UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ý | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period endedJune 30, 2013
| ¨ | Transition report under Section 13 or 15(d) of the Exchange Act of 1934 |
For the transition period from _____________ to _____________
Commission File Number000-53806
Cullen Agricultural Holding Corp.
(Exact Name of Issuer as Specified in Its Charter)
| Delaware | 27-0863248 |
(State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 1193 Seven Oaks Rd. Waynesboro, GA 30830 |
| (Address of Principal Executive Office) |
(706) 621-6737
(Issuer’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý 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.
| Large accelerated filer¨ | Accelerated filer¨ | |
| Non-accelerated filer¨ | Smaller reporting companyý | |
| (Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yesý No¨
As of July 30, 2013, 19,630,714 shares of common stock, par value $.0001 per share, were issued and outstanding.
CULLEN AGRICULTURAL HOLDING CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2013
TABLE OF CONTENTS
| Page | |||
| Part I. Financial Information | 1 | ||
| Item 1. Financial Statements | 1 | ||
| Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012 | 1 | ||
| Condensed Consolidated Statement of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012 and for the period from June 3, 2009 (inception) through June 30, 2013 | 2 | ||
| Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the period from June 3, 2009 (inception) through June 30, 2013 | 3 | ||
| Condensed Consolidated Statement of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012 and for the period from June 3, 2009 (inception) through June 30, 2013 | 4 | ||
| Notes to Unaudited Condensed Consolidated Financial Statements | 5 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||
| Item 4. Controls and Procedures | 11 | ||
| Part II. Other Information | 12 | ||
| Item 1. Legal Proceedings | 12 | ||
| Item 6. Exhibits | 12 | ||
| Signatures | 13 |
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q of Cullen Agricultural Holding Corp., and the information incorporated by reference in it, include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). References in this report to “we,” “us”, “our company” or “the Company” refer to Cullen Agricultural Holding Corp.
Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:
| · | Our ability to protect our intellectual property; |
| · | Our ability to obtain necessary financing to enable us to implement our business plan; |
| · | Competition; |
| · | Loss of key personnel; |
| · | Increases of costs of operations; |
| · | Continued compliance with government regulations; and |
| · | General economic conditions. |
The forward-looking statements contained or incorporated by reference in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us and speak only as of the date of such statement. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in this Quarterly Report in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2013 in the section entitled "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
PART I.
FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
Cullen Agricultural Holding Corp. and Subsidiaries
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS | ||||||||
| June 30, 2013 | ||||||||
| (unaudited) | December 31, 2012 | |||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 2,095,493 | $ | 2,239,619 | ||||
| Receivable from related party | 1,871 | 1,871 | ||||||
| Prepaid expenses and other current assets | 13,825 | 32,236 | ||||||
| Total Current Assets | 2,111,189 | 2,273,726 | ||||||
| PROPERTY AND EQUIPMENT, Net | 91,861 | 91,861 | ||||||
| TOTAL ASSETS | $ | 2,203,050 | $ | 2,365,587 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accrued expenses | $ | 9,996 | $ | 23,965 | ||||
| Current portion of note payable | 10,462 | 10,170 | ||||||
| Total Current Liabilities | 20,458 | 34,135 | ||||||
| OTHER LIABILITIES | ||||||||
| Non current portion of note payable | -- | 10,462 | ||||||
| Total Other Liabilities | -- | 10,462 | ||||||
| TOTAL LIABILITIES | 20,458 | 44,597 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock - $0.0001 par value; authorized 1,000,000 shares; | ||||||||
| no shares issued and outstanding | -- | -- | ||||||
| Common stock, par value $0.0001; 200,000,000 shares authorized; | ||||||||
| 19,630,714 shares issued and outstanding | 1,964 | 1,964 | ||||||
| Additional paid-in capital | 6,861,881 | 6,861,881 | ||||||
| Deficit accumulated during the development stage | (4,681,253 | ) | (4,542,855 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 2,182,592 | 2,320,990 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,203,050 | $ | 2,365,587 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
Cullen Agricultural Holding Corp. and Subsidiaries
(a development stage company)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the period from | ||||||||||||||||||||
| For the Three | For the Three | For the Six | For the Six | June 3, 2009 | ||||||||||||||||
| months ended | months ended | months ended | months ended | (inception) through | ||||||||||||||||
| June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | June 30, 2013 | ||||||||||||||||
| Revenues | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
| General and administrative expenses | 62,799 | 69,166 | 137,429 | 186,706 | 3,053,852 | |||||||||||||||
| LOSS FROM OPERATIONS | (62,799 | ) | (69,166 | ) | (137,429 | ) | (186,706 | ) | (3,053,852 | ) | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||
| Interest expense - related party | -- | -- | -- | -- | (456,135 | ) | ||||||||||||||
| Interest expense - note payable | (182 | ) | (253 | ) | (329 | ) | (474 | ) | (2,824 | ) | ||||||||||
| Legal settlement recovery | -- | -- | -- | -- | 71,348 | |||||||||||||||
| Impairment loss on property, plant and equipment | -- | -- | -- | -- | (963,172 | ) | ||||||||||||||
| Gain (loss) on sale of land and equipment, net | -- | 212,887 | -- | 212,887 | (563,074 | ) | ||||||||||||||
| Other income, net | -- | 69,205 | -- | 76,000 | 293,261 | |||||||||||||||
| TOTAL OTHER (EXPENSE) INCOME | (182 | ) | 281,839 | (329 | ) | 288,413 | (1,620,596 | ) | ||||||||||||
| (LOSS) INCOME BEFORE TAXES | (62,981 | ) | 212,673 | (137,758 | ) | 101,707 | (4,674,448 | ) | ||||||||||||
| INCOME TAXES | 310 | 196 | 640 | 568 | 6,805 | |||||||||||||||
| NET (LOSS) INCOME | $ | (63,291 | ) | $ | 212,477 | $ | (138,398 | ) | $ | 101,139 | $ | (4,681,253 | ) | |||||||
| Weighted average number of common shares outstanding – basic and diluted | 19,630,714 | 19,630,714 | 19,630,714 | 19,630,714 | ||||||||||||||||
| Basic and diluted net (loss) income per share | $ | (0.00 | ) | $ | 0.01 | $ | (0.01 | ) | $ | 0.01 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
Cullen Agricultural Holding Corp. and Subsidiaries
(a development stage company)
(unaudited)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Period From June 3, 2009 (inception) through June 30, 2013
| Deficit accumulated | ||||||||||||||||||||
| Common Stock | Additional | during the | ||||||||||||||||||
| Shares | Amount | Paid-in Capital | development stage | Total | ||||||||||||||||
| BALANCE - Beginning June 3, 2009 (inception) | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||||||
| Issuance of stock to initial stockholder – 100 shares at $0.0001 per share | 100 | -- | 100 | -- | 100 | |||||||||||||||
| Issuance of stock due to Merger – 19,247,211 shares at $0.0001 per share on October 22, 2009 | 19,247,211 | 1,925 | 6,061,820 | -- | 6,063,745 | |||||||||||||||
| Net loss for the period from June 3, 2009 (inception) through December 31, 2009 | -- | -- | -- | (612,526 | ) | (612,526 | ) | |||||||||||||
| BALANCE - December 31, 2009 | 19,247,311 | 1,925 | 6,061,920 | (612,526 | ) | 5,451,319 | ||||||||||||||
| Issuance of stock at $5.95 per share | 8,403 | 1 | 49,999 | -- | 50,000 | |||||||||||||||
| Issuance of stock at $2.00 per share | 375,000 | 38 | 749,962 | -- | 750,000 | |||||||||||||||
| Net loss for the year ended December 31, 2010 | -- | -- | -- | (4,134,527 | ) | (4,134,527 | ) | |||||||||||||
| BALANCE - December 31, 2010 | 19,630,714 | 1,964 | 6,861,881 | (4,747,053 | ) | 2,116,792 | ||||||||||||||
| Net income for year ended December 31, 2011 | -- | -- | -- | 253,790 | 253,790 | |||||||||||||||
| BALANCE - December 31, 2011 | 19,630,714 | 1,964 | 6,861,881 | (4,493,263 | ) | 2,370,582 | ||||||||||||||
| Net loss for the year ended December 31, 2012 | -- | -- | -- | (49,592 | ) | (49,592 | ) | |||||||||||||
| BALANCE - December 31, 2012 | 19,630,714 | $ | 1,964 | $ | 6,861,881 | $ | (4,542,855 | ) | $ | 2,320,990 | ||||||||||
| Net loss for the six months ended June 30, 2013 | -- | -- | -- | (138,398 | ) | (138,398 | ) | |||||||||||||
| BALANCE - June 30, 2013 | 19,630,714 | $ | 1,964 | $ | 6,861,881 | $ | (4,681,253 | ) | $ | 2,182,592 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Cullen Agricultural Holding Corp. and Subsidiaries
(a development stage company)
(unaudited)
CONSOLIDATED STATEMENT OF CASH FLOWS
| For the six months ended | For the period from June 3, 2009 (inception) through | |||||||||||
| June 30, 2013 | June 30, 2012 | June 30, 2013 | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net (loss) income | $ | (138,398 | ) | $ | 101,139 | $ | (4,681,253 | ) | ||||
| Adjustments to reconcile net loss (income) to net cash used in operating activities: | ||||||||||||
| (Loss) gain on sale of property and equipment | - | (212,887 | ) | 563,074 | ||||||||
| Depreciation and amortization | - | 13,957 | 110,045 | |||||||||
| Impairment loss on property, plant and equipment | - | - | 963,172 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses and other current assets | 18,411 | 19,552 | (13,825 | ) | ||||||||
| Federal tax receivable | - | - | 1,349,969 | |||||||||
| Federal withholding tax payable | - | (27,943 | ) | - | ||||||||
| Accrued expenses | (13,969 | ) | (18,124 | ) | 194,883 | |||||||
| NET CASH USED IN OPERATING ACTIVITIES | (133,956 | ) | (124,306 | ) | (1,513,935 | ) | ||||||
| Cash Flows from Investing Activities | ||||||||||||
| Purchases of property and equipment | - | - | (841,849 | ) | ||||||||
| Proceeds from sale of property and equipment | - | 1,468,626 | 7,714,299 | |||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | - | 1,468,626 | 6,872,450 | |||||||||
| Cash Flows from Financing Activities | ||||||||||||
| Repayment of mortgage payable to related party | - | - | (7,130,627 | ) | ||||||||
| Proceeds from issuance of mortgage payable to related party | - | - | 100,000 | |||||||||
| Repayment to affiliates | - | (6,539 | ) | (329,060 | ) | |||||||
| Advances from affiliates | - | 27,943 | 318,568 | |||||||||
| Repayments of note payable | (10,170 | ) | (9,883 | ) | (29,658 | ) | ||||||
| Cash acquired in reverse merger | - | - | 3,057,755 | |||||||||
| Proceeds from issuance of common stock | - | - | 750,000 | |||||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (10,170 | ) | 11,521 | (3,263,022 | ) | |||||||
| NET (DECREASE) INCREASE IN CASH | (144,126 | ) | 1,355,841 | 2,095,493 | ||||||||
| CASH - Beginning | 2,239,619 | 1,028,119 | - | |||||||||
| CASH - Ending | $ | 2,095,493 | $ | 2,383,960 | $ | 2,095,493 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid during the period for: | ||||||||||||
| Interest | $ | 668 | $ | 957 | $ | 458,190 | ||||||
| Taxes | $ | - | $ | 1,260 | $ | 2,510 | ||||||
| Non-cash investing and financing activities: | ||||||||||||
| Acquisition of property, plant and equipment through issuance of debt | $ | - | $ | - | $ | 40,120 | ||||||
| Issuance of common stock to settle accrued expenses | $ | - | $ | - | $ | 50,000 | ||||||
| Conversion of interest payable into mortgage payable to related party | $ | - | $ | - | $ | 176,709 | ||||||
| On October 22, 2009, the Company completed its reverse merger and | ||||||||||||
| recapitalization by acquiring certain assets and assuming certain | ||||||||||||
| liabilities: | ||||||||||||
| Tax refund receivable | $ | - | $ | - | $ | 1,349,969 | ||||||
| Land and land improvements | - | - | 8,560,482 | |||||||||
| Loan payable | - | - | (6,853,918 | ) | ||||||||
| Accrued expenses | - | - | (41,822 | ) | ||||||||
| Due to affiliates | - | - | (8,621 | ) | ||||||||
| Issuance of stock | - | - | (1,925 | ) | ||||||||
| Net non-cash recapitalization | $ | - | $ | - | $ | 3,004,165 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(a development stage company)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
| Note 1. | Organization, Business Operations and Significant Accounting Policies |
Organization and Nature of Operations
Cullen Agricultural Holding Corp.’s (the “Company”, “we”, “us” or “our”) accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete condensed consolidated interim financial statements. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. In addition, the December 31, 2012 balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated interim financial statements, in the opinion of management, include all adjustments necessary for a fair presentation. All such adjustments are of a normal recurring nature.
We are a development stage company and to date have not generated any revenue. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes there to for the fiscal year ended December 31, 2012 filed on March 14, 2013. The accounting policies used in preparing these unaudited condensed consolidated interim financial statements are consistent with those described in the December 31, 2012 audited consolidated financial statements.
Basis of Presentation
Cullen Agricultural Holding Corp. was incorporated in Delaware on August 27, 2009. We are a development stage company. Our principal focus is to use our intellectual property in forage and animal sciences to improve agricultural yields. To date, we have not generated any revenue and will not do so until we have sufficient funds to implement our business plan.
We were formed as a wholly-owned subsidiary of Triplecrown Acquisition Corp. (“Triplecrown”), a blank check company. CAT Merger Sub, Inc. (“Merger Sub”), a Georgia corporation, was incorporated as our wholly-owned subsidiary on August 31, 2009. We were formed in order to allow Triplecrown to complete a business combination (the “Merger”) with Cullen Agricultural Technologies, Inc. (“Cullen Agritech”), as contemplated by the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 4, 2009, as amended, among Triplecrown, the Company, Merger Sub, Cullen Agritech and Cullen Inc. Holdings Ltd. (“Cullen Holdings”). Cullen Agritech was formed on June 3, 2009. Cullen Agritech’s primary operations are conducted through Natural Dairy Inc., a wholly owned subsidiary of Cullen Agritech. Cullen Holdings is an entity controlled by Eric J. Watson, our Chief Executive Officer, Secretary, Chairman of the Board and Treasurer and, prior to the Merger, was the holder of all of the outstanding common stock of Cullen Agritech.
Pursuant to the Merger, (i) Triplecrown merged with and into the Company with the Company surviving as the new publicly-traded corporation and (ii) Merger Sub merged with and into Cullen Agritech with Cullen Agritech surviving as a wholly owned subsidiary of the Company. As a result of the Merger, the former security holders of Triplecrown and Cullen Agritech became the security holders of the Company. Thus, the Company became a holding company, operating through its wholly-owned subsidiary, Cullen Agritech. The Merger was consummated on October 22, 2009.
Principles of Consolidation
The condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiary, Cullen Agritech, including its wholly owned subsidiary, Natural Dairy Inc. All intercompany accounts and transactions have been eliminated in consolidation.
| 5 |
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(a development stage company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
| Note 1. | Organization, Business Operations and Significant Accounting Policies, continued |
Cash
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. The Company held no cash equivalents at June 30, 2013 and December 31, 2012.
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). At times during the periods ended June 30, 2013 and December 31, 2012, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At June 30, 2013 cash is held at one financial institution.The Company has not incurred losses related to these deposits.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. The Company charges repairs and maintenance items to expense, while major improvements and betterments are capitalized.
Depreciation and amortization is provided on the straight-line method over the following estimated useful lives of the assets:
| Buildings | 15 years | |||
| Machinery and equipment | 5 – 10 years | |||
| Transportation equipment | 5 years | |||
| Land improvements | 15 years |
Use of Estimates
The preparation of condensed consolidated interim financial statements in conformity with U. S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360 “Plant, Property and Equipment,” for purposes of determining and measuring impairment of its long-lived assets other than goodwill. The Company’s policy is to review the value assigned to its long lived assets to determine if they have been permanently impaired by adverse conditions which may affect the Company whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the Company identifies a permanent impairment such that the carrying amount of the Company’s long lived assets is not recoverable using the sum of an undiscounted cash flow projection, the impaired asset is adjusted to its estimated fair value, based on an estimate of future discounted cash flows which becomes the new cost basis for the impaired asset. Considerable management judgment is necessary to estimate undiscounted future operating cash flows and fair values and, accordingly, actual results could vary significantly from such estimates.
Earnings Per Share
The Company follows the provisions of FASB ASC 260, “Earnings Per Share” (“ASC 260”). In accordance with ASC 260, earnings per common share amounts (“Basic EPS”) are computed by dividing earnings by the weighted average number of common shares outstanding for the period. Earnings per common share amounts, assuming dilution (“Diluted EPS”), gives effect to dilutive options, warrants, and other potential common stock outstanding during the period. ASC 260 requires the presentation of both Basic EPS and Diluted EPS on the face of the statements of operations. At June 30, 2013 and December 31, 2012, there were 74,000,000 warrants outstanding that were not included in the calculation of diluted EPS because the effects of these securities would have been anti-dilutive.
| 6 |
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(a development stage company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
| Note 1. | Organization, Business Operations and Significant Accounting Policies, continued |
Earnings Per Share (Continued)
Basic earnings per share is calculated using the average number of common shares outstanding and diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding warrants using the “treasury stock method.”
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes" ("ASC 740"). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company's assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management's opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
At June 30, 2013 and December 31, 2012, deferred taxes primarily consist of deferred tax assets for net operating loss carryforwards. The Company does not believe at this time that it will utilize the net operating loss carryforwards in the future, and accordingly has recorded a valuation allowance of 100% of the deferred tax assets at June 30, 2013 and December 31, 2012.
The Company has identified its federal tax return and its state tax return in Georgia as "major" tax jurisdictions. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's condensed consolidated interim financial statements. The evaluation was performed for tax years of 2009 through 2012 which are open for tax authority review. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position or results of operations.
The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties and interest for the three and six months ended June 30, 2013 and 2012 or the year ended December 31, 2012 or the period from June 3, 2009 (inception) through June 30, 2013. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
Recently Issued and Adopted Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the condensed consolidated interim financial statements.
| 7 |
CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES
(a development stage company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
| Note 2. | Property and Equipment |
At June 30, 2013 and December 31, 2012 property and equipment consisted of the following:
| June 30, 2013 | December 31, 2012 | |||||||
| Machinery and equipment | $ | 154,229 | $ | 154,229 | ||||
| Website | 3,328 | 3,328 | ||||||
| 157,577 | 157,557 | |||||||
| Less: Accumulated depreciation and amortization | 65,696 | 65,696 | ||||||
| Property and equipment, net | $ | 91,861 | $ | 91,861 | ||||
Depreciation and amortization expense for the period from June 3, 2009 (inception) through June 30, 2013 was $110,045. For the three months ended June 30, 2013 and 2012, depreciation and amortization expense was $0 and $5,959, respectively. For the six months ended June 30, 2013 and 2012, depreciation and amortization expense was $0 and $13,957, respectively. The Company placed its property and equipment out of service at December 31, 2012 as a result of the sale of its land. Accordingly, no depreciation expense was recorded during the and six three months ended June 30, 2013.
| Note 3. | Receivable from Related Party |
Hart Acquisitions LLC
During the three months ended June 30, 2013 and 2012, Hart Acquisitions LLC (“Hart”), an affiliate of one of the Company’s directors, incurred no costs related to the operations of Cullen Agritech and Natural Dairy.
As of June 30, 2013 and 2012, $1,871 was due from Hart.
| Note 4. | Note Payable |
On May 15, 2010, the Company entered into a note payable to a financial institution due May 15, 2014, payable in annual installments of $10,768, which includes interest of 2.9% per annum. The note payable is secured by certain farming equipment. At June 30, 2013 and December 31, 2012, the outstanding principal balance was $10,462 and $20,632, respectively.
| Note 5. | Subsequent Events |
The Company evaluates events that occurred after the balance sheet date but before the condensed consolidated interim financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated interim financial statements through the date the condensed consolidated interim financial statements were issued.
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| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our condensed consolidated interim financial statements and footnotes thereto contained in this report.
Overview
We are a development stage company. We conduct our operations through our wholly-owned subsidiary, Cullen Agricultural Technologies Inc. (“Cullen Agritech”). Cullen Agritech conducts its operations primarily through its wholly-owned subsidiary, Natural Dairy Inc. (“Natural Dairy”). To date, we have not generated any revenue and will not do so until we have sufficient funds to implement our business plan described below.
Our principal focus is to use our intellectual property in forage and animal sciences to improve agricultural yields. The Company was formed to develop, adapt and implement grazing-based farming systems in regions of the world where the geophysical and climatic conditions are suitable for a pasture-based model. While the potential for the pasture or grazing model is significant in many of the world’s developed and developing economies, the systems are highly specific and require significant adaptation and modification to be successful. We have identified the global dairy industry as a primary opportunity in which our systems can be applied to improve yields on land and drive cost-base efficiencies. We believe that cost savings of up to 40-50% are achievable in the long term. Further, we believe the high cost structure, which is employed by over 95% of milk producers in the U.S. and supported by government subsidies, will help to maintain a floor to milk prices in the U.S. and provide us with long term margin protection. By having direct access to a domestic market, we believe our business plan provides a unique opportunity to invest directly into food production while limiting earnings volatility linked to foreign exchange exposure, typically associated with returns from commodity production in exporting countries, such as New Zealand. In addition, we believe the potential opportunity to vertically integrate, while maintaining control of the supply chain, provides a further opportunity to reduce volatility and maximize profitability.
We were incorporated in Delaware on August 27, 2009. We were formed in order to allow Triplecrown Acquisition Corp. (“Triplecrown”), a blank check company, to complete a business combination (the “Merger”) with Cullen Agritech, as contemplated by the Agreement and Plan of Reorganization, dated as of September 4, 2009, as amended, among us, Triplecrown, CAT Merger Sub, Inc. (“Merger Sub”), Cullen Agritech and Cullen Inc. Holdings Ltd. (“Cullen Holdings”). Prior to the Merger, we were a wholly owned subsidiary of Triplecrown, Merger Sub was our wholly owned subsidiary and Cullen Holdings was the sole stockholder of Cullen Agritech. Pursuant to the Merger, (i) Triplecrown merged with and into the Company with the Company surviving as the new publicly-traded corporation and (ii) Merger Sub merged with and into Cullen Agritech with Cullen Agritech surviving as the Company’s wholly owned subsidiary. As a result of the Merger, the former security holders of Triplecrown and Cullen Agritech became our security holders and we became a public holding company, operating through Cullen Agritech.
Strategic Alternatives
We had been in the process of attempting to obtain land development financing backed by the property we owned and operated to support our working capital needs and implement our business plan. However, due to the performance of similar types of farming operations in the region, as well as the general economic downturn, financial institutions have been unwilling to provide such financing. As a result, we have been unable to obtain the necessary funding to support the implementation of our business plan at this time. Accordingly, we have explored all financing and strategic alternatives available to us. As of December 31, 2012, the Company disposed of approximately 3,635 acres of land, constituting all of the Company’s property which it had planned to use to deploy its pasture based dairy and beef business plan. We used the capital received from such sales to support our working capital needs, retire certain of our outstanding debt to reduce our interest obligations and avoid running costs of non -irrigated land which was unsuitable for our business plan.
It is our intention to either seek additional financing to allow us to implement our pasture based dairy and beef business plan, or to seek alternative opportunities available to us unrelated to our business plan in an effort to maximize shareholder value. To this end, the Company has in the past had, and may in the future have, discussions with potential merger candidates wishing to become publicly traded. There is no assurance that the Company will be successful in any of such efforts.
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Results of Operations and Financial Condition
We are a development stage company. Since October 22, 2009, our activities have been primarily focused on raising capital to fund our business plan and the sale of land to meet our working capital requirements and repay our outstanding debt. Prior to October 22, 2009 we and our wholly-owned subsidiary were “shell companies” and conducted no business operations and did not own or lease any real estate or other property. Our activities during this time were limited to our organization, the preparation and filing with the SEC of a Registration Statement on Form S-4 and other matters related to the Merger. To date, we have not generated any revenue.
Results of Operations
For the three months ended June 30, 2013, we had a net loss of $63,291. Our expenses of $62,799 for three months ended June 30, 2013 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $501, $37,026, $4,032, and $21,240, respectively.
For the three months ended June 30, 2012, we had net income of $212,477. Our general and administrative expenses of $69,166 for three months ended June 30, 2012 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $7,037, $23,390, $540, and $38,199, respectively. For the three months ended June 30, 2012, we recognized other income (expense) of $281,839, which include a gain from sales of land of $212,887, $69,205 of rental income and interest expense of $253.
For the six months ended June 30, 2013, we had a net loss of $138,398. Our expenses of $137,429 for six months ended June 30, 2013 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $2,545, $85,547, $11,945, and $37,390, respectively.
For the six months ended June 30, 2012, we had net income of $101,139. Our general and administrative expenses of $186,706 for six months ended June 30, 2012 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $18,563, $91,064, $9,054, and $68,025, respectively. For the six months ended June 30, 2012, we recognized other income (expense) of $288,413, which include a gain from sales of land of $212,887, $76,000 of rental income and interest expense of $474.
For the period from June 3, 2009 (inception) through June 30, 2013, we had a net loss of $4,681,253. We did not generate any revenues during this period and are a development stage company. Our expenses of $3,053,852 for the period from June 3, 2009 (inception) through June 30, 2013 consisted primarily of legal, accounting and consulting fees of $980,159 as well as payroll and employee related expenses of $587,070 and other general corporate and administrative expenses of $1,486,623.
Additionally, upon the closing of the Merger, we issued to Cullen Holdings a promissory note in an initial amount of $6,853,918. During the period from June 3, 2009 (inception) through June 30, 2013, we incurred interest expense of $456,135, related to this promissory note. We incurred interest expense related to equipment financing of $182 and $253 for the three months ended June 30, 2013 and 2012, respectively and $2,824 for the period from June 3, 2009 (inception) through June 30, 2013.
For the period from June 3, 2009 (inception) through June 30, 2013, we had other expenses, net of $1,620,596 related to lease income, note payable interest expense related to tractor and a mortgage payable to a related party, legal settlement recovery, calf deaths, loss from beef grazing operations, the sale of timber, corn and hay, loss from the sale of land and impairment loss on property, plant and equipment and a $6,805 provision for income tax.
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Liquidity and Capital Resources
During the period from June 3, 2009 (inception) through June 30, 2013, we did not have any sources of revenue and incurred a net loss of $4,681,253. As of June 30, 2013, we had $2,095,493 available cash and working capital of $2,090,731.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with uncondensed consolidated interim entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or acquired any non-financial assets.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to the unaudited condensed consolidated interim financial statements. However certain accounting policies are particularly important to the portrayal of financial position and results of operations and require the application of significant judgments by management. In applying those policies, management used its judgment to determine the appropriate assumptions to be used in determination of certain estimates. Our accounting policy will be to use estimates based on terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate.
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the unaudited condensed consolidated interim financial statements.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file with the SEC is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and treasurer (our principal executive and principal financial and accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2013.
Based on this evaluation, our principal executive and principal financial and accounting officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2013.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
The Company is not currently involved in any litigation which it believes could have a materially adverse effect on its financial conditions or results of operations.
| ITEM 6. | EXHIBITS |
| (a) | Exhibits: |
| 31 | Section 302 Certification by CEO and Treasurer | |
| 32 | Section 906 Certification by CEO and Treasurer | |
| 101 | Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2013, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders' Equity, (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Unaudited Condensed Consolidated Financial Statements, as blocks of text and in detail.* | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema Document * | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document * |
* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 30, 2013
| CULLEN AGRICULTURAL HOLDING CORP. | ||
| /s/ Eric J. Watson | ||
| Eric J. Watson | ||
| Chairman of the Board, Chief Executive Officer, Secretary and Treasurer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
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