kaolin. In total, over twenty trials have been conducted with both scientific institutions and commercial paper producers, varying from lab scale to pilot machine trials.





Food, Pharmaceutical and Cosmetic Industries





CalciSPTMProduct. In October 2005, we launched our first product following the implementation of our diversification strategy. This product, CalciSPTM, is our first non-paper product that is aimed at the food, pharmaceutical and cosmetics industries. We launched this product following tests by the Geneva Institute of Technology, certifying that CalciSPTM shows extreme high purity, especially regarding heavy metals content. With the target industries for this product moving increasingly towards higher purity products, we expect that both the purity and processibility characteristics of CalciSPTM will contribute to advantageous competitive characteristics.





The first tests carried out on CalciSPTM show that the product has certain characteristics that make it very suitable for use in bakery and cacao products. Further tests are currently being conducted on other applications within the target markets. Since its introduction in October 2005, we have been marketing this product in trade shows and assessing different opportunities for the distribution of this product.





Plastic, Sealant, Rubber and Adhesives Industry





CalciRCTMProduct. In January 2006, we launched CalciRCTM.  This product is aimed at polymer applications such as plastics, sealants, rubber and adhesives. Initial trials within the plastics industries have shown that CalciRCTM significantly improves certain strength characteristics of the finished product. When trialled in PVC profiles, significant improvements in gloss, brightness and lifetime were measured. Due to the rheological properties of the SCC, higher filler loadings can be achieved which reduce the amount of polymer resin used with consequent cost savings. Further trials are currently being conducted into the processibility characteristics of the product.





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Paint Industry





SCC products are currently being developed and are expected to be launched in due course to serve the water based decorative paint market. SCC brings benefits of brightness and opacity that enables the producer to reduce the amount of expensive titanium dioxide in the formulation. While paint overall is growing at a rate of two percent (2%) annually, water based emulsion paint is growing at nine percent (9%) driven by environmental considerations and generally carries a premium price over paper industry products. The sustainability benefits of SCC from recycled minerals are being sought by the major paint producers who are urgently trying to make their products more ecofriendly.





Business Activity: Small scale production plant





We have been operating a small-scale production plant in Leuna, Germany. The small-scale production plant, while not a full size commercial plant is, nevertheless, a commercial plant in that the products manufactured can be sold. In particular, high grade SCC. High grade PCC for the pharmaceutical industry is often sold in relatively small amounts and command prices in excess of Euro 800 per ton. We intend to manufacture and sell high-grade product in these specialist areas where supplies are not available to meet such demands.  The small-scale plant continues to test new materials such as PSA, be used in the design of any commercial size plant variant and for training purposes.





Business Activity: Europe





After the collapse of the credit markets, the European Investment Bank (“EIB”) announced several programs late in 2008, to assist in financing of developments within the Member States of the European Union. In particular the Innovation and New Technology Programmes and EIB have confirmed that SCC plants, licensed with our intellectual property rights from outside Europe, would qualify on an aggregated capital expenditure (CapEx) basis. This of course would be subject to all the normal due diligence requirements. The funding allows up to 50% of CapEx at favourable interest rates for extended terms. They have also confirmed that our indirectly owned subsidiary, CalciTech Synthetic Minerals Europe Ltd. (“CSME”), may arrange all financings for each Member State through a UK House Bank, thereby facilitating the due diligence process. The proposed locations are generally speaking in depressed areas and many are eligible for grants of varying amounts depending on the rating of the region.





During October 2010, we granted CSME an exclusive license for the European territory. Payment for this license was made by issuing 80,000,000 common shares with a par value of €0.10 in the company at a price of €0.80 per share to CSM. The license is for a period of 30 years with an option to extend. CSME remains a wholly-owned subsidiary of CSM.





Typically all projects will require equity investment of some 20% of CapEx. We are in discussions with London financial advisers with a view to raising, by way of an institutional private placement for CSME, equity funding and working capital to fund the initial projects for building. Industrial partners at the roll out stage in some projects will provide their share of funding for their equity participation. We are now seeking to raise funding of Euro 35 million in the UK market for our European licensee, CalciTech Synthetic Minerals Europe Ltd. (“CSME”). This would enable CSME, with the help of European Union grants, to build two commercial plants in mainland Europe producing circa 80,000 tonnes per annum of SCC and provide working capital until revenue earning.




CSME will operate entirely independently and which will allow us to concentrate on introducing SCC into other territories, initially the United States of America and certain developing territories. An independent Board of Directors has been appointed to conform with London Governance allowing CSME to be the exclusive operators in the European territory





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Business Activity: Germany





In April 2003, we appointed GUSCO Handel as our sole sales representative to the paper and board industry in Germany for our SCC products: CalciLS and CalciSG.  GUSCO Handel is a subsidiary of family owned G. Schürfeld Group, founded in 1937 and is active as an accredited agency in the marketing and sales of forest products (pulp, paper, board and timber).  The broad experience of GUSCO Handel in the paper industry gained from its wide customer relations developed over many years, made them spot the unique growth opportunity presented by our SCC.





As part of our efforts to develop a market for our products in Germany, we built a small scale plant at Leuna, Germany on a large industrial and chemical site owned and managed by InfraLeuna GmbH, who also provided all the necessary utilities. We also retained the services of W S Atkins plc of Stockport, UK, as consulting engineers for our first large scale commercial plant based on 40,000 tonnes production per annum, which resulted in their production of an in-depth feasibility study and technical due diligence report. InfraLeuna allocated a site in the complex upon which it was agreed that we would build its first commercial plant and an agreement was negotiated for its purchase. This agreement was to be completed on the finalization of the project financing. It was also upon the advice of InfraLeuna that a local company, WUP Consulting GmbH & Co. KG, was engaged to carry out the building and environmental permitting application. In September 2007, the Company received all the permitting documents for the planned plant.





By the end of February 2004, we secured Letters of Intents (“LOI”) from various German companies in the paper industry for our SCC products: CalciLSTM and CalciSGTM.  The customers who have signed the LOIs are a cross section of major German companies in the paper industry.  Each customer has signed confidentiality agreements and tested, at their own expense, our SCC sample product in their manufacturing process. These LOIs are subject to a definitive agreement that is to be executed upon the completion of the 100,000 tonnes per annum plant in Leuna, Germany.





In 2006, a major Finnish contractor, part of a multi-national Austrian group, was engaged to complete the design and planning work on a larger first commercial plant capable of producing 100,000 tonnes per annum. This contractor is able to provide all the principle components from companies within its group.  All the additional design work has been carried out at the contractor's own cost.





However, as a result of global financial crisis and the difficulties in the banking sector in Germany, we were unable secure the endorsement of a House Bank in Germany of our application to secure a grant from the European Regional Structural Fund towards a 50% of the capital expenditure (CapEx) of our planned 100,000 tonnes per annum plant in Leuna, Germany, nor were we able to find a strategic partner on terms which we considered to be acceptable to our shareholders. As such, we have suspended the development of our 100,000 tonnes per annum plant in Leuna, Germany and focused our energy in the European market with the smaller circa 40,000 tonnes per annum plants. With the change in strategy, any large scale plant to be built in Germany has been deferred into the European roll-out program.  We are in the process of renegotiating the existing LOIs with the various German companies as well as negotiating new LOIs as part of the European roll-out program.





Business Activity: Spain





In September 2009, we signed a Letter of Intent with Calcinor SA of Spain. Calcinor is Spain’s largest producer of lime, which is the principal raw material for CalciTech’s Synthetic Calcium Carbonate (SCC). The objective is to build a plant at one of Calcinor’s sites.





Business Activity: Republic of Slovakia





We originally signed a memorandum of understanding with Novaky Chemical Company (“Novaky”) to form a joint venture company to produce SCC from Novaky's waste lime. A joint venture agreement was signed on March 23, 2004.  Novaky currently has over 1.5 million tonnes of waste lime in temporary storage and continues to produce more in its ongoing acetylene production. Following the granting of our patent in the Slovak Republic in February 2005, we commenced the technical, financial and marketing feasibility of a large production facility plant to serve the Central European market.





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Under the terms of the memorandum of understanding, we will control the joint venture. We expect the project to qualify for environmental and investment incentives from The Republic of Slovakia, which is an early entrant to the European Union enlargement. Following the granting of our patent in Slovakia in 2006, we are now actively working on developing this project.





Novaky, a renowned chemical conglomerate with a turnover of around $170 million, was founded in 1940. The company manufactures intermediate products such as electrolysis products, basic organic chemicals, vinyl chloride as well as end products manufactured from these intermediates and from polyvinyl chloride ("PVC"). Products are sold on both the domestic and the wider European market.  Previously a state company, Novaky was partially privatized in 2001 when Canadian company Exall Resources was selected by the Slovak National Property Fund to buy a 40.97% stake in the company.  With the entrance of the Slovak Republic into the EU, compliance with environmental standards has become critical. It was, therefore, the company that approached us for use of our proprietary technology in solving their carbide lime related environmental problems.





Following a change of management at Novacky and in view of delays with our project in Germany with the credit market turmoil, we determined to delay matters until our phased roll out program.





Business Activity: Americas and Other Territories





In August 2002, we appointed Charles Kunesh, formerly research director of Specialty Minerals Inc. in America, to represent our program to identify suitable waste deposits for possible SCC manufacture.  This has led to a number of discussions and we announced in April 2003 an agreement to conduct feasibility studies for such a project with Carbide Industries LLC of Louisville, Kentucky.  We are not pursuing this project or any other North American project at the present time until commencement of our roll out program. With the management of CSME concentrating on the development of the European territory, this will allow us time to attend to this territory and others, including China and India.





Financing





We are currently financed through a loan facility, up to $3,000,000, from Epsom Asset Management Ltd (“Epsom”).  In September 2007, Epsom agreed to convert $2,001,000 of the balance due under the credit facility agreement into our Common Shares on the basis of one share for each $0.29 of note. This conversion resulted in the issue of 6,900,000 Common Shares. In addition, in December 2007, Epsom agreed to convert a further $1,259,697 of the balance due under the credit facility agreement into our Common Shares on the basis of one share for each $0.30 of note. This conversion resulted in the issue of 4,198,990 Common Shares. In December 2007, Epsom agreed to extend the credit facility to August 30, 2009. In the third quarter of 2008, Epsom agreed to a temporary increase of the facility to $5 million up to December 31, 2008 in the absence of any new fund raising by placement of Common Shares.  Epsom has extended the credit facility to August 30, 2012.





In addition, we had outstanding 6% convertible debenture notes, with a maturity date of December 31, 2009, which are only repayable in cash at our option. Holders of the debenture notes did not have such an option and may only convert into our Common Shares at a conversion price of $1.75 on the maturity date. This, therefore, had no effect on our liquidity.





During December 2008, all 6% convertible debenture holders with a value of $4,642,000 agreed to convert 50% of the capital with accrued interest to December 31, 2008, amounting to $2,526,000 into Common Shares of the Company at a price of $0.095 per share. The remaining debenture notes were extended until December 31, 2010 at an interest rate of 1.75% per annum, payable quarterly, with the right to convert into our Common Shares at $0.75 per share, amended from a conversion of $1.75 per share. We have the right, upon 10 days notice, without penalty, to repay all or any portion of the outstanding principal.





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In December 2009, we authorized a new series of convertible debenture notes with an annual interest rate of 4% and a conversion rate of $0.40 per share for a period of two years from date of issue. All other terms and conditions are the same as the previous series of convertible notes. Epsom has converted $1,500 of its outstanding loan facility into these new notes.





In December 2010, Epsom agreed to convert $2,300 of its outstanding balance into $1,000 of the new series of 4% convertible debenture notes issued in 2009 and $1,300 into common shares of the Company at a price of $0.085 per share. This resulted in the issue of a further 15,294,118 of our Common Shares.





Revenue





During the fiscal year ended December 31, 2010 and the year ended December 31, 2009, we received revenues totalling $NIL and $NIL respectively from the sale of SCC samples. Only small sized samples are being sent out to potential customers for testing, especially in non-paper applications, for which it is customary not to charge clients. Please see the “Consolidated Statement of Comprehensive Income” and Item 3A, “Selected Financial Data”, and Item 5, “Operating and Financial Review and Prospects”, for more information.





Dependence on Customers and Suppliers





We are not dependent upon a single or a few customers or suppliers for revenues for our operations.





Project and Product Development





During the year ended December 31, 2007 and continuing through the fiscal year ended December 31, 2010, we moved out of the research and development stage and into the commercialization stage, and project and product development.  Accordingly, we no longer expense project and development expenses.  $1,406,000 spent in the year on project and product development appears on the Balance Sheet as an intangible asset.





We expensed $NIL on research and development in the year ended December 31, 2010 and $NIL in the year ended December 31, 2009.





Organizational Structure:The following is our organizational chart:





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4C.           Property, Plant and Equipment





We hold a lease on our administrative service office facility in Switzerland, expiring in October 2010.  After October 2010, we intend to continue to locate our principal facility in Switzerland, but will reassess our need for future expansion to meet our business plan. CSME has temporary office facilities in Cheltenham, United Kingdom until its funding is completed and new offices are located.





We maintain a Synthetic Calcium Carbonate “SCC” small scale production plant at Leuna, Germany, through a branch office of CSME. This small plant has a maximum capacity of 800 tonnes per annum. A suitably equipped laboratory facility has also been installed adjacent to the plant, in the same building. No additional land or rental is involved. The small-scale plant will continue to produce samples, test materials, be used to design commercial plant size variants and for training pruposes.





Item 4A.                      Unresolved Comments





Not applicable.





Item 5.                      Operating and Financial Review and Prospects





Overview





We are currently in the process of commercialising our SCC based products. An important aspect of this commercialisation has been the building and commissioning of our small-scale production plant in Leuna, Germany. This small-scale plant was initially built for commercial purposes. It produces samples for all future plants, tests input materials from around the world and will provide the necessary training for staff to be employed on the future commercial plants. The small-scale plant has also been used in the design development of future commercial plants and has supported the development of a 100,000 tonnes per annum plant originally planned in Germany. However, as a result of the global financial crisis and difficulties in the banking sector in Germany, we were unable to secure financing for our planned 100,000 tonnes per annum plant. Currently, we have deferred the development of the planned 100,000 tonnes per annum plant in Germany, and through CMSE, looking to develop a number of circa 40,000 tonnes per annum plants throughout Europe





The Company, through CSME, is now planning a matrix of plants in Europe and has made presentations to the European Investment Bank (“EIB”) to confirm that such projects will qualify under its technological innovation program for financial support. The Company’s financial advisors are currently in negotiations with a number of UK banks, in the context of the EIB borrowing for funding of all European plants. CSME is now envisioning a number of circa 40,000 tonnes per annum plants and these could be in Germany, France, Spain, the Benelux or the United Kingdom.





We are also evaluating new product developments for new market applications and testing various feedstocks. It is intended that the small-scale plant, now operated through CSME,  will continue to test and trial all feed materials, and produce our sample material to support other projects in other regions.





We are currently financed through a loan facility, up to $3,000,000, from Epsom Asset Management Ltd. (“Epsom”). Epsom has extended the credit facility to August 30, 2011.  In addition, we have outstanding convertible debenture notes, with a maturity date of December 31, 2010, which are only repayable in cash at our option. These notes, with the agreement of the holders have been extended with a maturity date of December 31, 2012 on the same terms as before Holders of the debenture notes do not have such an option and may only convert into our Common Shares at a conversion price of $0.75 on the maturity date.  This, therefore, has no effect on our liquidity.





17




In December 2009, the Company authorized a new series of 4% convertible debenture notes with a conversion rate of $0.40 per share for a period of two years from date of issue. All other terms and conditions are the same as the previous series of convertible notes. Epsom has converted $1,500 of its outstanding loan facility into these new notes.





In December 2010, Epsom agreed to convert $2,300 of its outstanding balance into $1,000 of the new series of 4% convertible debenture notes issued in 2009 and $1,300 into common shares of the Company at a price of $0.085 per share. This resulted in the issue of a further 15,294,118 common shares.





Critical accounting policies





The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:





Going concern and future funding





The financial statements have been prepared assuming we will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, in particular for the twelve months from the date of approval of the financial statements.





Assets and liabilities are recorded on the basis that we will be able to realise our assets and discharge our liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments to the carrying values of assets and liabilities that might be necessary should we be unable to continue as a going concern.  In addition, the majority of our assets are intangible assets. Our ability to recover the carrying value of its intangible assets is dependent upon our ability to raise additional funds sufficient for the commercial exploitation of these assets. The financial statements do not include any adjustment that would result if our efforts to secure additional funding for the commercialisation of its intangible assets described above are not successful.


18


5A.           Operating Results





The following discussion and analysis relates to items that have affected our results of operations for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.   The information contained in the table below should be read in conjunction with our consolidated financial statements and accompanying notes included in this Annual Report on Form 20-F.





Year Ended

December 31,

2010


Year Ended

December 31,

2009


Year Ended

December 31,

2008OPERATING REVENUE

$NIL


$NIL


$NILCOST OF REVENUES

$NIL


$NIL


$
(37,000
)GROSS MARGIN

$NIL


$NIL


$
(37,000
)Research and development expenses

$
-0-


$
-0-


$
-0-Project development expenses

$
-0-


$
-0-


$
-0-Product development expenses

$
-0-


$
-0-


$
-0-General and administrative expenses

$
699,000


$
965,000


$
1,197,000OPERATING LOSS

$
(699,000
)

$
(965,000
)

$
(1,234,000
)NET LOSS BEFORE INCOME TAXES

$
(869,000
)

$
(1,068,000
)

$
(2,025,000
)PROVISION FOR INCOME TAXES

$
(1,000
)

$
(13,000
)

($NIL)NET LOSS

$
(870,000
)

$
(1,081,000
)

$
(2,025,000
)




December 31, 2010 compared to December 31, 2009.





Revenue.  We had revenues totalling $NIL for the year ended December 31, 2010 compared to $NIL for the year ended December 31, 2009. Only small sized samples are being sent out to potential customers for testing, especially in non-paper applications, for which it is customary not to charge clients.





Expenses.  Product development and project development costs remained at $NIL. Product development and project development expenditure of $1,406,000 (December 31, 2009: $1,127,000) was capitalised as an intangible asset. General Administrative expenditure decreased from $965,000 to $699,000.   Salaries and charges decreased from $346,000 to $168,000 and legal fees decreased from $70,000 to $23,000 during the year. These decreases were mainly due to tight budgetary controls. Interest charges have increased marginally from $103,000 to $142,000. Even though we are now firmly engaged in the commercialisation stage, project and product development continue but are recorded as Intangible Assets.





Net Loss.  The net loss in year ended December 31, 2010 decreased to $870,000.  In the year ended December 31, 2009 it was $1,081,000.





December 31, 2009 compared to December 31, 2008.





Revenue.  We had revenues totalling $NIL for the year ended December 31, 2009 compared to $NIL for the year ended December 31, 2008. Only small sized samples are being sent out to potential customers for testing, especially in non-paper applications, for which it is customary not to charge clients.





Expenses.  Product development and project development costs remained at $NIL. Product development and project development expenditure of $1,127,000 (December 31, 2008: $2,037,000) was capitalised as an intangible asset. General Administrative expenditure decreased from $1,197,000 to $965,000.   Professional and legal fees decreased from $355,000 to $106,000 and $113,000 to $70,000 respectively during the year. These decreases were mainly due to tight budgetary controls. Interest charges have decreased substantially from $791,000 to $103,000. This arose from re-negotiation of the Company’s credit facility and remaining debentures, as interest charges were reduced to 1.75% per annum. Even though we are now firmly engaged in the commercialisation stage, project and product development continue but are recorded as Intangible Assets.





19




Net Loss.  The net loss in year ended December 31, 2009 decreased to $1,081,000.  In the year ended December 31, 2008 it was $2,025,000.





Foreign Currency Exchange Rates





A significant portion of our business is conducted in currencies other than the United States dollar.  As a result, we are subject to exposure from movements in foreign currency exchange rates.  We do not currently engage in hedging transactions designed to manage currency fluctuation risks.  See Notes to Consolidated Financial Statements – Note 2.5. Foreign Currency Translation.





Inflation





Historically, inflation has not affected our business in the current locations where it does business and we do not expect that it will do in the future.





Interest Rate Sensitivity





We are not currently subject to adverse movement in interest rates because our credit facilities are fixed at an interest rate of 1.50% and Convertible Debentures at an interest rate of 1.75% and 4.00%.  The credit facility agreement requires repayment on August 31, 2011.  We may redeem the Convertible Debentures before December 31, 2010.  We do not currently engage in hedging transactions designed to manage interest rate fluctuation risks.





5B.           Liquidity and Capital Resources





As of December 31, 2010, our working capital deficiency increased to $2,823,000 from the working capital deficiency of $577,000 on December 31, 2009. Cash deposits were down to $18,000 and current liabilities were up $2,181,000 on December 31, 2009.





As of December 31, 2009, our working capital deficiency decreased to $577,000 from the working capital deficiency of $744,000 on December 31, 2008. Cash deposits were down to $22,000 and current liabilities were down $239,000 on December 31, 2008.





As of December 31, 2008, our working capital deficiency decreased to $744,000 from the working capital deficiency of $1,000,000 on December 31, 2007. Cash deposits were down to $26,000 and current liabilities were down $398,000 on December 31, 2007.





We are partially financed through a credit facility from Epsom Asset Management Ltd. (“Epsom”). This credit facility was originally issued by Epsom Investment Services, N.V., but was assigned to Epsom Asset Management Ltd. in November 2008 following a reorganization of the Epsom Group. The credit facility agreement with Epsom to provide up to $5,000,000 was re-negotiated during February 2003 whereby the maximum amount of draw down was reduced to $2,500,000 with a reduction in interest charged to 7.5% per annum. Pursuant to an addendum to the credit facility agreement dated August 2006, effective as of February 2006 Epsom no longer has a right to convert outstanding balance into our Common Shares. The credit facility has been extended several times, and as of June 2009, the credit facility has been extended until August 31, 2012.





From time to time, the balance of this facility has been reduced by the mutually agreed conversion of the balance into our Common Shares, in order to provide on-going working capital. During February 2005, Epsom agreed to convert part of this facility into equity for $1,400,000. As at February 28, 2006, $213,000 of this facility had been drawn down. In September 2007, Epsom agreed to convert $2,001,000 of the balance due under the credit facility agreement into our Common Shares on the basis of one share for each $0.29 of note. This conversion resulted in the issue of 6,900,000 of our Common Shares.  In addition, in December 2007, Epsom agreed to convert a further $1,259,697 of the balance due under the credit facility agreement into our Common Shares on the basis of one share for each $0.30 of note. This conversion resulted in the issue of 4,198,990 of our Common Shares.  In December 2007, Epsom agreed to extend the credit facility to August 30, 2009. As at December 31, 2008, with the prior written consent of Epsom, the facility was temporarily extended by $2,936,000 (December 31, 2007: $1,630,000 available).  A restructuring of the debt in order to make available additional working capital was completed on June 2009. Epsom increased the credit facility to $3,000,000 and extended it until August 31, 2012.





In addition, we have outstanding convertible debenture notes. During December 2008, all 6% convertible debenture holders with a value of $4,642,000, agreed to convert 50% of the capital with accrued interest to December 31, 2008, amounting to $2,526,000 into our Common Shares at a price of $0.095 per share. The remaining debenture notes were extended until December 31, 2010 at an interest rate of 1.75% per annum, payable quarterly, with the right to convert into our Common Shares at $0.75 per share, amended from a conversion of $1.75 per share. We have the right, upon 10 days notice, without penalty, to repay all or any portion of the outstanding principal.





In December 2009, we authorized a new series of 4% convertible debenture notes with a conversion rate of $0.40 per share for a period of two years from date of issue. All other terms and conditions are the same as the previous series of convertible notes. Epsom converted $1,500,000 of its outstanding facility into these new notes.





In December 2010, Epsom agreed to convert $2,300,000 of its outstanding balance into $1,000,000 of the new series of 4% convertible debenture notes issued in 2009 and $1,300 into our Common Shares at a price of $0.085 per share. This resulted in the issue of a further 15,294,118 of our Common Shares.





Given the cash on hand of $18,000, together with working capital credit facility and the continuing control of expenses, we believe that we have sufficient working capital to maintain our administrative operations and obligations for the next 12 months. We have received assurances from the provider of this credit facility that it will continue to keep this credit facility available for this period. However, to implement out current business plan and develop commercial production of the SCC products, this credit facility would be insufficient and further funding would be required.  We will need additional capital to finance the development of the commercial plants.





We will need approximately Euro 35 million for our first full-scale plants.  The construction of these plants will be financed by a combination of grants from the European Structural fund for up to 50% of the capital expenditure, funding from the European Investment Bank and the remainder from arrangements made by the Company and by the Company’s house bank. Where state guarantees are also available these will be sought.





Additional financing will be required to enable us to implement our business strategy of growth, which includes investment in joint ventures in the SCC industry.  No assurances can be given that we will be able to raise cash from additional financing efforts. If we are unable to obtain sufficient funds from future financing, we may not be able to fully achieve our business objectives.





5C.           Research and Development, Patents and Licenses, etc.





We expensed $NIL in the year ended December 31, 2010 and $NIL in the year ended December 31, 2009 on research and development.





5D.           Trend Information





Revenue from the principal activity commenced for trial purposes since the year ended February 29, 2004.  At the present time, we have not generated any revenue from producing SCC on a commercial scale and have incurred substantial losses due to expenses associated with our close of past Trylene and Acetylene Gas businesses and research and development expenses.





20




5E.           Off Balance Sheet Arrangements





None.





5F.           Tabular Disclosure of Contractual Obligations





Contractual obligations for the fiscal year ended December 31, 2009 are disclosed as follows:





Dec 31, 2010


Payments Due by PeriodContractual Obligations

Total


< 1 year


1-3 years


4-5 years


> 5 years$



$



$



$



$Credit facility


1,121,000



0



1,121,000



0



0Convertible debentures


0



0







0



0Debenture Interest payable


0



0







0



0Equipment leasing


0



0







0



0Property rental


0



0



0



0



0Total Contractual Cash Obligations


1,121,000



0



1,121,000



0



0





We categorized our contractual obligations based on the following:





Credit facility.  This is the balance on the credit facility with Epsom as at December 31, 2010.  It is not repayable until August 2012 and is therefore a non-current liability.  Under the original the credit facility agreement with Epsom, any outstanding balance due under the credit facility agreement can be converted in part or in whole into our Common Shares at any time at the option of the Epsom. The conversion price is equal to 80% of the trading price per share of our Common Share on the date such note was made or additional advances were made.  However, effective as of February 2006, the outstanding balance is no longer convertible into our Common Shares.





Convertible Debentures.  Debenture holders were offered and accepted new debentures with a maturity date of December 31, 2010, and falls into the 1-3 year(s) period.





Interest payable.  The interest payable on convertible debentures is due up to the date of maturity.





Property Rental.  During the year, a new building containing the Small Scale Production Plant and laboratory was leased in Leuna, Germany. The lease expires in September 2012.




21





Item 6.                      Directors, Senior Management and Employees





6A.           Directors, Senior Management





The following is a list of our directors and officers and a brief description of their business experience.  There are no family relationships between any officers and directors.





At our Annual General Meeting of Shareholders held on December 31, 2010 the Board of Directors were elected.





Name
Age
Positions Held
PeriodRoger A. Leopard
69
Director



President and Chief Executive Officer
June 2001-Present



February 2000 – PresentJohn M. Smith
75
Director
August 1993 – PresentHoward Edmund Browning
67
Director
March 2005 – PresentMichael J.B. Brickell
70
Director
March 2010 – Present





Roger A. Leopard.Mr. Leopard is our Chief Executive Officer, President and Director.  Mr. Leopardis a Chartered Accountant, initially with Deloittes until leaving the profession in 1966 to join The Great Universal Stores as Assistant Treasurer.  He played a key role in the development of the corporation’s financial services division.  In 1976, Mr. Leopard was appointed Vice President of Finance of the CIG Group, a computer leasing and related product marketing and service operation with diversified European operations.  He was subsequently appointed Chairman of the Board and Chief Executive of CIG Group’s U.S. listed parent company.  During this period, he specialized in innovative methods of financing a wide range of businesses and was involved in early stage company development and finance.  This involved the arranging of funding for many commercial organizations in North America, Western Europe, Russia and the CIG Group.  Before becoming our director, Mr. Leopard was a director of Epsom Asset Management Ltd.  Upon his appointment, he resigned from this position and is no longer involved with Epsom Asset Management Ltd





John M. Smith.Mr. Smith is our Director and earned his Bachelor of Arts degree with honours from the University of Hull, England. Mr. Smith has enjoyed a distinguished career in international banking; first with Barclays Bank from 1959 through 1971 in various postings worldwide, and subsequently as Assistant Manager with Barclays Geneva, which position he held until 1979.  In 1979, Mr. Smith became a partner in a Geneva based fiduciary company. In 1989, he was appointed General Manager and subsequently, Managing Director of Rathbone Trust Company SA, a wholly owned subsidiary of Rathbone Brothers PLC, an established private banking and trust company quoted on the London Stock Exchange. Mr. Smith retired from his position as a non-executive director of Rathbone Trust Company SA on December 31, 2007.  In 1995, Mr. Smith was awarded an MBE for voluntary services to the British Community in Switzerland.





Howard Edmund Browning.Dr. Browning is our Director,and obtained his MA and D. Phil.in Organic Chemistryat Oxford University and an IEP at Insead.  Involved in the formation of Zeneca, he spent 27 years, from 1969 to 1996, with ICI/Zeneca, initially in research at ICI Plastics in the United Kingdom, then subsequently as Business Manager of ICI Resins and Petrochemicals, operating both in Europe and the Far East. Later as General Manager of ICI Bioproducts and Planning, he created the Zeneca Lifescience Molecules business. From 1996 until 2004, he was Chairman of the Tullis Russell Group plc, the papermaking and converting group, in the United Kingdom. Dr. Browning comes with a wealth of experience in the areas in which we are embarking, such as paints, resins and more recently, the paper industry.





22




Michael J.B. Brickell. Mr. Brickellis a Chartered Accountant and has over 40 years of experience at senior management levels in business enterprises in England, Europe and North America. He was formerly with The Great Universal Stores Ltd and a director of a number of  subsidiary companies, both in the UK and continental Europe. Mr. Brickell was also President and COO of Holt, Renfrew & Co. Ltd. a leading fashion stores group operating  throughout Canada. He is currently an owner and Chairman of Cotswold Collections Limited, a retail mail order company in England, and Deputy Chairman and non-executive director of Industrial Minerals Corporation, an Australian listed company involved in the exploration and production of mineral sands in the USA.





6B.           Compensation





During our fiscal year ended December 31, 2010, we paid an aggregate of $264,000 in compensation to our directors and officers as a group for services in all capacities.  We did not make any payments for pension or retirement plans for officers and directors.





Directors’ Compensation





Directors, who are not our employees, are compensated by stock options and $1,000 for each board meeting attended, in addition to travel expenses.  Directors, who are also our officers, do not receive additional compensation for serving as Directors.





Executive Compensation





The following table sets forth the aggregate cash compensation paid for the past fiscal year for executive compensation:





SUMMARY COMPENSATION TABLE




Annual Compensation

Awards

Long Term Compensation

and PayoutsSecuritiesName and
Fiscal

Cash
Other Annual

Restricted
Underlying

LTIP
All OtherPrincipal Position
Period

Compensation
Compensation

Stock
Options

Payouts
Compensation$
$

Award(s)
#

$
$Roger A. Leopard
Dec 2010

237,600
Nil

Nil
1,250,000

Nil
NilC.E.O. & President





STOCK OPTIONS




On February 1, 2003, our board of directors approved our Stock Option Plan (the“Option Plan”), which was approved by our shareholders on February 24, 2004. The Option Plan offers selected employees, directors, officers, and consultants the opportunity to acquire our common shares, and serves to encourage such persons to remain employed by us and to attract new employees. As of December 31, 2010, 7,900,000 common shares have been granted. All previous grants of option-based awards are taken into account when considering new grants.
  23


6C.           Board Practices





Our Directors serve a one-year term and are elected at the Annual General Meeting of Shareholders.  At the Annual General Meeting of Shareholders, held on December 31, 2010 the shareholders elected Messrs. Roger A. Leopard, Michael J.B. Brickell, John M. Smith, and Howard E. Browning as Directors.  Our officers are elected by the Board to serve at the pleasure of the Board.  We have no contracts with any of our Directors that provide for payments upon termination.





During the period ended December 31, 2010, Messrs. Brickell and Smith comprised the Audit Committee and Messrs Leopard and Browning comprised the Compensation Committee.  The primary functions of the Audit Committee are to review the scope and result of the audit performed by our independent accountants, our internal accounting controls, non-audit services performed by the independent accountants and the cost of accounting services.  The Compensation Committee reviews all compensation proposed for senior management and Board members.





6D.           Employees





Our subsidiary, CalciTech Group Services SA, has no full-time employees and no part-time employees located in Switzerland.  We have two (2) officers located in Switzerland: Mr. Leopard and Mr. Smith.   CalciTech Synthetic Minerals Europe Ltd. has three (3) full-time employees and no part-time employees located in Germany.  We and our other subsidiaries do not have employees.





6E.           Share Ownership





The following table sets forth the share ownership of our Officers and Directors as of date of June 30, 2011.





Dec 31, 2010Number ofShares


PercentRoger A. Leopard (non-beneficial)


1,468,125



0.73
%John M. Smith


225,668



0.11
%Howard Browning


0



0Michael J.B. Brickell


250,000



0.12
%





Mr. Leopard is a non-beneficiary of the above shares as they are owned by a trust in which he has no interest.





Stock Option Plan/Equity Incentive Plans





Our stock option plan is available for directors, officers, employees and strategic consultants. Options may be granted with the approval of the Board of Directors and are subject to the approval of the listing authority. All options must be exercised within 30-days of the optionee leaving us, otherwise they lapse.  Shareholders approved the plan and approve the directors’ authority to grant a certain number of options in their general meeting.




24




During the fiscal year ended December 31, 2010, we issued NIL share options. The Balance of outstanding options held by directors is shown in the table below:





Outstanding Options


Name
Shares Underlying Options
Exercise Price
Purchase Price,

if any
Expiration DateRoger A Leopard
750,000
$0.30
-
February 28, 2013500,000

500,000
$0.27

$0.095
-

-
October 10, 2013

December 30, 2013John M Smith
250,000
$0.37
-
February 25, 2013100,000
$0.27
-
October 10, 2013250,000
$0.095

December 30, 2013Howard E Browning
250,000
$0.30

February 28, 2013250,000
$0.095

December 30, 2013M.J.B. Brickell
250,000
$0.095

December 9, 2014





Item 7.                      Major Shareholders and Related Party Transactions





7A.           Major Shareholders





Past development expenditures were and are currently funded through a Credit Facility Agreement with Epsom Asset Management Ltd (“Epsom”), whose clients collectively hold less than 15% of the equity interest in us.  Epsom has no control over these shares as they are held by clients in their own right.  Subject to the foregoing, we are not directly or indirectly owned or controlled by any other corporation or by any foreign government.  Further, we do not know of any arrangement, which may by its operation result in a change in our control at some subsequent date.





Based solely on the information contained in the Schedule 13G/A filed with the SEC on February 9, 2011, New Star Institutional Managers, Ltd., Family UT Asset Trust, Gregor Logan, Mark Beale, Ian Bettie, Timothy Bray, Keith Brown, Howard Covington, John Duffield, Anna Kirk, Richard Lewis, Rupert Francis James Henry Ruvigny, and Deborah Weeke, shared voting power over 6,338,000, which represents 3.15% of our outstanding Common Shares at December 31, 2010.





During November 2009, CalciTech was advised that a Schedule 13G has been filed by Envirinvest Ltd., reporting that it beneficially owns 12.16% of CalciTech’s Common Stock.  Envirinvest Ltd. is a European private investment fund with particular emphasis on environmental and sustainable technologies. They have been a shareholder and supporter of us since 2002 and substantially increased their stake in the 2009 restructuring of CalciTech previously announced.





As of December 31, 2010, there were 3,100 record holders of Common Shares in the United States representing approximately 85.1% of the total shareholders as reported to be held in the records of Computershare Trust Company, the Registrar and Transfer Agent for the Common Shares.





7B.           Related Party Transactions





The amount paid to our shareholders, directors and officers and their related companies for consulting and other services totaled $702,000 and $664,000 for the year ended December 31, 2010 and for the year ended December 31, 2009 respectively.





25




In the financial year ended December 31, 2010, this amount included $258,000 paid to directors and $426,000 paid to EuroHelvetia TrustCo S.A. In the financial year ended December 31, 2009, this amount included $259,000 paid to directors ($702,000 in the period ended December 31, 2008) and $222000 paid to EuroHelvetia TrustCo S.A. ($57,000 in the period ended December 31, 2008), who were contracted by us to act as our exclusive financial advisors.  EuroHelvetia charge their fees for work related to advice on private placements, fund raising and project finance.  Roger A. Leopard, our Chief Executive Officer and President, is also a director of EuroHelvetia TrustCo S.A.  EuroHelvetia also provides administration of Epsom.





The fees and services were approved by the independent directors.





7C.           Interest of Experts and Counsel.





Not Applicable.





Item 8.                      Financial Statements





8A.           Consolidated Statements and Other Financial Information





We have attached the following financial statements to this Annual Report:





·
Auditors’ Report.





·
Consolidated Statement of Financial Position as of December 31, 2010 and December 31, 2009.





·
Consolidated Statement of Comprehensive Income for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.





·
Consolidated Statement of Shareholders’ (Deficit) Equity for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.





·
Consolidated Statement of Cash Flows for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.





·
Notes to Consolidated Financial Statements.





Dividend Policy





We have never paid any dividends and do not intend to in the near future.





8B.           Significant Changes





None.




26





Item 9.                      The Offer and Listing





9A.           Price History of Stock





Until January 19, 2005, our Common Shares were listed in Canada on the TSX Venture Exchange (“TSX”), under the symbol CLK and in the United States on the OTC Electronic Bulletin Board (“OTC Bulletin Board”), under the symbol CLKTF.OB.  On May 15, 2002, our shares were approved to trade on the Third Segment of the Frankfurt Stock Exchange in Germany, under the symbol XCH.  However, following our voluntary delist from the TSX, our Common Shares no longer have a quotation on the Freiverkehr.  In July 2005, our Common Shares were approved for listing on the OFEX under the symbol CLK. Due to the high costs of maintaining this listing, our Common Shares were withdrawn from OFEX in December 2008.





The high and low prices for our Common Shares expressed in United States dollars quoted on the OTC Bulletin Board for the last six (6) months, each quarter for the last two (2) fiscal years and annually for the last five (5) years are as follows:





OTC Bulletin Board


OFEXUS$


US$


UK£


UK£Last Six Months

High


Low


High


LowJune 2011

$
0.10


$
0.07



N/A



N/AMay 2011

$
0.10


$
0.06



N/A



N/AApril 2011

$
0.08


$
0.05



N/A



N/AMarch 2011

$
0.08


$
0.06



N/A



N/AFebruary 2011

$
0.08


$
0.06



N/A



N/AJanuary 2011

$
0.08


$
0.06



N/A



N/A2010

High


Low


High


Low4th Qtr ended December 31, 2010

$
0.10


$
0.05



N/A



N/A3rd Qtr ended September 30, 2010

$
0.10


$
0.06



N/A



N/A2nd Qtr ended June 30, 2010

$
0.10


$
0.06



N/A



N/A1st Qtr ended March 31, 2010

$
0.10


$
0.05



N/A



N/A2009

High


Low


High


Low4th Qtr ended December 31, 2009

$
0.10


$
0.05



N/A



N/A3rd Qtr ended September 30, 2009

$
0.10


$
0.08



N/A



N/A2nd Qtr ended June 30, 2009

$
0.10


$
0.06



N/A



N/A1st Qtr ended March 31, 2009

$
0.12


$
0.02



N/A



N/APeriod

High


Low


High


Low2010 Annual

$
0.10


$
0.05



N/A



N/A2009 Annual

$
0.12


$
0.02



N/A



N/A2008 Annual

$
0.29


$
0.20


£
0.15


£
0.012007 Annual

$
0.56


$
0.16


£
0.25


£
0.112006 Annual (10 months)

$
0.59


$
0.18


£
0.29


£
0.13




27





9B.           Plan of Distribution





Not Applicable.





9C.           Markets





Our Common Shares are listed in the United States on the OTC Bulletin Board under the symbol CLKTF.OB.  Up until January 19, 2005, our Common Shares were listed in Canada on TSX, when delisting from this exchange was formalized.  With effect from May 15, 2002, our Common Shares have been listed in Germany on the Third Segment of the Frankfurt Stock Exchange under the symbol XCH.  However, following our voluntary delist from the TSX-V, our shares no longer have a quotation on the Freiverkehr.  In July 2005, our Common Shares were approved for listing on the PLUS Markets (then still named OFEX) under the symbol CLK. Due to the high cost of maintaining this listing and the lack of market makers provided by the PLUS markets, we decided to delist our shares in December 2008.





9D.           Selling Shareholders





Not Applicable.





9E.           Dilution





Not Applicable.





9F.           Expenses of the Issue





Not Applicable.





Item 10.  Additional Information





10A.           Share Capital





Not Applicable.





10B.           Memorandum and Articles of Association





We were incorporated on November 9, 1978 in British Colombia, Canada.  On February 13, 1995, we filed a memorandum of continuance to reincorporate from British Colombia, Canada to Bermuda.  On September 11, 2000, we amended our Articles to change our name to CalciTech Ltd.





Common Shares





We are authorized to issue 300,000,000 Common Shares, par value $0.001.  All issued and outstanding Common Shares are fully paid and non-assessable.  Each holder of record of Common Shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors.  Shareholders are not entitled to cumulative voting for directors.  The holders of Common Shares will be entitled to dividends on a pro-rata basis, if and when declared by the Board of Directors.  There are no preferences, conversion rights, pre-emptive rights, subscription rights, or restrictions on transfers attached to the Common Shares.  In the event of our liquidation, dissolution or winding up, the shareholders are entitled to participate in the distribution of our assets available after satisfaction of the claims of creditors.





Powers and Duties of Directors





The Directors shall manage or supervise the management of our affairs and business and shall have authority to exercise all such powers as are not, by the Company Act, Articles or Bye-laws, required to be exercised by the shareholders in a general meeting or prohibited by law.





28




Directors serve for one (1) year, until the next annual meeting of shareholders.  In general, a Director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with us whereby a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director.  Such a Director shall not vote in respect of any such contract or transaction with us if the Chairman disqualifies him.  If he votes, his vote shall not be counted, but he shall be counted in the quorum present at the meeting at which such a vote is taken.  The shareholders at the general meeting shall determine the remuneration of the Directors.  However, notwithstanding the foregoing, Directors shall be paid all expenses incurred in attending meetings or conducting business on our behalf.





The Directors may from time to time on our behalf:  (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; or (c) mortgage, charge or give other security on the whole or any part of our property and assets.





Our Directors are not required to be residents of Bermuda.  There is no age limitation or minimum share ownership for our Directors.





Shareholders





An Annual General Meeting of Shareholders shall be held once in every year at such time and place as may be determined by the Directors.  Notice of the meeting must be given not less than twenty-one (21) nor more than fifty (50) days.  A quorum at an Annual General Meeting and Special Meeting shall be two shareholders.  There is no limitation imposed by the laws of Bermuda or by the charter or other constituent documents of us on the right of a non-resident to hold or vote Common Shares.





In accordance with our Bye-laws , Directors shall be elected by an “ordinary resolution” which means (a) a resolution passed by our shareholders in a General Meeting by a simple majority of the votes cast in person or by proxy, or (b) a resolution that has been submitted to our shareholders who would have been entitled to vote on it in person or by proxy at our general meeting and that has been consented to in writing by all of our shareholders entitled to vote on it.





The Bermuda law and our Articles and Bye-laws contain no provisions that would prevent or delay a change in control of us.





10C.           Material Contracts





Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 27, 1998.  On February 28, 1998, we entered into a credit facility agreement of up to $2,330,000 with Epsom Investment Services N.V. bearing interest at 8% per annum and a repayment date of 2000.  In November 2008, Epsom Investment Services, N.V., assigned the credit facility to Epsom Asset Management Ltd. (“Epsom”) following a reorganization of the Epsom Group. The credit facility has been amended several times over the years. Currently, the revolving 1.75% credit facility is for $3,000,000 of which $1,121,000 is owing as of December 31, 2010.  The credit facility is due on August 31, 2012.





10D.           Exchange Controls





Control over foreign currency has existed in Bermuda since 1940 and is now governed by the Exchange Control Act of 1972 (the “Exchange Control Act”) and regulations promulgated thereunder and is administered by the Bermuda Monetary Authority (“Foreign Exchange Control”). The Exchange Control Act regulates foreign currency transactions between a resident of Bermuda and a non-resident of Bermuda.  However, exempted companies, like us, are designated as “non-resident” for purposes of the Exchange Control Act, and as such, are entitled to maintain foreign currency bank accounts and to freely convert the balances in such accounts into currencies of other countries.  Because exempted companies are designated as “non-resident” under the Exchange Control Act, consent from Foreign Exchange Control is required prior to incorporation.  Prior consent of Foreign Exchange Control is also required to issue or transfer any share, debenture or other security of an exempted company.  General permission may be given to issue or transfer shares or other securities, in connection with a public issue, which are to be freely transferable.  We received Bermuda’s permission to transfer our shares, which may be traded on the OTC Bulletin Board.





29




10E.           Taxation





There are no income, profits, capital gains, sale of goods, death, or inheritance taxes in Bermuda.  Exempted companies, such as us, pay annual fees to the Bermuda government, which are determined by the amount of its share capital.  Although the United States and the United Kingdom of Great Britain and Northern Ireland (on behalf of Bermuda) signed a mutual assistance and insurance tax agreement on July 11, 1986, the agreement does not provide for the withholding of taxes on the distribution of dividends to United States taxpayers.  While the convention provides for the sharing of information, it primarily deals with the taxation of insurance premiums paid by United States residents to insurance companies domiciled in Bermuda.





Certain United States Federal Income Tax Considerations





The following is a summary of United States federal income tax considerations material to a holder of Common Shares who is a United States citizen or resident or a United States domestic corporation who owns the Common Shares ("U.S. Investor").  The summary is of a general nature only and is not exhaustive of all possible income tax consequences applicable to U.S. Investors and does not address the tax consequences of U.S. Investors subject to special provisions of federal income tax law.





This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, court decisions and current administrative rulings and pronouncements of the United States Internal Revenue Service ("IRS") that are currently applicable, all of which are subject to change, possibly with retroactive effect.  There can be no assurance that future changes in applicable law or administrative and judicial interpretations thereof will not adversely affect the tax consequences discussed herein.  Potential investors are advised to consult their own tax advisors regarding the tax consequences of acquiring, holding or disposing of the Common Shares in light of their particular circumstances.





Since your United States federal income and withholding tax treatment may vary depending upon your particular situation, you may be subject to special rules not discussed below.  Special rules will apply, for example, if you are:





·
an insurance company;




·
a tax-exempt organization;




·
a financial institution;




·
a person subject to the alternative minimum tax;




·
a person who is a broker-dealer in securities;




·
an S corporation;




·
an expatriate subject to Section 877 of the Code;




·
an owner of, directly, indirectly or by attribution, 10% or more of the outstanding Common Shares; or




·
an owner holding Common Shares as part of a hedge, straddle, synthetic security or conversion transaction.




30




In addition, this summary is generally limited to persons holding common stock as “capital assets” within the meaning of Section 1221 of the Code and whose functional currency is the U.S. dollar. The discussion below also does not address the effect of any United States state or local tax law or foreign tax law.  Prospective investors are advised to consult their own tax advisors with respect to their particular circumstances and with respect to the effects of state, local or foreign tax laws to which they may be subject.





Dividends. For United States federal income tax purposes, the gross amount of a distribution, including any foreign withholding taxes, with respect to your Common Shares will be treated as a taxable dividend to the extent of our current and accumulated earnings and profits, computed in accordance with United States federal income tax principles. For taxable years beginning before January 1, 2011, if you are a non-corporate taxpayer such dividends may be taxed at the lower applicable capital gains rate provided (1) certain holding period requirements are satisfied, (2) we are eligible for the benefits of the income tax treaty, and (3) we are not, for the taxable year in which the dividend was paid, or in the preceding taxable year, a “passive foreign investment company.” Non-corporate U.S. Investors are strongly urged to consult their own tax advisors as to the applicability of the lower capital gains rate to dividends received with respect to the Common Shares.  Distributions in excess of our current or accumulated earnings and profits will be applied against and will reduce your tax basis in your Common Shares and, to the extent in excess of such tax basis, will be treated as gain from a sale or exchange of such Common Shares.  You should be aware that we do not intend to calculate our earnings and profits for United States federal income tax purposes and, unless we make such calculations, you should assume that any distributions with respect to common stock generally will be treated as a dividend, even if that distribution would otherwise be treated as a return of capital or as capital gain pursuant to the rules described above.  If you are a corporation, you will not be allowed a deduction for dividends received in respect of distributions on Common Shares, which is generally available for dividends paid by U.S. corporations.





A dividend distribution will be treated as foreign source income and will generally be classified as “passive income” or, in some cases, “financial services income” for United States foreign tax credit purposes.  For taxable years beginning after December 31, 2006, dividends will generally constitute “passive category income” but could, in the case of certain U.S. Investors, constitute “general category income.” The rules relating to the determination of the foreign tax credit, or deduction in lieu of the foreign tax credit, are complex and you should consult your own tax advisors with respect to those rules.





Dispositions of Common Shares.  Subject to the discussion below of the consequences of being treated as a passive foreign investment company, gain or loss realized by a U.S. Investor (other than a 10-percent shareholder) on the sale or other disposition of Common Shares will be subject to United States federal income tax as capital gain or loss in an amount equal to the difference between such U.S. Investor’s basis in the Common Shares and the amount realized on the disposition.  In general, such capital gain or loss will be long-term capital gain or loss if the U.S. Investor has held the Common Shares for more than one year at the time of the sale or exchange.  If you are an individual, such realized long-term capital gain is generally subject to a reduced rate of United States federal income tax. Limitations may apply to your ability to offset capital losses against ordinary income.





In general, gain from a sale, exchange or other disposition of the Common Shares by a U.S. Investor will be treated as U.S. source income.  Therefore the use of foreign tax credits relating to any foreign taxes imposed upon such sale may be limited. You are strongly urged to consult your own tax advisors as to the availability of tax credits for any foreign taxes withheld on the sale of Common Shares.





Special United States Federal Income Tax Considerations





Passive Foreign Investment Company.  Management has determined that we have not been a passive foreign investment company ("PFIC") for United States federal income tax purposes for prior taxable years and believe that we will not be treated as a PFIC for the current and future taxable years, but this conclusion is a factual determination made annually and thus subject to change. We will be a PFIC with respect to a U.S. Investor if, for any taxable year in which such U.S. Investor held our Common Shares, either (i) at least 75% of our gross income for the taxable year is passive income, or (ii) at least 50% our assets are attributable to assets that produce or are held for the production of passive income.  In each case, we must take into account a pro rata share of the income and the assets of any company in which we own, directly or indirectly, 25% or more of the stock by value (the "look-through" rules).  Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income.  Because we are not publicly traded as defined under the statute and regulations governing PFICs, and are not a controlled foreign corporation ("CFC"), we would apply the 50% asset test based on fair market values unless we elect to use the adjusted tax bases of our assets.





31




If we are a passive foreign investment company for any taxable year during which a U.S. Investor holds Common Shares the U.S. Investor will be subject to special tax rules with respect to:





·
any “excess distribution” that the U.S. Investor receives on Common Shares, and





·
any gain the U.S. Investor realizes from a sale or other disposition (including a pledge) of the Common Shares, unless the U.S. Investor makes a “mark-to-market” election as discussed below.





Distributions the U.S. Investor receives in a taxable year that are greater than 125% of the average annual distributions the U.S. Investor received during the shorter of the three preceding taxable years or the U.S. Investor’s holding period for the Common Shares will be treated as an excess distribution. Under these special tax rules:





·
the excess distribution or gain will be allocated ratably over your holding period for the Common Shares,





·
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a passive foreign investment company, will be treated as ordinary income, and





·
the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.





The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the Common Shares cannot be treated as capital, even if the U.S. Investor holds the Common Shares as capital assets.





A U.S. Investor of a passive foreign investment company may avoid taxation under the excess distribution rules discussed above by making a “qualified electing fund” election to include the U.S. Investor’s share of our income on a current basis. However, a U.S. Investor may make a qualified electing fund election only if we, as a passive foreign investment company, agree to furnish the shareholder annually with certain tax information.  We do not presently intend to prepare or provide such information.





Alternatively, a U.S. Investor of “marketable stock” in a passive foreign investment company may make a mark-to-market election for stock of a passive foreign investment company to elect out of the excess distribution rules discussed above.  If a U.S. Investor makes a mark-to-market election for the Common Shares, the U.S. Investor will include in income each year an amount equal to the excess, if any, of the fair market value of the Common Shares as of the close of the U.S. Investor’s taxable year over the U.S. Investor’s adjusted basis in such shares.  A U.S. Investor is allowed a deduction for the excess, if any, of the adjusted basis of the shares over their fair market value as of the close of the taxable year only to the extent of any net mark-to-market gains on the shares included in the U.S. Investor’s income for prior taxable years. Amounts included in a U.S. Investor’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Common Shares are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the Common Shares, as well as to any loss realized on the actual sale or disposition of the Common Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Common Shares. A U.S. Investor’s basis in the Common Shares will be adjusted to reflect any such income or loss amounts. The tax rules that apply to distributions by corporations which are not passive foreign investment companies would apply to distributions by us.





32








The mark-to-market election is available only for stock which is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, or the national market system established pursuant to section 11A of the Exchange Act, or any exchange or market that the IRS has determined has rules sufficient to carry out the purposes of the income tax rules.  We are not currently a company meeting the requirements of mark-to-market so such an election is not currently available if we were to be a PFIC.





Non-U.S. Investors





A Non-U.S. Investor generally will not be subject to U.S. federal income tax on dividends paid by us with respect to our Common Shares unless the income is effectively connected with the Non-U.S. Investor’s conduct of a trade or business in the United States.





A Non-U.S. Investor generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our Common Shares unless such gain is effectively connected with the Non-U.S. Investor’s conduct of a trade or business within the United States or the Non-U.S. Investor is a natural person who is present in the United States for 183 days or more and certain other conditions exist.





Dividends and gains that are effectively connected with a Non-U.S. Investor’s conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be if the Non-U.S. Investor were a U.S. Investor, except that the passive foreign investment company rules will not apply.  Effectively connected dividends and gains received by a corporate Non-U.S. Investor may also be subject to an additional branch profits tax.





U.S. Information Reporting and Backup Withholding





In general, information reporting requirements will apply to dividends in respect of our Common Shares, or the proceeds received on the sale, exchange or redemption of our Common Shares paid within the United States (and, in certain cases, outside the United States) to U.S. Investors other than certain exempt recipients, such as corporations, and backup withholding tax may apply to such amounts if the U.S. Investor fails to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on its U.S. federal income tax returns.  The amount of any backup withholding from a payment to a U.S. Investor will be allowed as credit against the U.S. Investor’s U.S. federal income tax liability provided that the appropriate returns are filed. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding, but such holders may be required to provide certification as to their Non-U.S. status.





A U.S. Investor who holds Common Shares in any year in which we are a passive foreign investment company would be required to file IRS Form 8621 regarding distributions received on our shares and any gain realized on the disposition of our Common Shares.





10F.           Dividends and Paying Agents.





Not Applicable.




10G.           Statement of Experts.





Not Applicable.





33




10H.           Documents on Display.





We file Annual Reports and other information with the Securities and Exchange Commission. These accounts are filed electronically at the SEC Edgar website.  You may read and copy any document that we file at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by accessing the SEC's website (http://www.sec.gov).  Please call the Securities and Exchange Commission at 1-800-SEC-0330 for more information about the Public Reference Rooms.





Copies of our material contracts are kept in our  administrative headquarters.





10I.           Subsidiary Information





Not Applicable.





Item 11.  Quantitative and Qualitative Disclosures About Market Risk





We have no significant market sensitive instruments other than foreign currency transactions discussed in Item 5.A.





Item 12.  Description of Securities Other than Equity Securities





Not Applicable.





Item 13.  Defaults, Dividend Arrearages and Delinquencies





None.





Part II





Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds





None.





Item 15. Controls and Procedures.





(a) Disclosure Controls and Procedures.




As a Bermuda company listed on the Over-the-Counter Bulletin Board (OTCBB), CalciTech complies with the disclosure requirements of the Securities and Exchange Commission (SEC) and the OTCBB for foreign private issuers. These include the requirement to make certain filings with the SEC. As a foreign private issuer, some of the SEC’s regulations and requirements which apply to domestic issuers are not applicable to CalciTech. CalciTech’s reports, including its annual report on Form 20-F, are available at www.calcitech.com/investors.




Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report, have concluded that, as of such date, our disclosure controls and procedures were effective.





34




(b) Management’s Annual Report on Internal Control over Financial Reporting.




The management of CalciTech Ltd. (CalciTech) is responsible for establishing and maintaining adequate internal control over financial reporting. CalciTech’s internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. CalciTech’s internal control over financial reporting includes those policies and procedures that:




·
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets;




·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation and fair presentation of financial statements, and that receipts and expenditures of the company are being made only in accordance with authorizations of CalciTech management; and




·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.




Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




CalciTech management assessed the effectiveness of CalciTech’s internal control over financial reporting as of December 31, 2010 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework, Guidance for Smaller Public Companies. Based on this assessment, management believes that, as of December 31, 2010, CalciTech’s internal control over financial reporting was effective.




(c) Attestation Report of the Registered Public Accounting Firm.




Not Applicable.




(d) Changes in Internal Control over Financial Reporting.




None.




35





Item 16.





16A             Audit Committee Financial Report





There are currently two members on the Audit Committee.  Mr. Michael J.B. Brickell and Dr. Howard Browning constitute the members of the Audit Committee.  Both Messrs Smith and Browning are independent directors.  Due to the size of the Audit Committee, the Board has not determined that a member of the Audit Committee is qualified as an Audit Committee Financial Expert.





16B             Code Of Ethics





We have adopted a "code of ethics" (as that term is defined in Form 20-F) (the "Code of Ethics"), which is available on our website at www.calcitech.com.





16C             Principal Accountant Fees And Services





The independent auditor for the fiscal years ended December 31, 2010, December 31, 2009 and December 31, 2008 was HW Fisher & Co.





Audit Fees





The aggregate fees billed by HW Fisher & Co for professional services rendered for the audit of our annual financial statements on Form 20-F for the fiscal year ended December 31, 2010 was $45,000.





The aggregate fees billed by HW Fisher & Co for professional services rendered for the audit of our annual financial statements on Form 20-F for the fiscal year ended December 31, 2009 was $50,000.





The aggregate fees billed by HW Fisher & Co for professional services rendered for the audit of our annual financial statements on Form 20-F for the fiscal year ended December 31, 2008 was $53,250.




Audit-Related Fees





The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of our financial statements for the year ended December 31, 2010 was $NIL, December 31, 2009 was $NIL and December 31, 2008 was $ NIL





Tax Fees





The aggregate fees billed for tax compliance, tax advice and tax planning rendered by our independent auditors for the fiscal year ended December 31, 2010 was $NIL, December 31, 2009 was $NIL, and December 31, 2008 was $NIL.





All Other Fees





The aggregate fees billed for all other professional services rendered by our independent auditors for the fiscal year ended December 31, 2010 was $NIL, December 31, 2009 was $NIL, and December 31, 2008 was $NIL.





The Audit Committee does not have any pre-approval policies or procedures. The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.





16D             Exemptions From The Listing Standards For Audit Committees





Not applicable.





36




16E             Purchases Of Equity Securities By The Issuer And Affiliated Purchasers





None.





Part III





Item 17.  Financial Statements





The following Financial Statements pertaining to us are filed as part of this Annual report:





·
Auditors’ Report.





·
Consolidated Statement of Financial Position as of December 31, 2010 and December 31, 2009.





·
Consolidated Statement of Comprehensive Income for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.





·
Consolidated Statement of Shareholders’ (Deficit) Equity for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.





·
Consolidated Statement of Cash Flows for the years ended December 31, 2010, December 31, 2009, and December 31, 2008.





·
Notes to Consolidated Financial Statements.





Item 18.  Financial Statements





See Item 17.





Item 19.  Exhibits





Exhibit No.                      Name





1.1
Articles of Kemgas Ltd. (1)1.2
Altered Memorandum of Kemgas. (1)1.3
Altered Memorandum of Kemgas, dated July 29, 1994 (2)1.4
Certificate of Continuance to Bermuda, dated February 13, 1995 (2)1.5
Bye-Laws of Kemgas, as adopted June 1995 (2)1.6
Certificate of Incorporation on Change of Name dated September 11, 2000 (3)1.7
Certificate of Deposit of Memorandum of Increase of Share Capital, dated January 5, 2010 (6)4.1
Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 28, 2005 (4)4.2
Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated April 2006 (5)




37




4.3
Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated August 15, 2006 (5)4.4
Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated February 25, 2009 (6)4.5
Addendum to Credit Facility Agreement between Epsom Investment Services N.V. and CalciTech Ltd. dated March 31, 2010 (6)4.6
Form of 5% Convertible Debenture due February 28, 2005 (4)4.6
Form of Addendum to 5% Convertible Debenture Due February 28, 2005 (4)8.1
List of Subsidiaries (4)12.1
Certification of the Principal Executive Officer under the Sarbanes-Oxley Act*12.2
Certification of the Principal Financial Officer under the Sarbanes-Oxley Act*13.1
Certification under Section 1350*





____________________________________________


*              To be filed herewith


(1)
Previously filed with Registration Statement on Form 20-F under the Securities Exchange Act of 1934 on June 29, 1992.





(2)
Previously filed with the Form 20-F submitted for the fiscal year ended February 28, 1997.


(3)
Previously filed with the Form 20-F submitted for the fiscal year ended February 29, 2000.


(4)
Previously filed with the Form 20-F submitted for the fiscal year ended February 28, 2005.


(5)
Previously filed with the Form 20-F submitted for the fiscal year ended February 28, 2006.


(6)
Previously filed with the Form 20-F submitted for the fiscal year ended December 31, 2009.




38





SIGNATURE




The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F on its behalf.





DATED: August 24, 2011
CALCITECH LTD.By:
/s/ Roger A. LeopardRoger A. LeopardPresident and Chief Executive Officer




39











CONSOLIDATED FINANCIAL STATEMENTS





December 31, 2010








Report of Independent Auditors


CalciTech Ltd





To the shareholders and board of directors of CalciTech Ltd





We have audited the accompanying consolidated balance sheet of CalciTech Ltd as of December 31, 2010, and December 31, 2009, the related consolidated statement of operations, shareholders' equity (deficiency), and cash flows for the three years ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audit in accordance with International Standards on Auditing and with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





The financial statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.





In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CalciTech Ltd as of December 31, 2010 and December 31, 2009 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.





Uncertainty over carrying value of the Intangible assets


As disclosed in note 2.1 the ability of the Group to recover the carrying value of the intangible assets is dependent upon the Group’s ability to raise sufficient funds to build the production plants required for the commercial exploitation of its intangible assets. The Directors have commenced discussions to secure the appropriate funding. The Directors remain confident that they will secure the appropriate funding to commercially exploit the intangible assets. However as of this date, such funding has not been secured and therefore there is a significant possibility that commercialisation cannot proceed and that ultimately the intangible assets may not recover the amounts at which they are stated in the financial statements. These conditions along with other matters explained in the financial statements indicate the existence of a material uncertainty which may cast significant doubt on the carrying value of the intangible assets of the Group. The financial statements do not include any adjustments that would result if the Group was unable to secure the appropriate funding for the commercial utilisation of the intangible assets.





Going concern


As disclosed in note 2.1 to the financial statements, the Group has incurred losses and negative cash flows from operations for the years ended 31 December 2010, 31 December 2009 and 31 December 2008. These matters raise doubt about the ability of the Group to continue as a going concern. Management plans in regards to these matters are described in Note 2.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.






H. W. Fisher & Company


Chartered Accountants


Acre House


11-15 William Road


London


NW1 3ER


United Kingdom


F-2




CALCITECH LTD


CONSOLIDATED STATEMENT OF FINANCIAL POSITION


As of December 31, 2010, December 31, 2009 and December 31, 2008


(amounts in thousands of US dollars, except per share data)


Year to


Year to


Year toASSETS

Notes


Dec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Current assetsCash and cash equivalents

2.6



18



22



26Receivables, prepaid expensesand other current assets

3



104



165



233Total current assets





122



187



259Non-current assetsProperty, plant and equipment, net

4



1,019



1,023



1,029Intangible assets

2.8 and 5



8,471



6,996



5,869Total non-current assets





9,490



8,019



6,898TOTAL ASSETS




$
9,612


$
8,206


$
7,157





The accompanying notes are an integral part of the consolidated financial statements


F-3





CALCITECH LTD


CONSOLIDATED STATEMENT OF FINANCIAL POSITION


As of December 31, 2010, December 31, 2009 and December 31, 2008


(amounts in thousands of US dollars, except per share data)


The accompanying notes are an integral part of the consolidated financial statements





LIABILITIES & SHAREHOLDERS' EQUITY



year to


year to


year toNotes

Dec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Current liabilitiesTrade and other payables




384



498



534Accruals




178



168



353Tax provisions

2.13


0



13



0Hire Purchase Agreement - current portion

7


0



85



85Deferred income - current portion




0



0



31Convertible debenture notes

2.15 and 8


2,383



0



0Total Current Liabilities



$
2,945


$
764


$
1,003Non Current LiabilitiesCredit facility

6


1,121



797



5,436Deferred income - non-current portion




0



0



109Convertible debenture notes

2.15 and 8


0



1,409



0Total Non Current Liabilities



$
1,121


$
2,206


$
5,545Total liabilities



$
4,066


$
2,970


$
6,548Commitments and ContingenciesShareholders' Equity

9Common stock, Cdn $ 0.001 par value;300,000,000 shares authorised; issued & fully paid200,933,204 at December 31, 2010,(185,639,086 at December 31, 2009)(126,588,812 at December 31, 2008)




1,899



1,898



1,846Share premium, holders' options outstandingon credit facility and contribution surplus




49,731



48,652



43,165Convertible debentures – equity component

8


2,465



2,412



2,321Accumulated deficit during the development stage




(48,344
)


(47,474
)


(46,393
)Cumulative foreign currency translation adjustments




(205
)


(252
)


(330
)Total Shareholders' Equity




5,546



5,236



609TOTAL LIABILITIES & SHAREHOLDERS' EQUITY



$
9,612


$
8,206


$
7,157





The accompanying notes are an integral part of the consolidated financial statements


F-4





CALCITECH LTD


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


For the year ended December 31, 2010,


the year ended December 31, 2009,


and the year ended December 31, 2008,


(amounts in thousands of US dollars, except per share data)





year to


Year to


year toNotes

Dec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Revenues

2.19


0



0



0Cost of revenues




0



0



(37
)Gross profit




0



0



(37
)General and administrative expenses

14


699



965



1,197Operating loss




(699
)


(965
)


(1,234
)Interest on convertible debenture




(28
)


0



0Interest expense

14


(142
)


(103
)


(791
)Loss before income taxes




(869
)


(1,068
)


(2,025
)Provision for income taxes

2.13


(1
)


(13
)


0Net Loss



$
(870
)

$
(1,081
)

$
(2,025
)Other Comprehensive IncomeExchange differences on translation foreign operations

2.5

$
47



78



163TOTAL COMPREHENSIVE INCOME




(823
)


(1,003
)


(1,862
)Net loss per share:Basic



$
(0.004
)

$
(0.007
)

$
(0.019
)Shares used in net loss per share calculation:Basic




185,639,086



150,858,348



99,998,665





Please refer to note 12 for details of related party transactions.


The accompanying notes are an integral part of the consolidated financial statements


F-5


CALCITECH LTD


CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY


For the year ended December 31, 2010,


the year ended December 31, 2009,


and the year ended December 31, 2008


(amounts in thousands of US dollars except number of shares)





Note

Common stock


Share premium, holders'

option outstanding and

contributed surplus


Convertible

debentures –

equity

component


Accumulated

deficit during

development

stage


Cumulative

foreign currency

translation

adjustments


Total consolidated

shareholders'

(deficit) equityShares


$


$


$


$


$


$Balances, December 31, 2007




99,998,665



1,824



40,661



4,642



(44,368
)


(493
)


2,266Net loss




















(2,025
)


163



(1,862
)Issuance of common stock on conversionof credit facility and convertible debentures




26,590,147



22



2,504



(2,321
)










205Balances, December 31, 2008




126,588,812



1,846



43,165



2,321



(46,393
)


(330
)


609Net loss




















(1,081
)


78



(1,003
)Issuance of common stock on conversion of credit facility




59,050,274



52



5,557















5,609Placing Fees












(70
)














(70
)Convertible Debentures: equity component
















91











91Balances, December 31, 2009




185,639,086



1,898



48,652



2,412



(47,474
)


(252
)


5,236Net loss




















(870
)


47



(823
)Issuance of common stock on conversionof credit facility and creditors




15,294,118



1



1,299















1,300Placing Fees












(220
)














(220
)Convertible Debentures: equity component
















53











53Balances, December 31, 2010




200,933,204



1,899



49,731



2,465



(48,344
)


(205
)


5,546




The accompanying notes are an integral part of the consolidated financial statements


F-6


CALCITECH LTD


CONSOLIDATED STATEMENT OF CASH FLOWS


For the year ended December 31, 2010,


the year ended December 31, 2009,


and the year ended December 31, 2008


(amounts in thousands of US dollars)





year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Cash flows from operating activitiesNet loss


(870
)


(1,081
)


(2,025
)Adjustments for:Loss on disposal of fixed assets


0



36



0Depreciation and amortization


4



12



131Operating loss before working capital changes


(866
)


(1,033
)


(1,894
)Changes in working capital:Receivables, prepayments & current assets


60



68



51Accounts payable, accruals and provisions


(202
)


(239
)


(211
)Net cash used in operating activities


(1,008
)


(1,204
)


(2,054
)Cash flows from investing activities in:Purchase of property, plant and equipment


0



(23
)


(33
)Plant pre-financing, project & product development


(1,406
)


(1,127
)


(1,893
)Patents


(69
)


(19
)


(55
)Net cash used in investing activities


(1,475
)


(1,169
)


(1,981
)Cash flows from financing activities:Repayment of other loans


0



(109
)


(138
)Repayment from sale and leaseback


0



0



(92
)Proceeds from credit facility


324



(4,639
)


3,806Proceeds from convertible note


1,108



1,500



0Proceeds from conversion


1,000



5,539



205Net cash provided by financing activities


2,432



2,291



3,781Effect of exchange rate changes on cashand cash equivalents


47



78



163Net decrease in cash & cash equivalents


(4
)


(4
)


(91
)Cash and cash equivalents, beginning of year


22



26



117Cash and cash equivalents, end of year

$
18


$
22


$
26





The accompanying notes are an integral part of the consolidated financial statements


F-7


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





1. BUSINESS OF THE COMPANY





CalciTech Ltd (the "Company") is incorporated in the jurisdiction of Bermuda. Starting from the production of acetylene from which revenues were generated until 1997, the Company changed its business model to concentrate on the production of precipitated calcium carbonate (PCC). PCC is a white pigment, which can only be produced from pure, white limestone deposits and is currently mainly used in filling and, to a lesser extent, in other industrial applications. After an extended period of development, a PCC technology, substantially different from the existing technology was discovered and patented. The Company’s technology to produce Synthetic Calcium Carbonate (“SCC”) can utilise most grades of lime, including low quality lime or industrial waste lime such as carbide lime and paper sludge ash. SCC can be applied in a wide variety of industrial applications including paper, polymers, paints, foods and pharmaceuticals.





The Company has been in the development stage since 2000 and revenue from the principal activity commenced for trial purposes in the year ended February 29, 2004. In 2006, the Company changed its accounting year-end to December 31 partly to recognise the move from the development stage to the commercialisation stage. New patents have extended the range of waste products, which can be utilized. Extensive project development and marketing, on a worldwide basis, has taken place. However, the main thrust during the year has been focused on Europe where the Company expects to develop its products in a number of industry applications and build its first plants to produce the offtake required.





2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





2.1 Going concern and future funding





The financial statements have been prepared assuming the Company will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, in particular for the twelve months from the date of approval of the financial statements.





The Company is in the commercialisation stage and has a growing portfolio of defined products for which samples are being produced and tested by many potential customers in a range of industrial applications. The Company has completed a number of feasibility studies, some with potential industrial partners, for the construction of plants to produce SCC and continues to seek out new projects. An additional patent was filed during 2009 and extends the life of its original patent. Up to December 31, 2010, cumulative losses were $48,344.





A working capital facility has been available from Epsom Asset Management Ltd. (“EAM”) since February 1998. From time to time, the balance of this facility has been reduced by the mutually agreed conversion of the balance or part thereof into the common stock and debentures of the Company, in order to provide on-going working capital. A restructuring of the debt in order to make available additional working capital was completed in early 2009. The EAM working capital credit facility of $3,000 is available and has been extended until August 31, 2012. As at December 31, 2010, the balance available on the credit facility was $1,879.


F-8


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





During 2007, debentures with a value of $4,642 were re-negotiated by their retirement against the issue of new 6% debentures with a value of $4,642 to December 31, 2009.  In December 2008, following negotiations with the debenture holders, an agreement was reached whereby all the debenture holders agreed to convert 50% of their notes, plus accrued interest to December 31, 2008, into common shares of the Company at a price of $0.095 per share. The notes were further amended with an interest rate of 1.75% and a new conversion price of $0.75 per share. These notes were also extended until December 31, 2011.





In December 2009, the Company authorised a new series of convertible debenture notes with an annual interest rate of 4% and a conversion rate of $0.40 per share for a period of two years from date of issue. All other terms and conditions are the same as the previous series of convertible notes. EAM has agreed to convert $1,500 of its outstanding facility into these new notes.  In December 2010, EAM agreed to convert an additional $1,000 in these notes.





Management believes that given the cash and cash equivalents of $18 together with its working capital credit facility from EAM and assuming their willingness to convert outstanding facility balances into loan notes or shares, and the continuing control of expenses, the Company has sufficient working capital to meet its obligations up to the next 12 months following the date of the approval of these financial statements.





However, this EAM credit facility is not sufficient to enable the Company to commence the building of commercial plants and further funding would be required. The financial statements and capitalisation of project and product development costs are based on the Directors assumption that such funds could be secured. The Company is exploring a variety of financing options and is working with a number of financial institutions, subject to market conditions, to secure the necessary funding.





The Company is in the process of finalizing plans to build on its first full scale SCC plants in Europe. Construction is dependent on availability of funds through financing.  As part of its effort to develop the plant in Europe, the Company transferred its business undertaking for Europe under the grant of a license to its indirectly wholly-owned subsidiary, CalciTech Synthetic Minerals Europe Ltd. ("CSME"), recently established in the United Kingdom. The European projected business has been independently valued at €64 million based on the Directors’ financial projections and the consideration was satisfied by the issue of 80 million shares of CSME to CalciTech Synthetic Minerals Ltd., our wholly-owned subsidiary, at a price of €0.80 per share. This transaction incorporates CalciTech Synthetic Minerals Ltd extending an exclusive license of the Company’s SCC technology to CSME for Europe. The license is for a period of 30 years with a royalty payable of 5% of net revenues earned. CSME has an independent UK Board of Directors and senior management and will operate independently within Europe.


F-9


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





The Company, through CSME, is now planning a matrix of plants in Europe and has made presentations to the European Investment Bank (“EIB”) to confirm that such projects will qualify under its technological innovation program and other programs for financial support. The Company’s financial advisors are currently in negotiations with a number of UK banks, in the context of the EIB borrowing and funding for all European plants. The Company expects European Union grants, in varying amounts, to be available on a number of its prospective plants in the planning stage.





In addition, as part of our fund raising strategy and depending on the market conditions, the Company is considering a listing on the AIM market of the London Stock Exchange to raise the capital necessary to implement its businesses plan of developing a series of plants throughout Europe.  The Company is in preliminary discussions with various Nominated Advisors (“Nomads”) for such listing efforts. However, any such listing will be subject to market conditions and our ability to raise the funds necessary to implement our near goal business plan of developing commercial plants in Europe.





At the same time, the Company is also exploring other markets outside of Europe for its commercial plants. For example, the Company may seek to enter the market in China by seeking additional funds or cooperate with local commercial partners. Under this type of arrangement, an investor or commercial partner may invest in a specific commercial plant and receive a negotiated interest in that specific commercial plant.





Assets and liabilities are recorded on the basis that the Company will be able to realise its assets and discharge its liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments to the carrying values of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.  In addition, the majority of the Company’s assets are intangible assets as more specifically described in note 5. The Company’s ability to recover the carrying value of its intangible assets is dependent upon the Company’s ability to raise additional funds sufficient for the commercial exploitation of these assets. The financial statements do not include any adjustment that would result if the Company’s efforts to secure additional funding for the commercialisation of its intangible assets described above are not successful.





2.2 Basis of presentation





The consolidated financial statements are prepared under the historical cost convention and they are also presented in accordance with International Financial Reporting Standards (“IFRS”).





2.3 Principles of consolidation





The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries made up to December, 31 2010. The results of subsidiaries sold or acquired are included in the consolidated statement of comprehensive income up to, or from the date control passes. Intercompany balances and transactions have been eliminated fully on consolidation.


F-10


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





2.4 Use of estimates





The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect 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. Where estimates and assumptions have been used, these are stated in the relevant accounting policy note.





2.5 Foreign currency translation





The reporting currency of the Group is the US dollar ($), which is also the measurement currency of the parent company. The parent company elected the US dollar as its measurement currency rather than the Bermudan dollar (BMD), which is the currency of its country of domicile, to reflect the fact that the majority of its transactions are denominated in US dollars.





The measurement currency of the Company's operating foreign subsidiaries is their local currency, generally the Euro. Assets and liabilities of the Company's foreign subsidiaries are translated into US dollars using the exchange rate in effect at the balance sheet date. Additionally, their expenses are translated using exchange rates approximating average rates prevailing during the year. Translation adjustments that arise from translating their financial statements from their local currencies to US dollars are accumulated and reflected as a separate component of shareholders' equity.





Gains and losses that arise from the effect of exchange rate changes on balances denominated in currencies other than the measurement currency of each of the Company and its subsidiaries are included in the statements of operations as incurred.





year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Unrealised gain / (loss) on currencies


(51
)


88



(146
)Change in foreign currency adjustments


47



78



163Exchange Gain

$
(4
)

$
166


$
17





2.6 Cash and cash equivalents





Cash and cash equivalents include all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.


F-11


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





2.7 Property, plant and equipment





Property, plant and equipment are stated at historical cost and are depreciated on a straight-line basis over their estimated useful lives:





Plant and equipment

5 to 10 yearsOffice furniture and equipment

3 to 8 years





Asset residual values and useful lives are reviewed and adjusted if appropriate at the end of each year. The asset carrying amounts are written down to recoverable amount if greater. Maintenance and repairs are charged to expenses when incurred. When an asset is not in use due to its dismantling and relocation, depreciation is not charged until it is back in use unless its useful life has been impaired during the period of its inactivity. Gains and losses on sale are equal to the proceeds less the carrying amount and are taken to the statement of comprehensive income.





2.8 Intangible Assets





Expenditure on intangible assets (Product Development, Project Development, Commercial Plant pre-financing costs and Patents) will be capitalised and amortised against production and sales of SCC. Legal expenditure for the protection of technology developed by the Group is recognised as an expense in the statement of comprehensive income, as incurred, except when additional future economic benefits can be attributed to such protection at closing date. The intangible assets are not amortised because the Group is not yet utilising them on a commercial level. Amortisation will begin upon the commencement of commercial production. Management regularly reviews the intangible assets to consider their carrying value and whether there is any impairment in light of the project or product development.





The recoverability of the carrying value of intangible assets is based upon Directors assumptions that sufficient funds can be raised to commence commercial production.





2.9 Research and development





Research and development costs are expensed as incurred, except for Project Development and Product Development costs, which are deferred as intangible assets if the Group can demonstrate all of the following:




·
the technical feasibility of completing the intangible asset so that it will be available for use or sale;




·
the intention to complete the intangible asset and use or sell it;




·
its ability to use or see the intangible asset;




·
how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;


F-12


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)




·
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;




·
its ability to measure reliably the expenditure attributable to the intangible asset during its development.





Deferred Project Development costs of $4,699, Product Development costs of $1,393, and Patents of $435 are recorded at cost, which include:




·
expenditure on materials and services used or consumed in generating the intangible asset;




·
the salaries, wages and other employment related costs of personnel directly engaged in generating the asset, and




·
any expenditure that is directly attributable to generating the asset, such as the amortisation of patents used to generate the asset.





Any costs capitalised are amortised on a straight-line basis over the period of expected future benefit.





The intangible assets of Project Development and Product Development are not yet being amortised as full commercialisation has not yet commenced.





2.10  Patents





The costs incurred in establishing patents are either expensed or capitalised in accordance with corresponding treatment of the development expenditure for the product to which they relate.





When full-scale production plants are producing revenues, patents will be amortised on a straight-line basis over the remaining life of the patent.





2.11 Net loss per common share





Basic net loss per share is computed by dividing net loss by the weighted average number of shares outstanding.





For the purpose of calculating diluted earnings per share, the net loss attributable to ordinary shareholders and the weighted average number of shares outstanding is adjusted for the effects of all dilutive potential ordinary shares. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted earnings per share. Potential ordinary shares are anti-dilutive when their conversion to ordinary shares would decrease loss per share from continuing operations.


F-13


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





2.12 Fair value of financial instruments





Carrying amounts of the Group's financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturities, based on borrowing rates currently available to the Company. This would include convertible debentures where the fair value of the conversion option is recognised under shareholders’ equity.





2.13 Deferred and current taxation





Current tax is that payable to the Swiss Tax Authorities on profits generated by the Company’s administrative headquarter company, CalciTech Group Services S.A.





Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are recorded for deferred tax assets that are not more likely than not to be realised.





Deferred tax assets are recognised only to the extent that future taxable profit will be available such that realisation of the related tax benefit is more likely than not.





2.14 Stock options





The Company has a stock option plan, which allows stock options to be issued up to 10% of the Company’s issued share capital. The Company has applied the requirements of IFRS 2 “Share-based payment”. The Company accounts for employee and non-employee share-based compensation awards based on their fair value in accordance with IFRS 2 “Share-based payment”. The cost of granting share options and other share-based remuneration is recognised through the statement of comprehensive income where the options have vested.





2.15 Convertible debt





Convertible debt – at the option of the Company





On issue of convertible debentures where conversion is at the Company’s option, the fair value of the conversion element is determined. This amount is recognised in shareholders' equity. The obligation to make future payments of principal and interest to the holder of the option is calculated using a deemed market interest rate for an equivalent non-convertible debt. The obligation to make future payments of interest is carried as a liability until extinguished on conversion or payment.





Convertible debt – at the option of the holder





Compound financial instruments issued by the Company comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.


F-14


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound instrument as a whole and the fair value of the liability component.





Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.





2.16 Modification of debt instruments





The Company may effect a modification or an exchange of debt instruments with a creditor. The modification or exchange may include changes in the principal amount, interest rate, term to maturity, borrowing currency or creditor. Whether a modification or exchange of debt instruments represents a settlement of the original debt or merely a renegotiation of that debt determines the accounting treatment that is applied by the Group. A modification or exchange of debt instruments represents a settlement when the terms of the new or modified debt are substantially changed from the terms of the original debt instrument. Substantial change occurs when:




a.
The present value of the cash flows under the terms of the modified or new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original debt instrument;




b.
There is a change in the borrowing currency; or




c.
There is a change in the creditor and the original debt is legally discharged by the debtor through a cash payment or otherwise.





If a modification or an exchange of debt instruments represents a settlement, the Company calculates a loss or gain that is charged, or credited, to income when settlement occurs. This loss or gain is the difference between the fair value of the new debt instrument and the carrying amount of the original debt instrument, together with all unamortised debits or credits related to the original debt instrument.





If a modification or exchange of debt instruments does not represent a settlement but, instead, is merely a renegotiation of a debt instrument, all existing deferred debits and credits related to the original debt instrument are maintained and are amortised over the remaining term of the renegotiated debt.





2.17 Government grants





Government grants are recognised when there is reasonable assurance that the Group will comply with the conditions attaching to them, and the grants will be received or earned.  A government grant that becomes receivable as compensation for research and development expenses already incurred with no future related costs is recognised as a reduction in research and development expenses in the period in which it becomes receivable.


F-15


CALCITECH LTD


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





Grants for the acquisition of assets and development activities that are capitalised are set off against the cost price of the assets for which grants are awarded.





2.18 Leases





Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.





Assets held under finance leases are recognised as assets of the Group at their fair value at the date of acquisition or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against the statement of operations. Assets held under finance leases are depreciated at the shorter of the lease term and their useful economic lives.





2.19 Revenue recognition





The Company has no large-scale commercial SCC plants, and since 2004 has received revenues from the sale of SCC samples only.  Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.





Interest is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.





The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the accounts receivable balance. Management determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. The Group writes off accounts receivable when they become uncollectible. The Group currently has no allowance for doubtful accounts.





2.20 Borrowing costs





All borrowing costs are recognised in the consolidated statement of operations in the period in which they are incurred.





2.21 Inventories





Inventories are stated at the lower of cost and net realisable value. The Company has no inventory at present but will apply the First In First Out (FIFO) method when this arises.





F-16




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


3. RECEIVABLES, PREPAID EXPENSES AND OTHER CURRENT ASSETS





Receivables, prepaid expenses and other current assets consist of the following:





Dec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Accounts receivable


0



0



195VAT receivable


2



17



7Deposits


34



30



16Prepaid expenses


68



118



15Total

$
104


$
165


$
233





4. PROPERTY, PLANT AND EQUIPMENT





Property, plant and equipment consists of the following:





Computer

Equipment


Building,

Plant &

Equipment


Commercial

Plant Pre-financing


Office

Furniture &

Equipment


Total$


$





$


$Balance at December 31, 2009


1



446



558



18



1,023Additions


0



0



0



0



0Disposals


0



0



0



0



0Depreciation during year


(1
)


0



0



(3
)


(4
)Foreign Currency Adjustments


0



0



0



0



0Balance at December 31, 2010

$
0



446



558



15



1,019Gross Amount


40



991



558



22



1,611Accumulated Depreciation


(40
)


(545
)


0



(7
)


(592
)Balance at December 31, 2010

$
0



446



558



15



1,019





For the year ended December 31, 2010, the year ended December 31, 2009, and the year ended December 31, 2008, depreciation expense totalled $4, $12 and $132 respectively. The commercial plant pre-financing costs have been reclassified and transferred to intangible assets to reflect the true nature of this asset.





During the year ended December 31, 2010 and 2009, the small-scale production plant was dismantled and moved to a new facility in Germany. As at December 31, 2010, it had not been re-assembled nor been in use due to on-going work to improve the new facility. There has been no impairment of its value due to its non use. As a result no depreciation charge has been made for this period.





F-17




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


During the year ended February 29, 2004, the Company disposed of its small-scale plant and leased it back for an annual rental of €120 ($176) for a period of five years at the end of which the Company retains the right to re-acquire the plant. The amount capitalised in respect of this plant is $446, of which depreciation of $NIL was recognised in the period ending December 31, 2009, as the plant was not in use during the period (December 31, 2008: $120 and December 31, 2007: $124). The final payment on the lease agreement was made in February 2010 and under the terms of the agreement the plant was acquired for €1.





The assets and liabilities under capital leases are recorded at the lower of present values of the minimum lease payments or the fair values of the assets.  The assets are included in property and equipment and are depreciated over their estimated useful lives.





As of December 31, 2010, in connection with building, plant and equipment the future minimum lease payments under non-cancellable finance leases was $NIL.





5. INTANGIBLE ASSETS





Intangible Assets can be summarised as following:





Project

Development


Product

Development


Commercial

Plant Pre-financing


Patents


Total$


$


$


$


$Balance at December 31, 2009


3,595



1,091



1,944



366



6,996Reclassification


0



0



0



0



0Additions


1,104



302



0



69



1,475Disposals


0



0



0



0



0Balance at December 31, 2010

$
4,699



1,393



1,944



435



8,471Gross Amount


4,699



1,393



1,944



435



8,471Accumulated Amortisation


0



0



0



0



0Balance at December 31, 2010

$
4,699



1,393



1,944



435



8,471





For the year ended December 31, 2010, the year ended December 31, 2009 and the year ended December 31, 2008, amortisation expense totaled $NIL, $NIL and  $NIL respectively.  When full-scale production plants are producing revenues, patents will be amortised on a straight-line basis over the remaining life of the patent.




F-18


CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)





6. CREDIT FACILITY AGREEMENT





Since February 28, 1998 the Company has had available a credit facility with EAM. From time to time, the balance due payable under the facility has been reduced, by mutually agreed conversions of the debt into the common stock and debentures of the Company. A restructuring of the debt in order to make available additional working capital was completed in early 2009. During February 2009, EAM agreed to convert the full amount of the credit facility as at December 31, 2008, amounting to $5,436, at a price of $0.095 per share. The credit facility was increased to $3,000 with a reduced interest rate of 1.75% per annum. The conversion of the aforementioned EAM facility and creditors resulted in the issue of 59,050,274 common shares.





As part of the restructuring, the original charge agreement with Epsom Investment Services N.V. was assigned, by mutual consent to EAM providing the first charge over the intellectual property rights, collateralised by 100% of the issued share capital of CalciTech Synthetic Minerals Ltd. with the new facility.





In December 2009, EAM agreed to convert $1,500 of its credit facility into a new series of convertible debenture notes and to extend the facility of $3,000 to 31st August 2011.





In December 2010, Epsom agreed to convert a further $1,300 of the balance due on the credit facility agreement into common stock of the Company on the mutually agreed basis of one share for each $0.085 of note. This conversion resulted in the issue of 15,294,118 common shares. In addition, EAM agreed to convert a further $1,000 into the series of convertible notes created in December 2009 on the same basis and to extend the facility of $3,000 to 31st August 2012.





The credit facility is presented as follows:


year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Face value of note issued during the year


2,538



2,241



3,629Interest expense


86



56



177Conversion of note into common shares


(1,300
)


(5,436
)


0Convertible debenture notes


(1,000
)


(1,500
)


0324



(4,639
)


3,806Non-current liability at beginning of period


797



5,436



1,630Non-current liability at end of period

$
1,121


$
797


$
5,436Effective interest rate at period end


1.75
%


1.75
%


8.50
%





F-19




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


7. OTHER LOANS





Other loans are as follows:





Dec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Finance lease


0



85



85Total loans

$
0


$
85


$
85Falling due split:Amounts due within one yearFinance lease


0



85



85Total amounts due within one year


0



85



85Balance at the end of the year

$
0


$
85


$
85





8. CONVERTIBLE DEBENTURE





The value of the convertible loans, created in the year ended December 31, 2009, at the balance sheet date have been determined in accordance with IAS 32 “Financial Instruments Presentation”, as described more fully in Note 2.15. IAS 32 requires the separate recognition of the debt and equity components of the amounts received, with equity components shown directly in equity reserves.





Dec 31, 2010


Dec 31, 2009$


$Convertible loans


2,383



1,409Total loans

$
2,383


$
1,409Loan maturity analysis:Less than one year


2,383Between one and two years






1,409Balance at the end of the year

$
2,383


$
1,409





The fair value of the liability component was calculated using a market interest rate for an equivalent non-convertible loan. The residual amount, representing the value of the equity conversion option, is included in Equity Reserves.


F-20




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)




The convertible loan recognised in the balance sheet is calculated as follows:


Dec 31, 2010


Dec 31, 2009$


$Face value of convertible loan issued


4,821



3,821Equity component


(2,465
)


(2,412
)Liability component on initial recognition

$
2,356


$
1,409Interest expense in prior years


-



-Interest expense in current year


87



-Interest paid


(60
)


-Liability component carried forward

$
2,383


$
1,409Disclosed in liabilities due in less than one year

$
2,383


$
-Disclosed in liabilities due in more than one year

$
-


$
1,409





The Convertible Loan Notes are convertible into 6,250,000 Ordinary Shares. Any note holder is entitled to convert their proportion into Ordinary Shares or be repaid in cash at the Repayment Date. The Repayment Date is December 31, 2011.





The Company agreed to pay the Loan Note Holder interest of $200 in consideration of this agreement.





The Balance Sheet as at December 31, 2009 has been amended to reflect the correct treatment of the equity element of the convertible debenture in that year.





9. SHAREHOLDERS' EQUITY





The Company has ordinary common shares with the par value of $ 0.001. There are no restrictions on the distribution of dividends and repayment of capital.





9.1 Capital risk management





The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.





9.2 Convertible debentures





In February 2001, the Company issued 8% convertible debenture notes in the sum of $1,500. These notes are redeemable by the Company, in whole or in part, up to the date of maturity. On maturity, the Company also has the right, but not the obligation, to convert any or all of the amounts of principal and any accrued interest, into common stock. Further debenture notes were issued in July 2001 in the sum of $2,500.




By December 31, 2007, none of the debentures or outstanding interest were converted into common stock. At this date, the Company’s 5% convertible debentures with a value of $4,402 and €188 were re-negotiated by their retirement against the issue of new 6% debentures with a value of $4,642, to December 31, 2009. The Company had the right, but not the obligation, upon 10 days notice, without penalty, to repay all or any portion of the outstanding principal.  Debenture holders had the right to convert on 31st December 2009 at $1.75.  All other terms of the convertible debentures remained unchanged from the original debenture notes.




F-21




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


During December 2008, all 6% convertible debenture holders with a value of $4,642, agreed to convert 50% of the capital with accrued interest to December 31, 2008, amounting to $2,526 into common shares of the Company at a price of $0.095 per share. The remaining debenture notes were extended until December 31, 2010 at an interest rate of 1.75% per annum, payable quarterly, with the right to convert into common shares of the Company at $0.75 per share, amended from a conversion of $1.75 per share. The Company has the right, but not the obligation, upon 10 days notice, without penalty, to repay all or any portion of the outstanding principal. These debentures have been classified as equity as there is no contractual obligation to deliver cash and the contract will be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash. During December 2010, these debentures were extended until December 31, 2012 with unchanged terms and interest rate.





In December 2009, the Company authorised $5,000 in a new series of convertible debenture notes with an annual interest rate of 4% payable quarterly in arrears. These notes, with a two year maturity date, are convertible into ordinary shares of the Company at $0.40 per share. All other terms and conditions remain the same as those of the existing series of debentures.





The equity element can be summarised as follows:





Dec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Principal amount of debentures at issuance


2,465



2,412



4,642Less finders' fee


0



0



0Debentures Converted


0



0



(2,321
)$
2,465


$
2,412


$
2,321





9.3 Conversion of credit facility





The original Epsom Investment Services N.V. (“Epsom”) credit facility, effected in February 1998, has been subject to a number of conversions of the balance into common stock of the Company in order to reduce the balance and thereby provide additional working capital both during and after assignment date of November 2008 to EAM.





In September 2007, Epsom agreed to convert a further $2,000 of the balance due on the credit facility agreement into common stock of the Company on the mutually agreed basis of one share for each $0.29 of note. This conversion resulted in the issue of 6,900,000 common shares.





In December 2007, Epsom agreed to convert a further $1,260 of the balance due on the credit facility agreement into common stock of the Company on the mutually agreed basis of one share for each $0.30 of note. This conversion resulted in the issue of 4,198,990 common shares.




F-22




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


During February 2009, EAM agreed to convert the full amount of the credit facility as at December 31, 2008, amounting to $5,436, at a price of $0.095 per share. EAM agreed to this conversion and the placement of 50% of the resulting shares with its clients, providing other existing shareholders and new shareholders acquire the remaining 50% of the shares at the same price per share. The proceeds were loaned to the Company under the existing credit facility for working capital purposes with interest charged at a reduced rate of 1.75% per annum, payable quarterly. The conversion of the aforementioned EAM facility and creditors resulted in the issue of 59,050,274 common shares. It was further agreed to increase the facility to $3,000.





In December 2009, EAM agreed to convert $1,500 of its credit facility into the new series of convertible debenture notes issued by the Company. The credit facility was extended to 31st August 2012.





In December 2010, Epsom agreed to convert a further $1,300 of the balance due on the credit facility agreement into common stock of the Company on the mutually agreed basis of one share for each $0.085 of note. This conversion resulted in the issue of 15,294,118 common shares. In addition, EAM agreed to convert a further $1,000 into the series of convertible notes created in December 2009 on the same basis.





9.4 Stock option plan





Under the provision of the Company’s share option plan, a maximum total of 10% of issued shares may be granted to directors, officers, employees and consultants of the Company in the form of stock options. The options generally expire five years from the date of the grant. 5,100,000 stock options granted are not subject to vesting requirements.  The balance of 2,800,000 will vest upon the construction of the first commercial plant. Stock option activity was as follows:





Number of


Exercise price perShares


shareBalance at December 31, 2008


2,300,000


$
0.21 to 0.37Cdn $
0.30 to 0.45Options exercised


0Options lapsed


0Options granted


7,450,000Balance at December 31, 2009


9,750,000


$
0.23 to 0.24Cdn $
0.23 to 0.45Options exercised


0Options lapsed


1,850,000Options granted


0Balance at December 31, 2010


7,900,000


$
0.095 to 0.37





F-23




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)




The following table summarises information with respect to stock options as of December 31, 2010:





Exercise

Price


Weighted-

average

Number of

options

outstanding


Number of

options

exercisable


Weighted

average

remaining

contractual

life (years)$
0.21



50,000



50,000$
0.22



1,000,000



1,000,000$
0.27



700,000



700,000$
0.30



2,600,000



2,600,000



2.16$
0.37



250,000



250,000



2.50$
0.095



3,300,000



3,300,000



4.50Total



7,900,000



7,900,000





No options were granted in the year ended December 31, 2010.





All stock options are issued at or over the market price of the Company’s shares on the date of their granting.





The fair value of the options granted was not material to the financial statements, therefore no charge has been made to the statement of comprehensive income.





10. INCOME TAXES





Under the current Bermuda law, the Company is not required to pay any income taxes in Bermuda. The Company has received an undertaking from the Minister of Finance of Bermuda that in the event of any such taxes being imposed, the Company will be exempted from such taxation until March 28, 2016.





Net loss before income taxes consists of the following:





year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Bermuda


(893
)


(1,127
)


(1,657
)Rest of world


23



46



(368
)Total

$
(870
)

$
(1,081
)

$
(2,025
)




There are no significant deferred taxes reflecting the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.





There are no significant operating loss carry-forwards, which would have an impact on income tax as of December 31, 2010.




F-24




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)




11. PROVISIONS AND CONTINGENCIES





The Company is subject to legal proceeding, claims, and litigation arising in the ordinary course of business. The Company and its subsidiaries are occasionally challenged by local tax authorities. The Company records a provision for these tax risks based on its most available information on the tax claim in each tax jurisdiction. The Company's management does not expect that the ultimate cost to resolve these matters will have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.





12. RELATED PARTY TRANSACTIONS





For the year ended December 31, 2010, the year ended December 31, 2009 and the year ended December 31, 2008, the amounts paid to shareholders, directors and officers of the Company and their related companies for consulting and other services totaled as follows:





Year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Amounts paid to shareholders,directors and officers of the Companyfor consulting and other services

$
258


$
259


$
702Amounts paid to EuroHelvetia TrustCo SAfor financial advice

$
426


$
222


$
57Amounts payable at Balance Sheet date

$
21


$
183


$
0





EuroHelvetia TrustCo S.A. is contracted by CalciTech to act as the Company’s financial advisors. EuroHelvetia charge their fees for work related to advice on private placements, fund raising and project finance. Roger A. Leopard, Chief Executive Officer and President of the Company, is also a director of EuroHelvetia TrustCo S.A. EuroHelvetia also provides the administration of EAM. All these transactions were at “arms length”.





13.
FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA





The Group operates in one business segment. The following table presents information by geographical area:


year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008Revenues

$


$


$Bermuda


0



0



0Rest of world


0



0



0Total

$
0


$
0


$
0
  F-25
  CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)
  year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008Operating loss

$


$


$Bermuda


(733
)


(1,024
)


(865
)Rest of world


34



59



(369
)Total

$
(699
)

$
(965
)

$
(1,234
)Identifiable assetsBermuda


1,010



8,007



3,320Rest of world


8,602



199



3,837Total

$
9,612


$
8,206


$
7,157








14.
ANALYSIS OF MAJOR EXPENDITURES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES AND INTEREST EXPENSE





The following is a breakdown of the major expenditures included in General and Administrative Expenses:





year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Employee costs


168



346



107Professional fees


148



106



355Investor relations


60



57



124Rent, rates & charges


40



45



93Travel


3



7



24Depreciation


4



12



131





The following is a breakdown of interest expense:





year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Debenture interest


41



40



278Credit facility interest


86



56



428Bank charges


15



7



85Total


142



103



791





15. IFRS 7: RISKS ARISING FROM FINANCIAL INSTRUMENTS




The Group’s market risk is identified as those financial instruments that are subject to foreign exchange fluctuations. Below is a table of cash and cash equivalents, accounts receivable and accounts payable that are subject to the risk described. A sensitivity analysis is shown below suggesting the value of such financial assets and liabilities and % risk involved had the highest and lowest exchange rates been applied during the year ending December 31, 2010, and during the year ending December 31, 2009:





F-26




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


year to


year to





year toMarket Risk

Dec 31, 2010


Dec 31, 2010





Dec 31, 2010High


%


Low


%$


$





$Cash at Bank


15



17



13.3
%


14



-6.7
%Petty Cash


3



3



0.0
%


2



-33.3
%Accounts Receivable


0



0



0.0
%


0



0.0
%Accounts Payable


(384
)


(418
)


8.8
%


(345
)


-10.2
%Accruals


(178
)


(194
)


9.6
%


(160
)


-9.6
%
  year to


year to





year toMarket Risk

Dec 31, 2009


Dec 31, 2009





Dec 31, 2009High


%


Low


%$


$





$Cash at Bank


20



20



0
%


19



-5.0
%Petty Cash


2



2



0
%


2



0
%Accounts Receivable


0



0



0
%


0



0
%Accounts Payable


(498
)


(501
)


0.6
%


(438
)


-12.0
%Accruals


(181
)


(182
)


0.7
%


(167
)


-7.70
%





The Group’s exposure to currency fluctuations is not considered material to operations at the present time.





Liquidity risk is identified as the Group’s ability to satisfy Accounts Payables out of liquid assets at December 31, 2010. Liquid assets only represent 4% of accounts payable, the Group does not regard liquidity as a material risk at the present time. This is because the Group has the ability to draw down sufficient funds from its current credit facility, hence there is no strategy currently in place to hedge against this risk.





CalciTech’s credit risk is identified as the Group’s ability to recover outstanding receivables in full at December 31, 2010. On accounts receivable, the Group currently offers terms of 60 days to customers. However the Group relies on strong and longstanding relationships with its existing debtors, and therefore has not made provision for bad and doubtful debts.





Credit Risk

2010


<30 days


30-60 days


60-90 days


>90 days$


$


$


$


$Accounts Receivable

$
0



0



0



0



0
  F-27
  CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)
  Credit Risk


2009


<30 days


30-60 days


60-90 days


>90 days$


$


$


$


$Accounts Receivable

$
0



0



0



0



0





16. LIST OF PRINCIPAL CONSOLIDATED COMPANIES





Principal consolidated companies are as follows:





Name of Company

Countries

Holding

Proportion

held


Nature of businessCalciTech Synthetic Minerals Ltd.

Bermuda

Ordinary shares


100
%

Technology licensorCalciTech Group Services SA

Switzerland

Ordinary shares


100
%

HQ AdministrationCalciTech Synthetic Minerals Europe Ltd.

UK

Ordinary shares


100
%

European holding company and operations licensee





On February 1, 2003, the Group’s intellectual property interests in its Synthetic Calcium Carbonate (“SCC”) technology were assigned to a new Bermuda organised wholly owned subsidiary, CalciTech Synthetic Minerals Ltd., which now acts as the holding Company and will license within the group rights and use of the technology on a territorial basis.





As part of the restructuring, in April 2009, a new wholly owned subsidiary of CalciTech Synthetic Minerals Ltd. was established. CalciTech Synthetic Minerals Europe Ltd., a UK company, has become the principal company for all European operations. A branch office was registered in Germany for the operation of the Group’s small scale production plant.





17. ULTIMATE CONTROLLING PARTY





No individual has an ultimate controlling interest in the Company.





18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION





Non-cash transactions were as follows:


year to


year to


year toDec 31, 2010


Dec 31, 2009


Dec 31, 2008$


$


$Issuance of common stockUpon conversion of credit facility


0



5,436



0Convertible Debenture Notes


2,500



1,500



0Issuance of common stockUpon private placement through credit facility


0



0



0Interest expense through credit facility


(86
)


(56
)


(428
)Total

$
2,414


$
6,880


$
(428
)





F-28




CALCITECH LTD
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year ended December 31, 2010     (amounts in thousands of US dollars, except share data)


19. COMMITMENT





The Group rents its principal management services office under an annually renewable agreement.   During the period ending December 31, 2010, the Group paid $37.  There are no future obligations for rent over 12 months.





20. NUMBER OF EMPLOYEES (UNAUDITED)





Headcount was 3, 5 and 4 as of December 31, 2010, December 31, 2009, and December 31, 2008. It is the Group’s practice to employ consultants in various capacities due to the specific nature of the industries in which they are operating. As at December 31, 2010, the Group employed 5 consultants. Various additional professional firms are also employed for the prevision of specialist advice.





21. POST BALANCE SHEET EVENT





There were no post balance sheet events to report.





22. APPROVAL OF FINANCIAL STATEMENTS





The financial statements were approved by the board of directors and authorised for issue on July 5, 2011.




Roger A. Leopard





Michael J.B. Brickell





CalciTech Limited


P.O Box HM 2257, 3rd Floor, Par la Ville Place, 14 Par-La-Ville Road


Hamilton HM JX, BERMUDA




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