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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2008
COMMISSION FILE NO.: 0-28887
CARBONICS CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-3328734
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(State of other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
One Penn Plaza, Suite 1612, New York, New York 10119
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(Address of principal executive offices) (Zip Code)
(212) 994-5374
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(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant as required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No __.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer Accelerated filer
---- ----
Non-accelerated filer Small reporting company X
---- ----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes No X
The number of outstanding shares of common stock as of November 14, 2008 was
121,379,481.
CARBONICS CAPITAL CORPORATION
QUARTERLY REPORT ON FORM 10QSB
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2008
TABLE OF CONTENTS
Page No
Part I Financial Information
Item 1. Financial Statements (unaudited)...............................................................3
Condensed Consolidated Balance Sheet - September 30, 2008 (unaudited)..........................4
Condensed Consolidated Statements of Operations - for the Three and
Nine Months Ended September 30, 2008 (unaudited) and 2007 (unaudited).........................5
Statement of Shareholders' Equity - December 31, 2007 and Nine Months Ended
September 30, 2008...........................................................................6
Condensed Consolidated Statements of Cash Flows - for the Nine Months Ended
September 30, 2008 (unaudited) and 2007 (unaudited)..........................................8
Notes to Condensed Consolidated Financial Statements...........................................9
Item 2. Management's Discussion and Analysis .........................................................13
Item 3 Quantitative and Qualitative Disclosures about Market Risk....................................16
Item 4. Controls and Procedures.......................................................................16
Part II Other Information
Item 1. Legal Proceedings.............................................................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................................17
Item 3. Defaults upon Senior Securities...............................................................17
Item 4. Submission of Matters to a Vote of Security Holders...........................................17
Item 5. Other Information ............................................................................17
Item 6. Exhibits .....................................................................................17
Signatures 18
2
PART I
ITEM 1 FINANCIAL STATEMENTS
3
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
9/30/2008 12/31/2007
-------------------------------
ASSETS
Current Assets:
Cash ......................................................... $ -- $ --
Note receivable - related party .............................. 391,123 2,948,831
Interest receivable - related party .......................... -- 196,832
------------- -------------
Total current assets ...................................... 391,123 3,145,663
Furniture and equipment - net ................................... -- 69,628
Deposits ..................................................... -- 32,515
------------- -------------
TOTAL ASSETS .................................................... $ 391,123 $ 3,247,806
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses ........................ $ 562,971 $ 1,064,672
Liabilities to be settled in stock ........................... -- 407,333
Accrued interest ............................................. 377,654 262,445
Convertible debentures, net of discount ...................... 1,876,014 1,490,247
Derivative liability ......................................... 683,550 1,781,903
Current maturities of long term debt ......................... 314 26,329
------------- -------------
Total current liabilities ................................. 3,500,503 5,032,929
TOTAL LIABILITIES ............................................ 3,500,503 5,032,929
------------- -------------
Preferred stock
Series C, par $0.001, 1,000,000 shares authorized,
974,140 issued and outstanding ............................... 806 974
Common stock, par $0.001, 500,000,000 authorized
121,379,405 and 9,549,649 issued and outstanding, respectively 121,379 9,549
Additional paid-in capital ...................................... 124,957,598 126,524,280
Accumulated deficit ............................................. (128,189,163) (128,319,926)
------------- -------------
Total stockholders' deficiency ............................... (3,109,380) (1,785,123)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY .................. $ 391,123 $ 3,247,806
============= =============
The notes to the financial statement are an integral
part of these statements.
4
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2008 2007 2008 2007
----------------------------- -----------------------------
Revenue ........................................... $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
Operating expenses:
General and administrative expenses ............ 21,403 520,109 170,314 1,320,819
Stock based compensation ...................... -- 3,199,707 245,000 3,692,403
------------ ------------ ------------ ------------
Total operating expenses ..................... 21,403 3,719,816 415,314 5,013,222
------------ ------------ ------------ ------------
Operating loss .................................... (21,403) (3,719,816) (415,314) (5,013,222)
------------ ------------ ------------ ------------
Other income (expense):
Gain (loss) on fair value of
derivative instruments ....................... 105,753 (1,804,648) 1,098,353 (1,804,078)
Amortization of deferred financing costs and
debt discount ................................ (142,173) (586,277) (437,066) (961,409)
Interest expense ............................... (39,075) (949,945) (115,210) (1,013,123)
------------ ------------ ------------ ------------
Total other income (expense) ................. (75,495) (3,340,870) 546,078 (3,778,610)
Net income (loss) before provision for income taxes (96,898) (7,060,686) 130,763 (8,791,832)
Provision benefit for income taxes ................ -- -- -- --
Net income (loss) from continuing operations ...... (96,898) (7,060,686) 130,763 (8,791,832)
------------ ------------ ------------ ------------
Discontinued operations:
Loss from discontinued operations ................. -- (5,872,572) -- (14,662,385)
Gain on disposal of discontinued operations ....... -- -- -- --
------------ ------------ ------------ ------------
Total discontinued operations .................. -- (5,872,572) -- (14,662,385)
------------ ------------ ------------ ------------
Net Income (Loss) ................................. $ (96,898) $(12,933,258) $ 130,763 $(23,454,217)
============ ============ ============ ============
Common share, basic and diluted
loss per share from continuing operations ......... -- (0.79) -- (0.98)
Common share, basic and diluted
loss per share from discontinued operations ....... -- (0.66) -- (1.64)
------------ ------------ ------------ ------------
Common share, basic and diluted
loss per share .................................... $ -- $ (1.45) $ -- $ (2.62)
============ ============ ============ ============
Weighted average share of common stock
outstanding, basic and diluted ................. 95,802,303 8,946,828 95,802,303 8,946,828
============ ============ ============ ============
The notes to the Consolidated Financial Statement are an
integral part of these statements.
5
CARBONICS CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2007 AND NINE MONTHS ENDED SEPTEMBER 30, 2008
Series C Preferred Stock Common Stock
Shares Amount Shares Amount
-------------------------------------------------------------
Balance, December 31, 2006 ........................... 1,000,000 $ 1,000 5,911,292 $ 5,911
============ ============ ============ ============
Issuance of common stock upon conversion of debt ..... -- -- 274,414 274
Stock issued for compensation ........................ -- -- 1,412,500 1,413
Liabilities to be settled in stock ................... -- -- -- --
Stock compensation included in discontinued operations -- -- 698,191 698
Conversion of Series C Preferred into common stock ... (25,860) (26) 2,006,202 2,006
Warrants issued for deferred financing fees .......... -- -- -- --
Stock issued in consideration of cancellation of debt -- -- 513,250 513
Forgiveness of affiliate debt ........................ -- -- -- --
Issuance of note payable in consideration of
cancellation of shares ............................. -- -- (1,263,250) (1,263)
Cancellation of shares by related party .............. -- -- (3,333) (3)
Distribution of subsidiaries to GreenShift ........... -- -- -- --
Property distribution to shareholders ................ -- -- -- --
Net loss ............................................. -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2007 ........................... 974,140 $ 974 9,549,266 $ 9,549
============ ============ ============ ============
Common stock issued for services ..................... -- -- 13,000,000 13,000
Write off of debt and receivables .................... -- -- -- --
Conversion of Series C Preferred into common stock ... (168,373) (168) 95,000,000 95,000
Issuance of common stock upon conversion of debt ..... -- -- 3,830,140 3,830
Net loss ............................................. -- -- --
------------ ------------ ------------ ------------
Balance, September 30, 2008 .......................... 805,767 $ 806 121,379,406 $ 121,379
============ ============ ============ ============
The notes to the financial statement are an integral
part of these statements.
6
CARBONICS CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2007 AND NINE MONTHS ENDED SEPTEMBER 30, 2008
Total
Additional Cumulative Stockholders'
Paid-In-Capital Deficit Equity
-------------------------------------------------
Balance, December 31, 2006 ........................... $ 58,695,961 $ (71,042,862) $ (12,339,990)
============= ============= =============
Issuance of common stock upon conversion of debt ..... 209,814 -- 210,088
Stock issued for compensation ........................ 2,560,146 -- 2,561,559
Liabilities to be settled in stock ................... (407,333) -- (407,333)
Stock compensation included in discontinued operations 794,489 -- 795,187
Conversion of Series B Preferred into common stock ... (40,098) -- (38,118)
Warrants issued for deferred financing fees .......... 266,361 -- 266,361
Stock issued in consideration of cancellation of debt 2,126,068 -- 2,126,581
Forgiveness of affiliate debt ........................ 108,763 -- 108,763
Issuance of note payable in consideration of
cancellation of share .............................. (732,587) -- (733,850)
Cancellation of shares by related party .............. 67 -- 64
Distribution of subsidiaries to GreenShift ........... 62,942,629 (12,601,487) 50,341,142
Property distribution to shareholders ................ -- (1,604,000) (1,604,000)
Net loss ............................................. -- (43,071,577) (43,071,577)
------------- ------------- -------------
Balance, December 31, 2007 ........................... $ 126,524,280 $(128,319,926) $ (1,785,123)
============= ============= =============
Common stock issued for services ..................... 277,000 -- 290,000
Write off of debt and receivables .................... (1,796,320) -- (1,796,320)
Conversion of Series B Preferred into common stock ... (94,832) -- --
Issuance of common stock upon conversion of debt ..... 47,470 -- 51,300
Net loss ............................................. -- 130,763 130,763
------------- ------------- -------------
Balance, September 30, 2008 .......................... $ 124,957,598 $(128,189,163) $ (3,109,380)
============= ============= =============
The notes to the financial statement are an integral
part of these statements.
7
CARBONICS CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30 September 30
2008 2007
---------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES
Net cash used in continuing operations ............................ $ (620,191) $(3,023,220)
Net cash used in discontinued operations .......................... -- 836,314
----------- -----------
Net cash provided by (used in) operating activities ............ (620,191) (2,186,906)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Investment in unconsolidated subsidiaries ......................... -- (931,669)
----------- -----------
Net cash used in investing activities .......................... -- (931,669)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances (Repayments) of short-term borrowings ................... (66,314) (16,148)
Proceeds from convertible debenture - related party ............... -- 564,109
Proceeds from convertible debenture ............................... 10,548 185,201
Redemption of preferred stock ..................................... -- --
Proceeds from the issuance of common stock ........................ -- --
Proceeds from notes receivable - related party .................... 879,750 (234,387)
Issuance of note receivable ....................................... -- 2,554,967
Repayment of notes payable - related party ........................ (200,000) --
----------- -----------
Net cash provided by financing activities ...................... 623,984 3,053,742
----------- -----------
Net (decrease) increase in cash ................................... 3,793 (64,833)
Cash at beginning of period ....................................... (3,793) 128,763
----------- -----------
Cash at end of period ............................................. $ -- $ 63,930
=========== ===========
Supplemental statement of non-cash investing and financing activities:
Stock based compensation ....................................... $ 290,000 --
Conversion of debentures ....................................... $ 51,300 --
Increase in related party note due to expenses paid on behalf
of related party ............................................... $ 717,680 --
Decrease in related party note due to expenses paid on behalf
of related party ............................................... $ 1,275,388 --
Forgiveness of amount owed to related party .................... $ 2,000,000 --
The notes to the financial statement are an integral
part of these statements.
8
CARBONICS CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10Q of regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all normal recurring adjustments considered necessary for a fair
statement of the results of operations have been included. The results of
operations for the nine months ended September 30, 2008 are not necessarily
indicative of the results of operations for the full year. When reading the
financial information contained in this Quarterly Report, reference should be
made to the financial statements and notes contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2007.
2 NATURE OF OPERATIONS
COMPLETION OF NAME CHANGE AND REVERSE STOCK SPLIT
Effective February 11, 2008, the Company changed its name from GreenShift
Corporation to Carbonics Capital Corporation (f/k/a GreenShift Corporation) and
completed a 1 for 20 reverse stock split.
FORGIVENESS OF RELATED PARTY DEBT
During the nine months ending September 30, 2008, the company waived $2,000,000
of the debenture receivable from GreenShift Corporation. Additionally, the
company waived interest receivable from GreenShift in the amount of $196,832, as
well as other related company notes receivable of $6,821 in the first quarter of
2008.
3 GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company had net income of $130,763
for the nine months ended September 30, 2008 and had an accumulated deficit of
($128,189,163). As of September 30, 2008 the Company's current liabilities
exceeded current assets by $3,109,380. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
include raising additional proceeds from debt and equity transactions and
completing strategic acquisitions.
4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
For the nine months ended September 30, 2008 the company had no consolidated
subsidiaries. For the nine months ended September 30, 2007 the operations of all
consolidated companies are reflected in discontinued operations.
5 FINANCING ARRANGEMENTS
The following is a summary of the Company's financing arrangements as of
September 30, 2008:
Current portion of convertible debentures:
YAGI convertible debenture payable from Carbonics Capital issued October 2005 $ 602,907
YAGI convertible debenture payable from Carbonics Capital issued July 2005 .. 570,000
YAGI convertible debenture payable from Carbonics Capital issued April 2006 . 1,129,369
Note discounts (426,262)
-----------
Total current convertible debentures ................................... $ 1,876,014
===========
CONVERTIBLE DEBENTURES
YA Global Investments, LP
On April 2, 2007 YA Global Investments, LP ("YAGI") declared certain debentures
issued by the Company to YAGI to be in default for the failure by the Company to
maintain an effective registration statement as required by the Investor
Registration Rights Agreement executed contemporaneous with the issuance of the
debentures. The Debentures are unconditionally guaranteed by Viridis Capital,
LLC ("Viridis"), a wholly-owned affiliate of Kevin Kreisler, the Company's
chairman and chief executive officer (the "Guaranty").
9
In addition, on April 2, 2007 the Company, YAGI and Viridis entered into a
Forbearance Agreement, pursuant to which YAGI agreed to forbear from exercising
the remedies available to it under the Debentures and the related security and
stock pledge agreements, which would have included the liquidation by YAGI of a
portion of the Company's holdings. The terms of the Forbearance Agreement
provided that YAGI shall instead accept, convert and liquidate sufficient shares
of Viridis' Series C Preferred Stock in the Company to facilitate the full
repayment of the Debentures. YAGI shall accept the Series C Preferred Stock in
tranches, and it shall not convert a tranche until it has sold 80% of the shares
of Company common stock issuable upon conversion of the previous tranche. Any
such conversions shall be subject to the ownership limitations specified in the
Debentures (i.e., limitations to ownership of no more than 4.9% of the
outstanding capital stock of the Company. YAGI shall apply the net proceeds,
which are defined in the Forbearance Agreement as 90% of the lowest closing bid
price for the Company's common stock for the five trading days preceding the
conversion date of the Series C shares, to the full satisfaction of the
Company's obligations under the Debentures in the following priorities: (a)
first, to accrued interest on the most recently issued Debenture, (b) then to
principal on the most recently issued Debenture, (c) then to accrued interest on
the next most recently issued Debenture, (d) then to principal on the next most
recently issued Debenture, and so forth until all of the Company's obligations
under the Debentures have been satisfied in full.
On June 26, 2007, Carbonics entered into a Securities Purchase Agreement (this
"Agreement"), with YAGI. In connection with this Agreement, YAGI purchased
secured convertible debentures amounting to $570,000 due on June 26, 2009. The
June 26, 2007 YAGI debentures provide for interest in the amount of 12% per
annum and are convertible at the lesser of $0.60 or 90% of the lowest closing
bid price of Carbonics' common stock during the 30 trading days immediately
preceding the conversion date. YAGI will be entitled to convert the June 26,
2007 debenture on the basis of the conversion price into Carbonics' common
stock, provided that YAGI cannot convert into shares that would cause YAGI to
own more 4.9% of Carbonics Capital's outstanding common stock.
In addition, Carbonics issued to YAGI a warrant to purchase 500,000 shares of
Carbonics Capital's common stock at $1.00 per share. The value of the warrant
was calculated to be $570,000 at the time of the issuance using the guidance
found in APB Opinion 14, "Accounting for Convertible Debt and Debt issued with
Detachable Stock Purchase Warrants" and was recorded as a discount. The discount
is amortized to interest expense over the term of the loan using the effective
interest method of amortization. During the nine months ended September 30,
2008, interest expense from accretion of the debt discount was $94,696.
On June 29, 2007 the Company and Viridis, entered into a letter agreement dated
with YAGI. The agreement recited that the Company had defaulted in its
obligation to file a registration statement to permit YAGI to resell the
Company's common stock issuable upon conversion of certain convertible
debentures that the Company sold to YAGI. YAGI agreed to waive the penalties
available to it as a result of the default if the following conditions were met:
1. The Company agreed to permit one conversion by YAGI of Series C Preferred
Stock pledged to it by Viridis in excess of the stated limit on conversion
(4.99% of outstanding shares). The converted principal amount was $390,000,
which was converted into approximately 9.99% of the outstanding common
shares on June 28, 2007.
2. The Company agreed to increase its authorized shares as promptly as
reasonably possible in order to permit the conversion of the Series C
Preferred Stock.
3. The Company agreed to effect restructuring of the Company as soon as
practicable, but no later than March 1, 2008. In addition the Company
agreed to increase its authorized capital stock to an amount sufficient to
permit YAGI after the restructuring, to convert into common stock all of
the convertible debentures issued to it by the Company.
4. The Company agreed to file a registration statement with the Securities and
Exchange Commission that will, when declared effective, permit YAGI to
resell to the public the common stock issuable upon conversion of the
debentures issued to it by the Company and the debentures issued to it by
the Company.
On January 25, 2008, a financing was completed that resulted in EcoSystem
becoming the guarantor of the debts of several of its former affiliates. The
beneficiary of the guarantees was YA Global Investments, LP ("YAGI"), which
committed to extend credit to those affiliates. As of September 30, 2008, the
outstanding principal and accrued interest of the debt was $43,040,070.
10
On August 14, 2008, certain Secured Convertible Debentures between Carbonics
Capital Corporation and YA Global Investments, L.P. were amended. The maturity
date of the following Secured Convertible Debentures have been extended until
December 31, 2011: a certain Secured Convertible Debenture No. CCP-2 dated
October 12, 2005 in the original principal amount of $1,475,000; a certain
Secured Convertible Debenture No. CCP-4 dated February 8, 2006 in the original
principal amount of $3,050,369; a certain Secured Convertible Debenture No.
GSHF-3-1 dated June 26, 2007 in the original principal amount of $570,000.
6 DERIVATIVES
In accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" and EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", the
conversion features associated with the convertible debentures are variable and
contain an embedded derivative that requires bifurcation from their hosts
contacts. The Company has recognized the embedded derivatives as a liability at
the date the debentures were issued.
During the nine months ended September 30, 2008 the change in the fair value of
the derivative resulted in an accounting gain of $1,098,353. Amortization of the
debt discount totaled $437,066 for the nine months ended September 30, 2008. The
unamortized portion of the debt discount related to the derivatives was $426,262
at September 30, 2008. As of September 30, 2008, the fair value of the
derivative liabilities was $683,550.
7 STOCKHOLDERS EQUITY
COMMON STOCK
During the nine months ended September 30, 2008, the Company issued a total of
10,000,000 shares of Common Stock, $0.001 par value, for services provided to
the Company. The Company's directors, David Winsness and Kurt Gordon received
3,000,000 and 2,000,000 of these shares, respectively.
The shares were issued at $0.02, the market price as of the date of issuance on
April 23, 2008 for a total value of $200,000. During the nine months ended
September 30, 2008, Viridis Capital LLC converted 168,373 shares of Series C
Preferred Stock into a total of 95,000,000 shares of Common Stock, $0.001 par
value.
8 RELATED PARTY TRANSACTIONS
On November 9, 2007, the Company and GreenShift Corporation completed a series
of transactions, including the transfer to GreenShift of Carbonics' stakes in GS
AgriFuels Corporation and EcoSystem Corporation. GreenShift assumed all of
Carbonics' intercompany, affiliate related party notes payable and receivable,
all trade payables, and all receivables, but did not assume Carbonics' debt to
YA Global Investments, LP. In exchange GreenShift issued to Carbonics a
promissory note in the aggregate amount of $2,948,831 (the "Carbonics Note").
The principal and interest on the Carbonics Note, which accrues at the per annum
rate of 8%, are due and payable in full on December 31, 2009. The Carbonics Note
was reduced by $2,000,000 in the first quarter 2008. This reduction was in part
attributable to the fact that the appraised value of GS AgriFuels, which
appraisal was completed during the first quarter of 2008, was assessed to be
less than the total debt payable by GS AgriFuels, and the fact that GreenShift
realized impairment charges of $11,153,816 relating to the impairment of GS
AgriFuels' NextGen Fuel, Inc., and Sustainable Systems, Inc. subsidiaries.
During the nine months ended September 30, 2008, the note increased a net of
$12,234 due to expenses paid on behalf of GreenShift and the note also increased
$443,674 due to the reclassification of amounts that were owed by various
subsidiaries to Carbonics. These amounts were reclassed so that the subsidiary
owed Greenshift rather than Carbonics and GreenShift in turn owed the amounts to
Carbonics. Additionally the company waived the interest receivable from
GreenShift as well as other related party notes in the amount of $196,832.
On November 9, 2007, in connection with the transfer to GreenShift of Carbonics'
stakes in GS AgriFuels and EcoSystem, GreenShift assumed liability for a term
note issued by Carbonics to Viridis Capital, LLC with a face amount of
$1,339,704 (the "Viridis Note"), which amount is due upon demand and bears
interest at the rate of 8%. As of December 31, 2007, the balance due from
Carbonics to Viridis was $0.
On December 12, 2007, Carbonics distributed 2,000,000 and 1,000,000 common
shares of EcoSystem Corporation and GS EnviroServices, Inc., respectively, to
all shareholders of Carbonics except for Viridis Capital, LLC, the Company's
majority shareholder. On December 12, 2007, Carbonics distributed all of what
was then Carbonics' 80% stake in GreenShift on a pro-rated basis to all of
11
Carbonics' shareholders. This was accomplished by Carbonics' conversion of
200,000 shares of GreenShift Series D Preferred Stock into 20,800,000 shares of
GreenShift common stock, which were distributed to the minority shareholders of
Carbonics, and the distribution by Carbonics of 800,000 shares of GreenShift
Series D Preferred Stock to Viridis Capital, LLC, the Company's majority
shareholder. Kevin Kreisler, the sole member of Viridis Capital, is the Chairman
and Chief Executive Officer of the Company.
On January 25, 2008, a financing was completed that resulted in Carbonics
becoming the guarantor of the debts of several of its former affiliates. The
beneficiary of the guarantees was YA Global Investments, LP ("YAGI"), which
committed to extend credit to those affiliates. As of September 30, 2008, the
outstanding principal and accrued interest of the debt was $43,040,070.
12
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
We develop renewable energy projects based on established technological,
geographical or other advantages. Our ambition is to develop successful
renewable energy projects that facilitate the more efficient use of carbon in
energy supply chains. Our plan to achieve this involves the planned completion
of one or more of the following activities:
>> Direct development of qualified projects;
>> Majority investments in qualified projects; and/or,
>> Acquisition of qualified distressed or other assets.
We are also actively seeking to retain new senior management and plan to do so
in conjunction with one or more of the above activities.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2008 Compared to Three Months Ended September
30, 2007
Revenues
There were no revenues from continuing operations for the three months ended
September 30, 2008.
Cost of Revenues
There was no cost of revenues for the three months ended September 30, 2008.
Selling, General and Administrative Expenses Operating Expenses
Selling, general and administrative expenses during the three months ended
September 30, 2008 totaled $21,403 with $0 related to stock based compensation.
In the comparable period of the prior year, selling, general and administrative
expenses totaled $3,719,816 attributable to selling, general and administrative
expenses with $3,199,707 related to stock based compensation. Selling, general
and administrative expenses during the three months ended September 30, 2008
primarily consisted of accounting and legal fees, and office related. Due to the
divestment of our subsidiaries at the end of 2007, selling, general and
administrative expenses in 2008 will consist of development costs associated
with our current operation and planned future projects. General and
administrative expenses are expected to remain high as a percentage of sales
until such time that the Company can achieve initiate and sustain sufficient
revenue to support these expenses.
Interest Expense
Interest expense for the three months ended September 30, 2008 was $39,075, and
was $949,945 for the same period in 2007.
Expenses Associated with Derivative Instruments
As of September 30, 2008 Carbonics Capital had several convertible debentures
due to YA Global Investments, LP. The conversion feature on these debentures is
variable based on trailing market prices and therefore contains an embedded
derivative. We value the conversion feature at the time of issuance using the
Black-Scholes Model and record a note discount and derivative liability for the
calculated value. We recognize interest expense for accretion of the note
discount over the term of the note. The derivative liability is valued at the
end of each reporting period and results in a gain or loss for the change in
fair value. Due to the volatile nature of our stock, as well as the stock of our
subsidiaries, the change in the derivative liability and the resulting gain or
loss is usually material to our results. The total principal amount on our
convertible debentures due to YA Global was $2,302,276. The balance was
$1,876,014 net of the $426,262 note discount as of September 30, 2008. For the
three months ended September 30, 2008, we recognized a gain for the change in
fair value of the derivative of $105,753 for these debentures. The derivative
liability as of September 30, 2008 was $683,550.
13
Net Income or Loss
Net loss from continuing operations for the three months ended September 30,
2008 was $96,898 as compared to a loss from continuing operations of $7,060,686
from the same period in 2007. The Company transferred its interest in all of its
subsidiaries to GreenShift Corporation during the three months ended December
31, 2007. Net loss from discontinued operations was $5,872,572 in 2007.
Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
2007
Revenues
There were no revenues from continuing operations for the nine months ended
September 30, 2008.
Cost of Revenues
There was no cost of revenues for the nine months ended September 30, 2008.
Selling, General and Administrative Expenses Operating Expenses
Selling, general and administrative expenses during the nine months ended
September 30, 2008 totaled $415,314 with $245,000 related to stock based
compensation. In the comparable period of the prior year, selling, general and
administrative expenses totaled $5,013,222 attributable to selling, general and
administrative expenses with $3,692,403 related to stock based compensation.
Selling, general and administrative expenses during the nine months ended
September 30, 2008 primarily consisted of accounting and legal fees, and office
related. Due to the divestment of our subsidiaries at the end of 2007, selling,
general and administrative expenses in 2008 will consist of development costs
associated with our current operations and planned future projects. General and
administrative expenses are expected to remain high as a percentage of sales
until such time that the Company can achieve initiate and sustain sufficient
revenue to support these expenses.
Interest Expense
Interest expense for the nine months ended September 30, 2008 was $115,210, and
was $1,013,123 for the same period in 2007.
Expenses Associated with Derivative Instruments
As of September 30, 2008 Carbonics Capital had several convertible debentures
due to YA Global Investments, LP. The conversion feature on these debentures is
variable based on trailing market prices and therefore contains an embedded
derivative. We value the conversion feature at the time of issuance using the
Black-Scholes Model and record a note discount and derivative liability for the
calculated value. We recognize interest expense for accretion of the note
discount over the term of the note. The derivative liability is valued at the
end of each reporting period and results in a gain or loss for the change in
fair value. Due to the volatile nature of our stock, as well as the stock of our
subsidiaries, the change in the derivative liability and the resulting gain or
loss is usually material to our results. The total principal amount on our
convertible debentures due to YA Global was $2,302,276. The balance was
$1,876,014 net of the $426,262 note discount as of September 30, 2008. For the
nine months ended September 30, 2008, we recognized a gain for the change in
fair value of the derivative of $1,098,353 for these debentures. The derivative
liability as of September 30, 2008 was $683,550.
Net Income or Loss
Net income from continuing operations for the nine months ended September 30,
2008 was $130,763 compared to a loss from continuing operations of $8,791,832
from the same period in 2007. The Company transferred its interest in all of its
subsidiaries to GreenShift Corporation during the nine months ended December 31,
2007. Net loss from discontinued operations was $14,662,385 for the nine months
ended September 30, 2007.
Liquidity and Capital Resources
The Company had $3,500,503 in current liabilities at the end of the nine months
ended September 30, 2008, and may need to obtain additional financing to satisfy
these obligations.
Our primary sources of liquidity are cash provided by investing and financing
activities. For the nine months ended September 30, 2008, net cash used in our
operating activities was $620,191. The Company's capital requirements consist of
general working capital needs, scheduled principal and interest payments on
debt, obligations and capital leases and planned capital expenditures. The
Company's capital resources consist primarily of proceeds from issuance of debt
14
and common stock. The Company plans to fund ongoing operations during 2008 with
a combination of proceeds from the issuance of debt and equity as well as the
repayment to the Company of loans receivable and other amounts due.
Cash Flows
Our operating activities during the nine months ended September 30, 2008 used
$620,191 in cash. At September 30, 2008, accounts payable and accrued expenses
totaled $562,971. At September 30, 2008 the Company had $0 cash. For the nine
months ended September 30, 2008, investing activities used $0 in cash, and cash
from financing activities provided $623,984. The Company had a working capital
deficit of $3,109,380 at September 30, 2008, which includes derivative
liabilities of $683,550 and convertible debentures of $1,876,014, net of
discounts.
At the present time, Carbonics Capital has no source of committed capital. We
are currently investigating the availability of both equity and debt financing
necessary to complete the Company's current projects. We do not know at this
time if the necessary funds can be obtained nor on what terms they may be
available.
Off Balance Sheet Arrangements
None.
15
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer participated in
and supervised the evaluation of our disclosure controls and procedures (as
defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed by us in the reports that we file is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that the information required to be disclosed by us in the reports that
we file or submit under the Act is accumulated and communicated to our
management, including our principal executive officer or officers and principal
financial officer, to allow timely decisions regarding required disclosure. The
Company's chief executive officer and chief financial officer determined that,
as of the end of the period covered by this report, these controls and
procedures are adequate and effective in alerting them in a timely manner to
material information relating to the Company required to be included in the
Company's periodic SEC filings.
There was no change in internal controls over financial reporting (as defined in
Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934) identified
in connection with the evaluation described in the preceding paragraph that
occurred during the Company's third fiscal quarter that has materially affected
or is reasonably likely to materially affect the Company's internal control over
financial reporting.
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PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 1A
Not Applicable.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Description
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the
Sarbanes-Oxley Act of 2002.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the date indicated.
CARBONICS CAPITAL CORPORATION
/S/ KEVIN KREISLER
-----------------------
By: KEVIN KREISLER
Chairman and Chief Executive Officer
Date: November 14, 2008
/S/ JACQUELINE FLYNN
-------------------------
By: JAQUELINE FLYNN
Chief Financial Officer
November 14, 2008
18