| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Nevada | | 98-0585718 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
Large accelerated filer o | | Accelerated filer o |
| | |
Non-accelerated filer o | | Smaller reporting company x |
(Do not check if a smaller reporting company) | | |
PART I | FINANCIAL INFORMATION | 3 |
| | |
Item 1. | Consolidated Financial Statements | 3 |
| | |
| Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 (Unaudited) | 3 |
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012 and from Inception (May 24, 2010) to June 30, 2013 (Unaudited) | 4 |
| Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2013 (Unaudited) | 5 |
| Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 and from Inception (May 24, 2010) to June 30, 2013 (Unaudited) | 6 |
| Notes to Unaudited Consolidated Financial Statements | 7 |
| | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
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Item 4. | Controls and Procedures | 15 |
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PART II | OTHER INFORMATION | 16 |
| | |
Item 1. | Legal Proceedings | 16 |
| | |
Item 1A. | Risk Factors | 16 |
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
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Item 3. | Defaults Upon Senior Securities | 16 |
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Item 4. | Mine Safety Disclosures | 16 |
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Item 5. | Other Information | 16 |
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Item 6. | Exhibits | 17 |
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SIGNATURES | 18 |
| | June 30, | | December 31, | | ||
| | 2013 | | 2012 | | ||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 1,772,325 | | $ | 1,200,676 | |
Receivables | | | - | | | 106,666 | |
Prepaid expenses | | | 382,530 | | | 7,929 | |
Inventory | | | 53,522 | | | - | |
Other current assets | | | 23,767 | | | - | |
Total current assets | | | 2,232,144 | | | 1,315,271 | |
| | | | | | | |
Property and equipment, net of accumulated depreciation of $6,098 and $12,194 | | | 855,596 | | | 735,220 | |
| | | | | | | |
Total assets | | $ | 3,087,740 | | $ | 2,050,491 | |
| | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 294,829 | | $ | 21,099 | |
Accounts payable to related parties | | | - | | | 6,782 | |
Accrued liabilities | | | 104,495 | | | 112,909 | |
Convertible debt, net of unamortized discounts of $0 and $239,847 | | | - | | | 175,153 | |
Convertible debt to related parties | | | 200,000 | | | 200,000 | |
| | | | | | | |
Total current liabilities | | | 599,324 | | | 515,943 | |
| | | | | | | |
Stockholders' Equity: | | | | | | | |
Common stock, $0.001 par value, 843,750,000 shares authorized, 79,316,408 and 70,299,003 shares issued and outstanding, respectively | | | 79,316 | | | 70,299 | |
Additional paid-in capital | | | 4,740,651 | | | 1,734,170 | |
Subscription note receivable | | | (140,000) | | | - | |
Deficit accumulated during the development stage | | | (2,305,106) | | | (596,731) | |
Accumulated other comprehensive (loss) income | | | (174,778) | | | 28,312 | |
Total Petrosonic Energy, Inc. stockholders' equity | | | 2,200,083 | | | 1,236,050 | |
Non-controlling interest | | | 288,333 | | | 298,498 | |
Total stockholders' equity | | | 2,488,416 | | | 1,534,548 | |
Total liabilities and stockholders' deficit | | $ | 3,087,740 | | $ | 2,050,491 | |
| | Three Months Ended | | Six Months Ended | | August 1, 2012 Through | | | Three Months Ended | | Six Months Ended | | May 24, 2010 (Inception) | | ||||||
| | June 30, | | June 30, | | June, 30 | | | June 30 | | June 30, | | Through | | ||||||
| | 2013 | | 2013 | | 2013 | | | 2012 | | 2012 | | July 31, 2012 | | ||||||
| | Successor | | Successor | | Successor | | | Predecessor | | Predecessor | | Predecessor | | ||||||
Operating expenses | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative | | $ | 945,269 | | $ | 1,294,967 | | $ | 1,530,839 | | | $ | 3,790 | | $ | 5,879 | | $ | 38,599 | |
Depreciation and amortization expense | | | 3,048 | | | 6,096 | | | 13,209 | | | | - | | | - | | | 5,081 | |
| | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 948,317 | | | 1,301,063 | | | 1,544,048 | | | | 3,790 | | | 5,879 | | | 43,680 | |
| | | | | | | | | | | | | | | | | | | | |
(Loss) income from operations | | | (948,317) | | | (1,301,063) | | | (1,544,048) | | | | (3,790) | | | (5,879) | | | (43,680) | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | |
Interest income | | | - | | | - | | | 14 | | | | - | | | - | | | 18 | |
Interest expense | | | (4,986) | | | (389,394) | | | (426,976) | | | | - | | | - | | | - | |
Bargain purchase gain | | | - | | | - | | | 7,741 | | | | - | | | - | | | - | |
Loss on extinguishment of debt | | | - | | | (28,083) | | | (28,083) | | | | - | | | - | | | - | |
Total other income (expense) | | | (4,986) | | | (417,477) | | | (447,304) | | | | - | | | - | | | 18 | |
| | | | | | | | | | | | | | | | | | | | |
Net loss | | | (953,303) | | | (1,718,540) | | | (1,991,352) | | | $ | (3,790) | | $ | (5,879) | | $ | (43,662) | |
| | | | | | | | | | | | | | | | | | | | |
Net loss attributable to non-controlling interest | | | 7,407 | | | 10,165 | | | 20,063 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net loss attributable to Petrosonic Energy, Inc | | $ | (945,896) | | $ | (1,708,375) | | $ | (1,971,289) | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Basic and diluted net loss per share | | $ | (0.01) | | $ | (0.02) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Basic and diluted weighted average common shares outstanding | | | 79,236,463 | | | 78,489,893 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (953,303) | | $ | (1,718,540) | | $ | (1,991,352) | | | $ | (3,790) | | $ | (5,879) | | $ | (43,662) | |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | (427,526) | | | (203,090) | | | (174,778) | | | | (29,852) | | | 4,268 | | | 110,273 | |
| | | | | | | | | | | | | | | | | | | | |
Comprehensive (loss) income | | | (1,380,829) | | | (1,921,630) | | | (2,166,130) | | | $ | (33,642) | | $ | (1,611) | | $ | 66,611 | |
Comprehensive loss attributable to non-controlling interest | | | 7,407 | | | 10,165 | | | 20,063 | | | | | | | | | | | |
Comprehensive loss attributable to Petrosonic Energy, Inc. | | $ | (1,373,422) | | $ | (1,911,465) | | $ | (2,146,067) | | | | | | | | | | | |
| | Petrosonic Energy, Inc. | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | Total | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | Petrosonic | | | | | | | | ||
| | | | | | | Additional | | | | | Other | | | | | Energy, Inc.'s | | | | | | | | |||
| | Common Stock | | Paid-in | | Subscription | | Comprehensive | | Accumulated | | Stockholders' | | Noncontrolling | | | | | |||||||||
| | Shares | | Amount | | Capital | | Receivable | | Income (Loss) | | Deficit | | Equity | | Interest | | Total | | ||||||||
Balances, December 31, 2012 | | 70,299,003 | | $ | 70,299 | | $ | 1,734,170 | | $ | - | | $ | 28,312 | | $ | (596,731) | | $ | 1,236,050 | | $ | 298,498 | | $ | 1,534,548 | |
Shares issued for cash, net | | 7,080,000 | | | 7,080 | | | 1,710,920 | | | - | | | - | | | - | | | 1,718,000 | | | - | | | 1,718,000 | |
Shares issued for subscription receivable | | 560,000 | | | 560 | | | 139,440 | | | (140,000) | | | - | | | - | | | - | | | - | | | - | |
Shares issued for conversion of notes | | 707,405 | | | 707 | | | 176,145 | | | - | | | - | | | - | | | 176,852 | | | - | | | 176,852 | |
Shares issued for services | | 670,000 | | | 670 | | | 665,133 | | | - | | | - | | | - | | | 665,803 | | | - | | | 665,803 | |
Warrant issued for services | | - | | | - | | | 149,843 | | | - | | | - | | | - | | | 149,843 | | | - | | | 149,843 | |
Beneficial conversion feature | | - | | | - | | | 165,000 | | | - | | | - | | | - | | | 165,000 | | | - | | | 165,000 | |
Foreign currency translation | | - | | | - | | | - | | | - | | | (203,090) | | | - | | | (203,090) | | | - | | | (203,090) | |
Net loss | | - | | | - | | | - | | | - | | | - | | | (1,708,375) | | | (1,708,375) | | | (10,165) | | | (1,718,540) | |
Balances, June 30, 2013 | | 79,316,408 | | $ | 79,316 | | $ | 4,740,651 | | $ | (140,000) | | $ | (174,778) | | $ | (2,305,106) | | $ | 2,200,083 | | $ | 288,333 | | $ | 2,488,416 | |
| | Six Months Ended | | August 1, 2012 | | | Six Months Ended | | May 24, 2010 | | ||||
| | June 30, | | Through June, 30 | | | June 30, | | (Inception) Through | | ||||
| | 2013 | | 2013 | | | 2012 | | July 31, 2012 | | ||||
Cash flows from operating activities | | Successor | | Successor | | | Predecessor | | Predecessor | | ||||
Net loss | | $ | (1,718,540) | | $ | (1,991,352) | | | $ | (5,879) | | $ | (43,662) | |
Adjustments to reconcile net loss to net cash | | | | | | | | | | | | | | |
used in operating activities: | | | | | | | | | | | | | | |
Depreciation expense | | | 6,096 | | | 13,209 | | | | - | | | 5,081 | |
Amortization of debt discounts | | | 376,764 | | | 396,372 | | | | - | | | - | |
Loss on extinguishment of debt | | | 28,083 | | | 28,083 | | | | - | | | - | |
Bargain purchase gain on acquisition of Albania | | | - | | | (7,741) | | | | - | | | - | |
Shares issued for services | | | 665,803 | | | 665,803 | | | | - | | | - | |
Warrants issued for services | | | 149,843 | | | 149,843 | | | | - | | | - | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | |
Accounts receivable | | | 106,666 | | | 42,010 | | | | - | | | (42,010) | |
Inventory | | | (53,522) | | | (53,522) | | | | - | | | - | |
Prepaid expenses and other current assets | | | (399,601) | | | (407,530) | | | | - | | | - | |
Value added taxes receivables | | | - | | | - | | | | 42,314 | | | - | |
Accounts payable and accruals | | | 277,168 | | | 381,294 | | | | (189,268) | | | 4,942 | |
Accounts payable to related parties | | | (6,782) | | | - | | | | - | | | - | |
Net cash used in operating activities | | | (568,022) | | | (783,531) | | | | (152,833) | | | (75,649) | |
| | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | |
Cash acquired in acquisition of Albania | | | - | | | 11,448 | | | | - | | | - | |
Cash paid for purchase of fixed assets | | | (127,379) | | | (127,379) | | | | - | | | (731,129) | |
Net cash used in investing activities | | | (127,379) | | | (115,931) | | | | - | | | (731,129) | |
| | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | |
Proceeds from sale of stock, net | | | 1,718,000 | | | 3,107,500 | | | | - | | | - | |
Principal payments debt | | | (250,000) | | | (250,000) | | | | - | | | - | |
Contributed capital | | | - | | | - | | | | 152,439 | | | 704,378 | |
Net cash provided by financing activities | | | 1,468,000 | | | 2,857,500 | | | | 152,439 | | | 704,378 | |
| | | | | | | | | | | | | | |
Effects of foreign exchange on cash | | | (200,950) | | | (192,849) | | | | 10,742 | | | 113,924 | |
| | | | | | | | | | | | | | |
Net increase in cash | | | 571,649 | | | 1,765,189 | | | | 10,348 | | | 11,524 | |
Cash at beginning of year | | | 1,200,676 | | | 7,136 | | | | 1,655 | | | - | |
Cash at year end | | $ | 1,772,325 | | $ | 1,772,325 | | | $ | 12,003 | | $ | 11,524 | |
| | | | | | | | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | | | |
Cash paid for interest | | $ | 1,462 | | $ | 1,462 | | | $ | - | | $ | - | |
Cash paid for income taxes | | | - | | | - | | | | - | | | - | |
| | | | | | | | | | | | | | |
Non-cash transactions | | | | | | | | | | | | | | |
Beneficial conversion feature | | $ | 165,000 | | $ | 378,956 | | | | | | | | |
Common stock issued for subscription note receivable | | | 140,000 | | | 140,000 | | | | | | | | |
Common stock issued for debt and interest | | | 176,852 | | | 176,852 | | | | | | | | |
Deposit used for acquisition of Albania | | | - | | | 250,000 | | | | | | | | |
Convertible debt issued for acquisition of Albania, net of discount | | | - | | | 204,852 | | | | | | | | |
NOTE 1: | Nature of Business , Basis of Presentation, and Significant Accounting Policies |
NOTE 2: | Going Concern |
NOTE 3: | Related Party Transactions |
NOTE 4: | Convertible Debt |
NOTE 5: | Stockholders’ Equity |
NOTE 6: | Subsequent Events |
| ⋅ | our ability to successfully implement our business strategy, |
| ⋅ | our limited cash and our history of losses, |
| ⋅ | whether our technology will perform as expected, |
| ⋅ | the acceptance of our technology by the oil industry, |
| ⋅ | emerging competition and rapidly advancing technology in our industry that may outpace our technology, |
| ⋅ | our ability to raise cash as and when we need it, |
| ⋅ | the impact of competition and changes to the competitive environment on our products and services, and |
| ⋅ | other factors detailed from time to time in our filings with the Securities and Exchange Commission. |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| ⋅ | On January 1, 2013, we entered into a one year agreement with Loma Management Partners Inc., a firm that provides strategic investor relations services. In connection with the agreement, we agreed to issue 270,000 shares of common stock to the firm. In the event that the agreement is cancelled, we may repurchase for the sum of $1.00 all of the remaining shares that would have otherwise been earned by the firm during the remainder of the term. The common stock is to be issued in equal monthly installments of 22,500 shares each beginning in January 2013. |
| ⋅ | On January 11, 2013, we entered into a one year agreement with Richardson & Patel LLP for legal services. In connection with the agreement, we agreed to issue 400,000 shares of common stock to the firm. The shares of common stock are to be issued in quarterly installments beginning in April 2013. Under certain circumstances as described in the agreement, the number of shares may be adjusted based on the type and amount of services provided by the firm. We also agreed to issue up to 500,000 additional shares for work related to the preparation of a registration statement. |
| ⋅ | On January 15, 2013, we entered into a one year consulting agreement with Benjamin L. Padnos, who provides financial and investor relations services to us. In connection with the agreement, we agreed to issue 100,000 shares of common stock to Mr. Padnos. The shares are to be issued in four quarterly installments beginning in April 2013. |
| ⋅ | During January 2013, we sold 7,640,000 shares of common stock and 200,000 warrants in a private placement with certain accredited investors. In consideration for the issuance of these shares, we received aggregate net cash proceeds of $1,718,000, and a note receivable for $140,000. The note bears interest at a rate of 5%, is due on September 30, 2013, and is secured by 600,000 shares of our common stock issued to the investor. We paid commissions of $52,000 in cash, and issued an aggregate of 52,000 common stock warrants, exercisable at a price of $0.50 per share, and with a term of two years from the issue date. |
| ⋅ | On March 1, 2013 and March 25, 2013, four convertible debentures together with accrued interest were converted into shares of our common stock pursuant to the right of conversion of each of the convertible debentures. In connection with the conversions, we issued an aggregate of 707,405 shares of common stock. The debentures were issued to Westlake Advisors Corp., Jackson Bennett LLC and Sierra Growth Inc. |
| ⋅ | On April 26, 2013, we entered into a consulting agreement, dated April 24, 2013, with StoryCorp Consulting, Inc., a firm that provides finance, accounting and management services. The agreement does not have a fixed term and can be terminated by us upon 30 days notice. Upon execution of the agreement, the consultant was paid $10,000. According to the agreement, we could pay this compensation either in cash, or in a combination of $7,500 in cash and $2,500 in restricted common stock. The number of shares to be issued is calculated based on a price that is 80% of the volume weighted average price of our common stock for the prior month, with a $0.01 minimum price. We chose to pay the initial $10,000 of compensation in cash. Beginning June 1, 2013, the consultant is to be compensated on a monthly basis with a fee of $7,500 per month. At our election, the monthly fee can be paid in cash or in a combination of $5,000 in cash and $2,500 in our restricted common stock, with the number of shares computed in the manner described above. In addition, at our discretion, we may pay the consultant quarterly bonuses payable in cash or restricted stock. For services outside of those described in the agreement, the consultant will charge us at the rate of $250 per hour, payable 50% in cash and 50% in restricted common stock, with the number of shares computed in the manner described above. No common shares have been issued under this agreement. |
| ⋅ | On April 19, 2013, we entered into a one-year investment banking services agreement with Brean Capital. As compensation, upon execution of the agreement, we issued 150,000 common shares and a warrant for the purchase of 150,000 common shares exercisable at $0.75 per share with a term of 5 years. The consultant is entitled to a cash commission of 8% of the gross proceeds of any financing transaction the consultant brings to us plus commissions paid in warrants equal to 10% of the gross proceeds. The warrant will be exercisable at the price per share paid by participants in the financing transaction and have a term of 5 years. |
| ⋅ | On May 1, 2013, we entered into an amended and restated employment agreement with Art Agolli, our Chief Executive Officer. The effective date of the agreement is January 1, 2013 and continues for an initial period of two years. Under the terms of the agreement, Mr. Agolli is to be paid an annual base salary of $150,000, is entitled to an annual cash bonus in an amount to be agreed upon each year by Mr. Agolli and the Board of Directors and is entitled to other employee benefits. Within 30 days following each one-year anniversary of the effective date of the agreement, Mr. Agolli is entitled to receive an option to purchase shares of the Company’s common stock in an amount to be determined by the Board of Directors or its committee responsible for compensation matters as then constituted. The agreement may be terminated for cause by us or by election by either party. If Mr. Agolli’s employment is terminated without cause by us, Mr. Agolli will be entitled to certain severance payments as described in the agreement |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
| ⋅ | We do not have an Audit Committee While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over our financial statements. To date we have not established an audit committee. |
| ⋅ | Insufficient documentation of financial statement preparation and review procedures - We employ policies and procedures in reconciliation of the financial statements and the financial information based on which the financial statements are prepared, however, the controls and policies we employ are not sufficiently documented. |
| ⋅ | We did not maintain proper segregation of duties for the preparation of our financial statements The majority of the preparation of financial statements was carried out by one person. This has resulted in several deficiencies including: |
| I.) | Significant, non-standard journal entries were prepared and approved by the same person, without being checked or approved by any other personnel. |
| II.) | Lack of control over preparation of financial statements, and proper application of accounting policies. |
| ⋅ | We lack sufficient information technology controls and procedures As of June 30, 2013, we lacked a proper data back-up procedure, and while backup did take place in actuality, we believe that it was not regulated by methodical and consistent activities and monitoring. |
| ⋅ | Lack of formal review process that includes multiple levels of review, resulting in several audit adjustments. |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit Number | | Document |
| | |
3.1 | | Articles of Incorporation of Petrosonic Energy, Inc. (1) |
| | |
3.1.1 | | Articles of Amendment to Articles of Incorporation of Petrosonic Energy, Inc. (2) |
| | |
3.2 | | Bylaws, as amended (3) |
| | |
10.1 | | Master Toll Services Agreement dated April 3, 2013 between the registrant and IDK Petrol Albania Sila* |
| | |
10.2 | | Consulting Agreement dated April 24, 2013 between the registrant and StoryCorp Consulting, Inc.(4) |
| | |
10.3 | | Amended and Restated Employment Agreement between the registrant and Art Agolli(4) |
| | |
10.4 | | Agreement dated April 19, 2013 between the registrant and Brean Capital* |
| | |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer* |
| | |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer* |
| | |
32.1 | | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer* |
| | |
101 | | The following financial statements from the registrant’s Quarterly Report on Form 10-Q for the six months ended June 30, 2013, formatted in XBRL: (i) Consolidated Balance Sheets (Unaudited); (ii) Consolidated Statements of Operations (Unaudited); (iii) Consolidated Statement of Stockholders’ Equity (Unaudited); (iv) Consolidated Statements of Cash Flows (Unaudited); (v) Notes to Unaudited Consolidated Financial Statements.* |
| (1) | Incorporated by reference from the registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 19, 2008. |
| (2) | Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2012. |
| (3) | Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2013. |
| (4) | Incorporated by reference from the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 3, 2013. |
| PETROSONIC ENERGY, INC. | |
| (Registrant) | |
| | |
Date: August 20, 2013 | By: | /s/ Art Agolli |
| | Art Agolli |
| | Chief Executive Officer and Principal Financial Officer |