SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2007
-------------
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission file number 000-50944
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Global Resource Corporation
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(Exact name of small business issuer as specified in its charter)
Nevada 84-1565820
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Bloomfield Business Park, 408 Bloomfield Drive, Unit 3, West Berlin, New Jersey
08091
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(Address of principal executive offices)
(856) 767-5661
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 26,443,332 shares of common stock,
par value $0.001 were outstanding at August 3, 2007.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL RESOURCE CORPORATION
(A Development Stage Company)
Condensed Balance Sheet
June 30, 2007
(Unaudited)
ASSETS
------ As of June 30,
2007
------------
CURRENT ASSETS
Cash $ 723,919
------------
TOTAL CURRENT ASSETS 723,919
------------
Fixed Assets, Net of depreciation 443,796
------------
OTHER ASSETS
Notes Recievable net - (reserved $650,000 for doutful collection) --
Prepaids 250,000
Investments & Deposits on Investments 45,000
------------
TOTAL OTHER ASSETS 295,000
TOTAL ASSETS $ 1,462,715
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 100,174
Current portion - loan payable - equipment 38,892
Debenture financing liability 400,000
------------
TOTAL CURRENT LIABILITIES 539,066
------------
LONG-TERM LIABILITIES
Loan payable - equipment, net of current portion 73,002
------------
Total liabilities 612,068
------------
STOCKHOLDERS' EQUITY
Preferred Stock - $.001 par value 50,000,000 shares authorized, 35,236
35,236,188 issued and outstanding at June 30, 2007;
Common stock, $.001 par value; 2,000,000,000 shares authorized, 25,853
25,758,254 shares issued and outstanding at June 30, 2007; and 47,185,637
shares issued and outstanding at June 30, 2006
Subscription receivable (645,693)
Additional paid-in capital 10,208,191
Deficit accumulated in the development stage (8,433,967)
------------
1,189,620
Treasury Stock (66,473)
Deferred compensation (272,500)
------------
Total stockholders' equity 850,647
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,462,715
============
The accompanying notes are an integral part of these financial statements.
F-1
GLOBAL RESOURCE CORPORATION
(A Development Stage Company)
Condensed Statement of Operations
(With Cumulative Totals Since Inception)
(Unaudited)
Three Months Ended SIX MONTHS ENDED
------------------ ---------------- JULY 19, 2002
(INCEPTION)
JUNE 30 JUNE 30 JUNE 30 JUNE 30 TO
2007 2006 2007 2006 JUNE 30, 2007
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
COST OF SALES -- -- -- --
------------ ------------ ------------ ------------ ------------
GROSS PROFIT -- -- -- -- --
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Consulting fees 20,000 43,646 28,239 74,017 1,332,616
Professional fees 149,881 60,391 324,856 106,565 1,012,633
Other general and administrative expenses 462,645 1,470,500 1,009,033 1,919,237 5,194,202
Reserve for Note Receivable -- -- -- -- 650,000
Depreciation expense 24,595 4,413 47,877 8,826 137,743
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 657,121 1,578,950 1,410,005 2,108,645 8,327,194
------------ ------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (657,121) (1,578,950) (1,410,005) (2,108,645) (8,327,194)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss on deposit / real estate - net (100,000) (100,000) (172,712)
Interest expense (12,886) (3,549) (16,365) (7,894) (31,534)
Interest income 10,015 19,480 24,514 25,398 97,584
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (102,871) 15,931 (91,851) 17,504 (106,662)
------------ ------------ ------------ ------------ ------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (759,992) (1,563,019) (1,501,856) (2,091,141) (8,433,856)
PROVISION FOR INCOME TAXES -- -- -- -- 111
------------ ------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (759,992) $ (1,563,019) $ (1,501,856) $ (2,091,141) $ (8,433,967)
============ ============ ============ ============ ============
BASIC AND DILUTED LOSS
PER SHARE $ (0.03) $ (0.03) $ (0.06) $ (0.04) $ (0.33)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 25,565,553 46,813,546 25,374,174 49,378,514 25,374,174
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-2
GLOBAL RESOURCE CORPORATION
(A Development Stage Company)
Condensed Statement of Stockholders' Equity
At June 30, 2007
Preferred Stock Common Stock
------------------ -------------------- Deficit
Par Par Discount Accumulated
Value Value Additional on during the Deferred Subscrip-
Preferred $.001 Common $.001 Paid-In Common Development Compen- tion Treasury
Shares $ Amount Shares $ Amount Capital Stock Stage sation Receivable Stock 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,
originally
stated -- -- -- -- -- -- (2,008,508) -- -- (2,008,508)
Prior period
adjustment,
Note 11 -- -- -- -- -- -- 1,500,000 -- -- 1,500,000
------ ------ ---------- ------- ---------- ------- ----------- --------- --------- -----------
Balance at
December 31,
2002 -- -- 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 -- -- 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
------ ------ ---------- ------- ---------- ------- ----------- --------- --------- -----------
F-3
GLOBAL RESOURCE CORPORATION
(A Development Stage Company)
Condensed Statement of Stockholders' Equity
At June 30, 2007
Preferred Stock Common Stock
------------------ ---------------------- Deficit
Par Par Discount Accumulated
Value Value Additional on during the Deferred Subscrip- Treas-
Preferred $.001 Common $.001 Paid-In Common Development Compen- tion ury
Shares $ Amount Shares $ Amount Capital Stock Stage sation Receivable Stock Total
---------- ------- ----------- --------- ------------ ----------- ----------- --------- --------- ------ -----------
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 -- -- 2,786,286 -- 2,810,877 -- -- -- -- 2,810,877
Stock
subscriptions
received, net -- -- -- -- -- -- -- -- (582,511) (582,511)
Amortization
of deferred
compensation -- -- -- -- -- -- -- 109,000 -- 109,000
Shares issued
for services -- -- 14,123 -- 14,746 -- -- -- -- 14,746
Shares issued
for
investment in
land -- -- 22,500 -- 45,000 -- -- -- -- 45,000
Effect of
reverse
merger -- -- 72,241 48,761 (37,669,444) 37,500,000 -- -- -- (120,683)
Shares issued
for
conversion
of debt -- -- 2,681,837 2,682 118,000 -- -- -- -- 120,682
Shares issued
for consultin -- -- 25,000 25 49,975 -- -- -- -- 50,000
Shares issued
for merger
with
Mobilestream
Inc -- -- 11,145,255 11,145 2,842,136 -- (10,498) -- -- 2,842,783
Cancellation
of shares for
merger with
Mobilestream
Inc -- -- (37,500,000) (37,500) 37,500 -- -- -- -- --
Preferred
convertible
stock issued
for merger
with
Mobilestream
2 for 1
convertible
into
common 35,236,188 $35,236 -- -- 468,138 -- -- -- -- 503,374
Net loss for
the year
ended
December
31, 2006 -- -- -- -- -- -- (4,246,058) -- -- -- (4,246,058)
-------- ------- ----------- --------- ------------ ----------- ----------- --------- --------- ----- -----------
Balance at
December
31, 2006 35,236,188 $35,236 25,113,329 $ 25,113 $ 9,818,127 $ -- $(6,932,111) $(327,000) $(660,693) $ -- $ 1,958,672
========== ======= =========== ========= ============ =========== =========== ========= ========= ===== ===========
F-4
GLOBAL RESOURCE CORPORATION
(A Development Stage Company)
Condensed Statement of Stockholders' Equity
At June 30, 2007
Preferred Stock Common Stock
------------------ ---------------------- Deficit
Par Par Discount Accumulated
Value Value Additional on during the Deferred Subscrip-
Preferred $.001 Common $.001 Paid-In Common Development Compen- tion Treasury
Shares $ Amount Shares $ Amount Capital Stock Stage sation Receivable Stock Total
---------- ------- ----------- --------- ------------ -------- ----------- --------- --------- -------- -----------
Shares
issued
for cash -- -- 17,500 17 5,233 -- -- -- -- 5,250
Shares
issued for
stock to
be issued
(liability) -- -- 186,822 187 201,156 -- -- -- -- 201,343
Amortization
of deferred
compensation -- -- -- -- -- -- -- 27,250 -- 27,250
Shares
issued
for
services -- -- 36,000 36 25,964 -- -- -- -- 26,000
Net loss for
the year
ended
March 31,
2007 -- -- -- -- -- -- (741,864) -- -- -- (741,864)
---------- ------- ----------- --------- ------------ -------- ----------- --------- --------- -------- -----------
Balance at
March 31,
2007 35,236,188 $35,236 25,353,651 $ 25,353 $ 10,050,480 $ -- $(7,673,975) $(299,750) $(660,693) $ -- $1,476,651
========== ======= =========== ========= ============ ======== =========== ========= ========= ======== ===========
Shares
issued
for cash 499,564 500 157,711 158,211
Shares
issued
for Stock
to be
issued
(liability) 15,000 15,000
Treasury
Stock (94,961) (66,473) (66,473)
Amortiza-
tion of
deferred
compensa-
tion 27,250 27,250
Shares
issued
for
services --
Net loss
for the
year ended
June 30,
2007 -- -- -- -- -- -- (759,992) -- -- -- (759,992)
---------- ------- ---------- --------- ------------ -------- ----------- --------- --------- -------- -----------
BALANCE AT
JUNE 30,
2007 35,236,188 $35,236 25,758,254 $ 25,853 $ 10,208,191 $ -- $(8,433,967) $(272,500) $(645,693) $(66,473) $ 850,647
========== ======= ========== ========= ============ ======== =========== ========= ========= ======== ==========
The accompanying notes are an integral part of these financial statements.
F-5
GLOBAL RESOURCE CORPORATION
(A Development Stage Company)
Condensed Statement of Cash Flows
(With Cumulative Totals Since Inception)
(Unaudited)
July 19, 2002
SIX MONTHS ENDED (INCEPTION)
JUNE 30, JUNE 30, TO
2007 2006 MARCH 31, 2007
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,501,856) $(2,091,141) $(8,433,967)
----------- ----------- -----------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
OPERATING ACTIVITIES:
Depreciation 47,877 8,826 138,056
Common stock issued for services 26,000 558,300
Amortization of deferred compensation 54,500 54,500 272,750
Allowance reserve for note payable 650,000
Loss on real estate 87,036
Common stock issued as charitable contribution 50,000
CHANGES IN ASSETS AND LIABILITIES
(Increase) in prepaid expenses (250,000) (250,000)
(Increase) decrease in deposits 100,000 237,305 100,000
(Increase) in notes receivable -- -- (650,000)
(Decrease) in accounts receviable
Increase in accounts payable (13,872) (65,158) (238,091)
----------- ----------- -----------
-----------
TOTAL ADJUSTMENTS (34,495) 235,473 718,050
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,536,351) (1,855,668) (7,715,917)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (2,733) (45,976) (581,853)
Proceeds from sale of real estate -- 617,864
Investment -- (600,000) (145,000)
Investment in real estate, net -- -- (80,800)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,733) (645,976) (189,789)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash 162,961 3,888,345
Issuance of equity securities and paid-in capital for merger and other 201,842 3,612,926 5,974,791
Liability for stock to be issued (201,342) 93,365 (975)
(Increase) decrease in stock subscription receivable 15,000 68,676 (1,677,957)
Proceeds from Debenture finance activity 400,000 400,000
Proceeds from officer's loan 38,550
Repayment of officer's loan (17,050) (38,550)
Purchase of Treasury Stock (66,473) (25,000) (66,473)
Proceeds from loan payable - vehicle 100,133
Repayment of loan payable - vehicle (2,472) (31,937)
Proceeds from loan payable - equipment 75,000 75,000
Repayment of loan payable - equipment (17,987) (7,370) (31,302)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 494,001 3,798,075 8,629,625
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,046,083) 1,296,431 723,919
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 1,770,002 1,074,272 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
- END OF PERIOD $ 723,919 $ 2,370,703 $ 723,919
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
NON-CASH ACTIVITIES:
Common stock issued for services $ 26,000 $ 558,300
=========== =========== ===========
Common stock issued for land investment $ 125,800
=========== =========== ===========
Common stock issued as charitable contribution $ 50,000
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 1 - BASIS OF PRESENTATION AND NATURE OF BUSINESS AND ORGANIZATION
-------------------------------------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 2007 are not necessarily indicative of the results that maybe
expected for the year ended December 31, 2007.
Global Resource Corporation (the Company") was formed on July 19, 2002 in
the state of New Jersey under the name Carbon Recovery Corporation as a
development stage company. The Company's business plan is to research and
develop and market the business of decomposing petroleum-based materials by
subjecting them to variable frequency microwave radiation at specifically
selected frequencies for a time sufficient to at least partially decompose
the materials, converting the materials into industrial products and
chemicals for the petroleum chemical industry.
The Company's business goals are as follows:
1) The construction of plants to exploit certain technology for decomposing
petroleum-based materials by subjecting them to variable frequency
microwave radiation at specifically selected frequencies for a time
sufficient to at least partially decompose the materials; 2) The design,
manufacture and sale of machinery and equipment units, embodying the
technology; and 3) the sub-licensing of third parties to exploit that
technology.
At the present time, the process is in a laboratory mode. There will have
to be a transition from the "one batch at a time" operation, used in the
laboratory to a "continuous feed" line in order to commercialize the
process. Currently, the continuous feed line is in the final design stage.
The Company believes that the design of the machinery and equipment for the
decomposition of waste tires fully protects the environment from the
release of components during the decomposition process.
In a similar decomposition process, the Company has designed machinery and
equipment which will decompose "fluff", which is the non-metallic portions
of scrap motor vehicles, primarily, the interiors. It appears that although
scrap vehicles are specifically taken without the tires due to
environmental rules, they are often removed but then placed ("hidden") in
the trunk of the vehicle and crushed into it, thus "disposing" of the
tires. The Company's machinery will, of course, permit any tires to be
decomposed together with the other materials.
F-7
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 1- BASIS OF PRESENTATION AND NATURE OF BUSINESS AND ORGANZIATION
-------------------------------------------------------------
(CONTINUED)
-----------
The Company is currently offering three models: one which disposes of 5
tons per hour, one which disposes of ten tons per hour, and one which
disposes of twenty tons per hour. The Company is soliciting orders and has
issued various proposals.
There are other potential applications for the microwave technology covered
by the license, in addition to the application for decomposing waste tires
and fluff. These include:
1. Stimulation of production of mature oil and gas wells ("stripper"
wells);
2. Reduction of hydrocarbons in drilling cuttings to permit on-site
disposal;
3. Volatilization of heavy or slurry oil;
4. Recovery of oil from oil shale and oil sands; and
5. Medicinal applications.
To date, the Company has allocated a substantial portion of their time and
investment in bring their product to the market and the raising of capital.
The Company has not commenced any commercial operations as of June 30,
2007.
On December 31, 2006, Global Resource Corporation acquired all the assets
and assumed all of the liabilities of Mobilestream Oil, Inc. in exchange
for; a) 11,145,255 shares of the Company's Common Stock; b) the issuance by
the Company for the benefit of the holders of the 2006 series of
convertible preferred stock of Mobilestream of 35,236,188 shares of the
Company's own "2006 Series" in the process of designation; c) the issuance
of 27,205,867 common stock purchase warrants on the basis of 1 warrant for
each 3 shares of either common stock or preferred stock (the 2006 Series),
exercisable at $4.75 per share for a period ending on December 31, 2007.
The ownership Mobilestream owned 37,500,000 shares of the Company's stock
which were cancelled. The total cost of the acquisition of Mobilestream has
been allocated to the assets acquired and the liabilities assumed based on
their fair values in accordance with SFAS 141, BUSINESS COMBINATIONS. The
net asset and liabilities of Mobilestream equal approximately $2.4 million.
The assets consisted of cash approximately $1,678,000, and fixed assets of
$149,000 offset by liabilities of approximately $91,000.
F-8
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 1- BASIS OF PRESENTATION AND NATURE OF BUSINESS AND ORGANZIATION
-------------------------------------------------------------
(CONTINUED)
-----------
On September 22, 2006, the Carbon Recovery Corporation entered into a Plan
and Agreement of Reorganization ("Agreement") with Global Resource
Corporation. Pursuant to the Agreement, Global Resource Corporation
acquired all of the assets and assumed all of the liabilities and related
development stage business of Carbon Recovery Corporation in exchange for
48,688,996 common shares and the assumption of a convertible debenture and
accrued interest in the amount of $120,682 by Carbon Recovery Corporation,
subsequent the convertible debenture was eliminated by issuing 2,681,837 of
the Company's common stock.. The holders of Global Resource Corporation's
capital stock before the Agreement retained 72,241 shares of common stock.
Prior to the Agreement, Carbon Recovery Corporation had warrants
outstanding. Pursuant to the Agreement, those outstanding warrants were
exchanged for outstanding warrants of Global Resource Corporation.
Specifically, Global Resource Corporation issued 3,908,340 Class B
warrants, 1,397,600 Class D warrants and 1,397,600 Class E warrants. The
Class B and Class D warrants have an exercise price of $2.75 and the Class
E warrants have an exercise price of $4.00. All of the warrants originally
schedule to expire on September 21, 2007, but subsequent to June 30 balance
sheet date the Board of directors of the Company has extended the
expiration date to December 31, 2007 fore class B and Class D warrants and
March 31, 2008 for Class E warrants (see "Subsequent Events" Note 13
below).
The above transaction has been accounted for as a reverse merger
(recapitalization) with Carbon Recovery Corporation being deemed the
accounting acquirer and Global Resource Corporation being deemed the legal
acquirer. Accordingly, the historical financial information presented in
the financial statements is that of Carbon Recovery Corporation as adjusted
to give effect to any difference in the par value of the issuer's and the
accounting acquirer's stock with an offset to additional paid in capital.
The basis of the assets and liabilities of Carbon Recovery Corporation, the
accounting acquirer, have been carried over in the recapitalization.
Concurrent with the merger, Carbon Recovery Corporation changed its name to
Global Resource Corporation.
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 has devoted
substantially all of its efforts to business planning and development, as
well as allocating a substantial portion of their time and investment in
bringing their product to the market, and the raising of capital.
F-9
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
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.
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, 2007, the Company maintained cash and cash equivalent balances
at two financial institution that is insured by the Federal Deposit
Insurance Corporation up to $100,000. At June 30, 2007 the Company's
uninsured cash balances total $523,919.
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.
Effective December 31, 2006 the Company completed a merger with
Mobilestream Corp. and due to the transfer of assets between entities under
common control, the total cost of the acquisition of Mobilesstream has been
allocated to the assets acquired and the liabilities assumed based on their
fair values in accordance with SFAS 141, BUSINESS COMBINATIONS. All account
amounts and shares amounts have been updated and presented to reflect the
change.
F-10
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Effective July 31, 2006 the Company completed a reverse split of its common
stock. All share amounts have been updated and presented to reflect the
change.
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.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
-----------------------------------------
The following is a reconciliation of the computation for basic and
diluted earnings per share:
Six Months Ended June
30,
---------------------------------
2007 2006
--------------- --------------
Net loss ($1,501,856) ($2,091,141)
--------------- --------------
Weighted-average common shares
Outstanding (Basic) 25,374,174 49,378,514
--------------- --------------
Weighted-average common shares
Outstanding (Diluted) 25,374,174 49,378,514
=============== ==============
Weighted-average common stock Equivalents for preferred stock convertible
to 1 for 2 of common are 70,472,376 and warrants common stock equivalents
are 33,909,407, these are not part of the weighted-average outstanding
common stock calculation because inclusion would have been anti-dilutive as
of June 30, 2007 and June 30, 2006.
F-11
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
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.
F-12
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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, 2007 were as follows:
Estimated Useful
Lives (Years) Amount
-------------------------------
Testing Equipment 5 - 7 $ 432,714
Vehicles 5 127,512
Office & Computer Equip. 5 16,643
Leasehold improvements 3 4,670
-------------
Total $ 581,539
=============
Less accumulated Depreciation & amortization 137,743
-------------
NET FIXED ASSETS $ 443,796
=============
There was $47,877 and $8,826 charged to operations for depreciation
expense for the six months ended June 30, 2007 and 2006, respectively.
F-13
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 4- LOAN PAYABLE - EQUIPMENT
------------------------
In January 2006 the Company entered into a five year loan related to the
purchase of new equipment. The principal amount of the loan is $75,000 at
an interest rate of 13.43% annually. Monthly payments on the loan are
approximately $1,723. In October 2006 the Company entered into a three year
loan related to lab equipment. The principal amount of the loan is $73,817
at an interest rate of 8.71% annually. Monthly payments on the loan are
approximately $2,396.
2007
-----------
Total Loans Payable $ 111,894
Less current maturities (38,892)
-----------
Long-Term payable $ 73,002
===========
The amount of principal maturities of
the loans payable by years is as follows:
2007 $ 38,892
2008 43,152
2009 23,148
2010 6,703
---------
$ 111,894
=========
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.
F-14
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 5- PROVISION FOR INCOME TAXES (CONTINUED)
At June 30, 2007 the deferred tax assets consist of the following:
JUNE 30,
2007
-------------
Deferred taxes due to net
operating loss carryforwards $ 2,530,190
Less: Valuation allowance (2,530,190)
-----------
Net deferred tax asset $ --
===========
At June 30, 2007, the Company had deficits accumulated during the
development stage in the approximate amount of $8,433,967 available to
offset future taxable income through 2027. 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 agreement that commenced June
1, 2006, the monthly lease payments are $5,000 per month and the leases
expires on May 31, 2009. The Company is required to pay property taxes,
utilities, insurance and other costs relating to the leased facilities.
Minimum lease payments under the operating lease are as follows:
For the Periods Ending Amount
June, 30
2007 $ 30,000
2008 60,000
2009 21,700
------------
$111,700
============
F-15
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 7- GOING CONCERN
-------------
As shown in the accompanying financial statements, the Company incurred
substantial net losses for the periods ended June 30, 2007 and 2006, 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.
NOTE 8- STOCKHOLDERS' EQUITY
--------------------
COMMON STOCK
------------
The following details the stock transactions for the Three months ended
June 30, 2007:
The Company issued 499,564 shares of stock for $157,711 cash.
The Company re-purchased 94,961 shares of common stock for $66,473 in cash.
(See "Related Party Transaction" Note 10 below Treasury stock purchase from
Lois Pringle)
PREFERRED STOCK
---------------
There was no activity for the three months ended June 30, 2007:
Currently there 35,236,188 shares of convertible preferred, these shares
can be converted into common stock,1 preferred for 2 common stock shares.
F-16
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 8- STOCKHOLDERS' EQUITY (CONTINUED)
--------------------------------
WARRANTS
--------
The Company issued 3,908,340 Class B warrants, 1,397,600 Class D warrants
and 1,397,600 Class E warrants. The Class B and Class D warrants have an
exercise price of $2.75 and the Class E warrants have an exercise price of
$4.00. All of the warrants, originally schedule to expire on September 21,
2007, but subsequent to June 30 balance sheet date the Board of directors
of the Company has extended the expiration date to December 31, 2007 for
class B and Class D warrants and March 31, 2008 for Class E warrants (see
"Subsequent Events" Note 13 below).
The Company issued 27,205,867 Common Stock Purchase warrants on the basis
of 1 warrant for each 3 shares of either common stock or preferred stock
(the 2006 Series), exercisable at $4.75 per share. These warrants expire on
December 31, 2007.
A summary of the status of the Company's outstanding stock warrants as of
June 30, 2006 is as follows
Weighted Average
Exercise Price
-----------------
Shares
------------------ -----------------
Outstanding at January 1, 2007 - $ -
Granted 33,909,407 4.41
Exercised - -
Forfeited - -
------------------ -----------------
Outstanding at June 30, 2007 33,909,407 $ 4.41
------------------ -----------------
Exercisable at June 30, 2007 33,909,407 $ 4.41
------------------ -----------------
F-17
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 9- 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.
On March 12, 2007 the Company entered into an Exclusive Placement Agent
Agreement with an investment banker pursuant to which the investment banker
was to place up to $3,000,000 of debt securities (with related warrants)
within a 45 day period following approval of offering documents. During the
offering term, two subscriptions, for a total of $800,000, were received,
of which amount $400,000 was paid-in. After payment of Escrow Agent fees
and costs of $2,510 and transaction fees and costs of $62 200, which costs
and fees have been contemporaneously expensed, the Company netted $335,299.
On June 13, 2007, following expiration of the 45-day term, the Company
notified the Escrow Agent and the investment banker (1) that the Exclusive
Placement Agent Agreement would not be extended and (2) that the offering
was withdrawn. Subsequently, (see "Subsequent Events" Note 12 below) the
Company determined to rescind the two subscriptions and on August 1, 2007
returned the $400,000 together with 9% interest thereon from the date of
the subscriptions.
In June 2007 the Company entered into purchase agreement with Ingersoil
Production Systems of Rockford Illinois to build one 10 ton microwave
reactor system and one prototype reactor system. The total purchase
commitment is $679,000, expected delivery date is approximately six months
from June, 66% of payment due Oct, with balance due upon delivery of
products.
F-18
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 10- RELATED PARTY TRANSACTION
-------------------------
On December 29, 2006 the Company completed a merger with Mobilestream Oil,
which had a common control owners. The transfer of assets between entities
was recorded at their cost basis for accounting purposes. A royalties
receivable and payable in the amount of $70,832 was eliminated in the
consolidation of two companies for first quarter 2006. Revenue for
royalties and development expenses in amount of $116,667 was also
eliminated in the consolidation of the two companies.
On May 17, 2006, the Company authorized the purchase of the Company stock
from Lois Pringle, officer and wife of the Company's Chief Executive
officer. The Company purchased 94,961 shares for $66,471 in cash.
NOTE 11- NOTE RECEIVABLE
---------------
On September 22, 2006, the Mobilestream Oil, Inc. loaned $650,000 to M J
Advanced Corporation Communications ("MJACC") with the understanding that
MJACC would advance money to CRCIC, LLC a limited liability company for,
the purpose to acquire a shell corporation (Global Resources Corporation)
for Carbon Recovery Corporation to perfect a reverse merger. Subsequent to
the balance sheet date, a dispute arose with respect to the agreement. A
resolution was agreed upon where 400,000 shares of Global Resources
Corporation stock owned by MJACC and CRCIC have been transferred to an
attorney as escrow for satisfaction of the note payable to the Company and
MJACC and CRCIC relinquished all rights. The stocks held in escrow will be
sold by the Escrow agent to satisfy the loan amount.
The note has been fully reserved due to market price volatility of the
Company's common stock price.
NOTE 12- IVESTMENTS AND DEPOSITS ON INVESTMENTS
--------------------------------------
The Company entered into preliminary sales agreement to purchase the
Equipment Service Parts Company (ESP), a $100,000 deposit was made to ESP
in December 2006. In June 2007 the Company has decided not to pursue the
acquisition of ESP and the deposit was deemed not refundable and was
expensed in June 2007.
F-19
GLOBAL RESOURCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2007
NOTE 13- SUBSEQUENT EVENTS
-----------------
Subsequent to the balance sheet date of June 30, the following transactions
occurred:
During July 2007, the Company had discussions with the two entities which
subscribed for the $800,000 of debt securities and which had paid-in 50% of
their subscriptions ($400,000) (see footnote 9 above), as a result of which
discussions the Company determined to rescind the transactions. On August
1, 2007 the Company tendered the $400,000 paid-in together with interest of
$9,640 calculated at the 9% rate on judgments in the State of Illinois from
the date of subscription payment to the date of the tender. The interest
has been accrued, in full, as of June 30. In connection with the
rescission, the Company revoked its acceptance of the two partially-paid
subscriptions.
The Company set up a prepaid in the amount of $250,000 in June 2007 for a
finder fee related to the $800,000 debt securities discuss above. In the
connection with the rescission of these debt securities the Company has
gotten agreement from parties to refund the $250,000 in August 2007.
The Company issued 30,041 shares of common stock in exchange for services
valued at 20,728.
F-20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Plan of Operations
------------------
On September 22, 2006 the Company acquired the assets and development stage
business of Carbon Recovery Corporation. Since, the Company has continued the
plan of operations developed by Carbon Recovery Corporation and in effect at the
time of that acquisition. Essentially, this involves finding commercial
applications for the various uses and applications of the variable microwave
technology to recover hydrocarbons either from waste products (E.G., waste tires
and non-metallic components of junked and wrecked vehicles) or from sources such
as oil shale, oil drilling cuttings, capped wells with appropriate geological
characteristics, etc.
Waste Tires:
Carbon Recovery Corporation had commenced negotiations for a lease of a 3 to 4
acre site, with a 135,000 sq. ft. building, at a former USX site in Fairless
Hills, Bucks County, Pennsylvania for the construction of a waste tire disposal
plant. Those negotiations were initially continued by the Company but have now
been tabled because the Company anticipates constructing a tire disposal
facility in conjunction with the dredging sludge disposal discussed below.
Fluff:
As explained in a prior filing, "fluff" is essentially the non-metallic
components (E.G., plastics) of junked and wrecked vehicles. As previously
reported, Company has developed a unit for the decomposition of such materials
for which it currently is seeking purchase orders. As a result of its search,
the Company is in negotiations with two companies. The first transaction would
be for an initial unit, potentially followed by several more. The second
transaction, with a major disposal company, is likely to be structured as an
"exclusive" (except for the first transaction already in progress). The second
transaction would involve a fee for the exclusivity, as well as support for
continuing R&D with respect to the types of materials encountered on a
world-wide basis.
Dredging:
Dredging of harbors and waterways creates piles of muck and debris contaminated
with various wastes, including especially hydrocarbons. The Company is
developing the machinery and plant required for the application of its microwave
technology to the handling of such dredging sludge, removing the moisture and
extracting the hydrocarbons so as to permit the residue to be put in landfills
or to be used for fill purposes. Under a plan currently under discussion, the
Company would install such a plant in conjunction with the dredging operations
of the Army Corps of Engineers to process the sludge as it is delivered onshore.
The Company's proposal would also construct a waste tire facility adjoining the
sludge treatment plant for the purpose of recovering sufficient hydrocarbons
from the tires to provide the energy to operate the sludge treatment plant. The
proposed plant is expected to dispose of approximately 6,000,000 tires per year.
Solid Waste:
The Company is designing a plant to apply its microwave technology to the
processing of municipal solid waste. The Company expects to deliver a plant by
February for use as a pilot project for military use. The plant is intended to
remove the moisture and extract the hydrocarbons, reducing the weight by 50% to
60% and reducing the volume by 70% to 80%, so that the residue can be put in
landfills.
Drilling Fluids/Drilling Mud
The drilling fluids used in the drilling process, which are primarily
hydrocarbons, contaminate the soil being drilled. Testing in conjunction with
major drilling companies has shown that the Company's microwave technology can
be applied to the treatment of the drilling muds so as to recapture the drilling
fluids.
Other Applications:
With respect to the other hydrocarbon applications of the technology, the
Company will continue its R&D in each of the areas and seek out joint venture
partners for field testing and ultimate licensing to users.
The Company recognizes that it faces substantial competition from companies with
alternative technologies in the various areas where it seeks to exploit its own
microwave technology and that the transfer of the microwave technology from the
laboratory to the field will involve a variety of problems. The Company also
recognizes that its microwave technology requires certain equipment and
machinery components which are not commercially available and which must be
built to the Company's order and which may, accordingly, require a substantial
manufacturing or fabricating time.
Liquidity and Working Capital
As of June 30, 2007 the Company had $723,919 in cash on hand. This was
considered adequate to covering anticipated working capital requirements for
approximately eight (8) months. However, the Company recently rescinded a
partial financing for which the offering period had elapsed, returning $400,000
to the investors, reducing the Company's cash. With its on-going R&D for
specific applications, as well as the engineering development of the plants for
current applications, the Company is required to continue to seek capital. This
is expected to continue for the foreseeable future.
ITEM 3. CONTROLS AND PROCEDURES.
1. Reclassification of and changed accounting for convertible debentures. On
July 3, 2006, the Company concluded that it was necessary to restate its
financial results for the fiscal year ended March 31, 2005 and for the interim
periods ended September 30 and December 31, 2004 and 2005 and for the interim
period ended June 30, 2005 to reflect additional non-operating gains and losses
related to the classification of and accounting for convertible debentures
issued in fiscal 2005. The Company had previously determined a beneficial
conversion feature, valued the conversion features at the intrinsic value and
classified the convertible instruments as equity. After further review, the
Company determined that those instruments should have been classified as
derivative liabilities and, therefore, the fair value of each instrument should
have been recorded as a derivative liability on the Company's balance sheet.
Changes in the fair values of those instruments resulted in adjustments to the
amount of the recorded derivative liabilities and the corresponding gain or loss
will be recorded in the Company's statement of operations. At the date of the
conversion of each respective instrument or portion thereof, the corresponding
derivative liability was classified as equity. The Company filed amended Forms
10-QSB reflecting these changes.
2. Pursuant to rules adopted by the SEC as directed by Section 302 of the
Sarbanes-Oxley Act of 2002, the Company has performed an evaluation of its
disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. The Company's disclosure
controls and procedures are designed to ensure (I) that information required to
be disclosed by the Company in the reports the Company files or submits under
the Exchange Act are recorded, processed, summarized, and reported within the
time periods specified in the SEC's rules and forms; and (ii) that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is accumulated and communicated to the Company's management,
including its principal executive and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
The Company has evaluated, with the participation of our CEO and CFO, the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of December 21, 2006, pursuant to Exchange Act Rule 15d-15.
Based upon that evaluation, the CEO and CFO identified deficiencies that existed
in the design or operation of our internal control over financial reporting that
it considered to be "material weaknesses". The Public Company Accounting
Oversight Board has defined a material weakness as a "significant deficiency or
combination of significant deficiencies that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected."
The material weaknesses identified relate to:
o As of June 30, 2007 there continued to be a lack of accounting
personnel with the requisite knowledge of Generally Accepted
Accounting Principles in the US ("GAAP") and the financial
reporting requirements of the Securities and Exchange
Commission.
o As of June 30, 2007 there were insufficient written policies
and procedures to insure the correct application of accounting
and financial reporting with respect to the current
requirements of GAAP and SEC disclosure requirements.
o As of June 30, 2007 there was a continuing lack of segregation
of duties, in that we only had one person performing all
accounting-related duties.
The Company has taken the following corrective measures to address the material
weaknesses identified above and to improve our internal controls over financial
reporting:
1. We recognized the need to gain sufficient expertise in the knowledge
of "GAAP" and the financial reporting requirements of the SEC and, in the third
quarter of 2006, we hired a third party accounting firm to assist management in
the preparation of the financial statements. This third party accounting firm is
assisting us in evaluating and implementing internal control standards, as well
as beginning our Sarbanes-Oxley process. Because of the "barebones" level of
relevant personnel, however, certain deficiencies which are cured by separation
of duties cannot be cured, but only monitored as a weakness.
2. We are currently in the process of revising, establishing and
writing accounting policies and procedures needed to ensure the correct
application of accounting and financial reporting with respect to the current
requirements of GAAP and SEC disclosure requirements. This process is an
on-going process which began in the first quarter 2007 and will continue though
the third quarter this year. The Company's senior management will then evaluate
and report on the status of the Company's revised internal controls at the end
of fourth quarter 2007.
Notwithstanding the existence of material weaknesses in our internal control
over financial reporting, our management, including our Chief Executive Officer
and Chief Financial Officer, believes that the consolidated financial statements
included in this report fairly present in all material respects our financial
condition, results of operations and cash flows for the periods presented.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On or about June 22, 2007 the Company became aware of certain developments in
the pending litigation previously reported (Starr Consulting, Inc. et al v.
Global Resources Corp. et al). After the Company became aware of the litigation,
which had been filed while the Company was under prior ownership/control, the
Company called on the former control person to resolve the matter. The Company
and the former control person jointly appointed an agent to negotiate a
settlement. The agent had a number of settlement discussions with certain of the
Plaintiffs and understood that no default judgment would be entered during those
discussions and that therefore it was not necessary to file a responsive
pleading. However, without notice to the Company or the agent, the Plaintiffs
entered a default on March 14, 2007. Meanwhile, unaware of that, the agent
continued the settlement negotiations and provided a form of settlement
agreement. Still, the Plaintiffs did not provide any notice of the entry of
default and on June 20, 2007 the Court entered a Default Judgment. The Company
(and its agent) have retained counsel and have filed a Motion to Set Aside the
Default Judgment. That Motion is pending. If the Company's motion is granted,
which is anticipated, the Company intends to vigorously defend the suit,
including seeking dismissal for lack of jurisdiction.
ITEM 2 UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
On July 18, 2007 the Company issued 37,500 shares of its Common Stock to a
consultant in payment for consulting fees of $37,500. The issuance of the shares
was considered exempt pursuant to Section 4(2) of the Securities Act of 1933 as
amended.
ITEM 5 OTHER INFORMATION
On March 12, 2007 the Company entered into an Exclusive Placement Agent
Agreement with Westor Capital Group, Inc. pursuant to which Westor was to place
up to $3,000,000 (subject to over-allotment) of debt securities (with related
warrants) within a 45 day term following the approval of offering documents.
During the 45 day offering term, two subscriptions were received, for a total of
$800,000, of which amount $400,000 was paid-in. After payment of Escrow Agent
fees and costs of $2,510 and transaction fees and costs of $62,200, the Company
netted $335,299. On June 13, 2007, following expiration of the 45-day term, the
Company notified the Escrow Agent and Westor that the Exclusive Private
Placement Agent Agreement would not be extended and that the offering was
withdrawn. An Investment Banking Agreement which was to have become effective
following completion of the offering was considered by the Company to not have
become effective and, in any event, was cancelled by Westor on July 9, 2007.
Beginning in July, 2007 the Company had discussions with the two entities which
subscribed for the $800,000 of debt securities and which had paid-in 50% of
their subscriptions ($400,000). As a result of the discussions the Company
determined to rescind the transactions. On August 1, 2007 the Company tendered
the $400,000 paid-in together with interest of $9,640 calculated at the rate of
9%, being the interest rate on judgments in the State of Illinois from the date
of subscription payment to the date of the tender. In connection with the
rescission, the Company revoked its acceptance of the two partially-paid
subscriptions and released the subscribers from the payment of the subscription
balances. The Company and the two entities are negotiating a final resolution of
the situation which is expected to be finalized within the next several days.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL RESOURCE CORPORATION
By /s/ Frank G. Pringle, President/CEO
Date: August 13, 2007