UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB / A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2006
Commission file number 27339
iCARBON CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 88-0426887
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(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
106 Lakeside Avenue
P.O. Box 210
Delano, PA 18220
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(Address of principal executive offices)
(570) 467-2222
(Issuer's telephone number)
BPK Resources, Inc.
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(Former name, former address, and former
fiscal year if changed since last report)
Check whether the issuer (1) filed all documents and reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
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. Yes X No
As of August 20, 2006, 32,567,603 shares of our common stock, par value, $.001,
were outstanding.
Transitional Small Business Disclosure Format: Yes No X
iCARBON CORPORATION
FORM 10-QSB - INDEX
PART I. FINANCIAL INFORMATION:
Pages
- -------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) .................. 2
Condensed Consolidated Statements of Operations (unaudited) ........ 4
Condensed Consolidated Statement of Stockholders' Equity (unaudited) 5
Condensed Consolidated Statements of Cash Flows (unaudited) ........ 6
Notes to Condensed Consolidated Financial Statements ............... 8
Item 2. Management's Discussion and Analysis or Plan of Operation ....... 17
Item 3. Controls and Procedures ......................................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 22
Item 3. Defaults upon Senior Securities .................................. 22
Item 4. Submission of Matters to a Vote of Security Holders .............. 22
Item 5. Other Information ................................................ 22
Item 6. Exhibits and Reports on Form 8-K ................................. 22
Signatures ............................................................... 23
1
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
iCARBON CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 MARCH 31, 2006
---------------- ----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 218,619 $ 129,845
Cash restricted by loan agreement 15,000 15,000
Trade accounts receivable 216,753 163,666
Other receivable 17,000 17,000
Inventories 1,383,600 1,472,002
Prepaid expenses 49,475 75,910
------------- ---------------
TOTAL CURRENT ASSETS 1,900,447 1,873,423
PROPERTY, PLANT AND EQUIPMENT, NET 9,626,891 6,851,042
GOODWILL 800,240 800,240
LICENSE AGREEMENT 2,105,186 1,977,186
DEPOSIT ON INVESTMENT IN COMPANY 1,200,000 300,000
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TOTAL ASSETS $15,632,764 $11,801,891
============= ===============
The accompanying notes are an integral part of these statements.
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2
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JUNE 30, 2006 MARCH 31, 2006
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt:
Related parties $ 457,972 $ 817,972
Other 614,316 543,296
Current maturity of capital lease obligation 3,669 3,607
Notes payable, demand:
Related parties 2,635,117 2,775,117
Other 750,000 2,608,000
Accounts payable 482,053 586,883
Accrued expenses 442,204 244,861
Due to related parties 72,142 53,221
---------------- ----------------
TOTAL CURRENT LIABILITIES 5,457,473 7,632,957
LONG-TERM DEBT, LESS CURRENT MATURITIES
Related parties 225,000 225,000
Other 3,681,345 1,111,944
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TOTAL LONG-TERM DEBT 3,906,345 1,336,944
---------------- ----------------
CAPITAL LEASE OBLIGATION, LESS CURRENT MATURITY 1,602 2,543
---------------- ----------------
TOTAL LIABILITIES 9,365,420 8,972,444
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STOCKHOLDERS' EQUITY
Preferred Stock: Authorized 100,000,000 Shares: 830 -
Class B preferred stock; $0.001 par value 829,755 shares issued and
outstanding - June 30, 2006
Class C preferred stock; $0.001 par value; 326,057 shares issued and
outstanding - June 30, 2006 326 -
Class D preferred stock; $0.001 par value; issued and outstanding
585,000 shares 585 585
Class E preferred stock; $0.001 par value; issued and outstanding 14,546
shares (involuntary liquidation value - $1,454,618) 15 15
Common stock, $0.001 par value; authorized 100,000,000 shares; issued and
outstanding 15,964,986 - June 30, 2006; 6,666,667 shares - March 31,
2006 15,965 6,667
Paid-in capital 12,453,198 6,788,470
Accumulated deficit (6,203,575) (3,966,290)
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TOTAL STOCKHOLDERS' EQUITY 6,267,344 2,829,447
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,632,764 $11,801,891
================ ================
The accompanying notes are an integral part of these statements.
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3
iCARBON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
2006 2005
--------------- ---------------
(UNAUDITED)
NET SALES $ 374,255 $ 306,590
COST OF SALES 208,677 170,911
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GROSS PROFIT 165,578 135,678
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,103,291 627,041
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OPERATING LOSS (937,713) (491,363)
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OTHER EXPENSES
Interest expense (72,078) (73,621)
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TOTAL OTHER EXPENSES, NET (72,078) (73,621)
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NET LOSS ($1,009,791) ($ 564,984)
================ ================
Net loss per common share - basic and diluted ($.16) ($.11)
================ ================
The accompanying notes are an integral part of these statements.
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4
iCARBON CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Class B Class C Class D Class E
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Shares Par Value Shares Par Value Shares Par Value Shares Par Value
------- --------- ------ --------- ------- --------- ------ ---------
BALANCE - MARCH 31, 2006 585,000 $585 14,546 $15
Other stockholders'
equity transactions
(unaudited) ........... - - - - - - - -
Shares issued in
connection with merger
(unaudited) ........... 829,755 830 188,410 188 - - - -
Notes payable converted
to equity (unaudited) .
Issuance of Class C
Preferred Stock
(unaudited) ........... 137,647 138
Cost associated with
issuance of Class C
Preferred Stock
(unaudited) ........... - - - - - - - -
Beneficial conversion -
Warrants issued in
conjunction with Class
C Preferred Stock
(unaudited) ........... - - - - - - - -
Net loss (unaudited) ..... - - - - - - - -
-------- -------- -------- ------- -------- ------- ------- ------
BALANCE - JUNE 30, 2006
(UNAUDITED) 829,755 $ 830 326,057 $326 585,000 $585 14,546 $15
======== ======== ======== ======= ======== ======= ======= ======
Common Stock Total
Shares Par Value Paid-in Accumulated Stockholders
Capital Deficit Equity
--------- --------- ----------- ----------- ------------
BALANCE - MARCH 31, 2006 6,666,667 $6,667 $6,788,470 ($3,966,290) $2,829,447
Other stockholders'
equity transactions
(unaudited) ........... - - 63,650 - 63,650
Shares issued in
connection with merger
(unaudited) ........... 9,126,584 9,126 2,027,815 - 2,037,959
Notes payable converted
to equity (unaudited) . 171,735 172 149,828 - 150,000
Issuance of Class C
Preferred Stock
(unaudited) ........... 2,339,862 2,340,000
Cost associated with
issuance of Class C
Preferred Stock
(unaudited) ........... - - (143,921) - (143,921)
Beneficial conversion -
Warrants issued in
conjunction with Class
C Preferred Stock
(unaudited) ........... - - 1,227,494 (1,227,494) -
Net loss (unaudited) ..... - - - (1,009,791) (1,009,791)
---------- -------- ----------- ---------- ----------
BALANCE - JUNE 30, 2006
(UNAUDITED) 15,964,986 $15,965 $12,453,198 ($6,203,575) $6,267,344
========== ======= =========== =========== ==========
The accompanying notes are an integral part of these statements.
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5
iCARBON CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
2006 2005
---------------- ----------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($1,009,791) ($ 564,984)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 112,263 75,114
Interest capitalized on notes payable - 15,256
Capital contributed 63,650 -
Stock issued in lieu of compensation - 60,000
(Increase) decrease in assets:
Trade accounts receivable and other receivable (53,087) (48,628)
Inventories 88,402 (522,496)
Prepaid expenses 29,361 78,490
Increase (decrease) in liabilities:
Accounts payable (582,738) 117,118
Accrued expenses 249,520 45,673
Due to related parties (579) -
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NET CASH USED IN OPERATING ACTIVITIES (1,102,999) (744,457)
---------------- ----------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Investment in licensing agreement (128,000) -
Utilization of cash restricted for property, plant and equipment 200,000 -
Increase in deposit on investment in company (900,000) -
Purchase of property, plant, and equipment (407,523) (395,402)
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NET CASH USED IN INVESTING ACTIVITIES (1,235,523) (395,402)
---------------- ----------------
The accompanying notes are an integral part of these statements.
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6
iCARBON CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
2006 2005
---------------- ----------------
(UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligation (879) (823)
Cash received in merger 882,264 -
Proceeds from demand notes payable:
Related Parties 200,000 150,000
Repayments on demand notes payable, related parties (450,000) -
Proceeds from the issuance of preferred stock, net of offering cost 2,196,079 -
Proceeds from the issuance of long-term debt:
Related parties - 400,000
Other - 625,000
Repayments on long-term debt:
Related parties (360,000) -
Other (40,168) (117,947)
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,427,296 1,056,230
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 88,774 (83,629)
CASH - BEGINNING 144,845 103,260
---------------- ----------------
CASH - ENDING $ 233,619 $ 19,631
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 77,140 $ 26,715
================ ================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Debt converted to common stock $ 150,000 $ 200,000
================ ================
Equipment acquired by issuance of common stock - $1,650,000
================ ================
Land and Building acquired by direct financing $ 2,650,000 $ -
=============== ================
Equipment acquired by direct financing $ - $ 375,000
=============== ================
Long-term debt, related party, reclassified to demand note payable,
related party $ - $ 49,975
=============== ================
Other non cash equity and demand notes payable transaction $ - $ 70,755
=============== ================
Vehicle acquired by direct financing $ 30,589 $ -
=============== ================
The accompanying notes are an integral part of these statements.
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7
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America. Certain information and footnote
disclosures normally included in financial statements under accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and
notes thereto included in Form 8-K/A for the fiscal year ended March
31, 2006, filed on July 14, 2006. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the consolidated financial statements have
been included. The results of operations for the three month periods
ended June 30, 2006 and 2005 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
On April 19, 2006, BPK Resources, Inc. a Nevada corporation publicly
traded through the facilities of the NASDAQ OTC (BPK) closed upon an
Agreement and Plan of Merger (the Merger Agreement) among BPK, BPK
Resources Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of BPK (Merger Sub), Graphite Technology Group, Inc.
(Graphite), and Derek Hirsch and James E. Olive, the principal
shareholders of Graphite (the Merger). In accordance with the Merger
Agreement, Merger Sub merged with and into Graphite with Graphite
surviving as a wholly owned subsidiary of BPK.
The Merger resulted in the owners and management of Graphite having
effective operating control of the combined entity after the Merger,
with the existing BPK investors continuing as only passive investors.
In connection with the Merger, all directors and officers of BPK
resigned and new directors and officers were appointed by Graphite.
Under accounting principles generally accepted in the United States of
America, the Merger is considered to be a capital transaction in
substance, rather than a business combination. That is the Merger is
equivalent to the issuance of stock by Graphite for the net monetary
assets of BPK, accompanied by a recapitalization, and is accounted for
as a change in capital structure. Accordingly, the accounting for the
Merger is identical to that resulting from a reverse acquisition,
except that no goodwill intangible asset is recorded. Under reverse
takeover accounting, the post reverse-acquisition comparative financial
statements of the "legal acquirer" (BPK), are those of the "legal
acquiree" (Graphite) (i.e., the accounting acquirer).
In consideration for the Merger, (i) the holders of issued and
outstanding shares of the Graphite's common stock received an aggregate
of (A) 6,666,667 shares of BPK's common stock and (B) 585,000 shares of
BPK Series D Convertible Preferred Stock convertible into an aggregate
of 9,750,000 shares of BPK common stock; and (ii) holders of issued and
outstanding shares of Graphite's preferred stock received an aggregate
of 14,456 shares of Series E Convertible Preferred Stock, convertible
into an aggregate of 583,333 shares of BPK common stock. The capital
transaction has been given retroactive effect as if the transaction had
been in place for all periods presented.
On the date of the merger BPK's balance sheet consisted of current
assets of $3,747,929, current liabilities of $1,709,970 and
stockholders' equity of $2,037,959. Included in current assets was
8
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
$2,862,739 that was due from Graphite to BPK prior to the merger and
which eliminates in consolidation. Accordingly, the results of
operations for the three month period ended June 30, 2006 include
activity for BPK from April 19, 2006 to June 30, 2006.
On July 21, 2006, BPK Resources, Inc. changed its name to iCarbon
Corporation (the Company). The Company's common stock continues to be
traded through the facilities of the NASDAQ OTC (ICRB). On August 4,
2006, the Company was also granted listing status on the Frankfurt
Stock Exchange. The Company's common stock trades on the Deutsche Borse
Unofficial Regulated Market (Segment Freiverkehr) FWB (R) Frankfurter
Wertpapierborse (the Frankfurt Stock Exchange), also referred to as the
"Open Market".
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
Effective April 1, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" (SFAS No.123R) requiring that compensation cost
relating to share-based payment transactions be recognized under fair
value accounting and recorded in the financial statements. The cost is
measured at the grant date, based on the calculated 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 award).
Prior to April 1, 2006, share-based compensation to employees was
recorded in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations. The Company also followed the disclosure requirements
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", as amended by Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure". The Company adopted SFAS No.
123R using the modified prospective method and, accordingly, financial
statement amounts for prior periods presented in this Form 10-QSB/A
have not been restated to reflect the fair value method of recognizing
compensation cost relating to non-qualified stock options. There was no
compensation cost related to non-qualified stock options recognized in
operating results for the three months ended June 30, 2006 and 2005.
The fair value of each option award is estimated on the date of grant
using the Black-Scholes option-pricing model. Historical volatilities
based on the historical stock trading prices of the Company are used to
calculate the expected volatility. We used the simplified method as
defined under the SEC Staff Accounting Bulletin No. 107, Topic 14:
"Share-based Payment," to derive an expected term. The expected term
represents an estimate of the time options are expected to remain
outstanding. The risk-free rate for periods within the contractual life
of the option is based on the U.S. treasury yield curve in effect at
the time of grant.
In February 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 155, "Accounting for Certain Hybrid Financial
Instruments". SFAS No. 155 amends FASB Statement No. 133 and FASB
Statement No. 140, and improves the financial reporting of certain
hybrid financial instruments by requiring more consistent accounting
that eliminates exemptions and provides a means to simplify the
accounting for these instruments. Specifically, SFAS No. 155 allows
financial instruments that have embedded derivatives to be accounted
for as a whole (eliminating the need to bifurcate the derivative from
its host), if the holder elects to account for the whole instrument on
a fair value basis. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entity's first
fiscal year that begins after September 15, 2006. Management does not
believe the adoption of SFAS No. 155 will have a material impact on the
Company's financial position, results of operations, or cash flows.
9
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets---An Amendment of FASB Statement No. 140" ("SFAS
156"). SFAS 156 requires that all separately recognized servicing
assets and servicing liabilities be initially measured at fair value,
if practical. The statement permits, but does not require, the
subsequent measurement of servicing assets and servicing liabilities at
fair value. SFAS 156 is effective as of the beginning of an entity's
first fiscal year that begins after September 15, 2006. Management does
not believe the adoption of SFAS 156 will have a material impact on the
Company's financial position, results of operations, or cash flows.
In February 2006, the FASB issued FASB Staff Position No. FAS 123 R -4,
"Classification of Options and Similar Instruments Issued as Employee
Compensation That Allow for Cash Settlement upon the Occurrence of a
Contingent Event." This position amends SFAS 123R to incorporate that a
cash settlement feature that can be exercised only upon the occurrence
of a contingent event that is outside the employee's control does not
meet certain conditions in SFAS 123R until it becomes probable that the
event will occur. The guidance in this FASB Staff Position has been
applied upon initial adoption of Statement 123R. Adoption did not
impact the Company's financial statements.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes." The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's
financial statements in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Specifically, the pronouncement prescribes a recognition threshold and
a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. The interpretation also provides guidance on the related
derecognition, classification, interest and penalties, accounting for
interim periods, disclosure and transition of uncertain tax positions.
The interpretation is effective for fiscal years beginning after
December 15, 2006. The Company is evaluating the impact of this new
pronouncement on its consolidated financial statements.
NOTE 3 - DEPOSIT ON INVESTMENT IN COMPANY, INVESTMENT IN LICENSE AGREEMENT
AND OTHER ASSETS ACQUIRED
AGREEMENT BETWEEN THE COMPANY, M. BERTIL AKESSON, SOCIETE
MALAGACHE DU GRAFIT
On July 27, 2005, the Company entered into an agreement with
Bertil Akesson ("Akesson") and Societe Malagache du Grafit
(SOMAGRA) by which the Company will purchase 50% common equity
ownership of SOMAGRA. SOMAGRA owns all right and interest in
mining claims and leases comprising the Ambatomitamba Graphite
Mine and four contiguous graphite mines located in Madagascar
as well as all equipment on site. By terms of the agreement,
the Company will finance, manage, operate and develop the
graphite mines.
The purchase agreement calls for the Company to purchase this
50% ownership by payment of $3.0 million. The payment of the
purchase price is to be paid by $1.2 million in cash, of which
$1,200,000 has been paid and reflected as a deposit at June
30, 2006. The additional $1.8 million is due at the earliest
date after all governmental approvals of mining permits and
licenses are secured, through the issue of common shares of
the Company's common stock.
In addition, the Company entered into an agreement by which
the Company will have the option to purchase the remaining 50%
common equity ownership of SOMAGRA.
10
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 3 - DEPOSIT ON INVESTMENT IN COMPANY, INVESTMENT IN LICENSE AGREEMENT AND
OTHER ASSETS ACQUIRED (CONTINUED)
The option agreement calls for the Company to purchase this
50% ownership by payment of $3.0 million. The payment of the
purchase price is to be paid by $1.2 million in cash and $1.8
million in common stock, of which the Company will pay $1.8
million in common stock issued on the basis of the then
current market price of the Company's stock, and $1.2 million
in cash, paid in four equal installments, each installment of
$300,000 is payable on July 1 of each year beginning in 2006.
A lump sum interest payment of $75,000 was paid with the first
installment of $300,000 on July 1, 2006.
There is currently no mining activity. The company is
developing a mine operations plan with current activities
limited to establishing pre-production mine processes.
AGREEMENT BETWEEN THE COMPANY AND CHENZHOU GLOBAL GRAPHITE INC.
On October 13, 2005, the Company purchased a 37.125% interest
in Chenzhou Global Graphite Inc. (a company incorporated in
Hunan Province, China) ("Chenzhou") which was established
during 2005 and continues to develop its business. Chenzhou
has successfully developed patented purification technology
which increases carbon levels of amorphous graphite. High
level fixed carbon amorphous graphite (99.2+% fixed carbon)
represents the potential for better and lower cost material
solutions for numerous industrial applications. The Company
and Chenzhou will collaborate to commercialize the product
potential of the patented technology. In addition, Chenzhou
has an agreement to become the majority owner and the licensed
operator of a graphite mine in Jiangxi Province, China.
Chenzhou will also have mining rights and licenses for mining
amorphous graphite in Hunan Province. The transaction entailed
a share exchange of 270,815 common shares and 23,764 Series D
Convertible Preferred Shares issued by the Company for
3,712,500 common shares representing 37.125% ownership of
Chenzhou (value of $1,652,186). The Company was also required
to purchase an additional 787,500 shares, 7.875% ownership,
for $350,000 cash.
On June 25, 2006, this agreement was modified to the extent
that the Company released its ownership interest in Chenzhou
in exchange for a license agreement.
The license agreement establishes the Company as the exclusive
perpetual licensee, a collaborative developer of the
technology, and the sole party to commercialize the business
potential of the technology. The Company negotiated the
license in favor of surrendering its common equity interest
and other financial commitments to Chenzhou. The license
encompasses the exploitation of all of the assets of Chenzhou,
which includes mine licenses as and when granted, mine
properties and technologies controlled by Chenzhou. Payment of
the license was accomplished by credit of 270,815 common
shares and 23,764 shares of Series D Preferred stock of the
Company issued previously by Graphite Technology Group, Inc.,
and $350,000 cash advances. The Company has no continuing
financial commitments to Chenzhou, however expects to continue
financial assistance to further development and
commercialization of Chenzhou's technology and mine
development.
Chenzhou has the option to acquire a 55% economic interest in
graphite mine properties located in Jiangxi Province
controlled by Jinchuan Graphite Limited Liability Company (the
"Jinchuan Mine"). The Company has the option, granted by
Chenzhou, to purchase directly a 27.5% ownership of the
Jinchuan Mine. Chenzhou would purchase the remaining 27.5%,
which purchase, if made, would comprise part of the license.
11
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 4 - NOTES PAYABLE, DEMAND
Notes payable, demand, was reduced $450,000 during the period
ended June 30, 2006 due to repayments to related parties.
Included in this amount were repayments of $300,000 of demand
notes recorded on April 19, 2006 as part of the Merger.
NOTE 5 - LONG-TERM DEBT
DURING THE PERIOD ENDED JUNE 30, 2006, THE COMPANY BORROWED
THE FOLLOWING:
The Company's subsidiary, GTG Carbons, LLC, acquired a
warehouse and 15 acres of land in Aliquippa, Pennsylvania. The
total purchase price was $2,900,000, the Company paid $250,000
and the seller, Mechanical Service Company, Inc., held a
mortgage for $2,650,000. The terms of the mortgage call for
monthly payments of $19,445 through December 2007, thereafter
the monthly payments are $25,325 through May 2011 with a
balloon payment on June 1, 2011. Interest is charged at 8% and
the mortgage is secured by the building and is guaranteed by
the Company.
The Company borrowed $30,029 from Keystone Nazareth Bank &
Trust to purchase a vehicle. The terms of the note are
payments of $726 through May 2010 with interest charged at
6.5%. A vehicle collateralizes the loan.
NOTE 6 - STOCKHOLDERS' EQUITY
Series B Preferred Stock. All shares of Series B Preferred
Stock were issued at $.55 per share and are immediately
convertible at the option of the holder into one sixth of a
share of common stock. In the event of a liquidation or
dissolution of the Company, the Series B Shares automatically
convert into shares of common stock at an effective conversion
price of $3.30 per share. Except as provided in the Nevada
General Corporation Law, holders of Series B Shares have no
voting rights. The shares may be redeemed at any time at the
option of the Company at a redemption price of $.01 per share
so long as (i) the average of the closing bid prices of our
common stock during the twenty trading days preceding the
redemption notice date equals or exceeds $1.00 per share; and
(ii) the shares of common stock issuable upon conversion are
either subject to an effective registration statement under
the Securities Act of 1933, or transferable pursuant to Rule
144(k) promulgated thereunder.
Series C Preferred Stock. Each share of Series C Preferred
Stock shall be converted into that number of shares of Common
Stock equal to the original issue price of the Preferred Stock
($17.00) divided by $1.02 (as same may be adjusted, the
"Conversion Price") upon the earlier of: (i) the filing of an
amendment to the Articles of Incorporation of the Company
increasing the number of shares of Common Stock the Company is
authorized to issue such that a sufficient number of shares of
Common Stock is authorized and unissued so that each share of
Series C Preferred Stock can be converted into Common Stock;
or (ii) the first business day after the effective date of a
reverse stock split of the outstanding shares of Common Stock
such that a sufficient number of shares of Common Stock is
authorized and unissued so that each share of Series C
Preferred Stock can be converted into Common Stock (See Note
9). Upon sale, each share of Series C Preferred Stock was
issued as a unit with one warrant. Each Warrant is exercisable
into 50 shares of Common Stock at the exercise price of $2.04
per share.
12
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the private offering, the Company has
agreed to file a registration statement with the Securities
and Exchange Commission (the "SEC") within 90 days after the
private offering is completed and to have such registration
statement declared effective by the SEC within 150 days after
the private offering is completed. In the event the Company
fails to file the registration statement within the 90-day
period or have such registration statement declared effective
by the SEC within the 150-day period the Company will be
obligated to pay in cash or in shares of Common Stock (at the
Company's option) an amount equal to 2% of the purchase price
of the Series C and an additional amount equal to 1% of the
purchase price at the end of each subsequent 30-day period in
which the registration statement is not filed or declared
effective, as the case may be.
Series D Preferred Stock. Series D Convertible Preferred Stock
consists of 585,000 authorized nonvoting shares with a $0.001
par value. Each share of Series D Preferred Stock will
automatically convert into 16.667 shares of Common Stock upon
the earlier of: (i) the filing of an amendment to the
Company's Articles of Incorporation increasing the number of
authorized shares of Common Stock such that a sufficient
number of shares of Common Stock is authorized and unissued so
that each share of Series D Preferred Stock may be converted
into Common Stock or (ii) the first business day after the
effective date of a reverse stock split of the outstanding
shares of Common Stock such that a sufficient number of shares
of Common Stock is authorized and unissued so that each share
of Series D Preferred Stock may be converted into Common Stock
(See Note 9). The holders of Series D Preferred Stock will
have no liquidation preference, voting rights or rights to
receive dividends. These shares were granted to all holders of
outstanding shares of the Company's common stock as of the
date of the Merger. As noted in Note 1, these shares have been
given retroactive effect as if the transaction had occurred
for all periods presented.
Series E Preferred Stock. Series E convertible preferred stock
consists of 14,546 authorized, nonvoting shares with a $0.001
par value. These shares will be convertible into an aggregate
of 583,333 shares of Common Stock. Each share of Series E
Preferred Stock will be Convertible into shares of Common
Stock at the option of the holder commencing upon the earlier
of: (i) the filing of an amendment to the Company's Articles
of Incorporation increasing the number of authorized shares of
Common Stock such that a sufficient number of shares of Common
Stock is authorized and unissued so that each share of Series
E Preferred Stock may be converted into Common Stock or (ii)
the first business day after the effective date of a reverse
stock split of the outstanding shares of Common Stock such
that a sufficient number of shares of Common Stock is
authorized and unissued so that each share of Series E
Preferred Stock may be converted into Common Stock. Subject to
the rights of holders of any series of preferred stock which
by its terms is senior to the Series E Preferred Stock , in
the event of any liquidation, dissolution winding up of the
Company, holders of the Series E Preferred Stock will be
entitled to receive in preference to the holders of Common
Stock an aggregate amount of approximately $1,454,600.
The holders of the Series E preferred stock shall be entitled
to receive, out of any assets legally available therefore,
cumulative dividends at the rate of five percent (5%) per
annum, accrued daily and payable in preference and priority to
any payment of any dividend on the common stock. As noted in
Note 1, these shares have been given retroactive effect as if
the transaction had occurred for all periods presented.
13
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
During the period ended June 30, 2006, we obtained gross proceeds of
$2,339,999 through the issuance of 137,647 units consisting of shares
of Series C Convertible Preferred stock and warrants. The Company
incurred costs of $143,921 in relation to the completion of these
transactions.
In connection with the issuance of the Series C Convertible Preferred
shares the warrants that were issued were considered "in the money" at
the commitment date. These warrants vested immediately. In conjunction
with EITF 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios", the
Company has recorded $1,227,494 related to the beneficial conversion
associated with these warrants.
During the quarter ended June 30, 2006 the Company converted an
outstanding note payable in the amount of $150,000 into 171,735 shares
of common stock.
In order to consummate the Merger, the Company issued 829,755 shares of
Series B Preferred Stock, 188,410 shares of Series C Preferred Stock
and 9,126,584 shares of Common Stock. This issuance resulted in an
increase in Stockholders' Equity of $2,037,959, which represented BPK's
stockholders' equity on April 19, 2006.
During the quarter ended June 30, 2006, the Company also recorded
contributed capital totaling $63,650.
The Company effected a reverse stock split on July 25, 2006. As a
result, shares of Series C and Series D Preferred Stock were converted
into shares of common stock at that time (see Note 9 for further
discussion).
NOTE 7 - INCOME TAXES
The Company has fully reserved for all state and federal net operating
loss carryforwards, thus there is no income tax benefit recorded due to
the uncertainty as to the Company's ability to realize net operating
loss carry-forwards that are available to offset taxable income in
future periods.
14
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 8 - EARNINGS PER SHARE
Earnings per common share are calculated in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per common share is computed by
dividing net loss attributable to common stockholders by the weighted
average number of common shares outstanding. Diluted earnings per share is
computed similarly to basic earnings per share except that the denominator
is increased to include the number of additional common shares that would
have been outstanding if potentially dilutive common shares had been issued
and if the additional common shares were dilutive. Shares associated with
stock options, warrants and convertible preferred stock and debt are not
included when their inclusion would be antidilutive (i.e., reduce the net
loss per share).
The Company's calculation of earnings per share is as follows:
JUNE 30, 2006 JUNE 30, 2005
---------------- ----------------
NET LOSS ($1,009,791) ($564,984)
ACCRETION OF PREFERRED STOCK (1,227,494) -
---------------- ----------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS ($2,237,285) ($564,984)
================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING 13,933,826 5,024,485
================ ================
PER SHARE AMOUNT - BASIC AND DILUTED ($0.16) ($0.11)
================ ================
For the three months ended June 30, 2006, the following shares have been
excluded from the computation of diluted earnings per share as they would
be antidilutive: 829,775 shares of Series B convertible preferred shares
that are convertible into 138,296 shares of common stock; 326,057 shares of
Series C convertible preferred shares that are convertible into 5,434,300
shares of common stock; 585,000 shares of Series D convertible preferred
shares that are convertible into 9,750,000 shares of common stock; 14,546
shares of Series E convertible preferred shares that are convertible into
583,333 shares of common stock; stock warrants convertible into 4,689,837
shares of common stock; and stock options convertible into 366,667 share of
common stock.
For the three months ended June 30, 2005, 14,546 shares of Series E
Convertible Preferred Stock that are convertible into 583,333 shares of
common stock and 550,429 shares of Series D Convertible Preferred Stock
that are convertible into 9,173,816 shares of common stock have been
excluded from the computation of diluted earnings per share as they would
be antidilutive.
15
iCARBON CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 9 - SUBSEQUENT EVENTS
PRIVATE PLACEMENT
On July 17, 2006, the Company completed a $4.5 Million institutional private
placement of 9% guaranteed exchangeable notes due January 12, 2010. The notes
were issued to Millennium Global Special Situations Americas Fund by iCarbon
Corporation's subsidiary, Graphite Technology Group, Inc., and guaranteed by the
Company, The notes are exchangeable for shares of the Company's common stock at
an exchange price of $1.38 per share subject to adjustment.
Under the purchase agreement for the notes, the investor also received warrants
exercisable for five years from the issue date to purchase 2,205,882 shares of
the Company's common stock at an exercise price of $2.04 per share subject to
adjustment. The purchase agreement calls for the Company to register the shares
issuable upon the exchange of the notes and the exercise of the warrants for
resale on behalf of the investor.
ACQUISITION OF CLASSIFIER MILLING SYSTEMS CORP.
iCarbon Canada Ltd., a wholly owned foreign subsidiary of iCarbon Corporation,
acquired Classifier Milling Systems Corp. ("CMS"), a Canadian private company in
the business of designing, engineering and manufacturing milling equipment for
use in separation, reduction, classifying and routing raw materials. The
acquisition was completed July 27, 2006.
The acquisition terms included a cash payment of $1 million, issuance of $3
million principal amount of Promissory Notes and provisions to pay $1 million of
the Promissory Notes by issuance of common equity shares of iCarbon Corporation.
CMS engineers and manufactures conventional and custom milling process systems
(Hammer Mills, Air Classifier Mills, Cyclones and Cyclone Classifiers, Dust
Collectors, Chill Roll Assemblies, Extruders, Paddle/Ribbon Mixers). CMS milling
systems are used for production of powdered graphite and a range of industrial
minerals as well as plastics, rubber, paints, petrochemicals, cement, food
stocks, pharmaceutical, cosmetic, and refractory materials. CMS manufactures
systems ranging from 1HP to 400HP for small, medium and large systems users that
process up to 15,000 tons per annum rated capacity from a single system.
REVERSE STOCK SPLIT AND CONVERSION OF PREFERRED SHARES
On July 25, 2006, the Company effected a reverse stock split of its common stock
outstanding at a ratio of one share for every six shares outstanding. After
giving effect to the reverse split, 15,965,068 shares of the Company's common
stock were outstanding.
In addition, the Company issued 16,398,142 shares of its common stock pursuant
to the terms of certain convertible notes and Series C and Series D Preferred
Stock, after which issuance the Company's issued and outstanding shares of
common stock total 32,363,210.
These financial statements have been presented to give effect to the reverse
stock split for all periods presented.
16
iCARBON CORPORATION AND SUBSIDIARIES
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and the accompanying notes thereto included herein. This
Quarterly Report on Form 10-QSB includes 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.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which could cause the actual results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements not to occur or be realized. Such forward-looking statements
generally are based upon the Company's best estimates of future results,
performance or achievement, based upon current conditions, and based upon the
most recent results of operations. Forward-looking statements may be identified
by the use of forward-looking terminology such as "may", "will," "expect,"
"believe," "estimate," "anticipate," "continue" or similar terms, variations of
those terms or the negative of those terms.
Potential risks and uncertainties include, among other things, such factors as:
(i) dependence on foreign suppliers for raw materials; (ii) the price for
graphite and carbon materials is difficult to predict; (iii) reserves and
mineral resources are only estimates and may be inaccurate; (iv) title to our
mines may be challenged; and (v) other factors set forth in our other filings
with the Securities and Exchange Commission.
OVERVIEW
Unless the context otherwise requires, references to the "Company,"
"iCarbon Corporation" "BPK Resources," "we," "us" or "our," mean iCarbon
Corporation (formerly known as: BPK Resources, Inc.) and our consolidated
subsidiaries.
This Management's Discussion and Analysis and other parts of this
report contain forward-looking statements that involve risks and uncertainties.
All forward-looking statements included in this report are based on information
available to us on the date hereof, and as except as required by law, we assume
no obligation to update any such forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth in Item
2.01 of our previous filed Form 8-K dated April 19, 2006 under the caption "Risk
Factors". The following should be read in conjunction with our financial
statements and the related notes included elsewhere herein.
OVERVIEW OF CURRENT BUSINESS
Prior to April 19, 2006, the Company's business almost entirely related
to its working interests in oil and gas development operations. Following the
merger with Graphite Technology, the business of the Company is conducted
exclusively by its wholly owned subsidiary. Our current business is mining,
manufacturing/processing and selling natural and synthetic graphite, carbon
based materials and industrial minerals and materials for use in numerous
industries and applications. We engineer and process a broad range of graphite
powders, carbon materials and industrial minerals, and operate manufacturing
facilities in New York and in two locations in Pennsylvania. We are a
co-developer of a processing plant in Chenzhou City, Hunan Province, China. We
own mining rights to operate graphite mines in Canada and Madagascar and have
options to operate mines in China. We are a licensed developer and operator of
carbon purification technologies currently under development. Our wholly owned
subsidiary, Graphite Technology, is an ISO certified manufacturer: ISO 9001:
2000.
Scalable processing and mining technology, proprietary formulae and
viable sources of raw material supply owned and controlled by us comprises the
essential business infrastructure for it to compete effectively as a major
supplier of graphite and carbon based materials to diverse industries. Our
long-term business strategy is to build value by developing a fully integrated
mining, manufacturing, processing and sales operations for graphite, carbon
materials (such as activated carbon, metallurgical coke and anthracite) and bulk
industrial minerals and materials and related manufactured products conducive to
our business infrastructure. We believe that the proprietary processing
technologies, proprietary formulae, experienced operators and control of
important mine supply sources in Canada, Madagascar and China, will accelerate
our business development in an industry that otherwise poses substantial
barriers to entry. Our business strategy was adopted to position the Company as
one of few global integrated suppliers of graphite and carbon products and a
number of industrial minerals and materials.
17
iCARBON CORPORATION AND SUBSIDIARIES
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During the period of this report, management of the Company focused
substantially on the integration and transition of business operations resulting
from the Merger and planning the integration of the businesses of the Company's
operating subsidiaries. Management views the Company's worldwide business
infrastructure as critical to the Company's future performance. Business
planning and integration of our subsidiaries is ongoing and remains a continuing
priority.
RECENT DEVELOPMENTS.
On May 31, 2006, GTG Carbons LLC, a wholly owned subsidiary of Graphite
Technology, acquired the former LTV Steel warehousing plant in Aliquippa,
Pennsylvania on the Ohio River for $2.9 million from Mechanical Services Inc.
The facility is compromised of approximately 250,000 square feet of commercial
warehousing with proximity to barge and crane loading and related materials
handling equipment and 15 acres of commercial zoned land. We plan to utilize the
river port and warehousing facility for receiving, warehousing and processing
bulk raw materials and finished goods. During the period from closing until
present, we began and currently have ongoing, building improvements program to
establish the facility for anticipated commercial operations.
On June 25, 2006, we amended and agreed to rescind the effect of the
Purchase and Sale Agreement of October 13, 2005 between Graphite Technology and
Chenzhou Global Graphite Inc., ("Chenzhou") by which we acquired 45% common
equity interest in Chenzhou. On June 26, 2006, the 45% equity interest we
previously acquired was exchanged for a license agreement providing Graphite
Technology with the exclusive perpetual right to use and further develop the
carbon purification technology owned by Chenzhou and to receive any and all
associated benefits therefrom to the extent of a 45% participation in any
earnings or distribution of assets by Chenzhou.
On July 27, 2006, we purchased Classifier Milling Systems Corp., a
Canada private company in the business of designing, engineering, and
manufacturing milling equipment for use in separation, reduction, classifying
and routing raw materials.
OUTLOOK
The graphite and carbon materials markets that we serve are significant
in scale and diversity and allow for significant growth. We have industry
experienced operators, control of sources of long-term graphite supply, have
established trade secret proprietary technologies and product formulas, which
together comprise an infrastructure that we believe will result in the Company's
products being accepted by customers on an accelerated basis. We believe that
our business infrastructure will support rapid growth in all business lines in
which we compete.
The business of the Company is partly dependent upon overall
prevailing worldwide economic conditions over time, and particularly the
prevailing economic conditions in the United States, and the effect of that on
periodic growth or decline in basic industries such as: steel, metals,
refractory, automotive and aerospace and electronics manufacturing industries.
In addition, the business of the Company could be significantly affected by the
commercialization of fuel cell technology and carbon based composite materials
as well as the rate of development of applications utilizing carbon based
materials solutions. The Company is an integrated resource and manufacturing
concern and our business results will be effected by our actual production costs
of mining, production yield, and the then prevailing prices for mined materials,
as well as production levels of worldwide mining competitors. The Company's
primary mining activities are currently being established in Madagascar and are
planned to be established in China and Canada at a later date. Mined natural
graphite prices for volume grade materials are fully negotiated and there is no
commodities exchange or futures market where graphite is traded. Historically,
Chinese graphite mine suppliers have supplied greater than 50% of graphite
materials sold to world markets. In recent years, the price for graphite has
increased, partly due to the increased use of graphite due to economic growth
and modernization of China's domestic economy and regional growth in Asia and
India, and partly due to depletion of mined graphite from current operating
mines, primarily in China.
18
iCARBON CORPORATION AND SUBSIDIARIES
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RESULTS OF OPERATIONS
Net sales were $374,255 for our fiscal quarter ended June 30, 2006 as
compared to $306,590 for our fiscal quarter ended June 30, 2005. This is an
increase of 22% resulting from an expanding customer base.
Cost of goods sold for the fiscal quarter ended June 30, 2006 were
$208,677 or 56% of net sales compared to $170,911 or 56% of net sales for the
same period in 2005.
Gross profit for the fiscal quarter ended June 30, 2006 was $165,578
compared to $135,678 for the same period in 2005, an increase of $29,900 or 22%.
This increase is due to the overall increase in net sales. Selling, general and
administrative expenses consist of professional fees, employee compensation,
insurances, office rents, travel and utilities, and other miscellaneous general
and administrative costs. Selling, general and administrative expenses were
$1,103,291 for the fiscal quarter ended June 30, 2006 compared to $627,041 for
our fiscal quarter ended June 30, 2005. The increase was due primarily due to an
increase in employee compensation, professional fees incurred in connection with
our financing transactions, acquisition of Graphite Technology, and compliance
with our reporting obligations under federal securities laws. As a result of the
acquisition and the business development of subsidiaries and new acquired
businesses and addition of key personnel, we expect selling, general and
administrative expenses to increase substantially in future periods.
Interest expense consists of certain cash and noncash charges and
interest accrued on our various debt obligations. Interest expense was $72,078
for our fiscal quarter ended June 30, 2006 compared to $73,621 for our fiscal
quarter ended June 30, 2005.
No benefit for income taxes was recorded for the fiscal quarter ended
June 30, 2006 or 2005 because of the uncertainty as to the Company's ability to
realize net operating loss carry-forwards that are available to offset taxable
income in future periods, such benefits have been fully reserved at June 30,
2006 and 2005.
The net loss for the fiscal quarter ended June 30, 2006 was
($1,009,791) or ($0.16) per basic and diluted share as compared to a net loss of
($564,984) or ($0.11) per basic and diluted share for the fiscal quarter ended
June 30, 2005. This decrease in profitability is primarily due to the increased
operating expenses in the fiscal quarter ended June 30, 2006 versus the fiscal
quarter ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through
private sales of equity securities and the use of short and long-term debt. As
of June 30, 2006, we had an unrestricted cash balance of $218,619. At June 30,
2006, we had a working capital deficit of $3,557,026 as compared to a deficit of
$5,759,534 at March 31, 2006, a decrease of $2,202,508. The decrease in this
deficit is due primarily to a reduction in accounts payable of $360,000 and a
reduction in notes payable to related parties in the amount of $1,858,000, a
result of the Merger on April 19, 2006.
Net cash used in operating activities was $1,102,999 for the
three-month period ended June 30, 2006 compared to $744,457 for the three-month
period ended June 30, 2005. The $358,542 increase in cash used in operating
activities was primarily due to an increase in net loss from $564,984 for the
three months ended June 30, 2005 to $1,009,791 for the three months ended June
30, 2006.
Net cash used in investing activities was $1,235,523 for the
three-month period ended June 30, 2006 compared to $395,402 for the three-month
period ended June 30, 2005. The $840,121 increase in cash used in investing
activities was due primarily to $900,000 in payments we made in connection with
a definitive acquisition agreement to purchase 50% common equity ownership
interest of Societe Malagache du Grafit s.a.r.l., and $128,000 in advances in
connection with a license agreement with Chenzhou Global Graphite Inc. These
disbursements were offset by a decrease of $200,000 in cash restricted for
property, plant and equipment.
19
iCARBON CORPORATION AND SUBSIDIARIES
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Net cash provided by financing activities was $2,427,296 for the
three-month period ended June 30, 2006 compared to $1,056,230 for the
three-month period ended June 30, 2005. The $1,371,066 increase in net cash
provided by financing activities was due to $882,264 in cash received in the
merger with BPK Resources, Inc, an increase in the amount of proceeds received
from the issuance of convertible preferred stock, net of cost, in the subscribed
amount of $2,196,079 for the period ended June 30, 2006 compared to proceeds
from long-term debt and demand debt of $1,175,000 during the period ended June
30, 2005 and a net decrease in borrowings of $651,047 versus a net increase in
borrowings of $1,056,230 for the same period in 2005. The proceeds were used
primarily for the business development of our subsidiaries.
Our principal sources of financing over the past three months
are described below.
During the period of the current report we obtained gross
proceeds of $2,339,999 through the issuance of 137,647 units consisting
of shares of Series C Convertible Preferred stock and warrants Each
share of Series C Preferred Stock has an original issue price of $17.00
and will automatically convert into shares of common stock at a
conversion price of $1.02 per share upon the earlier of: (i) the filing
of an amendment to our Articles of Incorporation increasing the number
of shares of common stock we are authorized to issue so that each share
of Series C Preferred Stock may be converted into common stock; or (ii)
the first business day after the effective date of a reverse stock
split of our outstanding shares of common stock such that we have
sufficient number of authorized and unissued shares so that each share
of Series C Preferred Stock may be converted into common stock.
Each warrant comprising part of the unit of Series C Preferred
Stock is exercisable at an exercise price of $2.04 per share. The
exercise period for the Warrants commences on the date which is the
earlier of: (i) the filing of an amendment to our Articles of
Incorporation increasing the number of shares of common stock we are
authorized to issue so that each warrant may be exercised in full; or
(ii) the first business day after the effective date of a reverse stock
split of our outstanding shares of common stock such that we have
sufficient number of authorized and unissued shares so that each
warrant may be exercised in full.
The Company's subsidiary, GTG Carbons, LLC, acquired a
warehouse on 15 acres of land in Aliquippa, Pennsylvania. The total
purchase price was $2,900,000, the Company paid $250,000 and the
seller, Mechanical Service Company, Inc., held a mortgage for
$2,650,000. The terms of the mortgage call for monthly payments of
$19,445 through December 2007, thereafter the monthly payments are
$25,325 through May 2011 with a balloon payment on June 1, 2011.
Interest is charged at 8% and the mortgage is secured by the building
and is guaranteed by the Company.
The Company borrowed $30,589 from Keystone Nazareth Bank &
Trust to purchase a vehicle. The terms of the note are payments of $726
through May 2010 with interest charged at 6.5%. A vehicle
collateralizes the loan.
Based on our available cash resources, securities subscribed for, and
expected revenues from operations, we will have sufficient funds to continue to
operate at current levels for the next 12 months. We intend to obtain additional
funds through sales of debt or equity securities in order to fully implement our
business. The sale of additional equity or convertible debt securities would
result in additional dilution to our shareholders. The issuance of additional
debt would result in increased expenses and could subject us to covenants that
may have the effect of restricting our operations. We have not made arrangements
to obtain additional financing and we can provide no assurance that additional
financing will be available in an amount or on terms acceptable to us, if at
all. If we are unable to obtain additional funds when they are needed or if such
funds cannot be obtained on terms favorable to us, we may be unable to execute
upon our business plan or pay our costs and expenses as they are incurred, which
could have a material, adverse effect on our business, financial condition and
results of operations.
20
iCARBON CORPORATION AND SUBSIDIARIES
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OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2006, we did not have any relationships with
unconsolidated entities or financial partners, such as entities often referred
to as structured finance or special purpose entities that had been established
for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of our "disclosure controls and
procedures" (as such term is defined in Rules 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried
out by us under the supervision and with the participation of our Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based upon that
evaluation, our CEO and CFO concluded that, as of the end of the period covered
by this quarterly report, our disclosure controls and procedures were not
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms. Specifically, our CEO and
CFO concluded that, in light of the fact that we have had to file for extensions
of the due date for a number of the periodic reports we are required to file
with the Securities and Exchange Commission, our controls and procedures were
not effective to provide reasonable assurance that such reports are filed or
submitted timely with the Securities and Exchange Commission. There has been no
change in our internal control over financial reporting identified in connection
with that evaluation that occurred during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
21
iCARBON CORPORATION AND SUBSIDIARIES
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings involving the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
At the close of business on July 24, 2006, the Company issued a total of
16,398,142 shares of common stock upon the automatic conversion of certain
convertible promissory notes and the Company's Series C and Series D preferred
stock. The Company relied on the exemption from registration provided by Section
4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification by President and Chief Executive Officer, James E. Olive,
pursuant to U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer David Laudeman, pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification by President and Chief Executive Officer, James E. Olive,
pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer David Laudeman, pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
On May 10, 2006, the Company filed a current report on Form 8-K to report a
change in accountants.
On July 14, 2006, the Company filed a current report on Form 8-K/A to provide
the financial statements of Graphite Technology Group, Inc. for its fiscal years
ended March 31, 2006 and 2005 and to report a change in the Company's fiscal
year.
On July 17, 2006, the Company filed a current report on Form 8-K to report that
the Company entered into a Note and Warrant Purchase Agreement.
On July 25, 2006 the Company filed a current report on Form 8-K to report a one
for six reverse stock split and a name change to iCarbon Corporation.
On August 1, 2006, the Company filed a current report on Form 8-K to report the
acquisition of Classifier Milling Systems Corp.
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iCARBON CORPORATION AND SUBSIDIARIES
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed by the undersigned, thereunto duly authorized.
Date: September 13, 2006 iCARBON CORPORATION
By :/s/ James E. Olive
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James E. Olive
President and Chief
Executive Officer
By: /s/ David Laudeman
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David Laudeman
Chief Financial Officer
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