Attached files
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q/A
(Amendment No. 1)
-------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 2009
COMMISSION FILE NO.: 0-28887
CARBONICS CAPITAL CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3328734
--------------------------------------------------------------------------------
(State of other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
One Penn Plaza, Suite 1612, New York, New York 10119
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 994-5374
--------------------------------------------------------------------------------
(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant as required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X 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 (ss.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 registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer Accelerated filer
--- ---
Non-accelerated filer Small reporting company X
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes No X
The number of outstanding shares of common stock as of August 19, 2009 was
416,927,937.
Amendment No. 1
This Amendment No.1 on Form 10Q/A, which amends and restates items identified
below with respect to the Form 10Q, filed by Carbonics Capital Corporation ("we"
or "the Company") with the Securities and Exchange Commission (the "SEC") on
August 19, 2009 (the "Original Filing"), is being filed in order to :
o Include restated financial statements as described in Note 10 to the
financial statements;
o Amend Item 2, Management's Discussion and Analysis, to reflect the
amended financial statements;
o Amend Item 4, Controls and Procedures, to reflect the modification to
management's assessment of its disclosure controls and procedures
caused by the restatement and to provide further disclosures;
o Amend the following notes under Item 1, Financial Statements and
Supplementary Schedules, to reflect the amended financial statements:
o Note 3, Going Concern, was updated to restate the Company's
working capital deficit;
o Note 5, Financing Arrangements, was updated to restate the
schedule of financial obligations and the description of amounts
previously recorded due were deleted in the paragraph describing
the Stock Purchase Agreement between the Company and GS AgriFuels
Corporation ("GS AgriFuels");
o Note 6, Related Party Transactions, was updated with respect to
the description of the Stock Purchase Agreement between the
Company and GS AgriFuels;
o Note 8, Acquisitions, was updated with respect to the terms of
the Stock Purchase Agreement between the Company and GS
AgriFuels;
o Note 10, Restatements, was updated to outline the changes that
were made to the financial statements.
None of the other disclosures in this Report have been amended or updated. For
updated information about the Company, please refer to the more recent filings
made with the SEC.
2
CARBONICS CAPITAL CORPORATION
QUARTERLY REPORT ON FORM 10Q
FOR THE FISCAL QUARTER ENDED JUNE 30, 2009
TABLE OF CONTENTS
Page No
Part I Financial Information
Item 1. Financial Statements ..........................................................................3
Condensed Consolidated Balance Sheet - June 30, 2009 (unaudited)
and December 31, 2008........................................................................4
Condensed Consolidated Statements of Operations - for the Three and Six Months
Ended June 30, 2009 (unaudited) and 2008 (unaudited)........................................5
Statement of Stockholders' Equity - December 31, 2008 and Six Months
Ended June 30, 2009.........................................................................6
Condensed Consolidated Statements of Cash Flows - for the Six Months
Ended June 30, 2009 (unaudited) and 2008 (unaudited).........................................7
Notes to Condensed Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and Analysis .........................................................12
Item 3 Quantitative and Qualitative Disclosures about Market Risk....................................14
Item 4. Controls and Procedures.......................................................................14
Part II Other Information
Item 1. Legal Proceedings.............................................................................15
Items 1A. Risk Factors..................................................................................15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................................15
Item 3. Defaults upon Senior Securities...............................................................15
Item 4. Submission of Matters to a Vote of Security Holders...........................................15
Item 5. Other Information ............................................................................15
Item 6. Exhibits .....................................................................................15
Signatures 16
3
PART I
ITEM 1 FINANCIAL STATEMENTS
4
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
RESTATED
6/30/2009 12/31/2008
ASSETS ------------------------------
Current Assets:
Cash ....................................................................... $ 100,623 $ --
Accounts receivable, net of allowance for doubtful accounts of $3,094 and $0 226,738 --
Inventory .................................................................. 141,872 --
Note receivable - related party ............................................ 378,111 386,132
Prepaid expenses ........................................................... 45,667 --
------------- -------------
Total current assets .................................................... 893,010 386,132
Equipment, net of accumulated depreciation of $8,708 ....................... 21,097 --
Idle property, plant and equipment held for use ............................ 1,299,365 --
Other Assets:
Construction in progress ................................................... 554,720 --
Restricted cash ............................................................ 468,935 --
Deferred financing fees, net ............................................... -- --
Notes receivable, noncurrent ............................................... 525,000 --
------------- -------------
Total other assets ...................................................... 1,548,655 --
------------- -------------
TOTAL ASSETS .................................................................. $ 3,762,127 $ 386,132
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses ...................................... $ 2,320,502 $ 591,511
Accrued interest ........................................................... 678,979 439,870
Accrued interest - related party ........................................... 11,212 --
Deferred grant revenue ..................................................... 24,083 --
Note payable ............................................................... 1,400,000 --
Note payable - related party ............................................... 106,148 --
Convertible debentures - related party ..................................... 597,823 --
Convertible debentures ..................................................... 8,819,662 9,178,820
Current maturities of long term debt ....................................... 185,941 --
------------- -------------
Total current liabilities ............................................... 14,144,351 10,210,201
Long term debt net of current maturities ................................... 952,272 --
------------- -------------
TOTAL LIABILITIES ....................................................... 15,096,623 10,519,001
------------- -------------
Preferred stock
Series C, par $0.001, 1,000,000 shares authorized, 805,767 issued
and outstanding ............................................................ 806 806
Common stock, par $0.001, 500,000,000 authorized
187,938,551 and 127,279,405 issued and outstanding, respectively ........... 187,938 127,279
Additional paid-in capital .................................................... 123,738,904 128,559,537
Accumulated deficit ........................................................... (135,262,144) (138,511,691)
------------- -------------
Total stockholders' deficiency ............................................. (11,334,496) (9,824,069)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY ................................ $ 3,762,127 $ 386,132
============= =============
The notes to the financial statement are an integral
part of these statements.
5
CARBONICS CAPITAL CORPORATION
[OBJECT OMITTED]CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
Three Months Ended Six Months Ended
(Restated) (Restated)
6/30/09 6/30/08 6/30/09 6/30/08
------------- ------------- ------------- ------------
Revenue ............................................... $ 785,932 $ 2,523,489 $ 1,637,830 $ 6,183,443
Cost of revenues ...................................... 981,007 2,339,926 1,977,013 5,601,729
------------- ------------- ------------- -------------
(195,075) 183,563 (339,184) 581,714
Operating expenses:
General and administrative expenses ................ 194,127 248,907 580,513 724,359
Selling expenses ................................... 15,792 7,897 16,191 34,459
Stock based compensation ........................... -- 200,000 -- 245,000
------------- ------------- ------------- -------------
Total operating expenses ......................... 209,919 456,804 596,704 1,003,818
------------- ------------- ------------- -------------
Operating loss ........................................ (404,995) (273,242) (935,887) (422,104)
------------- ------------- ------------- -------------
Other income (expense):
Interest income .................................... 28,042 -- 28,134 --
Interest income - related party .................... 49,315 -- 49,315 --
Other income/expense ............................... 200 1,906 1,707 9,556
Loss on sale of equipment .......................... (13,455) -- (14,005) --
Grant income ....................................... (2,615) -- 59,563 --
Amortization of deferred financing costs and
debt discount .................................... -- (250) (46,712) (500)
Settlement expense ................................. -- -- (62,500) --
Costs related to conversion features .................. (342,032) -- (342,032) --
Costs related to conversion features - related party (372,138) --
(372,138) --
Change in fair value of conversion features ....... 5,183,296 (2,528,363) 5, 183,296 (2,528,363)
Interest expense - related party ................... (61,075) -- (61,075) --
Interest expense ................................... (133,474) (135,890) (238,119) (287,325)
------------- ------------- ------------- -------------
Total other income (expense) ..................... 4,336,064 (2,662,597) 4,185,434 (2,806,632)
Income (loss) before provision for income taxes ....... 3,931,069 (2,935,839) 3,249,547 (3,228,735)
Provision/benefit for income taxes .................... -- -- -- --
------------- ------------- ------------- -------------
Net Income (Loss) ..................................... $ 3,931,069 $ (2,935,839) $ 3,249,547 $ (3,228,735)
============= ============= ============= =============
Earnings (loss) per share, basic ...................... $ 0.02 $ (0.03) $ 0.02 $ (0.03)
============= ============= ============= =============
Earnings (loss) per share, dilutive ................... $ 0.01 $ (0.03) $ 0.01 $ (0.03)
============= ============= ============= =============
Weighted average share of common stock
outstanding, basic ................................. 154,423,038 95,802,303 140,586,425 95,802,303
============= ============= ============= =============
Weighted average shares of common stock
outstanding, dilutive ............................ 500,000,000 95,802,303 500,000,000 95,802,303
============= ============= ============= =============
The notes to the condensed financial statements are an
integral part of these statements.
6
CARBONICS CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2008 AND SIX MONTHS ENDED JUNE 30, 2009
Series C Preferred Stock Common Stock
Shares Amount Shares Amount
----------- ---------- ----------- ------------
Balance, December 31, 2007 ............................ 974,140 $ 974 9,549,266 $ 9,549
=========== =========== =========== ===========
Issuance of common stock upon conversion of debt ...... -- -- 9,730,140 9,730
Stock issued for services ............................. -- -- 3,000,000 3,000
Stock issued for compensation ......................... -- -- 10,000,000 10,000
Conversion of Series C Preferred into common stock .... (168,373) (168) 95,000,000 95,000
Forgiveness of affiliate debt ......................... -- -- -- --
Restatement-recapitalization from acquisition of entity
under common control .................................. -- -- -- --
Net loss .............................................. -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 2008 ............................ 805,767 $ 806 127,279,406 $ 127,279
=========== =========== =========== ===========
Issuance of common stock upon conversion of debt ...... -- -- 60,659,145 60,659
Acquisition of entity under common control ............ -- -- -- --
Net income ............................................ -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 2009, Restated ...................... 805,767 $ 806 187,938,551 $ 187,938
=========== =========== =========== ===========
Total
Additional Accumulated Stockholders'
Paid-In-Capital Deficit Equity
------------- ------------- --------------
Balance, December 31, 2007 ............................ $ 126,524,280 $(128,319,926) $ (1,785,123)
============= ============= =============
Issuance of common stock upon conversion of debt ...... 109,770 -- 119,500
Stock issued for services ............................. 87,000 -- 90,000
Stock issued for compensation ......................... 190,000 -- 200,000
Conversion of Series B Preferred into common stock .... (94,832) -- --
Forgiveness of affiliate debt ......................... (1,796,320) -- (1,796,320)
Restatement-recapitalization from acquisition of entity
under common control .................................. 3,539,639 (3,539,639) --
Net (loss) ............................................ -- (6,652,126) (6,652,126)
------------- ------------- -------------
Balance, December 31, 2008 ............................ $ 128,559,537 $(138,511,691) $ (9,824,069)
============= ============= =============
Issuance of common stock upon conversion of debt ...... 17,235 -- 77,894
Acquisition of entity under common control ............ (4,837,868) -- (4,837,868)
Net income ............................................ -- 3,249,547 3,249,547
------------- ------------- -------------
Balance, June 30, 2009, Restated ...................... $ 123,738,904 $(135,262,144) $ (11,334,496
============= ============= =============
The notes to the condensed financial statements are an
integral part of these statements.
7
CARBONICS CAPITAL CORPORATION
[OBJECT OMITTED]CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
(RESTATED)
Six Months Ended Six Months Ended
6/30/09 6/30/08
------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income from continuing operations ......................................... $ 3,249,547 $(3,228,735)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization ................................................. 88,387 --
Inventory reserve ............................................................. 72,027 --
Bad debt expense .............................................................. 3,766 --
Change in fair value of conversion liabilities ................................ (5,183,296) 2,528,363
Recognition and accretion of conversion liabilities ........................... 714,170 --
Accretion of interest income to note receivable principal ..................... (25,000) --
Loss on sale of equipment ..................................................... 14,005 --
Changes in Assets and Liabilities
Accounts receivable ........................................................ (80,318) --
Inventory .................................................................. 1,344,119 --
Prepaid expenses .............................................................. 23,842 --
Accounts payable and accrued expenses ...................................... (253,931) 130,880
Accrued interest ........................................................... 138,103 --
Deferred revenue ........................................................... (83,242) --
----------- -----------
Net cash provided by (used in) operating activities ..................... 22,180 (569,492)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Cash placed under restrictions ............................................. (261,751) --
Cash acquired from acquisition ............................................. 266,605 --
Proceeds from sale of equipment ............................................ 50,000 --
Proceeds from related party receivable ..................................... 8,021 --
Project development costs .................................................. -- --
Additions to and acquisition of property, plant and equipment .............. (860) --
----------- -----------
Net cash provided by investing activities ............................... 62,014 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances (Repayments) of long-term debt ................................... (8,006) (66,203)
Advances from related party ................................................ 24,435 828,940
Proceeds from convertible debenture ........................................ -- 10,548
Repayment of note receivable - related party ............................... -- (200,000)
----------- -----------
Net cash provided by financing activities ............................... 16,429 573,285
----------- -----------
Net (decrease) increase in cash ............................................ 100,623 3,793
Cash at beginning of period ................................................ -- (3,793)
----------- -----------
Cash at end of period ...................................................... $ 100,623 $ --
=========== ===========
Supplemental statement of non-cash investing and financing activities:
Conversion of debentures ...................................................... $ 40,368 30,300
Transfer of net assets to related party ....................................... $ -- 2,203,653
Stock based compensation ...................................................... $ -- 245,000
Increase in related party note due to expenses paid on behalf of related party $ -- 477,407
Decrease in related party note due to expenses paid on behalf of related party $ -- 14,173
Forgiveness of amount owed to related party ................................... $ -- 2,000,000
Notes receivable for convertible debt ......................................... $ 500,000 --
Debt conversions into common stock ............................................ $ 37,526 --
Cancellation of accounts payable .............................................. $ 926,739 --
Assumption of accounts payable under convertible debt ......................... $ 285,185 --
The notes to the condensed financial statements are an
integral part of these statements.
8
1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10Q of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all normal recurring adjustments considered necessary for a fair
statement of the results of operations have been included. The results of
operations for the six months ended June 30, 2009 are not necessarily indicative
of the results of operations for the full year. When reading the financial
information contained in this Quarterly Report, reference should be made to the
financial statements and notes contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2008.
ACQUISITION
Sustainable Systems, Inc.
Effective June 30, 2009, GS AgriFuels Corporation and Carbonics Capital
Corporation entered into a Stock Purchase Agreement pursuant to which Carbonics
acquired 100% of the stock of Sustainable Systems, Inc. ("Culbertson") from GS
AgriFuels in return for assumption of $4,000,000 of GS AgriFuels' indebtedness
to YA Global Investments, L.P. ("YAGI"). In connection with this Agreement,
Carbonics issued an amended and restated convertible debenture to YAGI for
$4,000,000 due on December 31, 2011. The financial results of this subsidiary
are included in the combined results of operations for the three and six ended
June 30, 2009 in accordance with Statement on Financial Accounting Standards No.
141(R), Appendix D, for acquisitions of entities under common control.
2 NATURE OF OPERATIONS
Carbonics Capital Corporation ("we," "our," "us," "Carbonics," or the "Company")
was founded to recycle carbon dioxide into value-added products.
Our development activities during 2009 have primarily involved evaluation of a
number of different biological, chemical and other technologies designed to
recycle carbon dioxide into value-added products. Our strategic plan also
involves the acquisition of accretive assets and cash flows that are strategic
to our technology development efforts. We are currently evaluating a number of
qualified opportunities that produce the raw materials needed for our
technologies, or that have the infrastructure we need to scale our technologies,
or that have the ability to refine the products we produce with our technologies
into finished goods. Our plan in this respect is to leverage the targeted assets
and cash flows to defray our technology and financing risk as we commercialize
our technologies.
3 GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company had an accumulated deficit
of ($135,262,145) at June 30, 2009. As of June 30, 2009 the Company's current
liabilities exceeded current assets by $13,251,341. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans include raising additional proceeds from debt and equity
transactions and completing strategic acquisitions.
4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements for the periods ended June 30, 2009 and 2008 have been
consolidated to include the accounts of the Company and its subsidiaries.
9
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and disclosures of contingencies during the
reporting period. Actual results could differ from management's estimates.
STOCK BASED COMPENSATION
The Company accounts for stock and stock options issued for services and
compensation to employees under SFAS 123(R). For non-employees, the fair market
value of the Company's stock on the date of stock issuance or option/grant is
used. The Company determines the fair market value of options issued under the
Black-Scholes Pricing Model. Under the provisions of SFAS 123(R), share-based
compensation cost is measured at the grant date, based on the fair value of the
award, and is recognized as an expense over the employee's requisite service
period (generally the vesting period of the equity grant).
FINANCIAL INSTRUMENTS
The Company accounted for the convertible debentures in accordance with SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150), as the conversion feature embedded in the
convertible debentures could result in the note principal and related accrued
interest being converted to a variable number of the Company's common shares.
5 FINANCING ARRANGEMENTS
The following is a summary of the Company's financing arrangements as of June
30, 2009:
Current portion of notes payable and long term debt: 6/30/2009
---------------
Current portion of installment debt payable from Culbertson $ 1,400,000
Mortgages and other term notes 185,941
---------------
Total current portion of notes payable and long term debt $ 1,585,941
===============
Long-term debt, net of current maturities:
Notes payable from CICS to Montana Dept of Agriculture $ 124,052
Notes payable from CICS to Great Northern Development 828,220
---------------
Total long term debt $ 952,272
===============
Current portion of convertible debentures:
Convertible debenture payable to YAGI issued October 2005 $ 1,205,814
Convertible debenture payable to YAGI issued June 2007 633,333
Convertible debenture payable to YAGI issued February 2006 2,113,134
Convertible debenture payable to YAGI issued June 2009 4,000,000
Convertible debenture payable to Minority Interest Fund (II), LLC 597,823
Convertible debenture payable to RAKJ issued April 2009 77,941
Convertible debenture payable to Blackfield issued April 2009 789,440
===============
Total current convertible debentures $ 9,417,485
===============
CONVERTIBLE DEBENTURES
As of June 30, 2009, the Company had convertible debentures payable to Minority
Interest Fund (II), LLC ("MIF") in an aggregate amount of $1,225,685 (the "MIF
Debentures"). The MIF Debentures include $223,185 in debt due to various third
parties that was assumed by MIF on April 1, 2009, $62,500 assumed by MIF on May
5, 2009, less $60,000 assigned to RAKJ Holdings, Inc. (see below). The MIF
Debentures also include an additional debenture issued on April 1, 2009 in the
amount of $1,000,000 (the "MIF Debenture") in return for a promissory note
issued by MIF to the Company in the amount of $1,000,000 (the "MIF Note"). The
MIF Note bears interest at the rate of 20% per year and matures on December 31,
2010. The MIF Debentures bear interest at a rate of 20% per year and mature on
10
December 31, 2010. MIF is entitled to convert the accrued interest and principal
of $225,685of the MIF Debentures into common stock of the Company at a
conversion price of $0.001 per share, and the remaining $1,000,000 of the MIF
Debentures at a rate equal to 60% of the lowest closing market price for the
Company's common stock for the twenty trading days preceding conversion. The MIF
Note has been recorded net of the MIF Debenture as of June 30, 2009 given the
presumed right of offset accorded to related parties. The interest receivable
due under the MIF Note has also been presented net of the interest payable due
under the MIF Debenture. The Company determined the value of the MIF Debenture
at April 1, 2009 to be $1,362,732, which represented the face value of the
debenture plus the present value of the conversion feature. The liability for
the conversion feature shall be increased from its present value of $362,732 at
April 1, 2009 to its estimated settlement amount of $428,571 at December 31,
2010. As of June 30, 2009, an expense of $9,406 has been recorded as interest
expense for the accretion of the discount on the convertible note payable,
thereby increasing the carrying value of the MIF Debenture to $372,138 at June
30, 2009. On May 7, 2009, $60,000 of the principal amount due under the MIF
Debentures was assigned to RAKJ Holdings, Inc. (see below). For the six months
ended June 30, 2009, interest income of $49,315 and interest expense of $61,075
for the MIF Debentures were incurred. The managing member of MIF is a relative
of the Company's chairman.
On April 1, 2009, the Company issued Blackfield, LLC ("Blackfield") a
convertible debenture in the amount of $500,000 (the "Blackfield Debenture") in
return for a promissory note issued by Blackfield to the Company in the amount
of $500,000 (the "Blackfield Note"). The Blackfield Note bears interest at the
rate of 20% per year and matures on December 31, 2010. The balance due under the
Blackfield Note at June 30, 2009 was $500,000 and the interest receivable
balance was $25,000. The principal and accrued interest for the Blackfield Note
and Blackfield Debenture have been presented as of June 30, 2009, at their face
value, without offset. The Company issued no shares of common stock to
Blackfield upon the conversion of debt during the quarter ended June 30, 2009.
The Blackfield Debenture is convertible into Company common stock at a rate
equal to 60% of the lowest closing market price for the Company's common stock
for the twenty trading days preceding conversion. The Company determined the
value of the Blackfield Debenture at April 1, 2009 to be $782,125 which
represented the face value of the debenture plus the present value of the
conversion feature. The liability for the conversion feature shall be increased
from its present value of $282,125 at April 1, 2009 to its estimated settlement
amount of $333,333 at December 31, 2010. As of June 30, 2009, an expense of
$7,315 has been recorded as interest expense for the accretion of the discount
on the convertible note payable, thereby increasing the carrying value of the
Blackfield Debenture to $789,440 at June 30, 2009. For the six months ended June
30, 2009, interest income of $25,000 and interest expenses of $24,932 for the
Blackfield Debentures were incurred.
The balance of convertible debt due to RAKJ Holdings, Inc. ("RAKJ") as of June
30, 2009 was $77,941 (the "RAKJ Debenture"). The Company issued 24,759,146
shares of common stock to RAKJ, upon the conversion of $18,500 in debt during
the quarter ended June 30, 2009. The RAKJ Debenture is convertible into Company
common stock at a rate equal to 50% of the lowest closing market price for the
Company's common stock for the twenty trading days preceding conversion. The
Company determined the value of the RAKJ Debenture at April 1, 2009 to be
$110,782 which represented the face value of the debenture plus the present
value of the conversion feature. The liability for the conversion feature shall
be increased from its present value of $50,782 at April 1, 2009 to its estimated
settlement amount of $120,000 at December 31, 2010. As of June 30, 2009, an
expense of $1,317 has been recorded as interest expense for the accretion of the
discount on the convertible note payable, thereby, increasing the carrying value
of the RAKJ Debenture. Conversely, the carrying value was decreased during the
period for the conversions into common stock. For the six months ended June 30,
2009 interest expenses of $2,518 for the RAKJ Debenture were incurred.
The Company accounted for each of the MIF Debenture, the Blackfield Debenture
and the RAKJ Debenture in accordance with SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity (SFAS
150), as the conversion feature embedded in each debenture could result in the
note principal being converted to a variable number of the Company's common
shares.
On August 14, 2008, the Company and YA Global Investments, L.P. ("YAGI") agreed
to extend the maturity date of the following secured convertible debentures
previously issued to YAGI to December 31, 2011: that certain convertible
debenture dated October 12, 2005 in the original principal amount of $1,475,000;
that certain convertible debenture dated February 8, 2006 in the original
principal amount of $3,050,369; and, that certain convertible debenture dated
June 26, 2007 in the original principal amount of $570,000. The current balance
due against these debentures was $2,268,608 as of June 30, 2009. Each debenture
provides for interest in the amount of 12% per annum and are convertible at the
lesser of $0.60 or 90% of the lowest closing bid price of Carbonics' common
stock during the 30 trading days immediately preceding the conversion date.
Effective June 30, 2009, the Company and GS AgriFuels Corporation entered into a
Stock Purchase Agreement pursuant to which the Company acquired 100% of the
stock of Sustainable Systems, Inc. ("Culbertson") from GS AgriFuels in return
for assumption of $4,000,000 of GS AgriFuels' indebtedness to YA Global
Investments, L.P. ("YAGI"). In connection with this Agreement, the Company
issued an amended and restated convertible debenture to YAGI for $4,000,000 due
on December 31, 2011. This debenture provides for interest in the amount of 12%
per annum and is convertible at the lesser of the fixed conversion price of
$0.01 or 90% of the lowest daily volume weighted average price of Carbonics'
common stock during the 20 trading days immediately preceding the conversion
date.
11
The Company accounted for the YAGI Debenture dated October 12, 2005 in
accordance with SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150), as the conversion
feature embedded in the YAGI Debenture could result in the note principal being
converted to a variable number of the Company's common shares. The carrying
amount of the debenture has been restated for the prior year (please see Note 10
Restatement of Prior Years Financials, below). The Company determined the value
of the YAGI Debenture at December 31, 2008 to be $3,014,535 which represented
the face value of the debenture plus the present value of the $2,411,628
conversion feature. As of June 30, 2009, income of $1,808,721 has been recorded
from a reduction in the fair value of the conversion feature on the convertible
note payable, thereby, decreasing the carrying value of the YAGI Debenture to
$1,205,814 at June 30, 2009.
The Company accounted for the YAGI Debenture dated February 8, 2006 in
accordance with SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150), as the conversion
feature embedded in the YAGI Debenture could result in the note principal being
converted to a variable number of the Company's common shares. The carrying
amount of the debenture has been restated for the prior year (please see Note 10
Restatement of Prior Years Financials, below). The Company determined the value
of the YAGI Debenture at December 31, 2008 to be $5,587,845 which represented
the face value of the debenture plus the present value of the $4,470,276
conversion feature. As of June 30, 2009, income of $3,374,575 has been recorded
from a reduction in the fair value of the conversion feature on the convertible
note payable, thereby, decreasing the carrying value of the YAGI Debenture to
$2,113,134 at June 30, 2009.
The Company accounted for the YAGI Debenture dated October 12, 2005 in
accordance with SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150), as the conversion
feature embedded in the YAGI Debenture could result in the note principal being
converted to a variable number of the Company's common shares. The carrying
amount of the debenture has been restated for the prior year (please see Note 10
Restatement of Prior Years Financials, below). The Company determined the value
of the YAGI Debenture at December 31, 2008 to be $632,840 which represented the
face value of the debenture plus the present value of the $62,840 conversion
feature. As of June 30, 2009, an expense of $493 has been recorded as interest
expense for the accretion of the discount on the convertible note payable,
thereby, increasing the carrying value of the YAGI Debenture to $633,333 at June
30, 2009.
NOTES PAYABLE
Secured Promissory Note
In December 2008, Sustainable Systems ("Culbertson") and Anchor Light, LP
entered into a Secured Promissory Note in the amount of $1,400,000. Under the
agreement, the Anchor Light note accrues interest at a rate of 13.5% per annum.
Monthly payments consist of all accrued interest on the unpaid balance with a
final balloon payment plus any accrued unpaid interest due when the note matures
on December 4, 2009. This note is secured by an interest in all the assets of
Culbertson including the accounts receivable. For the six months ended June 30,
2009, interest expense of $47,775 was accrued. As of June 30, 2009, the total
principal balance on this note was $1,400,000. While the regular payments due
under the Anchor Light note were fully paid as of June 30, 2009, the Anchor
Light note was in default as of that date due to the inventory liquidation (see
Note 7, Commitment and Contingencies, below). The Company is currently engaged
in discussions with Anchor Light relative to the restructuring of this note.
Term Notes
Culbertson has various notes payable with two other lenders. Culbertson has
signed three notes payable with the Montana Department of Agriculture totaling
$124,052. These notes were issued by the Montana Agriculture Development Council
under Return On Investment Agreements, numbers 0250714, 0350764, and 0450785. A
return on investment (ROI) pursuant to these agreements is an award of money
with the expectation that all or a part of the money will be repaid after a
deferral period. No payments are required, and no interest is accrued during the
initial time period. After the deferral period, the award recipient repays the
investment plus interest over a remaining period (up to seven years). As of
December 31, 2005, all three notes were in the deferral period with expected
deferral of interest and payments until February 2006. The deferral periods were
subsequently extended and the notes were further modified with regard to
interest and subordination. ROI note number 0450785 is secured by a lien on
specific equipment including pumps, blending vessels, storage bins and a solvent
recovery system. All notes accrue interest at the rate of 3.2% per annum with
payments of principal and interest beginning March 6, 2011. The notes are
secured by an interest in various equipment including eleven pumps and a solvent
recovery system. For the six months ended June 30, 2009, interest expense of
$1,035 for these obligations was incurred and accrued.
12
Culbertson has signed four notes with Great Northern Development. Three of the
notes totaling $393,780 at June 30, 2009 accrue interest at the rate of 6% per
annum. The payment terms for the notes are as follows: the $10,206 and $116,599
notes are to be paid off with 180 monthly payments beginning December 15, 2005
with a maturity date of November 15, 2020 and the $266,975 note is to be paid
off with 120 monthly payments beginning March 15, 2006 with a maturity date of
January 15, 2016; the monthly payments on this note are $1,800 per month from
April 2007 to March 2008 and then $3,300 thereafter. The fourth note for
$615,781 (as of June 30, 2009) accrues interest at the rate of 5% per annum with
payments of principal only through November 2007 and principal and interest
payments until the maturity date of November 15, 2010; the monthly payments on
this note are $7,500 during 2007, $10,000 during 2008; $5,000 during 2009 and
$17,302 thereafter. For the six months ended June 30, 2009, interest expense of
$13,567 for these obligations was incurred. The principal balance of these notes
at June 30, 2009 was $1,009,561.
6 RELATED PARTY TRANSACTIONS
Effective June 30, 2009, the Company and GS AgriFuels Corporation entered into a
Stock Purchase Agreement pursuant to which the Company acquired 100% of the
stock of Sustainable Systems, Inc. ("Culbertson") from GS AgriFuels in return
for assumption of $4,000,000 of GS AgriFuels' indebtedness to YA Global
Investments, L.P. ("YAGI"). GS AgriFuels is a subsidiary of GreenShift
Corporation, which company is majority owned by the Company's majority
shareholder, Viridis Capital, LLC.
Minority Interest Fund (II), LLC ("MIF") is party to certain convertible
debentures issued by the Company (see Note 5, Convertible Debentures, above).
The managing member of MIF is a relative of the Company's chairman.
7 COMMITMENTS AND CONTINGENCIES
On May 4, 2009, the Superior Court of the State of California entered a default
against the Company in the amount of $62,500. Golden State Equity Investors,
Inc. alleged claims against the Company in which they asserted a cause of action
for breach of contract regarding a Settlement Agreement dated July 9, 2008. The
Company has recorded this default amount effective January 1, 2009.
The Company's Culbertson oilseed processing facility did not receive a line of
credit for 2008 crop purchases, voluntarily surrendered its commodity dealers
license and, on April 27, 2009, entered into a settlement agreement with the
states of Montana and North Dakota pertaining to outstanding payments due for
purchase of oilseeds during 2008 that were contracted at rates far greater than
current oilseed values. Culbertson had previously negotiated with two separate
banks to receive working capital financing sufficient to service these
obligations. Neither bank was able to close due to strain in the prevailing
commodity and financial markets. Culbertson has accordingly idled its operations
pending liquidation by the Montana Department of Agriculture of Culbertson's
inventories to satisfy the oilseed payables. Culbertson is permitted to
reacquire its commodity license upon the completion of sufficient working
capital and equity financing to operate. The liquidation of Culbertson's
inventory is ongoing and is expected to be complete during the third quarter
2009. Approximately $1,216,136 was due to growers who had delivered seed, of
which amount $950,723 had been paid as of July 17, 2009.
On June 26, 2009, the Company appointed Paul T. Miller, PhD to the position of
president and chief executive officer.
8 ACQUISITION
The Company follows Appendix D of SFAS No. 141(R), "Business Combinations."
Effective June 30, 2009, the Company and GS AgriFuels Corporation entered into a
Stock Purchase Agreement pursuant to which the Company acquired 100% of the
stock of Sustainable Systems, Inc. ("Culbertson") from GS AgriFuels in return
for assumption of $4,000,000 of GS AgriFuels' indebtedness to YA Global
Investments, L.P. ("YAGI"). GS AgriFuels is a subsidiary of GreenShift
Corporation, which company is majority owned by the Company's majority
shareholder, Viridis Capital, LLC.
9 SUBSEQUENT EVENTS
On July 24, 2009, the Company and GS CleanTech Corporation entered into an Early
Adopter License Agreement (the "EALA") involving use of GS CleanTech's
bioreactor and related technologies. The EALA calls for the payment of royalties
to GS CleanTech equal to 10% of the Company's pre-tax net income deriving from
the use of GS CleanTech's feedstock conditioning technologies, lipid production,
extraction and refining technologies, and carbon dioxide mitigation technologies
in select municipal and industrial applications, not including ethanol
production. The EALA additionally provides for reciprocal license rights to GS
CleanTech such that GS CleanTech shall have the exclusive right to use any
technology acquired by Carbonics (not including the licensed technologies or
technologies developed from the licensed technologies under the EALA). The EALA
is non-exclusive but the Company has been granted most favored licensee status
13
in the EALA. This status shall be subject to cancellation in the event that the
Company fails to commercialize the licensed technologies on the following
schedule: bench testing shall be completed on or before the second anniversary
of the EALA; pilot testing shall be completed on or before the third anniversary
of the EALA; a commercial-scale pilot facility shall be built on or before the
fourth anniversary of the EALA; and, commercial sales shall have been initiated
on or before the fifth anniversary of the EALA. The Company shall provide all of
the capital resources needed to build bench, pilot and commercial scale
facilities based on these technologies under the EALA. GS CleanTech is a
wholly-owned subsidiary of GreenShift Corporation, which company is majority
owned by our majority shareholder, Viridis Capital, LLC.
On August 18, 2009, Viridis Capital, LLC, the Company's majority shareholder,
converted 52,893 shares of the Company's Series C Preferred Stock (the "Series C
Shares") in return for 215,000,000 Company common shares.
10 RESTATEMENTS
The Company has restated its financial statements for the year ended December
31, 2008. During preparation of this report, Management determined that the
Company's prior policies relating to accounting for the impact of conversion
features embedded in the Company's various derivative securities should be
revised to be consistent with recent guidance involving the interpretation of
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity (SFAS 150), due to the variable number of the
Company's common shares issuable upon conversion of the company's various
derivative securities. Accordingly, Management reviewed and revised its
conclusions regarding the Company's derivative instruments at December 31, 2008.
The Company has restated its financial statements for the six months ended June
30, 2009. The Company and GS AgriFuels had previously intended to effect an
assignment of GS AgriFuels' note payable and convertible debenture obligations
and related accrued interest that may be due (the "Purchase Obligations") from
GS AgriFuels to certain selling shareholders (the "Selling Shareholders") of the
Company's Sustainable Systems, Inc. subsidiary ("Culbertson"). GS AgriFuels did
not receive the consent of the Selling Shareholders to the assignment of the
Purchase Obligations to the Company, which was required pursuant to the
agreement between GS AgriFuels and the Selling Shareholders. Therefore, GS
AgriFuels was not permitted to assign the relevant debt to the Company.
Accordingly, this debt and related accrued interest have been removed from the
Company's balance sheet presented in this filing and have been returned to GS
AgriFuels.
The following shows the effect of the restatements on the financial statements:
6/30/09 6/30/09
Balance Sheets: As reported As restated
--------------------------
Accrued interest payable ......................................... $ 1,238,433 $ 678,979
Notes payable .................................................... 2,417,451 1,400,000
Convertible debentures ........................................... 12,623,949 8,819,662
Additional paid-in capital ....................................... 118,357,712 123,738,904
12/31/08 12/31/08
As reported As restated
--------------------------
Total liabilities ................................................ $ 1,238,433 $ 678,979
Total equity ..................................................... 2,603,392 1,585,941
Three months ended 6/30/08 Six month ended 6/30/08
Statements of Operations: As reported As restated As reported As restated
------------ ------------ ------------ -------------
Total other income (expense)......................... $ (755,851) $ (2,662,597) $ 621,572 $ (2,806,632)
Net income (loss) ................................... $ (962,916) $ (2,935,839) $ 227,661 $ (3,228,735)
Earnings (loss) per share ........................... $ (0.01) $ (0.03) $ -- $ (0.03)
6/30/09 6/30/09
Statements of Stockholders' Equity: As reported As restated
---------------------------
Acquisition of entity under common control (10,219,060) (4,837,868)
14
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS
Carbonics Capital Corporation ("we," "our," "us," "Carbonics," or the "Company")
was founded to recycle carbon dioxide into value-added products.
Our development activities during 2009 have primarily involved evaluation of a
number of different biological, chemical and other technologies designed to
recycle carbon dioxide into value-added products. Our strategic plan also
involves the acquisition of accretive assets and cash flows that are strategic
to our technology development efforts. We are currently evaluating a number of
qualified opportunities that produce the raw materials needed for our
technologies, or that have the infrastructure we need to scale our technologies,
or that have the ability to refine the products we produce with our technologies
into finished goods. Our plan in this respect is to leverage the targeted assets
and cash flows to defray our technology and financing risk as we commercialize
our technologies.
Our primary objective for the balance of 2009 is to complete sufficient equity
financing to properly capitalize our planned development activities.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Revenues
Total revenues for the three months ended June 30, 2009 were $785,932 as
compared to the three months ended June 30, 2008 revenues of $2,523,489. All
revenue for the three months ended June 30, 2009 and 2008 resulted from the
Company's oilseed crush facility.
Cost of Revenues
Cost of revenues for the three months ended June 30, 2009 were $981,007 compared
to $2,339,926 for the same period in 2008. All cost of revenues resulted from
the Company's oilseed crush facility.
General and Administrative Expenses Operating Expenses
General and administrative expenses during the three months ended June 30, 2009
totaled $209,919 with $0 related to stock based compensation. In the comparable
period of the prior year, general and administrative expenses totaled $456,804
with $200,000 related to stock based compensation. General and administrative
expenses during the three months ended June 30, 2009 primarily consisted of
legal fees and office related expenses and expenses resulting from the Company's
oilseed crush facility.
Interest Expense
Interest expenses for the three months ended June 30, 2009 were $908,719 and
$135,890 for the three months ended June 30, 2008. Included in the three months
ended June 30, 2009 was $194,548 of interest expense, consisting of $133,473 in
accrued interest, $61,075 in accrued interest due to a related party, and
$714,170 in non-cash expenses associated with the conversion features embedded
in the convertible debentures issued by the Company during the three months
ended June 30, 2009. Amortization of note discount was $0 and $250, respectively
for the three months ended June 30, 2009 and 2008.
Gain Associated with Change in Convertible Liabilities
As of June 30, 2009, Carbonics Capital had several convertible debentures due to
YA Global Investments, LP. The Company accounted for the convertible debentures
in accordance with SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity (SFAS 150), as the
conversion feature embedded in the convertible debentures could result in the
note principal and related accrued interest being converted to a variable number
of the Company's common shares. We calculate the fair value of the conversion
feature at the time of issuance and record a conversion liability for the
calculated value. We recognize interest expense for the conversion liability
which is added to the principal of the debenture. We also recognize interest
expense for accretion of the conversion liability over the term of the note. For
the three months ended June 30, 2009 and 2008, we recognized a gain for the
change in fair value of the conversion liability of $5,183,296 and a loss of
$2,528,363 for these debentures.
Net Income
Net income (loss) for the three months ended June 30, 2009 was $3,931,069 as
compared to a net loss of $2,935,839 from the same period in 2008.
15
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Revenues
Total revenues for the six months ended June 30, 2009 were $1,637,830 as
compared to the six months ended June 30, 2008 revenues of $6,183,443. Revenue
for the six months ended June 30, 2009 and 2008 resulted from the Company's
oilseed crush facility.
Cost of Revenues
Cost of revenues for the three months ended June 30, 2009 were $1,977,013
compared to $5,601,729 for the same period in 2008. Cost of revenues resulted
from the Company's oilseed crush facility, which was acquired on June 30, 2009.
General and Administrative Expenses Operating Expenses
General and administrative expenses during the six months ended June 30, 2009
totaled $596,704 with $0 related to stock based compensation. In the comparable
period of the prior year, general and administrative expenses totaled $1,003,818
with $245,000 related to stock based compensation. General and administrative
expenses during the six months ended June 30, 2009 primarily consisted of legal
fees and office related expenses and expenses resulting from the Company's
oilseed crush facility.
Interest Expense
Interest expense for the six months ended June 30, 2009 was $1,013,364 and
$287,325 for the same period in 2008. Included in the six months ended June 30,
2009 was $299,194 of interest expense, consisting of $238,119 in accrued
interest, $61,075 accrued interest due to a related party, and 714,170 in
non-cash expenses associated with the conversion features embedded in the
convertible debentures issued by the Company during the six months ended June
30, 2009. Amortization of note discount was $46,712 and $500, respectively for
the six months ended June 30, 2009 and 2008.
Gain Associated with Change in Convertible Liabilities
As of June 30, 2009, Carbonics Capital had several convertible debentures due to
YA Global Investments, LP. The Company accounted for the convertible debentures
in accordance with SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity (SFAS 150), as the
conversion feature embedded in the convertible debentures could result in the
note principal and related accrued interest being converted to a variable number
of the Company's common shares. We calculate the fair value of the conversion
feature at the time of issuance and record a conversion liability for the
calculated value. We recognize interest expense for the conversion liability
which is added to the principal of the debenture. We also recognize interest
expense for accretion of the conversion liability over the term of the note. For
the six months ended June 30, 2009 and 2008, we recognized a gain for the change
in fair value of the conversion liability of $5,413,828 and a loss of $2,528,363
for these debentures.
Net Income
Net income for the six months ended June 30, 2009 was $3,249,547 as compared to
a net loss of $3,228,735 from the same period in 2008.
Liquidity and Capital Resources
The Company had $14,144,351 in current liabilities at June 30, 2009, and may
need to obtain additional financing to satisfy these obligations.
Our primary sources of liquidity are cash provided by and financing activities.
For the six months ended June 30, 2009, net cash provided in our operating
activities was $22,180 as compared to $569,492 used in the six months ended June
30, 2008. The Company's capital requirements consist of general working capital
needs, scheduled principal and interest payments on debt, obligations and
capital leases and planned capital expenditures. The Company's capital resources
consist primarily of proceeds from issuance of debt and common stock. The
Company plans to fund ongoing operations during 2009 with a combination of
proceeds from the issuance of debt and equity as well as the repayment to the
Company of loans receivable and other amounts due.
16
Cash Flows
Our operating activities during the six months ended June 30, 2009 provided
$22,180 in cash. At June 30, 2009, accounts payable and accrued expenses totaled
$2,320,503. At June 30, 2009, the Company had $100,623 in cash. For the six
months ended June 30, 2009, investing activities provided $62,014 in cash, and
cash from financing activities provided $16,429. The Company had a working
capital deficit of $13,251,341 at June 30, 2009, which includes convertible
debentures of $8,819,662.
At the present time, Carbonics has no source of committed capital. We are
currently investigating the availability of both equity and debt financing
necessary to complete the Company's current projects. We do not know at this
time if the necessary funds can be obtained nor on what terms they may be
available.
Off Balance Sheet Arrangements
None.
17
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer participated in
and supervised the evaluation of our disclosure controls and procedures (as
defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed by us in the reports that we file is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that the information required to be disclosed by us in the reports that
we file or submit under the Act is accumulated and communicated to our
management, including our principal executive officer or officers and principal
financial officer, to allow timely decisions regarding required disclosure.
In the course of making our assessment of the effectiveness of our disclosure
controls and procedures, we identified a material weakness. This material
weakness consisted of inadequate staffing and supervision within the bookkeeping
and accounting operations of our company. The lack of employees prevents us from
segregating disclosure duties. The inadequate segregation of duties is a
weakness because it could lead to the untimely identification and resolution of
accounting and disclosure matters or could lead to a failure to perform timely
and effective reviews. Based on the results of this assessment, our Chief
Executive Officer and our Chief Financial Officer concluded that because of the
above condition, our disclosure controls and procedures were not effective as of
the end of the period covered by this report.
There have been no changes in the Company's internal control over financial
reporting during the most recently completed fiscal quarter that have materially
affected or are reasonably likely to materially affect the Company's internal
control over financial reporting.
18
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company's Culbertson subsidiary is party to the matter entitled GS AgriFuels
Corporation v. Chaykin, et al. The action was filed in the Supreme Court of the
State of New York, County of New York, on February 2, 2009. The Complaint seeks
damages for defendants' fraudulent misrepresentations, tortious interference,
breach of acquisition agreements and related claims. The defendants filed a
separate action entitled Max et al. v. GS AgriFuels Corporation, et al. in
response to the Complaint. The case was only recently commenced and Management
is unable to evaluate the probability of an unfavorable outcome at this time.
Accordingly, an estimate of loss cannot be determined at this time and
therefore, no accrual has been made in connection with this contingency.
ITEM 1A RISK FACTORS
Not Applicable.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Description
--------------------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the
Sarbanes-Oxley Act of 2002.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the date indicated.
CARBONICS CAPITAL CORPORATION
/S/ PAUL T. MILLER
-----------------------
By: PAUL T. MILLER
President and Chief Executive Officer
Date: August 19, 2009
/S/ JACQUELINE FLYNN
-------------------------
By: JAQUELINE FLYNN
Chief Financial Officer
Date: August 19, 2009