Attached files
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
(Amendment No. 1)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2009
COMMISSION FILE NO.: 0-28887
CARBONICS CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-3328734
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(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Penn Plaza, Suite 1612, New York, New York 10119
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(Address of principal executive offices) (Zip Code)
(212) 994-5374
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(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 November 23, 2009 was
312,942,178.
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
November 23, 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 1, Acquisition, was updated with respect to the terms of the
Stock Purchase Agreement between the Company and GS AgriFuels
o Note 3, Going Concern, was updated to restate the Company's working
capital deficit;
o Note 5, Shareholders' Equity, was updated to remove the designation
and issuance of the Series D Preferred shares from the Company;
o Note 6, 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 7, Related Party Transactions, was updated with respect to the
description of the Stock Purchase Agreement between the Company and GS
AgriFuels;
o Note 9, Acquisitions, was updated with respect to the terns 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 SEPTEMBER 30, 2009
TABLE OF CONTENTS
Page No
Part I Financial Information
Item 1. Financial Statements ..........................................................................3
Condensed Consolidated Balance Sheet - September 30, 2009 (unaudited)
and December 31, 2008........................................................................4
Condensed Consolidated Statements of Operations - for the Three and Nine Months
Ended September 30, 2009 (unaudited) and 2008 (unaudited)....................................5
Statement of Stockholders' Equity - December 31, 2008 and Nine Months
Ended September 30, 2009.....................................................................6
Condensed Consolidated Statements of Cash Flows - for the Nine Months
Ended September 30, 2009 (unaudited) and 2008 (unaudited)....................................7
Notes to Condensed Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and Analysis .........................................................16
Item 3 Quantitative and Qualitative Disclosures about Market Risk....................................19
Item 4. Controls and Procedures.......................................................................19
Part II Other Information
Item 1. Legal Proceedings.............................................................................20
Items 1A. Risk Factors..................................................................................20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................................20
Item 3. Defaults upon Senior Securities...............................................................20
Item 4. Submission of Matters to a Vote of Security Holders...........................................20
Item 5. Other Information ............................................................................20
Item 6. Exhibits .....................................................................................21
Signatures 22
3
PART I
ITEM 1 FINANCIAL STATEMENTS
4
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
RESTATED
9/30/2009 12/31/2008
------------- -------------
ASSETS
Current Assets:
Cash ....................................................................... $ 7,262 $ --
Accounts receivable, net of allowance for doubtful accounts of $3,094 and $0 87,614 --
Inventory .................................................................. 28,198 --
Note receivable - related party ............................................ 320,398 386,132
Prepaid expenses ........................................................... 83,991 --
------------- -------------
Total current assets .................................................... 527,463 386,132
Equipment, net of accumulated depreciation of $9,313 ....................... 19,966 --
Property, plant and equipment held for use ................................. 1,299,365 --
Other Assets:
Construction in progress ................................................... 554,720 --
Restricted cash ............................................................ 241,980 --
------------- -------------
Total other assets ...................................................... 796,700 --
------------- -------------
TOTAL ASSETS .................................................................. $ 2,643,493 $ 386,132
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses ...................................... $ 2,046,733 $ 591,511
Accrued interest ........................................................... 840,316 439,870
Accrued interest - related party ........................................... 373 --
Note payable ............................................................... 1,404,600 --
Note payable - related party ............................................... 105,669 --
Convertible debentures - related party ..................................... 415,293 --
Convertible debentures ..................................................... 7,948,120 9,178,820
Current maturities of long term debt ....................................... 218,686 --
------------- -------------
Total current liabilities ............................................... 12,979,790 10,210,201
Long term debt net of current maturities ................................... 914,927 --
------------- -------------
TOTAL LIABILITIES ....................................................... 13,894,717 10,210,201
------------- -------------
Preferred stock
Series C, par $0.001, 1,000,000 shares authorized, 805,767 and 805,767 issued
and outstanding, respectively .............................................. 806 806
Series D, par $1,000, 1,000,000 shares authorized, 0 and 0 issued
and outstanding, respectively .............................................. -- --
Common stock, par $0.001, 500,000,000 authorized
250,964,080 and 127,279,405 issued and outstanding, respectively ........... 250,964 127,279
Additional paid-in capital .................................................... 123,849,832 128,559,537
Accumulated deficit ........................................................... (135,352,826) (138,511,691)
------------- -------------
Total stockholders' deficiency ............................................. (11,251,224) (9,824,069)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY ................................ $ 2,643,493 $ 386,132
============= =============
The notes to the financial statement are an integral
part of these statements.
5
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
Three Months Ended Nine months Ended
(Restated) (Restated) (Restated) (Restated)
9/30/09 9/30/08 9/30/09 9/30/08
------------- ------------- ------------- ------------
Revenue ............................................... $ 149,153 $ 1,559,187 $ 1,786,983 $ 7,742,630
Cost of revenues ...................................... 121,815 1,348,654 2,098,827 6,950,383
------------- ------------- ------------- -------------
27,338 210,533 (311,844) 792,248
Operating expenses:
General and administrative expenses ................ 199,994 363,329 780,506 1,082,688
Selling expenses ................................... -- 8,909 16,191 27,774
Stock based compensation ........................... -- -- -- 250,000
------------- ------------- ------------- -------------
Total operating expenses ......................... 199,994 372,238 796,697 1,360,462
------------- ------------- ------------- -------------
Operating loss ........................................ (172,656) (161,705) (1,108,542) (568,214)
------------- ------------- ------------- -------------
Other income (expense):
Interest income .................................... (23,425) -- 4,709 --
Interest income - related party .................... 50,586 -- 99,901 --
Other income/expense ............................... -- 16,754 1,707 26,310
Loss on sale of equipment .......................... 2 -- (14,005) --
Grant income ....................................... -- 99,658 59,563 99,658
Gain on extinguishment of debt ..................... 48,186 -- 48,186 --
Amortization of deferred financing costs and
debt discount .................................... -- (250) (46,712) (750)
Settlement expense ................................. -- -- (62,500) --
Costs related to conversion features .................. 259,431 -- (82,601) --
Costs related to conversion features - related party (9,406) -- (381,543) --
Change in fair value of conversion features ........ -- (291,375) 5, 183,296 (2,819,738)
Interest expense - related party ................... (40,016) -- (101,091) --
Interest expense ................................... (203,386) (91,255) (441,505) (378,579)
------------- ------------- ------------- -------------
Total other income (expense) ..................... 81,973) (266,468) 4,267,407 (3,073,099)
Income (loss) before provision for income taxes ....... (90,683) (428,172) 3,158,866 (3,641,314)
Provision/benefit for income taxes .................... -- -- -- --
------------- ------------- ------------- -------------
Net Income (Loss) ..................................... $ (90,683) $ (428,172) $ 3,158,866 $ (3,641,314)
============= ============= ============= =============
Earnings (loss) per share, basic ...................... $ -- $ -- $ 0.02 $ (0.04)
============= ============= ============= =============
Earnings (loss) per share, dilutive ................... $ -- $ -- $ 0.02 $ (0.04)
============= ============= ============= =============
Weighted average share of common stock
outstanding, basic ................................. 313,287,800 95,802,303 198,826,036 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 NINE MONTHS ENDED SEPTEMBER 30, 2009
Series C Preferred Stock Series D Preferred Stock Common Stock
Shares Amount 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
9730
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 ...... -- -- -- -- 123,684,674 123,685
Acquisition of entity under common control ............ -- -- -- -- -- --
Beneficial conversion feature ......................... -- -- -- -- -- --
Forgiveness of debt ................................... -- -- -- -- -- --
Net income ............................................ -- -- -- -- -- --
----------- ----------- -- ---------- ----------- -----------
Balance, September 30, 2009, (restated) ............... 805,767 $ 806 -- $ -- 250,964,080 $ 250,964
=========== =========== == ========== =========== ===========
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 ...... (12,383) -- 111,302
Acquisition of entity under common control ............ (4,837,868) -- (4,837,868)
Beneficial conversion feature ......................... 109,164 -- 109,164
Forgiveness of debt ................................... 31,382 -- 31,382
Net income ............................................ -- 3,158,866 3,158,866
-------------- -------------- --------------
Balance, September 30, 2009, (restated) ............... $ 123,849,826 $ (135,352,825) $ (11,251,224)
============== ============== ==============
The notes to the condensed financial statements are an
integral part of these statements.
7
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
(RESTATED)
Nine Months Nine Months
Ended 9/30/09 Ended 9/30/08
------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income from continuing operations ........................................ $ 3,158,866 $(3,641,314)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization ................................................ 89,395 --
Inventory reserve ............................................................ 72,027 --
Bad debt expense ............................................................. 1,489 --
Change in fair value of conversion liabilities ............................... (5,183,296) 2,819,738
Recognition and accretion of conversion liabilities .......................... 464,144 --
Loss on sale of equipment .................................................... 14,003 --
Changes in Assets and Liabilities
Accounts receivable ....................................................... 61,083 --
Inventory ................................................................. 1,457,793 --
Prepaid expenses .......................................................... (14,483) --
Accounts payable and accrued expenses ..................................... (719,503) 201,385
Accrued interest .......................................................... 289,561 --
Deferred revenue .......................................................... (107,325) --
----------- -----------
Net cash provided by (used in) operating activities .................... (416,246) (620,191)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Cash placed under restrictions ............................................ (34,796) --
Cash acquired from acquisition ............................................ 266,605 --
Proceeds from sale of equipment ........................................ 50,125 --
Proceeds from related party receivables ................................ 99,484 --
Project development costs ................................................. -- --
Additions to and acquisition of property, plant and equipment ............. (860) --
----------- -----------
Net cash provided by investing activities .............................. 380,557 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances (Repayments) of long-term debt .................................. (8,006) (66,314)
Advances from related party ............................................... 50,956 879,750
Proceeds from convertible debenture ....................................... -- 10,548
Repayment of note receivable - related party .............................. -- (200,000)
----------- -----------
Net cash provided by financing activities .............................. 42,950 623,984
----------- -----------
Net (decrease) increase in cash ........................................... 7,262 3,793
Cash at beginning of period ............................................... -- (3,793)
----------- -----------
Cash at end of period ..................................................... $ 7,262 $ --
=========== ===========
Supplemental statement of non-cash investing and financing activities:
Transfer of net assets to related party ...................................... $ -- 2,203,653
Stock based compensation ..................................................... $ -- 250,000
Increase in related party note due to expenses paid on behalf of related party $ -- 717,680
Decrease in related party note due to expenses paid on behalf of related party $ -- 1,275,388
Forgiveness of amount owed to related party .................................. $ -- 2,000,000
Debt conversions into common stock ........................................... $ 111,302 --
Cancellation of accounts payable ............................................. $ 926,739 --
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 nine months ended September 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 YAGI 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. GS AgriFuels is a wholly-owned subsidiary of GreenShift
Corporation, a company that is majority owned by the Company's majority
shareholder, Viridis Capital, LLC. The financial results of Culbertson are
included in the combined results of operations for the three and nine months
ended September 30, 2009 in accordance with FASB Accounting Standards
Codification 805, 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.
Our operations during the nine months ended September 30, 2009, mostly involved
the maintenance of our idled oilseed crush facility in Culbertson, Montana. We
are currently seeking investment for the revitalization of this facility based
on its potential value in the biofuel and culinary markets
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 $(135,352,826) at September 30, 2009. As of September 30, 2009 the Company's
current liabilities exceeded current assets by $12,452,327, which includes
convertible debentures of $7,948,120, accrued interest payable of $840,689, and
related party convertible debentures of $415,293. The Company's working capital
deficit net of these amounts is $3,248,225. 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 September 30, 2009 and 2008 have
been consolidated to include the accounts of the Company and its subsidiaries.
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
9
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 FASB Accounting Standards Codification 718. 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
FASB Accounting Standards Codification 718, 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 FASB
Accounting Standards Codification 480, 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.
The Company accounted for the price protection features associated with the
Series D Shares in accordance with FASB Accounting Standards Codification 480,
as the conversion feature embedded in the price protection could result in the
Company being required to issue additional common shares up to the full amount
of the deficiency until such time as the former shareholders realize sufficient
cash sales proceeds to increase the deficiency to zero.
NOTE 5 STOCKHOLDERS' EQUITY
SERIES C PREFERRED STOCK
Shares of the Company's Series C Preferred Stock (the "Series C Shares") may be
converted by the holder into Company common stock. The conversion ratio is such
that the full 1,000,000 Series C Shares originally issued convert into Company
common shares representing 80% of the fully diluted outstanding common shares
outstanding after the conversion (which includes all common shares outstanding
plus all common shares potentially issuable upon the conversion of all
derivative securities not held by the holder). The holder of Series C Shares may
cast the number of votes at a shareholders meeting or by written consent that
equals the number of common shares into which the Series C Shares are
convertible on the record date for the shareholder action. In the event the
Board of Directors declares a dividend payable to Company common shareholders,
the holders of Series C Shares will receive the dividend that would be payable
if the Series C Shares were converted into Company common shares prior to the
dividend. In the event of a liquidation of the Company, the holders of Series C
Shares will receive a preferential distribution of $0.001 per share, and will
share in the distribution as if the Series C Shares had been converted into
common shares. At September 30, 2009, there were 805,767 Series C Shares
outstanding, 691,624 of which were held by the Company's majority shareholder,
Viridis Capital, LLC. At November 23, 2009, there were 974,140 Series C Shares
outstanding, 921,890 of which were held by the Company's majority shareholder,
Viridis Capital, LLC.
COMMON STOCK
The Company issued 123,684,674 shares of common stock upon the conversion of an
aggregate of $111,302 in debt during the nine months ended September 30, 2009
consisting of: 66,415,378 common shares issued to YA Global Investments, LP
("YAGI"), upon the conversion of $55,789 in debt; 37,269,296 common shares
issued to RAKJ Holdings, Inc. ("RAKJ"), upon the conversion of $35,370 in debt;
and, 20,000,000 common shares were issued to Mammoth Corporation ("Mammoth")
upon the conversion of $20,142 in debt.
6 FINANCING ARRANGEMENTS
The following is a summary of the Company's financing arrangements as of
September 30, 2009:
Current portion of notes payable and long term debt:
Current portion of installment debt payable from Culbertson to Anchor Light, L.P. $ 1,400,000
Mortgages and other term notes 223,286
---------------
Total current portion of notes payable and long term debt $ 1,623,286
===============
Long-term debt, net of current maturities:
Notes payable to Montana Dept of Agriculture from Culbertson $ 124,052
Notes payable to Great Northern Development from Culbertson 790,875
---------------
Total long term debt $ 914,927
===============
10
Current portion of convertible debentures:
Convertible debenture payable to YA Global Investments issued October 2005 $ 1,205,814
Convertible debenture payable to YA Global Investments issued June 2007 633,333
Convertible debenture payable to YA Global Investments issued February 2006 2,040,401
Convertible debenture payable to YA Global Investments issued June 2009 4,000,000
Convertible debenture payable to Minority Interest Fund (II) 415,293
Convertible debenture payable to RAKJ Holdings issued April 2009 68,572
===============
Total current convertible debentures $ 8,363,413
===============
CONVERTIBLE DEBENTURES
As of September 30, 2009, the Company had convertible debentures payable to
Minority Interest Fund (II), LLC ("MIF") in an aggregate amount of $415,293 (the
"MIF Debentures"). The MIF Debentures 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 December 31, 2010. MIF is entitled to convert the $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 September 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. During the nine months ended September 30,
2009, MIF purchased additional debentures from the Company in the amount of
$89,500, assigned $87,817 of the principal amount due to MIF to RAKJ Holdings,
Inc. ("RAKJ") ($67,817) and Mammoth Corporation ("Mammoth") ($20,000). 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 September
30, 2009, an expense of $18,812 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 $415,293 at September 30, 2009. For
the nine months ended September 30, 2009, interest income of $99,901 and
interest expense of $101,091 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"). During the quarter ended September 30,
2009, the Blackfield Debenture and promissory note were cancelled and all
related entries were reversed effective July 1, 2009.
The balance of convertible debt due to RAKJ as of September 30, 2009 was $68,572
(the "RAKJ Debenture"). The Company issued 37,269,296 shares of common stock to
RAKJ, upon the conversion of $35,370 in debt during the nine months ended
September 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. During the three months ended September
30, 2009, MIF assigned $10,317 to the RAKJ debenture As of September 30, 2009,
an expense of $4,180 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 nine months ended
September 30, 2009 interest expenses of $3,363 for the RAKJ Debenture were
incurred.
The Company issued 20,000,000 shares of common stock to Mammoth, upon the
conversion of $20,000 in debt plus accrued interest of $142 during the quarter
ended September 30, 2009, which amounts paid off the debenture in full. The
Mammoth Debenture was 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. For the nine months ended September
30, 2009, interest expenses of $142 was paid. The balance due under the Mammoth
Debenture at September 30, 2009 was $0.
11
The Company accounted for each of the MIF Debenture, the Mammoth Debenture and
the RAKJ Debenture in accordance with FASB Accounting Standards Codification
480, 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 $2,234,687 as of September 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.
The Company accounted for the YAGI Debenture dated October 12, 2005 in
accordance with FASB Accounting Standards Codification 480, 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 September 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 September 30, 2009.
The Company accounted for the YAGI Debenture dated February 8, 2006 in
accordance with FASB Accounting Standards Codification 480, 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 September 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 $2,040,401 at September 30, 2009.
The Company accounted for the YAGI Debenture dated October 12, 2005 in
accordance with FASB Accounting Standards Codification 480, 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 September 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 September 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 nine months ended
September 30, 2009, interest expense of $48,300 was accrued. As of September 30,
12
2009, the total principal balance on this note was $1,400,000. On August 18,
2009, the Company signed a Forbearance Agreement with Anchor Light. As of
September 30, 2009, the Anchor Light note was in default as of that date due to
the inventory liquidation (see Note 8, Commitment and Contingencies, below).
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 nine months ended September 30, 2009, interest expense
of $1055 for these obligations was incurred and accrued.
Culbertson has signed four notes with Great Northern Development. Three of the
notes totaling $393,780 at September 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 September 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 nine months ended September 30, 2009, interest
expense of $13,716 for these obligations was incurred. The principal balance of
these notes at September 30, 2009 was $1,009,561.
7 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 6, Convertible Debentures, above).
The managing member of MIF is a relative of the Company's chairman.
8 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. The remaining amount
due and owing to the growers of $265,413 was paid in September of 2009.
13
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
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, the Company signed a Forbearance Agreement with Anchor
Light, LP. According to this agreement, the Company acknowledges that the Anchor
Light note was in default as of that date due in part to the inventory
liquidation. Under the agreement, Anchor Light will forbear from exercising its
rights to foreclose as long as the Company fulfills various conditions including
obtaining the appropriate insurance on the property and paying the monthly
interest payments. The Company has fulfilled all conditions and Anchor Light has
agreed to continue to forbear any collection efforts until the loan becomes due
and payable on its maturity date of December 8, 2009.
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 relating to the sale by the
defendants of the stock of Sustainable Systems, Inc. ("Culbertson") to GS
AgriFuels, and arising from the disclosure by the defendants that Culbertson
owned its Culbertson, Montana oilseed crushing facility when in fact Culbertson
merely held the right to purchase the Montana facility at the time of the
acquisition by GS AgriFuels; the failure to disclose by the defendants that
Culbertson's right to purchase the Montana facility, as well as any investment
made in the Montana facility, was subject to forfeiture within months of
entering into the acquisition agreements with GS AgriFuels; and, the provision
by the defendants of materially false financial statements. The defendants
served a separate action entitled Max, et al. v. GS AgriFuels Corporation, et
al. in the Montana Fourth Judicial District Court in response to GS AgriFuels'
New York complaint. GS AgriFuels has petitioned for dismissal of the Montana
action. Three of the former shareholders of Culbertson, corresponding to about
64% of the former shareholders' prior ownership interest in Culbertson, have
entered into settlement agreements pursuant to which GS AgriFuels has been
released from all obligations under the relevant acquisition agreements and
otherwise. During the three months ended September 30, 2009, Carbonics agreed to
issue 129 shares of the Company's Series D Preferred Stock to two of the former
shareholders of the Company's Culbertson subsidiary (see Note 5, Shareholders'
Equity, above) in exchange for the execution of mutual general releases amongst
the parties and the commitment of the relevant shareholders to provide certain
assistance relative to the negotiation and execution of settlement agreements
with the balance of the former shareholders of the Company's Culbertson
subsidiary. Despite these settlements, Management is unable to evaluate the
probability of an unfavorable outcome at this time. An estimate of loss cannot
be determined and therefore, no accrual has been made in connection with this
contingency. GS AgriFuels is a wholly-owned subsidiary of GreenShift
Corporation, which company is majority owned by the Company's majority
shareholder, Viridis Capital, LLC.
On September 15, 2009 Sustainable Systems, LLC was served a summons and
complaint by Sheridan Electric Cooperative for monies owed to Sheridan Electric
for electrical service to the Culbertson oilseed processing plant. The amount
claimed to be owed in the complaint was $67,811.44. The Company has retained
Montana counsel and is responding to the complaint and the outcome of this
litigation is uncertain at this time.
Sustainable Systems, LLC is party to wage claim hearings with the Montana
Department of Labor for non-payment of accrued vacation to five former employees
of the Culbertson oilseed crush operation. According to the Sustainable Systems,
LLC employee policy, vacation time is accrued on behalf of the employee and upon
termination of employment the accrued vacation time not used by employee is to
be paid in cash. According to Montana Department of Labor policy, unpaid wages
are subject to penalties of up to 55% of the amount owed. Accrued vacation pay
for former employees totaled $9,170.14. Total liability including penalties
Sustainable Systems, LLC total $14,214.
14
9 ACQUISITION
The Company follows Appendix D of FASB Accounting Standards Codification 80.
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.
10 RESTATEMENT
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
FASB Accounting Standards Codification 480, 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 nine months ended
September 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:
Balance Sheets:
9/30/09 9/30/09
As reported As restated
------------ -------------
Accounts payable and accrued expenses ................. $ 1,938,201 $ 2,046,733
Accrued interest payable .............................. $ 1,335,771 $ 840,316
Notes payable ......................................... 2,206,942 1,404,600
Convertible debentures, current ....................... 10,948,105 7,948,120
Derivative liabilities ................................ 37,673 --
Liability for conversion features on Series D Preferred 91,327 --
Additional paid-in capital ............................ 119,586,512 123,849,832
Accumulated deficit ................................... (135,407,756) (135,352,826)
12/31/08 12/31/08
As reported As restated
------------- --------------
Total liabilities ..................................... $ 3,456,714 $ 10,210,201
Total equity .......................................... $ (3,014,781) $ (9,824,069)
Statements of Operations:
Three Months Ended 9/30/09 Six Months Ended 9/30/09
As reported As restated As reported As restated
--------------------------- ----------------------------
Interest expense ..................................... $ (258,316) $ (203,386) $ (496,435) $ (441,505)
Income (loss) from continuing operations ............. (145,613) (90,683) 3,103,936 3,158,866
Net income (loss) .................................... (145,613) (90,683) 3,103,936 3,158,866
Earnings (loss) per share:
Continuing operations ................................ $ -- $ -- $ 0.02 $ 0.02
Total, basic and diluted ............................. $ -- $ -- $ 0.02 $ 0.02
15
Three Months Ended 9/30/09 Six Months Ended 9/30/09
As reported As restated As reported As restated
----------------------------- ----------------------------
Total other income (expense)......................... $ (75,495) $ (266,468) $ 546,078 $ (3,073,099)
Net income (loss) ................................... (96,898) (428,172) 130,763 (3,641,314)
Earnings (loss) per share: .......................... $ -- $ -- $ -- $ (0.04)
Statements of Stockholders' Equity:
9/30/09 9/30/09
As reported As restated
-----------------------------
Issuance of Series D Preferred for debt ............. $ 1,009,340 $ --
Forgiveness of debt ................................. 139,914 31,382
Net income .......................................... 3,103,936 3,158,866
Statements of Cash Flows:
9/30/09 9/30/09
As reported As restated
------------------------------
Net loss from continuing operations ................. $ 3,103,936 $ 3,158,866
Accrued interest .................................... 344,491 289,561
Forgiveness of amount owed to related party ......... $ 1,246,872 $ --
16
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 operations during the nine months ended September 30, 2009, mostly involved
the maintenance of our idled oilseed crush facility in Culbertson, Montana. We
are currently seeking investment for the revitalization of this facility based
on its potential value in the biofuel and culinary markets.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2009 Compared to Three Months Ended September
30, 2008
Revenues
Total revenues for the three months ended September 30, 2009 were $149,153 as
compared to the three months ended September 30, 2008 revenues of $1,559,187.
All revenue for the three months ended September 30, 2009 and 2008 resulted from
the Company's oilseed crush facility.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2009 were $121,815
compared to $1,348,654 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 September 30,
2009 totaled $199,994 with $0 related to stock based compensation. In the
comparable period of the prior year, general and administrative expenses totaled
$372,238 with $0 related to stock based compensation. General and administrative
expenses during the three months ended September 30, 2009 primarily consisted of
legal fees and office related expenses and expenses resulting from the Company's
oilseed crush facility.
Interest/Other Expense
Interest expenses for the three months ended September 30, 2009 were $203,386
and $91,255 for the three months ended September 30, 2008. Included in the three
months ended September 30, 2009 was $243,402 of interest expense, consisting of
$203,386 in accrued interest, $40,016 in accrued interest due to a related
party; Other expense included $250,026 in non-cash expenses associated with the
conversion features embedded in the convertible debentures issued by the Company
during the three months ended September 30, 2009. Amortization of note discount
was $0 and $250, respectively for the three months ended September 30, 2009 and
2008.
Gain Associated with Change in Convertible Liabilities
As of September 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 September 30, 2009 and 2008, we recognized $0 interest
expense for the conversion liability for these debentures.
Net Income
Net income (loss) for the three months ended September 30, 2009 was $90,683 as
compared to a net loss of $428,172 from the same period in 2008.
17
Nine months Ended September 30, 2009 Compared to Nine months Ended September 30,
2008
Revenues
Total revenues for the nine months ended September 30, 2009 were $1,786,983 as
compared to the nine months ended September 30, 2008 revenues of $7,742,630.
Revenue for the nine months ended September 30, 2009 and 2008 resulted from the
Company's oilseed crush facility.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2009 were $2,098,827
compared to $6,950,383 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 nine months ended September 30,
2009 totaled $796,697 with $0 related to stock based compensation. In the
comparable period of the prior year, general and administrative expenses totaled
$1,360,462 with $250,000 related to stock based compensation. General and
administrative expenses during the nine months ended September 30, 2009
primarily consisted of legal fees and office related expenses and expenses
resulting from the Company's oilseed crush facility.
Interest/Other Expense
Interest expense for the nine months ended September 30, 2009 was $542,596 and
$378,579 for the same period in 2008. Included in the nine months ended
September 30, 2009 was $411,505 in accrued interest, and $101,091 accrued
interest due to a related party; Other expenses included $464,144 in non-cash
expenses associated with the conversion features embedded in the convertible
debentures issued by the Company during the nine months ended September 30,
2009. Amortization of note discount was $46,712 and $750, respectively for the
nine months ended September 30, 2009 and 2008.
Gain Associated with Change in Convertible Liabilities
As of September 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 nine months ended September 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
$2,819,738 for these debentures.
Net Income
Net income for the nine months ended September 30, 2009 was $3,158,866 as
compared to a net loss of $3,641,314 from the same period in 2008.
Liquidity and Capital Resources
The Company had $12,979,790 in current liabilities at September 30, 2009, and
may need to obtain additional financing to satisfy these obligations. The amount
of capital needed to restart the operations of our oilseed crush facility is
estimated to be in excess of $3,000,000, however, we do not intend to restart
this facility without also completing the previously idled expansion project to
increase its oil production capacity to 600 tons per day. This would require in
excess of $8,000,000 in debt and equity financing. The Company is seeking
sufficient financing.
Our primary sources of liquidity are cash provided by and financing activities.
For the nine months ended September 30, 2009, net cash used in our operating
activities was $416,246 as compared to $620,191 used in the nine months ended
September 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
18
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.
Cash Flows
Our operating activities during the nine months ended September 30, 2009 used
$416,246 in cash. At September 30, 2009, accounts payable and accrued expenses
totaled $2,046,733. At September 30, 2009, the Company had $7,262 in cash. For
the nine months ended September 30, 2009, investing activities provided $380,557
in cash as compared to $0 used in the nine months ended September 30, 2008 and
cash from financing activities provided $42,951 as compared to $623,984 provided
in the nine months ended September 30, 2008. The Company had a working capital
deficit of $12,452,327 at September 30, 2009, which includes convertible
debentures of $7,948,120.
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.
19
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.
20
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 relating to the sale by the
defendants of the stock of Sustainable Systems, Inc. ("Culbertson") to GS
AgriFuels, and arising from the disclosure by the defendants that Culbertson
owned its Culbertson, Montana oilseed crushing facility when in fact Culbertson
merely held the right to purchase the Montana facility at the time of the
acquisition by GS AgriFuels; the failure to disclose by the defendants that
Culbertson's right to purchase the Montana facility, as well as any investment
made in the Montana facility, was subject to forfeiture within months of
entering into the acquisition agreements with GS AgriFuels; and, the provision
by the defendants of materially false financial statements. The defendants
served a separate action entitled Max, et al. v. GS AgriFuels Corporation, et
al. in the Montana Fourth Judicial District Court in response to GS AgriFuels'
New York complaint. GS AgriFuels has petitioned for dismissal of the Montana
action. Three of the former shareholders of Culbertson, corresponding to about
64% of the former shareholders' prior ownership interest in Culbertson, have
entered into settlement agreements pursuant to which GS AgriFuels has been
released from all obligations under the relevant acquisition agreements and
otherwise. Management is unable to evaluate the probability of an unfavorable
outcome at this time. An estimate of loss cannot be determined 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.
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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.
21
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: November 23, 2009
/S/ JACQUELINE FLYNN
-------------------------
By: JACQUELINE FLYNN
Chief Financial Officer
Date: November 23, 2009
22
