UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No 1 to
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 22, 2006
Global Resource Corporation
(Exact name of registrant as specified in its charter)
Nevada 000-50944 84-156582
---------------------------- ----------------------- -------------------
(State or other jurisdiction Commission File Number) IRS Employer
of incorporation) Identification No.)
408 Bloomfield Drive, Unit #3, West Berlin, New Jersey 08091
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (856) 767-5661
--------------
209 Robwood Road
Baltimore, Maryland 21222
-------------------------
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
The Form 8-K is amended to provide the following financial statements for Carbon
Recovery Corporation:
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
-------
AUDITED FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm 1-2
Balance Sheets as of December 31, 2005 and 2004 3
Statements of Operations for the years ended December 31,
2005 and 2004 with Cumulative Totals since Inception 4
Statements of Changes in Stockholders' Equity (Deficit) for the
period July 19, 2002 (Inception) Through December
31, 2005 5-6
Statements of Cash Flow for the years ended December 31, 2005 and
2004 with Cumulative Totals since Inception 7
Notes to Financial Statements 8-20
BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
High Ridge Commons
Suites 400-403
200 Haddonfield Berlin Road
Gibbsboro, New Jersey 08026
(856) 346-2828 Fax (856) 346-2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors
Carbon Recovery Corporation
West Berlin, New Jersey
We have audited the accompanying balance sheets of Carbon Recovery Corporation
(A Development Stage Company) (the "Company") as of December 31, 2005 and 2004
and the related statements of operations, changes in stockholders' equity
(deficit), and cash flow for the years then ended, with cumulative totals of
operations, stockholders' equity (deficit), and cash flows since July 19, 2002
(inception). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We have conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements for the years ended December 31, 2005 and
2004 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 7 to the financial statements, the Company has
raised certain issues that lead to substantial doubt about its ability to
continue as a going concern. The Company does not have substantial revenue
generating activities and has had operating deficits. Management's plans in
regard to these matters are also described in Note 7. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
1
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Carbon Recovery Corporation (A
Development Stage Company) as of December 31, 2005 and 2004 and the results of
its operations, changes in stockholders' equity (deficit) and their cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The Company has restated its previously issued financial statements for the year
ended December 31, 2005 on its report dated March 3, 2006. The Company has
restated its financial statements to properly reflect the effect of a
non-monetary transfer of an asset between the Company and a related entity. This
transaction resulted in a decrease in stockholders' equity of $37,500,000. There
was no effect on the net loss applicable to common shares for the year ended
December 31, 2005.
/s/ BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey
March 3, 2006, except for Note 10 dated July 31, 2006
MEMBER OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
CENTER FOR PUBLIC COMPANY AUDIT FIRMS (CPCAF)
NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
FLORIDA STATE BOARD OF ACCOUNTANCY
2
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
ASSETS
------
Restated
2005 2004
------------ ------------
CURRENT ASSETS
Cash $ 559,688 $ 568,756
Employee advances -- 2,882
------------ ------------
TOTAL CURRENT ASSETS 559,688 571,638
------------ ------------
Fixed Assets, Net of depreciation 43,192 57,797
------------ ------------
OTHER ASSETS
Investments 10,000 --
Deposit 16,911 50,000
Intangible asset - (see Note 10) -- --
Prepaid commission -- 10,000
Investment in real estate -- 54,900
------------ ------------
TOTAL OTHER ASSETS 26,911 114,900
------------ ------------
TOTAL ASSETS $ 629,791 $ 744,335
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 180,794 $ 58,460
Current portion - loan payable - vehicle 5,043 4,764
Loan payable- officer 17,050 17,050
Liability for stock to be issued 975 110,780
------------ ------------
TOTAL CURRENT LIABILITIES 203,862 191,054
------------ ------------
LONG-TERM LIABILITIES
Loan payable - vehicle, net of current portion 14,467 19,942
------------ ------------
TOTAL LONG-TERM LIABILITIES 14,467 19,942
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000 shares authorized,
45,866,087 and 7,485,045 shares issued and outstanding
at December 31, 2005 and 2004, respectively -- --
Subscription receivable (78,182) (88,580)
Additional paid-in capital 41,101,199 2,551,305
Discount on common stock (37,500,000)
Deficit accumulated in the development stage (2,675,555) (1,384,386)
Deferred compensation (436,000) (545,000)
------------ ------------
Total stockholders' equity (deficit) 411,462 533,339
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 629,791 $ 744,335
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
RESTATED
--------
JULY 19, 2002
(INCEPTION)
TO
2005 2004 DECEMBER 31, 2005
------------ ------------ -----------------
REVENUES $ -- $ 5,920 $ 5,920
COST OF SALES -- 3,000 3,000
------------ ------------ ------------
GROSS PROFIT -- 2,920 2,920
------------ ------------ ------------
OPERATING EXPENSES
Consulting fees 198,911 206,884 968,685
Professional fees 221,297 61,396 351,383
Marketing and commission expenses 5,814 34,540 45,097
Other general and administrative expenses 832,710 267,219 1,174,248
Impairment of investment in real estate -- 25,900 25,900
Depreciation expense 23,528 5,971 31,024
------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,282,260 601,910 2,596,337
------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (1,282,260) (598,990) (2,593,417)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss on real estate - net (13,207) (73,829) (87,036)
Interest income 4,298 600 4,898
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (8,909) (73,229) (82,138)
------------ ------------ ------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (1,291,169) (672,219) (2,675,555)
PROVISION FOR INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (1,291,169) $ (672,219) $ (2,675,555)
============ ============ ============
BASIC AND DILUTED LOSS
PER SHARE $ (0.03) $ (0.10)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 36,943,731 6,423,190
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JULY 19, 2002 (INCEPTION) THROUGH DECEMBER 31, 2005
Restated Restated Restated Restated Restated Restated Restated
-------- -------- -------- -------- -------- -------- --------
DEFICIT
DISCOUNT ACCUMULATED
ADDITIONAL ON DURING THE
COMMON PAID-IN COMMON DEVELOPMENT DEFERRED SUBSCRIPTION
SHARES CAPITAL STOCK STAGE COMPENSATION RECEIVABLE TOTAL
---------- ----------- ------- ----------- ------- ------------ -----------
BALANCE - JULY 19, 2002 (INCEPTION) -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of initial founders' shares, September
2002, net of subsequent cancellations 2,555,000 -- -- -- -- -- --
Shares issued for services, September 2002 1,000,000 472,000 -- -- -- -- 472,000
Shares issued for cash, November 2002 29,000 14,500 -- -- -- -- 14,500
Shares issued for services, November and
December 2002 13,600 6,800 -- -- -- -- 6,800
Net loss for the period July 19, 2002
(Inception) through December 31, 2002,
as originally stated -- -- -- (2,008,508) -- -- (2,008,508)
Prior period adjustment, Note 11 -- -- -- 1,500,000 -- -- 1,500,000
---------- ----------- ------- ----------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 2002 (RESTATED) 3,597,600 493,300 -- (508,508) -- -- (15,208)
---------- ----------- ------- ----------- ------- ----------- -----------
Re-issuance of founders' shares - July 2003 1,455,000 -- -- -- -- -- --
Shares issued for cash 519,800 259,900 -- -- -- -- 259,900
Issuance of subscription receivable from
shareholders -- -- -- -- -- (14,340) (14,340)
Net loss for the year ended December 31,
2003, as originally stated -- -- -- (931,159) -- -- (931,159)
Prior period adjustment, Note 11 -- -- 727,500 -- -- 727,500
---------- ----------- ------- ----------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 2003 (RESTATED) 5,572,400 753,200 -- (712,167) -- (14,340) 26,693
---------- ----------- ------- ----------- ------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE PERIOD JULY 19, 2002 (INCEPTION) THROUGH DECEMBER 31, 2005
Restated Restated Restated Restated Restated Restated Restated
-------- -------- -------- -------- -------- -------- --------
DEFICIT
DISCOUNT ACCUMULATED
ADDITIONAL ON DURING THE
COMMON PAID-IN COMMON DEVELOPMENT DEFERRED SUBSCRIPTION
SHARES CAPITAL STOCK STAGE COMPENSATION RECEIVABLE TOTAL
------------ ------------ ------------ ------------ ----------- ------------ ------------
BALANCE AT DECEMBER 31, 2003
(CARRIED FORWARD) 5,572,400 $ 753,200 $ -- $ (712,167) $ -- $ (14,340) $ 26,693
------------ ------------ ------------ ------------ ----------- ------------ ------------
Shares issued for cash 917,645 553,105 -- -- -- -- 553,105
Shares issued in exchange for
real estate 650,000 650,000 -- -- -- -- 650,000
Shares issued for compensation 545,000 545,000 -- -- (545,000) -- --
Shares issued as charitable
contribution 50,000 50,000 -- -- -- -- 50,000
Initial founders' shares
cancelled (250,000) -- -- -- -- -- --
Issuance of subscription
receivable from shareholders -- -- -- -- -- (74,240) (74,240)
Net loss for the year ended
December 31, 2004 -- -- -- (672,219) -- -- (672,219)
------------ ------------ ------------ ------------ ----------- ------------ ------------
BALANCE AT DECEMBER 31, 2004 7,485,045 2,551,305 -- (1,384,386) (545,000) (88,580) 533,339
------------ ------------ ------------ ------------ ----------- ------------ ------------
Shares issued for cash 745,655 914,507 -- -- -- -- 914,507
Shares issued to acquire
technology 37,500,000 37,500,000 (37,500,000) -- -- -- --
Remaining shares issued in
exchange for real estate 80,800 80,800 -- -- -- -- 80,800
Shares issued for services 53,500 53,500 -- -- -- -- 53,500
Accounts payable converted
to equity 1,087 1,087 -- -- -- -- 1,087
Stock subscriptions received,
net -- -- -- -- -- 10,398 10,398
Amortization of deferred
compensation -- -- -- -- 109,000 -- 109,000
Net loss for the year ended
December 31, 2005 -- -- -- (1,291,169) -- -- (1,291,169)
------------ ------------ ------------ ------------ ----------- ------------ ------------
BALANCE AT DECEMBER 31, 2005 45,866,087 $ 41,101,199 $(37,500,000) $ (2,675,555) $ (436,000) $ (78,182) $ 411,462
============ ============ ============ ============ =========== ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
Restated
--------
JULY 19, 2002
(INCEPTION) TO
2005 2004 DECEMBER 31, 2005
------------ ------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,291,169) $ (672,219) $ (2,675,555)
------------ ------------ ------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
OPERATING ACTIVITIES:
Depreciation 23,528 5,971 31,024
Common stock issued for services 53,500 -- 532,300
Amortization of deferred compensation 109,000 -- 109,000
Impairment of investment in real estate -- 25,900 25,900
Loss on real estate 13,207 73,829 87,036
Common stock issued as charitable contribution -- 50,000 50,000
CHANGES IN ASSETS AND LIABILITIES
(Increase) decrease in subscription receivable 10,398 (74,240) (78,182)
Decrease in employee advances 2,882 -- --
(Increase) decrease in deposits 33,089 (50,000) (16,911)
(Increase) decrease in prepaid commissions 10,000 (10,000) --
Increase (decrease) in accounts payable 123,421 48,054 181,881
------------ ------------ ------------
TOTAL ADJUSTMENTS 379,025 69,514 922,048
------------ ------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES (912,144) (602,705) (1,753,507)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (8,923) (55,671) (74,216)
Proceeds from sale of real estate 41,693 576,171 617,864
Investment (10,000) -- (10,000)
Investment in real estate, net -- (80,800) (80,800)
------------ ------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 22,770 439,700 452,848
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock and paid-in capital 885,502 553,105 1,713,007
Liability for stock to be issued -- 110,780 110,780
Proceeds from officer's loan -- 7,000 38,550
Repayment of officer's loan -- -- (21,500)
Proceeds from loan payable - vehicle -- 26,316 26,316
Repayment of loan payable - vehicle (5,196) (1,610) (6,806)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 880,306 695,591 1,860,347
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,068) 532,586 559,688
CASH AND CASH EQUIVALENTS
- BEGINNING OF YEAR 568,756 36,170 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
- END OF YEAR $ 559,688 $ 568,756 $ 559,688
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
NON-CASH ACTIVITIES:
Common stock issued for services $ 53,500 $ -- $ 532,300
============ ============ ============
Common stock issued for technology $ 37,500,000 $ -- $ 37,500,000
============ ============ ============
Common stock issued as charitable contribution $ -- $ 50,000 $ 50,000
============ ============ ============
Accounts payable converted to equity $ 1,807 $ -- $ 1,807
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
7
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1- ORGANIZATION
------------
The Company was incorporated in New Jersey on July 19, 2002 as
a development stage company.
To date, the Company's only activity has been organization,
directed at developing its business plan and raising initial
capital. The Company has not commenced any commercial
operations as of December 31, 2005.
The Company's business plan is to research and develop and
market reverse polymerization technology for the conversion of
scrap tires into industrial products and chemicals for the
petroleum chemical industry.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
DEVELOPMENT STAGE COMPANY
-------------------------
The Company is considered to be in the development stage as
defined in Statement of Financial Accounting Standards (SFAS)
No. 7, "Accounting and Reporting by Development Stage
Enterprises." The Company devotes substantially all of its
efforts to develop and market its polymerization technologies
for business in the carbon recovery and petroleum chemical
industries.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
8
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
CASH AND CASH EQUIVALENTS
-------------------------
The Company considers all highly liquid debt instruments and
other short- term investments with an initial maturity of
three months or less to be cash or cash equivalents.
At December 31, 2005 and 2004, the Company maintained cash and
cash equivalent balances at one financial institution that is
insured by the Federal Deposit Insurance Corporation up to
$100,000.
START-UP COSTS
--------------
In accordance with the American Institute of Certified Public
Accountants Statement of Position 98-5, "REPORTING ON THE
COSTS OF START-UP ACTIVITIES", the Company expenses all costs
incurred in connection with the start-up and organization of
the Company.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
ADVERTISING COSTS
-----------------
The Company will expense the costs associated with advertising
as they are incurred. The Company did not incur any
advertising costs for the years ended December 31, 2005 and
2004.
9
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-----------------------------------------
Historical net loss per common share is computed using the
weighted average number of common shares outstanding. Diluted
earnings per share (EPS) includes additional dilution from
common stock equivalents, such as stock issuable pursuant to
the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted
earnings per share when the Company reported a loss because to
do so would be antidilutive.
The following is a reconciliation of the computation for basic
and diluted earnings per share for the years ended December
31, 2005 and 2004:
2005 2004
------------ ------------
Net loss $ (1,291,169) $ (672,219)
------------ ------------
Weighted-average common shares
Outstanding (Basic) 36,943,731 6,423,190
Weighted-average common stock
Equivalents
Stock options -- --
Warrants -- --
------------ ------------
Weighted-average common shares
Outstanding (Diluted) 36,943,731 6,423,190
============ ============
Options and warrants outstanding to purchase stock were not
included in the computation of diluted EPS the years ended
December 31, 2005 and 2004 because inclusion would have been
antidilutive. As of December 31, 2005 and 2004, there were no
outstanding options available.
10
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 2001, the FASB issued Statement No. 142 "Goodwill and
Other Intangible Assets". This statement addresses financial
accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are
acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. In January 2005, the
Company entered into a licensing agreement with Careful Sell
Holdings, Ltd., a related party. (See Note 9)
On December 16, 2004, the Financial Accounting Standards Board
("FASB") published Statement of Financial Accounting Standards
No. 123 (Revised 2004), "SHARE-BASED PAYMENT" ("SFAS 123R").
SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the
financial statements. Share-based payment transactions within
the scope of SFAS 123R include stock options, restricted stock
plans, performance-based awards, stock appreciation rights,
and employee share purchase plans. The provisions of SFAS 123R
are effective for small business issuers as of the first
interim period that begins after December 15, 2005.
Accordingly, the Company will implement the revised standard
in the first quarter of fiscal year 2006. Currently, the
Company accounts for its share-based payment transactions
under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial
statements. Management is assessing the implications of this
revised standard, which may materially impact the Company's
results of operations in the first quarter of fiscal year 2006
and thereafter.
11
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
On December 16, 2004, FASB issued Statement of Financial
Accounting Standards No. 153, "EXCHANGES OF NON-MONETARY
ASSETS, AN AMENDMENT OF APB OPINION NO. 29, ACCOUNTING FOR
NON-MONETARY TRANSACTIONS" ("SFAS 153"). This statement amends
APB Opinion 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of non-monetary assets that do
not have commercial substance. Under SFAS 153, if a
non-monetary exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable,
the transaction must be accounted for at fair value resulting
in recognition of any gain or loss. SFAS 153 is effective for
non-monetary transactions in fiscal periods that begin after
June 15, 2005. The Company does not anticipate that the
implementation of this standard will have a material impact on
its financial position, results of operations or cash flows.
NOTE 3- FIXED ASSETS
------------
Fixed assets as of December 31, 2005 and 2004 were as follows:
ESTIMATED USEFUL
LIVES (YEARS)
-------------
2005 2004
------------ -----------
Equipment 5-7 $ 19,870 $ 10,947
Vehicles 5 54,346 54,346
------------ -----------
74,216 65,293
Less: accumulated depreciation 31,024 7,496
------------ -----------
Fixed assets, net $ 43,192 $ 57,797
============ ===========
There was $23,528 and $5,971 charged to operations for
depreciation expense for the years ended December 31, 2005 and
2004, respectively.
12
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 4- LOAN PAYABLE - VEHICLE
----------------------
In July 2004 the Company entered into a five year loan related
to the purchase of a new vehicle. The principal amount of the
loan is $26,216 at an interest rate of 5.38% annually. Monthly
payments on the loan are approximately $496.
The loan payable balance at December 31, 2005 is as follows:
2005
-------
Total loan payable $19,510
Less current maturities 5,043
-------
Long-term loan payable $14,467
=======
The amount of principal maturities of the loan payable for the
next four years ending December 31, and in the aggregate is as
follows:
2006 $ 5,043
2007 5,314
2008 5,600
2009 3,553
--------
$ 19,510
========
NOTE 5- PROVISION FOR INCOME TAXES
--------------------------
Deferred income taxes will be determined using the liability
method for the temporary differences between the financial
reporting basis and income tax basis of the Company's assets
and liabilities. Deferred income taxes will be measured based
on the tax rates expected to be in effect when the temporary
differences are included in the Company's consolidated tax
return. Deferred tax assets and liabilities are recognized
based on anticipated future tax consequences attributable to
differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
13
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 5- PROVISION FOR INCOME TAXES (CONTINUED)
--------------------------------------
At December 31, 2005 the deferred tax assets consist of the
following:
2005
----------
Deferred taxes due to net
operating loss carryforwards $ 802,667
Less: Valuation allowance (802,667)
---------
Net deferred tax asset $ --
=========
At December 31, 2005, the Company had deficits accumulated
during the development stage in the approximate amount of
$2,675,555 available to offset future taxable income through
2023. The Company established valuation allowances equal to
the full amount of the deferred tax assets due to the
uncertainty of the utilization of the operating losses in
future periods.
NOTE 6- OPERATING LEASES
----------------
The Company leases office space under a thirty-six month lease
commencing October 15, 2004. Monthly payments under the
current lease range from $3,000 to $3,400 during the life of
the lease. The Company is required to pay property taxes,
utilities, insurance and other costs relating to the leased
facilities.
14
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 6- OPERATING LEASES (CONTINUED)
----------------------------
Minimum lease payments under the operating lease are as
follows:
FOR THE YEARS ENDING
DECEMBER 31,
------------
2006 $ 38,800
2007 34,000
---------
$ 72,800
=========
NOTE 7- GOING CONCERN
-------------
As shown in the accompanying financial statements, the Company
incurred substantial net losses for the years ended December
31, 2005 and 2004, and has no revenue stream to support
itself. This raises substantial doubt about the Company's
ability to continue as a going concern.
The Company's future success is dependent upon its ability to
raise additional capital or to secure a future business
combination. There is no guarantee that the Company will be
able to raise enough capital or generate revenues to sustain
its operations. Management believes they can raise the
appropriate funds needed to support their business plan and
acquire an operating, cash flow positive company.
The financial statements do not include any adjustments
relating to the recoverability or classification of recorded
assets and liabilities that might result should the Company be
unable to continue as a going concern.
15
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 8- STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
COMMON STOCK
------------
The Company has 50,000,000 shares of common stock authorized
at December 31, 2005 and 2004, respectively, at no par value.
At December 31, 2005 and 2004, the Company has 45,866,087 and
7,485,045 common shares issued and outstanding, respectively.
THE FOLLOWING DETAILS THE STOCK TRANSACTIONS FOR THE YEAR
ENDED DECEMBER 31, 2004:
The Company issued 917,645 shares of stock at an approximate
value of $0.60 per share.
The Company issued 650,000 shares of stock in exchange for
real estate at a value of $1.00 per share.
The Company issued 545,000 shares of stock valued at $1.00 per
share to a founder as deferred compensation.
The Company issued 50,000 shares of stock valued at $1.00 per
share as a charitable contribution.
The Company cancelled 250,000 shares of stock initially issued
to two of its founders.
THE FOLLOWING DETAILS THE STOCK TRANSACTIONS FOR THE YEAR
ENDED DECEMBER 31, 2005:
The Company issued 745,655 shares of stock for $914,507 cash.
The Company issued 37,500,000 shares of common stock to
Careful Sell Holding, L.L.C. in connection with the Technology
Contribution Agreement referred to in (Note 9).
The Company issued 80,800 shares of common stock as the
remaining balance due in exchange for real estate at a value
of $1.00 per share.
16
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 8- STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------------------
COMMON STOCK - (CONTINUED)
-------------
The Company issued 53,500 shares of common stock for services
at a value of $1.00 per share.
The Company issued 1,087 shares of common stock in conversion
of accounts payable to equity at a value of $1.00 per share.
WARRANTS
--------
The Company issued -0- and 331,520 Class A warrants during the
years ended December 31, 2005 and 2004, respectively. These
warrants are exercisable for the purchase of common stock for
$9.00 per share. These warrants initially expired on July 31,
2005. Effective July 29, 2005 the Company modified the terms
of the Class A warrants and extended the term for exercise.
Each holder of Class A warrants was provided with written
notice of the right to exchange the Class A warrants for Class
C, D and E warrants.
For each Class A warrant exchanged the Shareholder shall
receive one Class C warrant, one Class D warrant and one Class
E warrant.
Class C warrants shall be exercisable, at an exercise price of
$1.00 per share, for a period of thirty days from the date
that the Shareholder signs the written form agreeing to the
Warrant Exchange Program.
For each Class C warrant exercised, the Shareholder shall be
entitled to exercise one Class D warrant, at an exercise price
of $2.75 per share, for a period of ninety days from agreeing
to the Warrant Exchange Program. During the fourth quarter of
2005 a total of 184,000 Class D warrants were issued.
17
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 8- STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------------------
WARRANTS - (CONTINUED)
--------
For each Class D warrant exercised, the Shareholder shall be
entitled to exercise one Class E warrant, at an exercise price
of $4.00 per share, for a period of one hundred fifty days
from agreeing to the Warrant Exchange Program. To the extent
that a Shareholder does not exercise their Class D warrants
before they expire, the corresponding number of Class E
warrants shall become null and void and of no further force or
effect. During the fourth quarter of 2005 a total of 184,000
Class E warrants were issued.
As of December 31, 2005 all of the remaining outstanding Class
A warrants had expired.
The Company issued 1,714,042 and 586,125 Class B warrants
during the years ended December 31, 2005 and 2004,
respectively. The Class B warrants entitle the holder to
purchase one share of common stock for $2.75 per share. A
total of 2,300,167 Class B warrants were exercisable at
December 31, 2005. None of the Class B warrants were exercised
during the year ended December 31, 2005. The Class B warrants
initially expired on July 15, 2005. Effective July 1, 2005 the
Company authorized the extension of the expiration date of the
Class B warrants up until, but no later than, one year after
the stock in the Company is publicly trading.
NOTE 9- RELATED PARTY TRANSACTION
-------------------------
In January 2005 the Company formalized a prior intended
agreement with Careful Sell Holding, L.L.C. ("Careful Sell"),
a Delaware limited liability company formed by the President
of the Company. The Company's President and his spouse, a
Director of the Company, own all of the limited liability
interests of Careful Sell. The Company's President is also the
Manager of Careful Sell. Under the revised agreement the
Company entered into a Technology Contribution Agreement (the
"Agreement"), with Careful Sell. Careful Sell is the owner of
all the rights to the inventions of the Company's President.
The Agreement transfers to the Company the rights to
commercialize such inventions and to operate and use the
related processes and apparatus to make, sell, use and
otherwise dispose of products, which may be processed
utilizing the inventions.
18
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 9- RELATED PARTY TRANSACTION (CONTINUED)
-------------------------------------
The terms of the Agreement include a provision whereby the
Company will pay Careful Sell royalties of 2% of all revenues
derived from the inventions. In further consideration for the
transfer of the inventions, the Company has issued to Careful
Sell a total of 37,500,000 shares of common stock of the
Company. This Agreement supercedes a prior agreement not
formalized between the Company and Careful Sell in 2002.
NOTE 10- RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR THE
-------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2005
-----------------------------
DECEMBER 31, 2003 AND 2002
--------------------------
The Company has restated its previously issued financial
statements for the year ended December 31, 2005 on its report
dated March 3, 2006. The Company has restated its financial
statements to properly reflect the effect of a non-monetary
transfer of an asset between the Company and a related entity.
This transaction resulted in a decrease in stockholders'
equity of $37,500,000. There was no effect on the net loss
applicable to common shares for the year ended December 31,
2005.
The Company has restated its previously issued financial
statements for the period July 19, 2002 (inception) through
December 31, 2002 on its report dated May 29, 2003. The
Company has also restated its financial statements for the
year ended December 31, 2003. The Company has restated its
financial statements to reverse the effect of a transaction
during the period ended December 31, 2002. The transaction
reflected the issuance of preferred stock shares in exchange
for an intangible asset and the subsequent impairment of the
asset acquired. The financial statements have been restated as
the transaction was subsequently rescinded, as the preferred
stock shares were not formally issued. For the year ended
December 31, 2003 the Company had initially reflected the
issuance of 1,455,000 shares of common stock to two of its
founders as being issued for services provided. The Company
has restated its financial statements to reflect the common
stock as re-issuance of founders shares. These transactions
resulted in a decrease in net loss applicable to common shares
of $727,500 and $1,500,000 for the year ended December 31,
2003 and period July 19, 2002 (inception) through December 31,
2002 to a net loss of $203,659 and $508,508 as restated, and a
decrease in the deficits accumulated during the development
stage to $712,617 and $508,508, respectively.
19
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2005 AND 2004
NOTE 11- COMMITMENTS AND CONTINGENCIES
-----------------------------
Effective January 1, 2005 the Company entered into an
employment agreement with its President. Under the agreement
the President shall be entitled to an annual base salary of
$250,000 in 2005 escalating to $366,025 in 2009. In 2005,
$156,000 of the salary shall be paid ratably during the course
of the year and the remaining $94,000 will be paid in
accordance with the terms of the agreement. The initial term
of the agreement is for a period of five years. The President
has the option to renew this agreement for a second five-year
term. In addition to the base salary the Company has granted
the President 545,000 shares of restricted common stock as
deferred compensation. The common stock vests to the President
over a five-year period commencing January 1, 2005.
During the fourth quarter of 2005 the Company entered into an
agreement to purchase equipment for a total purchase price of
approximately $328,000. Subsequent to the balance sheet date
the Company has made payments of approximately $183,000 toward
the purchase of the equipment. Delivery of the equipment is
anticipated during the second quarter of 2006.
NOTE 12- SUBSEQUENT EVENTS
-----------------
Subsequent to the balance sheet date the Company has received
approximately $710,000 in subscription agreements toward the
purchase of approximately 585,000 shares of its common stock.
20
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
REVIEWED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
REVIEWED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
INDEX TO REVIEWED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of June 30, 2006 (Unaudited) and
December 31, 2005 (Audited)
Statements of Operations for the six months ended June 30, 2006 and 2005
(Unaudited) with Cumulative Totals since Inception
Statements of Changes in Stockholders' Equity (Deficit) for the period July
19, 2002 (Inception) Through June 30, 2006
Statements of Cash Flows for the six months ended June 30, 2006 and 2005
(Unaudited) with Cumulative Totals since Inception
Notes to Reviewed Financial Statements
2
BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
High Ridge Commons
Suites 400-403
200 Haddonfield Berlin Road
Gibbsboro, New Jersey 08026
(856) 346-2828 Fax (856) 346-2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors
Carbon Recovery Corporation
(A Development Stage Company)
West Berlin, New Jersey
We have reviewed the accompanying balance sheet of Carbon Recovery Corporation
(A Development Stage Company), (the "Company"), as of June 30, 2006 and the
related statements of operations, changes in stockholders' equity (deficit), and
cash flows for the six months then ended with cumulative totals since the
Company's inception July 19, 2002 for the statements of operations, changes in
stockholders' equity (deficit) and cash flows in accordance with the standards
of the Public Company Accounting Oversight Board (United States). All
information included in these financial statements is the representation of the
management of Carbon Recovery Corporation (A Development Stage Company).
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and makinbg
inquires of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 7 to the financial
statements, the Company has sustained operating losses and capital deficits that
raise doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
3
The Company has restated its previously issued financial statements for the year
ended December 31, 2005 on its report dated March 3, 2006. The Company has
restated its financial statements to properly reflect the effect of a
non-monetary transfer of an asset between the Company and a related entity. This
transaction resulted in a decrease in stockholders' equity of $37,500,000. There
was no effect on the net loss applicable to common shares for the year ended
December 31, 2005.
/s/ BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
---------------------------------------------
BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey
August 24, 2006
MEMBER OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
CENTER FOR PUBLIC COMPANY AUDIT FIRMS (CPCAF)
NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
FLORIDA STATE BOARD OF ACCOUNTANCY
4
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 2006 AND DECEMBER 31, 2005
ASSETS
------
2006 2005
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash $ 717,341 $ 559,688
Employee advances 1,000 --
------------ ------------
TOTAL CURRENT ASSETS 718,341 559,688
------------ ------------
Fixed Assets, Net of depreciation 36,630 43,192
------------ ------------
OTHER ASSETS
Investments 10,000 10,000
Deposit - equipment 254,216 16,911
Intangible asset - (see Note 10) -- --
------------ ------------
TOTAL OTHER ASSETS 264,216 26,911
------------ ------------
TOTAL ASSETS $ 1,019,187 $ 629,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 181,146 $ 180,794
Current portion - loan payable - vehicle 5,177 5,043
Current portion - loan payable - equipment 12,333 --
Loan payable - officer -- 17,050
Liability for stock to be issued 94,340 975
------------ ------------
TOTAL CURRENT LIABILITIES 292,996 203,862
------------ ------------
LONG-TERM LIABILITIES
Loan payable - vehicle, net of current portion 11,845 14,467
Loan payable - equipment, net of current portion 55,313 --
------------ ------------
TOTAL LONG-TERM LIABILITIES 67,158 14,467
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000 shares authorized,
47,185,637 and 45,866,087 shares issued and outstanding
at June 30, 2006 and December 31, 2005, respectively -- --
Subscription receivable (146,858) (78,182)
Additional paid-in capital 42,587,089 41,101,199
Discount on common stock (37,500,000) (37,500,000)
Deficit accumulated in the development stage (3,899,698) (2,675,555)
Deferred compensation (381,500) (436,000)
------------ ------------
Total stockholders' equity (deficit) 659,033 411,462
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,019,187 $ 629,791
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
SIX MONTHS ENDED RESTATED
---------------- --------
JULY 19, 2002
(INCEPTION)
JUNE 30, JUNE 30, TO
2006 2005 JUNE 30, 2006
------------ ------------ ------------
REVENUES $ -- $ -- $ 5,920
COST OF SALES -- -- 3,000
------------ ------------ ------------
GROSS PROFIT -- -- 2,920
------------ ------------ ------------
OPERATING EXPENSES
Consulting fees 44,495 149,251 1,013,180
Professional fees 106,565 133,484 457,948
Marketing and commission expenses 44,505 3,086 89,602
Other general and administrative expenses 552,230 379,613 1,797,312
Research and development 466,667 -- 466,667
Impairment of investment in real estate -- -- 25,900
Depreciation expense 8,827 11,734 39,851
------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,223,289 677,168 3,890,460
------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (1,223,289) (677,168) (3,887,540)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss on real estate - net -- (13,207) (87,036)
Interest expense (7,895) (7,895)
Interest income 7,041 2,917 11,939
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (854) (10,290) (82,992)
------------ ------------ ------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (1,224,143) (687,458) (3,970,532)
PROVISION FOR INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (1,224,143) $ (687,458) $ (3,970,532)
============ ============ ============
BASIC AND DILUTED LOSS
PER SHARE $ (0.03) $ (0.04)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 46,510,878 28,504,932
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JULY 19, 2002 (INCEPTION) THROUGH JUNE 30, 2006
Restated Restated Restated Restated Restated Restated Restated
-------- -------- -------- -------- -------- -------- --------
DEFICIT
DISCOUNT ACCUMULATED
ADDITIONAL ON DURING THE
COMMON PAID-IN COMMON DEVELOPMENT DEFERRED SUBSCRIPTION
SHARES CAPITAL STOCK STAGE COMPENSATION RECEIVABLE TOTAL
----------- ----------- -------- ----------- ------------ ----------- -----------
BALANCE - JULY 19, 2002 (INCEPTION) -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of initial founders' shares,
September 2002, net of subsequent
cancellations 2,555,000 -- -- -- -- -- --
Shares issued for services, September 2002 1,000,000 472,000 -- -- -- -- 472,000
Shares issued for cash, November 2002 29,000 14,500 -- -- -- -- 14,500
Shares issued for services, November and
December 2002 13,600 6,800 -- -- -- -- 6,800
Net loss for the period July 19, 2002
(Inception) through December 31, 2002,
as originally stated -- -- -- (2,008,508) -- -- (2,008,508)
Prior period adjustment, Note 11 -- -- -- 1,500,000 -- -- 1,500,000
----------- ----------- -------- ----------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 2002 (RESTATED) 3,597,600 493,300 -- (508,508) -- -- (15,208)
----------- ----------- -------- ----------- ------- ----------- -----------
Re-issuance of founders' shares -
July 2003 1,455,000 -- -- -- -- -- --
Shares issued for cash 519,800 259,900 -- -- -- -- 259,900
Issuance of subscription receivable
from shareholders -- -- -- -- -- (14,340) (14,340)
Net loss for the year ended
December 31, 2003, as originally
stated -- -- -- (931,159) -- -- (931,159)
Prior period adjustment, Note 11 -- -- -- 727,500 -- -- 727,500
----------- ----------- -------- ----------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 2003 (RESTATED) 5,572,400 753,200 -- (712,167) -- (14,340) 26,693
----------- ----------- -------- ----------- ------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
7
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE PERIOD JULY 19, 2002 (INCEPTION) THROUGH JUNE 30, 2006
Restated Restated Restated Restated Restated Restated Restated
-------- -------- -------- -------- -------- -------- --------
DEFICIT
DISCOUNT ACCUMULATED
ADDITIONAL ON DURING THE
COMMON PAID-IN COMMON DEVELOPMENT DEFERRED SUBSCRIPTION
SHARES CAPITAL STOCK STAGE COMPENSATION RECEIVABLE TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2003
(CARRIED FORWARD) 5,572,400 $ 753,200 $ -- $ (712,167) $ -- $ (14,340) $ 26,693
------------ ------------ ------------ ------------ ------------ ------------ ------------
Shares issued for cash 917,645 553,105 -- -- -- -- 553,105
Shares issued in exchange
for real estate 650,000 650,000 -- -- -- -- 650,000
Shares issued for compensation 545,000 545,000 -- -- (545,000) -- --
Shares issued as charitable
contribution 50,000 50,000 -- -- -- -- 50,000
Initial founders' shares
cancelled (250,000) -- -- -- -- -- --
Issuance of subscription
receivable from shareholders -- -- -- -- -- (74,240) (74,240)
Net loss for the year ended
December 31, 2004 -- -- -- (672,219) -- -- (672,219)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2004 7,485,045 2,551,305 -- (1,384,386) (545,000) (88,580) 533,339
------------ ------------ ------------ ------------ ------------ ------------ ------------
Shares issued for cash 745,655 914,507 -- -- -- -- 914,507
Shares issued to acquire
technology 37,500,000 37,500,000 (37,500,000) -- -- -- --
Remaining shares issued in
exchange for real estate 80,800 80,800 -- -- -- -- 80,800
Shares issued for services 53,500 53,500 -- -- -- -- 53,500
Accounts payable converted
to equity 1,087 1,087 -- -- -- -- 1,087
Stock subscriptions received,
net -- -- -- -- -- 10,398 10,398
Amortization of deferred
compensation -- -- -- -- 109,000 -- 109,000
Net loss for the year ended
December 31, 2005 -- -- -- (1,291,169) -- -- (1,291,169)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2005 45,866,087 41,101,199 (37,500,000) (2,675,555) (436,000) (78,182) 411,462
------------ ------------ ------------ ------------ ------------ ------------ ------------
Shares issued for cash 1,319,550 1,485,890 -- -- -- -- 1,485,890
Stock subscriptions received,
net -- -- -- -- -- (68,676) (68,676)
Amortization of deferred
compensation -- -- -- -- 54,500 -- 54,500
Net loss for the six months
ended June 30, 2006 -- -- -- (1,224,143) -- -- (1,224,143)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 2006 47,185,637 $ 42,587,089 $(37,500,000) $ (3,899,698) $ (381,500) $ (146,858) $ 659,033
============ ============ ============ ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
8
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
Restated
SIX MONTHS ENDED --------
---------------- JULY 19, 2002
JUNE 30, JUNE 30, (INCEPTION) TO
2006 2005 JUNE 30, 2006
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,224,143) $ (687,458) $ (3,899,698)
------------ ------------ ------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
OPERATING ACTIVITIES:
Depreciation 8,827 11,734 39,851
Common stock issued for services -- 52,500 532,300
Amortization of deferred compensation 54,500 54,500 163,500
Impairment of investment in real estate -- -- 25,900
Loss on real estate -- (13,207) 87,036
Common stock issued as charitable contribution -- -- 50,000
CHANGES IN ASSETS AND LIABILITIES
(Increase) decrease in subscription receivable (68,676) 59,297 (146,858)
(Increase) in employee advances (1,000) -- (1,000)
(Increase) decrease in deposits (237,305) 50,000 (254,216)
(Increase) in prepaid commissions -- -- --
Increase in accounts payable 352 65,702 182,233
------------ ------------ ------------
TOTAL ADJUSTMENTS (243,302) 280,526 678,746
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,467,445) (406,932) (3,220,952)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (2,265) (8,357) (76,481)
Proceeds from sale of real estate -- 68,107 617,864
Investment -- -- (10,000)
Investment in real estate, net -- -- (80,800)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,265) 59,750.00 450,583
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock and paid-in capital 1,485,890 42,980 3,198,897
Liability for stock to be issued 93,365 (26,041) 204,145
Proceeds from officer's loan -- -- 38,550
Repayment of officer's loan (17,050) -- (38,550)
Proceeds from loan payable - vehicle -- -- 26,316
Repayment of loan payable - vehicle (2,488) (2,772) (9,294)
Proceeds from loan payable - equipment 75,000 -- 75,000
Repayment of loan payable - equipment (7,354) -- (7,354)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,627,363 14,167 3,487,710
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 157,653 (333,015) 717,341
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 559,688 568,756 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
- END OF PERIOD $ 717,341 $ 235,741 $ 717,341
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
NON-CASH ACTIVITIES:
Common stock issued for services $ -- $ 52,500 $ 532,300
============ ============ ============
Common stock issued for technology $ -- $ -- $ 37,500,000
============ ============ ============
Common stock issued as charitable contribution $ -- $ -- $ 50,000
============ ============ ============
Accounts payable converted to equity $ -- $ 1,087 $ 1,087
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
9
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
NOTE 1- ORGANIZATION
------------
The Company was incorporated in New Jersey on July 19, 2002 as
a development stage company.
To date, the Company's only activity has been organization,
directed at developing its business plan and raising initial
capital. The Company has not commenced any commercial
operations as of June 30, 2006.
The Company's business plan is to research and develop and
market reverse polymerization technology for the conversion of
scrap tires into industrial products and chemicals for the
petroleum chemical industry.
These unaudited financial statements reflect all adjustments,
including normal recurring adjustments which, in the opinion
of management, are necessary to present fairly the operations
and cash flow for the periods presented.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
DEVELOPMENT STAGE COMPANY
-------------------------
The Company is considered to be in the development stage as
defined in Statement of Financial Accounting Standards (SFAS)
No. 7, "Accounting and Reporting by Development Stage
Enterprises." The Company devotes substantially all of its
efforts to develop and market its polymerization technologies
for business in the carbon recovery and petroleum chemical
industries.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
CASH AND CASH EQUIVALENTS
-------------------------
The Company considers all highly liquid debt instruments and
other short- term investments with an initial maturity of
three months or less to be cash or cash equivalents.
At June 30, 2006 and 2005, the Company maintained cash and
cash equivalent balances at one financial institution that is
insured by the Federal Deposit Insurance Corporation up to
$100,000. At June 30, 2006 and 2005 the Company's uninsured
cash balances total $657,307 and $141,021, respectively.
START-UP COSTS
--------------
In accordance with the American Institute of Certified Public
Accountants Statement of Position 98-5, "REPORTING ON THE
COSTS OF START-UP ACTIVITIES", the Company expenses all costs
incurred in connection with the start-up and organization of
the Company.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
ADVERTISING COSTS
-----------------
The Company will expense the costs associated with advertising
as they are incurred. The Company did not incur any
advertising costs for the six months ended June 30, 2006 and
2005.
11
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Historical net loss per common share is computed using the
weighted average number of common shares outstanding. Diluted
earnings per share (EPS) includes additional dilution from
common stock equivalents, such as stock issuable pursuant to
the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted
earnings per share when the Company reported a loss because to
do so would be antidilutive.
The following is a reconciliation of the computation for basic
and diluted earnings per share:
SIX MONTHS ENDED
JUNE 30,
--------
2006 2005
------------ ------------
Net loss $ (1,224,143) $ (687,458)
------------ ------------
Weighted-average common shares
Outstanding (Basic) 46,510,878 28,504,932
Weighted-average common stock
Equivalents
Stock options -- --
Warrants -- --
------------ ------------
Weighted-average common shares
Outstanding (Diluted) 46,510,878 28,504,932
============ ============
Options and warrants outstanding to purchase stock were not
included in the computation of diluted EPS the six months
ended June 30, 2006 and 2005 because inclusion would have been
anti-dilutive. As of June 30, 2006 and 2006, there were no
outstanding options available.
12
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 2001, the FASB issued Statement No. 142 "Goodwill and
Other Intangible Assets". This statement addresses financial
accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are
acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. In January 2005, the
Company entered into a licensing agreement with Careful Sell
Holdings, Ltd., a related party. (See Note 9)
On December 16, 2004, the Financial Accounting Standards Board
("FASB") published Statement of Financial Accounting Standards
No. 123 (Revised 2004), "SHARE-BASED PAYMENT" ("SFAS 123R").
SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the
financial statements. Share-based payment transactions within
the scope of SFAS 123R include stock options, restricted stock
plans, performance-based awards, stock appreciation rights,
and employee share purchase plans. The provisions of SFAS 123R
are effective for small business issuers as of the first
interim period that begins after December 15, 2005. Currently,
the Company accounts for its share-based payment transactions
under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial
statements. The Company has not issued any options during the
reporting periods and as such, the effect of SFAS 123R has no
impact on the results of operations for the six months ended
June 30, 2006.
13
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
On December 16, 2004, FASB issued Statement of Financial
Accounting Standards No. 153, "EXCHANGES OF NON-MONETARY
ASSETS, AN AMENDMENT OF APB OPINION NO. 29, ACCOUNTING FOR
NON-MONETARY TRANSACTIONS" ("SFAS 153"). This statement amends
APB Opinion 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of non-monetary assets that do
not have commercial substance. Under SFAS 153, if a
non-monetary exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable,
the transaction must be accounted for at fair value resulting
in recognition of any gain or loss. SFAS 153 is effective for
non-monetary transactions in fiscal periods that begin after
June 15, 2005. The Company does not anticipate that the
implementation of this standard will have a material impact on
its financial position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections." SFAS No. 154 replaces Accounting
Principles Board ("APB") Opinion No. 20, "Accounting Changes"
and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements." SFAS No. 154 requires retrospective
application to prior periods' financial statements of a
voluntary change in accounting principle unless it is
impracticable. APB No. 20 previously required that most
voluntary changes in accounting principle be recognized by
including the cumulative effect of changing to the new
accounting principle in net income in the period of the
change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. The adoption of SFAS No. 154 did not have a
material impact on the Company's financial position or results
of operations.
14
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
In February 2006, the FASB issued SFAS No. 155, "Accounting
for Certain Hybrid Financial Instruments, an amendment of FASB
Statements No. 133 and 140." SFAS No. 155 resolves issues
addressed in SFAS No. 133 Implementation Issue No. D1,
"Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets," and permits fair value
remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of
SFAS No. 133, establishes a requirement to evaluate interests
in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in
the form of subordination are not embedded derivatives and
amends SFAS No. 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. SFAS No.
155 is effective for all financial instruments acquired or
issued after the beginning of the first fiscal year that
begins after September 15, 2006. The Company is currently
evaluating the effect the adoption of SFAS No. 155 will have
on its financial position or results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets, an amendment of FASB Statement
No. 140." SFAS No. 156 requires an entity to recognize a
servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a
servicing contract under a transfer of the servicer's
financial assets that meets the requirements for sale
accounting, a transfer of the servicer's financial assets to a
qualified special-purpose entity in a guaranteed mortgage
securitization in which the transferor retains all of the
resulting securities and classifies them as either
available-for-sale or trading securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and an acquisition or assumption of an
obligation to service a financial asset that does not relate
to financial assets of the servicer or its consolidated
affiliates.
15
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
Additionally, SFAS No. 156 requires all separately recognized
servicing assets and servicing liabilities to be initially
measured at fair value, permits an entity to choose either the
use of an amortization or fair value method for subsequent
measurements, permits at initial adoption a one-time
reclassification of available-for-sale securities to trading
securities by entities with recognized servicing rights and
requires separate presentation of servicing assets and
liabilities subsequently measured at fair value and additional
disclosures for all separately recognized servicing assets and
liabilities. SFAS No. 156 is effective for transactions
entered into after the beginning of the first fiscal year that
begins after September 15, 2006. The Company is currently
evaluating the effect the adoption of SFAS No. 156 will have
on its financial position or results of operations.
NOTE 3- FIXED ASSETS
------------
Fixed assets as of June 30, 2006 were as follows:
ESTIMATED USEFUL
LIVES (YEARS)
-------------
2006
---------
Equipment 5-7 $ 22,135
Vehicles 5 54,346
---------
76,481
Less: accumulated depreciation (39,851)
---------
Fixed assets, net $ 36,630
=========
There was $8,827 and $11,734 charged to operations for
depreciation expense for the six months ended June 30, 2006
and 2005, respectively.
16
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 4- LOAN PAYABLE - VEHICLE
----------------------
In July 2004 the Company entered into a five year loan related
to the purchase of a new vehicle. The principal amount of the
loan is $26,216 at an interest rate of 5.38% annually. Monthly
payments on the loan are approximately $496.
The loan payable balance at June 30, 2006 is as follows:
2006
---------
Total loan payable $ 17,022
Less current maturities (5,177)
---------
Long-term loan payable $ 11,845
=========
The amount of principal maturities of the loan payable for the next three
periods ending June 30, and in the aggregate is as follows:
2007 $ 5,177
2008 5,455
2009 6,390
---------
$ 17,022
=========
NOTE 5- PROVISION FOR INCOME TAXES
--------------------------
Deferred income taxes will be determined using the liability
method for the temporary differences between the financial
reporting basis and income tax basis of the Company's assets
and liabilities. Deferred income taxes will be measured based
on the tax rates expected to be in effect when the temporary
differences are included in the Company's tax return. Deferred
tax assets and liabilities are recognized based on anticipated
future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities
and their respective tax bases.
17
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 5- PROVISION FOR INCOME TAXES (CONTINUED)
--------------------------------------
At June 30, 2006 the deferred tax assets consist of the
following:
SIX MONTHS ENDED
JUNE 30,
2006
-----------
Deferred taxes due to net
operating loss carryforwards $ 1,169,909
Less: Valuation allowance (1,169,909)
-----------
Net deferred tax asset $ --
===========
At June 30, 2006, the Company had deficits accumulated during
the development stage in the approximate amount of $3,899,698
available to offset future taxable income through 2026. The
Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of
the utilization of the operating losses in future periods.
NOTE 6- OPERATING LEASES
----------------
The Company leases office space under a lease that commenced
October 15, 2004. Monthly payments under the initial lease
term range from $3,000 to $3,400. During the second quarter of
2006 the Company entered into a lease agreement for additional
office space for a term of three years commencing June 1,
2006. The term of the initial leased space was extended at the
same time and both leases now expire on May 31, 2009. The
Company is required to pay property taxes, utilities,
insurance and other costs relating to the leased facilities.
18
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 6- OPERATING LEASES (CONTINUED)
----------------------------
Minimum lease payments under the operating lease are as
follows:
FOR THE PERIODS ENDING
JUNE 30,
----------------------
2007 $ 59,200
2008 60,000
2009 55,000
---------
$174,200
=========
NOTE 7- GOING CONCERN
-------------
As shown in the accompanying financial statements, the Company
incurred substantial net losses for the periods ended June 30,
2006 and 2005, and has no revenue stream to support itself.
This raises doubt about the Company's ability to continue as a
going concern.
The Company's future success is dependent upon its ability to
raise additional capital or to secure a future business
combination. There is no guarantee that the Company will be
able to raise enough capital or generate revenues to sustain
its operations. Management believes they can raise the
appropriate funds needed to support their business plan and
acquire an operating, cash flow positive company.
The financial statements do not include any adjustments
relating to the recoverability or classification of recorded
assets and liabilities that might result should the Company be
unable to continue as a going concern.
19
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 8- STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
COMMON STOCK
------------
The Company has 50,000,000 shares of common stock authorized
at June 30, 2006 and December 31, 2005, respectively, at no
par value.
At June 30, 2006 and December 31, 2005, the Company has
47,185,637 and 45,866,087 common shares issued and
outstanding, respectively.
THE FOLLOWING DETAILS THE STOCK TRANSACTIONS FOR THE SIX
MONTHS ENDED JUNE 30, 2006:
The Company issued 1,319,550 shares of stock for $1,485,890
cash.
THE FOLLOWING DETAILS THE STOCK TRANSACTIONS FOR THE YEAR
ENDED DECEMBER 31, 2005:
The Company issued 745,655 shares of stock for $914,507 cash.
The Company issued 37,500,000 shares of common stock to
Careful Sell Holding, L.L.C. in connection with the Technology
Contribution Agreement referred to in (Note 9).
The Company issued 80,800 shares of common stock as the
remaining balance due in exchange for real estate at a value
of $1.00 per share.
The Company issued 53,500 shares of common stock for services
at a value of $1.00 per share.
The Company issued 1,087 shares of common stock in conversion
of accounts payable to equity at a value of $1.00 per share.
20
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 8- STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
WARRANTS
--------
The Company issued -0- and -0- Class A warrants during the six
months ended June 30, 2006 and 2005, respectively. These
warrants were exercisable for the purchase of common stock for
$9.00 per share. These warrants initially expired on July 31,
2005. Effective July 29, 2005 the Company modified the terms
of the Class A warrants and extended the term for exercise.
Each holder of Class A warrants was provided with written
notice of the right to exchange the Class A warrants for Class
C, D and E warrants. As of December 31, 2005 all of the
remaining outstanding Class A warrants had expired.
For each Class A warrant exchanged the Shareholder shall
receive one Class C warrant, one Class D warrant and one Class
E warrant.
Class C warrants shall be exercisable, at an exercise price of
$1.00 per share, for a period of thirty days from the date
that the Shareholder signs the written form agreeing to the
Warrant Exchange Program. No Class C warrants were issued.
For each Class C warrant exercised, the Shareholder shall be
entitled to exercise one Class D warrant, at an exercise price
of $2.75 per share, for a period of ninety days from agreeing
to the Warrant Exchange Program. The Company issued 27,000 and
-0- Class D warrants during the six months ended June 30, 2006
and 2005, respectively. A total of 211,000 Class D warrants
were outstanding as of June 30, 2006.
For each Class D warrant exercised, the Shareholder shall be
entitled to exercise one Class E warrant, at an exercise price
of $4.00 per share, for a period of one hundred fifty days
from agreeing to the Warrant Exchange Program. To the extent
that a Shareholder does not exercise their Class D warrants
before they expire, the corresponding number of Class E
warrants shall become null and void and of no further force or
effect. The Company issued 27,000 and -0- Class E warrants
during the six months ended June 30, 2006 and 2005,
respectively. A total of 211,000 Class E warrants were
outstanding as of June 30, 2006.
21
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 8- STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
WARRANTS (CONTINUED)
--------
The Company issued 1,291,050 and 816,867 Class B warrants
during the six months ended June 30, 2006 and 2005,
respectively. The Class B warrants entitle the holder to
purchase one share of common stock for $2.75 per share. A
total of 3,591,217 Class B warrants were exercisable at June
30, 2006. None of the Class B warrants were exercised during
the six months ended June 30, 2006. The Class B warrants
initially expired on July 15, 2005. Effective July 1, 2005 the
Company authorized the extension of the expiration date of the
Class B warrants up until, but no later than, one year after
the stock in the Company is publicly trading.
NOTE 9- RELATED PARTY TRANSACTION
-------------------------
In January 2005 the Company formalized a prior intended
agreement with Careful Sell Holding, L.L.C. ("Careful Sell"),
a Delaware limited liability company formed by the President
of the Company. The Company's President and his spouse, a
Director of the Company, own all of the limited liability
interests of Careful Sell. The Company's President is also the
Manager of Careful Sell. Under the revised agreement the
Company entered into a Technology Contribution Agreement (the
"Agreement"), with Careful Sell. Careful Sell is the owner of
all the rights to the inventions of the Company's President.
The Agreement transfers to the Company the rights to
commercialize such inventions and to operate and use the
related processes and apparatus to make, sell, use and
otherwise dispose of products, which may be processed
utilizing the inventions. The terms of the Agreement include a
provision whereby the Company will pay Careful Sell royalties
of 2% of all revenues derived from the inventions. In further
consideration for the transfer of the inventions, the Company
has issued to Careful Sell a total of 37,500,000 shares of
common stock of the Company. This Agreement supercedes a prior
agreement not formalized between the Company and Careful Sell
in 2002.
22
CARBON RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO REVIEWED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 9- RELATED PARTY TRANSACTION (CONTINUED)
-------------------------------------
In January 2006 Careful Sell merger with PSO Enterprises,
Inc., a Delaware corporation ("PSO"). At that time the
separate existence of Careful Sell ceased and PSO continues as
the surviving corporation. At that time the members of Careful
Sell were issued 10,000,000 shares of PSO representing a 100%
interest in PSO. In February 2006 PSO reversed merged into
Mobilestream Oil.
NOTE 10- RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
-----------------------------------------------------
The Company has restated its previously issued financial
statements for the year ended December 31, 2005 on its report
dated March 3, 2006. The Company has restated its financial
statements to properly reflect the effect of a non-monetary
transfer of an asset between the Company and a related entity.
This transaction resulted in a decrease in stockholders'
equity of $37,500,000. There was no effect on the net loss
applicable to common shares for the year ended December 31,
2005.
NOTE 11- COMMITMENTS AND CONTINGENCIES
-----------------------------
Effective January 1, 2005 the Company entered into an
employment agreement with its President. Under the agreement
the President shall be entitled to an annual base salary of
$250,000 in 2005 escalating to $366,025 in 2009. In 2005,
$156,000 of the salary shall be paid ratably during the course
of the year and the remaining $94,000 will be paid in
accordance with the terms of the agreement. The initial term
of the agreement is for a period of five years. The President
has the option to renew this agreement for a second five-year
term. In addition to the base salary the Company has granted
the President 545,000 shares of restricted common stock as
deferred compensation. The common stock vests to the President
over a five-year period commencing January 1, 2005.
During the fourth quarter of 2005 the Company entered into an
agreement to purchase equipment for a total purchase price of
approximately $328,000. As of June 30, 2006 the Company has
made payments of approximately $251,000 toward the purchase of
the equipment. Delivery of the equipment is anticipated during
the third quarter of 2006.
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GLOBAL RESOURCE CORPORATION
By: /s/ Frank G. Pringle
Dated: August 7, 2007