XOTC:CAGZ Cullen Agricultural Holding Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

  x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
    For the quarterly period ended June 30, 2012
     
  ¨ Transition report under Section 13 or 15(d) of the Exchange Act of 1934
    For the transition period from _____________ to _____________

 

Commission File Number 000-53806

 

Cullen Agricultural Holding Corp.

(Exact Name of Issuer as Specified in Its Charter)

 

Delaware 27-0863248

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

1193 Seven Oaks Rd. Waynesboro, GA 30830
(Address of Principal Executive Office)

 

(706) 621-6737

(Issuer’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

 

  Large accelerated filer ¨ Accelerated filer ¨
  Non-accelerated filer ¨ Smaller reporting company ý
  (Do not check if smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ý No ¨

 

As of August 3, 2012, 19,630,714 shares of common stock, par value $.0001 per share, were issued and outstanding.

1
 

 

CULLEN AGRICULTURAL HOLDING CORP.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012

 

TABLE OF CONTENTS

 

Page

Part I. Financial Information  
       Item 1. Financial Statements  
              Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and
                      December 31, 2011
3
              Condensed Consolidated Statement of Operations (Unaudited) for the three and
                      six months ended June 30, 2012 and 2011 and for the period from June 3,
                      2009 (inception) through June 30, 2012
4
              Condensed Consolidated Statement of Changes in Stockholders’ Equity
                      (Unaudited) for the period from June 3, 2009 (inception) through June 30,
                      2012
5
              Condensed Consolidated Statement of Cash Flows (Unaudited) for the six
                      months ended June 30, 2012 and 2011 and for the period from June 3, 2009
                      (inception) through June 30, 2012
6
              Notes to Unaudited Condensed Consolidated Financial Statements 7
       Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
       Item 4. Controls and Procedures 15
Part II. Other Information  
       Item 1. Legal Proceedings 16
       Item 6. Exhibits 16
Signatures 17

 

 
 

 

FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q of Cullen Agricultural Holding Corp., and the information incorporated by reference in it, include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). References in this report to “we,” “us”, “our company” or “the Company” refer to Cullen Agricultural Holding Corp.

 

Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:

 

·Our ability to protect our intellectual property;
·Our ability to obtain necessary financing to enable us to implement our business plan;
·Competition;
·Loss of key personnel;
·Increases of costs of operations;
·Continued compliance with government regulations; and
·General economic conditions.

 

The forward-looking statements contained or incorporated by reference in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us and speak only as of the date of such statement. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in this Quarterly Report in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2012 in the section entitled "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 
 

 

PART I.

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

2
 

  

Cullen Agricultural Holding Corp. and Subsidiaries

(a development stage company)

 

CONDENSED CONSOLIDATED BALANCE SHEETS


 

ASSETS
   June 30, 2012
(unaudited)
   December 31, 2011 
CURRENT ASSETS        
Cash  $2,383,960   $1,028,119 
Receivable from related party   1,871    27,943 
Prepaid expenses and other current assets   13,793    33,345 
           
Total Current Assets   2,399,624    1,089,407 
           
           
PROPERTY, PLANT AND EQUIPMENT, Net   105,116    1,374,812 
           
TOTAL ASSETS  $2,504,740   $2,464,219 
           
LIABILITIES AND STOCKHOLDERS' EQUITY
           
           
CURRENT LIABILITIES          
Accrued expenses  $12,387   $30,511 
Federal witholding tax payable   --    27,943 
Due to affiliates   --    4,668 
Current portion of note payable   10,170    9,883 
           
Total Current Liabilities   22,557    73,005 
           
OTHER LIABILITIES          
Non current portion of note payable   10,462    20,632 
Total Other Liabilities   10,462    20,632 
TOTAL LIABILITIES   33,019    93,637 
           
           
STOCKHOLDERS' EQUITY          
Preferred stock - $0.0001 par value; authorized 1,000,000 shares;          
        no shares issued and outstanding   --    -- 
Common stock, par value $0.0001; 200,000,000 shares authorized;          
        19,630,714 shares issued and outstanding   1,964    1,964 
Additional paid-in capital   6,861,881    6,861,881 
Deficit accumulated during the development stage   (4,392,124)   (4,493,263)
           
TOTAL STOCKHOLDERS' EQUITY   2,471,721    2,370,582 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $2,504,740   $2,464,219 

  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

3
 

 

Cullen Agricultural Holding Corp. and Subsidiaries

(a development stage company)

(unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 


 

   For the Three months ended June 30, 2012   For the Three months ended June 30, 2011   For the Six months ended June 30, 2012   For the Six months ended June 30, 2011   For the period from
June 3, 2009 (inception) through June 30, 2012
 
                     
Revenues  $--   $--   $--   $--   $-- 
                          
General and administrative expenses   69,166    135,088    186,706    265,637    2,766,623 
                          
LOSS FROM OPERATIONS   (69,166)   (135,088)   (186,706)   (265,637)   (2,766,623)
                          
OTHER INCOME (EXPENSE)                         
Interest expense - related party   --    (13,703)   --    (25,413)   (456,135)
Interest expense - note payable   (253)   (255)   (474)   (542)   (2,194)
Legal settlement recovery   --    550,000    --    550,000    71,348 
Impairment loss on property, plant and equipment   --    --    --    --    (963,172)
Gain (loss) on sale of land and equipment, net   212,887    --    212,887    --    (563,074)
Other income (expense), net   69,205    25,099    76,000    (11,689)   293,261 
TOTAL OTHER INCOME (EXPENSE)   281,839    561,141    288,413    512,356    (1,619,966)
INCOME (LOSS) BEFORE TAXES   212,673    426,053    101,707    246,719    (4,386,589)
INCOME TAXES   196    828    568    1,155    5,535 
NET INCOME (LOSS)  $212,477   $425,225   $101,139   $245,564   $(4,392,124)
Weighted average number of common shares outstanding – basic and diluted   19,630,714    19,630,714    19,630,714    19,630,714      
Basic and diluted net income per share  $0.01   $0.02   $0.01   $0.01      

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4
 

 

Cullen Agricultural Holding Corp. and Subsidiaries

(a development stage company)

(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

For the Period From June 3, 2009 (inception) through June 30, 2012


 

               Deficit accumulated     
   Common Stock   Additional   during the     
   Shares   Amount   Paid-in Capital   development stage   Total 
                     
BALANCE - Beginning June 3, 2009 (inception)   --   $--   $--   $--   $-- 
                          
                          
Issuance of stock to initial stockholder – 100 shares at $0.0001 per share   100    --    100    --    100 
                          
                          
Issuance of stock due to Merger  – 19,247,211 shares at $0.0001 per share on October 22, 2009   19,247,211    1,925    6,061,820    --    6,063,745 
                          
                          
Net loss for the period from June 3, 2009 (inception) through December 31, 2009   --    --    --    (612,526)   (612,526)
                          
BALANCE - December 31, 2009   19,247,311    1,925    6,061,920    (612,526)   5,451,319 
                          
Issuance of stock at $5.95 per share   8,403    1    49,999    --    50,000 
                          
Issuance of stock at $2.00 per share   375,000    38    749,962    --    750,000 
                          
Net loss for the year ended December 31, 2010   --    --    --    (4,134,527)   (4,134,527)
                          
BALANCE - December 31, 2010   19,630,714    1,964    6,861,881    (4,747,053)   2,116,792 
Net income for year ended December 31, 2011   --    --    --    253,790    253,790 
                          
BALANCE - December 31, 2011   19,630,714    1,964    6,861,881    (4,493,263)   2,370,582 
Net income for the six months ended June 30, 2012   --    --    --    101,139    101,139 
                          
BALANCE - June 30, 2012   19,630,714   $1,964   $6,861,881   $(4,392,124)  $2,471,721 

  

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5
 

  

Cullen Agricultural Holding Corp. and Subsidiaries

(a development stage company)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)


 

                
              For the period from 
              June 3, 2009 
    Six months ended    (inception) through 
    June 30, 2012    June 30, 2011    June 30, 2012 
Cash Flows from Operating Activities            
Net income (loss)  $101,139   $245,564   $(4,392,124)
Adjustments to reconcile net income (loss) to net cash used in operating activities:               
           Gain (loss) on sale of property and equipment   (212,887)   -    563,074 
           Depreciation and amortization   13,957    25,367    96,790 
           Impairment loss on property, plant and equipment   -    -    963,172 
Changes in operating assets and liabilities:               
           Cattle held for sale   -    (109,930)   - 
           Inventory   -    24,422    - 
           Prepaid expenses and other current assets   19,552    11,300    (13,793)
           Federal tax receivable   -    -    1,349,969 
           Federal witholding tax payable   (27,943)   -    - 
           Accrued expenses   (18,124)   (47,364)   197,274 
           Deferred revenue   -    86,080    - 
           Deposit on sale of land   -    100,000    - 
           Accrued settlement fee   -    (550,000)   - 
                NET CASH  USED IN OPERATING ACTIVITIES   (124,306)   (214,561)   (1,235,638)
                
Cash Flows from Investing Activities               
Purchases of property and equipment   -    -    (841,849)
Proceeds from sale of property and equipment   1,468,626    -    7,714,299 
                NET CASH PROVIDED BY INVESTING ACTIVITIES   1,468,626    -    6,872,450 
                
Cash Flows from Financing Activities               
Repayment of mortgage payable to related party   -    -    (7,130,627)
Proceeds from issuance of mortgage payable to related party   -    100,000    100,000 
Repayment to affiliates   (6,539)   (49,627)   (329,060)
Advances from affiliates   27,943    67,714    318,568 
Repayments of note payable   (9,883)   (9,605)   (19,488)
Cash acquired in reverse merger   -    -    3,057,755 
Proceeds from issuance of common stock   -    -    750,000 
                NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   11,521    108,482    (3,252,852)
                NET INCREASE (DECREASE) IN CASH   1,355,841    (106,079)   2,383,960 
                
CASH - Beginning   1,028,119    154,028    - 
CASH - Ending  $2,383,960   $47,949   $2,383,960 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:               
Cash paid during the period for:               
           Interest  $957   $1,163   $457,522 
           Taxes  $1,260   $3,185   $2,510 
Non-cash investing and financing activities:               
           Acquisition of property, plant and equipment through issuance of debt  $-   $-   $40,120 
           Issuance of common stock to settle accrued expenses  $-   $-   $50,000 
           Conversion of interest payable into mortgage payable to related party  $-   $-   $176,709 
           On October 22, 2009, the Company completed its reverse merger and               
                     recapitalization by acquiring certain assets and assuming certain               
                     liabilities:               
                            Tax refund receivable  $-   $-   $1,349,969 
                            Land and land improvements   -    -    8,560,482 
                            Loan payable   -    -    (6,853,918)
                            Accrued expenses   -    -    (41,822)
                            Due to affiliates   -    -    (8,621)
                            Issuance of stock   -    -    (1,925)
                            Net non-cash recapitalization  $-   $-   $3,004,165 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6
 

 

CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES

(a development stage company)

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

Note 1.    Interim Financial Information, Organization, Business Operations and Significant Accounting Policies

 

Basis of Presentation

 

Cullen Agricultural Holding Corp.’s (the “Company”, “we”, “us” or “our”) accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete condensed consolidated interim financial statements. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. In addition, the December 31, 2011 balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated interim financial statements, in the opinion of management, include all adjustments necessary for a fair presentation. All such adjustments are of a normal recurring nature.

 

We are a development stage company and to date have not generated any revenue. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes there to for the fiscal year ended December 31, 2011 filed on March 1, 2012. The accounting policies used in preparing these unaudited condensed consolidated interim financial statements are consistent with those described in the December 31, 2011 audited consolidated financial statements.

 

Organization and Nature of Operations

 

Cullen Agricultural Holding Corp. was incorporated in Delaware on August 27, 2009. We are a development stage company. Our principal focus is to use our intellectual property in forage and animal sciences to improve agricultural yields. To date, we have not generated any revenue and will not do so until we have sufficient funds to implement our business plan.

 

We were formed as a wholly-owned subsidiary of Triplecrown Acquisition Corp. (“Triplecrown”), a blank check company. CAT Merger Sub, Inc. (“Merger Sub”), a Georgia corporation, was incorporated as our wholly-owned subsidiary on August 31, 2009. We were formed in order to allow Triplecrown to complete a business combination (the “Merger”) with Cullen Agricultural Technologies, Inc. (“Cullen Agritech”), as contemplated by the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 4, 2009, as amended, among Triplecrown, the Company, Merger Sub, Cullen Agritech and Cullen Inc. Holdings Ltd. (“Cullen Holdings”). Cullen Agritech was formed on June 3, 2009. Cullen Agritech’s primary operations are conducted through Natural Dairy Inc. (“Natural Dairy”), a wholly owned subsidiary of Cullen Agritech. Cullen Holdings is an entity controlled by Eric J. Watson, the Company’s Chief Executive Officer, Secretary, Chairman of the Board and Treasurer and, prior to the Merger, was the holder of all of the outstanding common stock of Cullen Agritech.

 

Pursuant to the Merger, (i) Triplecrown merged with and into the Company with the Company surviving as the new publicly-traded corporation and (ii) Merger Sub merged with and into Cullen Agritech with Cullen Agritech surviving as a wholly owned subsidiary of the Company.  As a result of the Merger, the former security holders of Triplecrown and Cullen Agritech became the security holders of the Company.  Thus, the Company became a holding company, operating through its wholly-owned subsidiary, Cullen Agritech.  The Merger was consummated on October 22, 2009.

7
 

 

CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES

(a development stage company)

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

Note 1.    Interim Financial Information, Organization, Business Operations and Significant Accounting Policies, continued

 

Principles of Consolidation

 

The condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiary, Cullen Agricultural, including its wholly owned subsidiary, Natural Dairy. All intercompany accounts and transactions have been eliminated in consolidation.

 

Cash

 

The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. The Company held no cash equivalents at June 30, 2012 and December 31, 2011. At times during the periods ended June 30, 2012 and December 31, 2011, the Company had cash deposits in excess of the maximum amounts insured by the Federal Deposit Insurance Corporation insurance limits. At June 30, 2012 cash is held at one financial institution.

 

Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, net of accumulated depreciation. The Company charges repairs and maintenance items to expense, while major improvements and betterments are capitalized.

 

Depreciation and amortization is provided on the straight-line method over the following estimated useful lives of the assets:

 

Buildings 15 years
Machinery and equipment 5 – 10 years
Transportation equipment 5 years
Land improvements 15 years

 

8
 

 

CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES

(a development stage company)

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

Note 1.     Interim Financial Information Organization, Business Operations and Significant Accounting Policies, continued

 

Use of Estimates

 

The preparation of condensed consolidated interim financial statements in conformity with U. S. generally accepted accounting principles (“GAAP”) 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 condensed consolidated interim financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Long-Lived Assets

 

The Company accounts for its long-lived assets in accordance with   Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360 “Plant, Property and Equipment,” for purposes of determining and measuring impairment of its long-lived assets other than goodwill. The Company’s policy is to review the value assigned to its long lived assets to determine if they have been permanently impaired by adverse conditions which may affect the Company whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  If the Company identifies a permanent impairment such that the carrying amount of the Company’s long lived assets is not recoverable using the sum of an undiscounted cash flow projection, the impaired asset is adjusted to its estimated fair value, based on an estimate of future discounted cash flows which becomes the new cost basis for the impaired asset.  Considerable management judgment is necessary to estimate undiscounted future operating cash flows and fair values and, accordingly, actual results could vary significantly from such estimates.

 

Earnings Per Share

 

The Company follows the provisions of FASB ASC 260, “Earnings Per Share” (“ASC 260”). In accordance with ASC 260, earnings per common share amounts (“Basic EPS”) are computed by dividing earnings by the weighted average number of common shares outstanding for the period. Earnings per common share amounts, assuming dilution (“Diluted EPS”), gives effect to dilutive options, warrants, and other potential common stock outstanding during the period. ASC 260 requires the presentation of both Basic EPS and Diluted EPS on the face of the condensed consolidated interim statements of operations. The effect of the Merger has been given retroactive application in the EPS calculation. At June 30, 2012 and December 31, 2011, there were 74,000,000 warrants outstanding that were not included in the calculation of diluted EPS because the effects of these securities would have been anti-dilutive.

 

Basic earnings per share is calculated using the average number of common shares outstanding and diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding warrants using the “treasury stock method.”

9
 

 

CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES

(a development stage company)

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

Note 1.     Interim Financial Information Organization, Business Operations and Significant Accounting Policies, continued

 

 

Income Taxes 

 

The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes" ("ASC 740"). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company's assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management's opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

At June 30, 2012 and December 31, 2011, deferred taxes primarily consist of deferred tax assets for net operating loss carryforwards. The Company does not believe at this time that it will utilize the net operating loss carryforwards in the future, and accordingly has recorded a valuation allowance of 100% of the deferred tax assets at June 30, 2012 and December 31, 2011.

 

The Company has identified its federal tax return and its state tax return in Georgia as "major" tax jurisdictions. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's condensed consolidated interim financial statements. The evaluation was performed for tax years of 2009, 2010 and 2011 which are open for tax authority review. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position or results of operations.

 

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of income tax expense.  There were no amounts accrued for penalties and interest for the three and six months ended June 30, 2012 and 2011 or the period from June 3, 2009 (inception) through June 30, 2012.  The Company does not expect its uncertain tax position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

 

Recently Issued and Adopted Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the condensed consolidated interim financial statements.

10
 

 

CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES

(a development stage company)

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

Note 2 – Property, Plant and Equipment

 

At June 30, 2012 and December 31, 2011, property, plant and equipment consisted of the following:

 

   June 30, 2012   December 31, 2011 
         
Land  $-   $1,204,288 
Buildings   -    66,099 
Machinery and equipment   154,229    154,229 
Website   3,328    3,328 
    157,557    1,427,944 
           
Less: Accumulated depreciation and amortization   52,441    53,132 
           
Property, plant and equipment, net  $105,116   $1,374,812 

 

On May 15, 2012, the Company completed the sale of its land, resulting in a gain on sale of land of $212,887. See Note 4 for further discussion of the terms of the sale.

 

Depreciation and amortization expense for the period from June 3, 2009 (inception) through June 30, 2012 was $96,790. For the three months ended June 30, 2012 and June 30, 2011 depreciation and amortization expense was $5,959, and $12,411, respectively. For the six months ended June 30, 2012 and June 30, 2011 depreciation and amortization expense was $13,957, and $25,367, respectively.

 

The Company assessed the recoverability of the carrying value of its property, plant and equipment.  The assessment resulted in an impairment charge of $963,172, which was recorded during the period of June 3, 2009 (inception) through June 30, 2012. This charge reflects the amounts by which the carrying values of these assets exceed their estimated fair values. No impairment charge was required for the three and six months ended June 30, 2012 and 2011.

 

Note 3.  Related Parties

 

Hart Acquisitions LLC

During the three months ended June 30, 2012 and 2011, Hart Acquisitions LLC (“Hart”), an affiliate of one of the Company’s directors, incurred combined costs of $0 and $40,336, respectively, related to the operations of Cullen Agritech and Natural Dairy.  These costs consisted of property related expenses of $28,636, and employee related expenses of $11,700 for the three months ended June 30, 2011.

 

During the six months ended June 30, 2012 and 2011, Hart incurred combined costs of $0 and $67,714, respectively, related to the operations of Cullen Agritech and Natural Dairy.  These costs consisted of property related expenses of $41,575, and employee related expenses of $26,139 for the six months ended June 30, 2011.

 

As of June 30, 2012 and December 31, 2011, $1,871 was due from Hart.

 

Cullen Inc. Holdings Ltd.

At December 31, 2011 receivable from related party consist of $27,943 related to a federal withholding tax payable that was paid by the Company subsequent to December 31, 2011 on behalf of Cullen Inc. Cullen Holdings repaid the amount to the Company in February 2012.

11
 

 

CULLEN AGRICULTURAL HOLDING CORP. AND SUBSIDIARIES

(a development stage company)

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

Note 3.  Related Parties, continued

 

Upon the consumption of the Merger, the Company issued a promissory note to Cullen Holdings in the amount of $6,853,918. The notes bore interest at 8% and was originally due at the consummation of the Merger but insufficient funds were available. The Company and Cullen Holdings amended the promissory note to extend the maturity date to January 20, 2012. On April 6, 2011, Cullen Holding amended the promissory note and advanced the Company an additional $100,000 under the same terms of the promissory note. In August 2011, the promissory note was repaid in full. The Company incurred interest expense related to this note of $13,703, $25,413 and $456,135 for the three and six months ended June 30, 2011 and the period of June 3, 2009 (inception) through June 30, 2012, respectively.

 

Note 4.  Other Income

 

On March 5, 2012, the Company entered into a Sales Contract (“Agreement”) with Patrick and Sherry Farrell (collectively, the “Buyer”) pursuant to which the Company agreed to sell to Buyer approximately 1,035 acres of land for approximately $1,524,000, of which a $50,000 deposit was paid. In conjunction with the Agreement, the Company entered into a lease agreement with Buyer pursuant to which the Company leased the 1,035 acres through December 31, 2012 for $76,000. The Buyer prepaid the $76,000 on March 5, 2012, of which the Company recognized $69,205 and $76,000 as rental income during the three and six months ended June 30, 2012 which is included in other income (expense), net in the consolidated statements of operations. On April 5, 2012, the Buyer paid an additional $50,000 deposit and the closing date was extended to May 15, 2012. On May 15, 2012, the closing of the sale took place and the Company received the remaining purchase price of $1,524,000, of which the Company recognized $212,887 as gain from sale of land during the three and six months ended June 30, 2012 which is included in other income (expense), net in the consolidated statements of operations.

 

On March 1, 2011, the Company entered into an agreement with Hart for the lease of 120 acres of the Company’s property, from January 1, 2011 through August 31, 2011. This area of land consists of 100 irrigated acres and 20 non irrigated acres. The agreement calls for Hart to pay, in advance, $117 per acre of irrigated land and $33 per acre of non irrigated land. During March 2011 the Company received $12,360 for the lease of this land. The Company has recorded $4,629 and $9,204 of rental income from this lease for the three and six months ended June 30, 2011, respectively, which is included in other income (expense), net in the consolidated statements of operations.

 

On April 29, 2011, the Company entered into a lease agreement with a potential buyer pursuant to which the Company will lease 1,035 acres of the Company’s property through December 31, 2011. The potential buyer prepaid the $50,000 lease rent on April 29, 2011. At December 31, 2011, no deferred income was included on the accompanying consolidated balance sheet. The Company has recorded $13,200 of rental income from this lease for both the three and six months ended June 2011, which is included in other income (expense), net in the consolidated statements of operations. The Company also recorded interest income related to this sales contract of $16,545, which is included in other income, net during the three and six months ended June 30, 2011.

 

On August 2, 2010, the Company entered into a Beef Grazing Agreement (“Grazing Agreement”) with FPL Foods LLC (“FPL”) pursuant to which the Company grazed FPL’s cattle on land leased and owned by the Company from August 1, 2010 through January 15, 2011. The Company and FPL subsequently agreed that cattle would be returned to FPL and the Company and FPL would be released of their obligations. The Company recorded a loss related to the Grazing Agreement of $30,318, which is included in other income (expense), net during the six months ended June 30, 2011.

 

The Company also recorded a loss related to calf deaths of $9,275 and $20,320, which is included in other income, net during the three and six months ended June 30, 2011.

 

Note 5.  Subsequent Events

 

The Company evaluates events that occurred after the balance sheet date but before the unaudited condensed consolidated interim financial statements are issued. Based upon the evaluation the Company did not identify any recognized or non-recognized subsequent events or disclosure in the unaudited consolidated interim financial statements.

12
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS

 

 

The following discussion should be read in conjunction with our Condensed Consolidated Interim Financial Statements and footnotes thereto contained in this report.

 

Overview

 

We are a development stage company. We conduct our operations through our wholly-owned subsidiary, Cullen Agricultural Technologies Inc. (“Cullen Agritech”). Cullen Agritech conducts its operations primarily through its wholly-owned subsidiary, Natural Dairy Inc. (“Natural Dairy”). To date, we have not generated any revenue and will not do so until we have sufficient funds to implement our business plan described below.

 

Our principal focus is to use our intellectual property in forage and animal sciences to improve agricultural yields. The Company was formed to develop, adapt and implement grazing-based farming systems in regions of the world where the geophysical and climatic conditions are suitable for a pasture-based model. While the potential for the pasture or grazing model is significant in many of the world’s developed and developing economies, the systems are highly specific and require significant adaptation and modification to be successful. We have identified the global dairy industry as a primary opportunity in which our systems can be applied to improve yields on land and drive cost-base efficiencies. We believe that cost savings of up to 40-50% are achievable in the long term. Further, we believe the high cost structure, which is employed by over 95% of milk producers in the U.S. and supported by government subsidies, will help to maintain a floor to milk prices in the U.S. and provide us with long term margin protection. By having direct access to a domestic market, we believe our business plan provides a unique opportunity to invest directly into food production while limiting earnings volatility linked to foreign exchange exposure, typically associated with returns from commodity production in exporting countries, such as New Zealand. In addition, we believe the potential opportunity to vertically integrate, while maintaining control of the supply chain, provides a further opportunity to reduce volatility and maximize profitability.

 

We were incorporated in Delaware on August 27, 2009.  We were formed in order to allow Triplecrown Acquisition Corp. (“Triplecrown”), a blank check company, to complete a business combination (the “Merger”) with Cullen Agritech, as contemplated by the Agreement and Plan of Reorganization, dated as of September 4, 2009, as amended, among us, Triplecrown, CAT Merger Sub, Inc. (“Merger Sub”), Cullen Agritech and Cullen Inc. Holdings Ltd. (“Cullen Holdings”). Prior to the Merger, we were a wholly owned subsidiary of Triplecrown, Merger Sub was our wholly owned subsidiary and Cullen Holdings was the sole stockholder of Cullen Agritech. Pursuant to the Merger, (i) Triplecrown merged with and into the Company with the Company surviving as the new publicly-traded corporation and (ii) Merger Sub merged with and into Cullen Agritech with Cullen Agritech surviving as the Company’s wholly owned subsidiary. As a result of the Merger, the former security holders of Triplecrown and Cullen Agritech became our security holders and we became a public holding company, operating through Cullen Agritech.

 

Strategic Alternatives

 

We had been in the process of attempting to obtain land development financing backed by the property we owned and operated to support our working capital needs and implement our business plan. However, due to the recent performance of similar types of farming operations in the region, as well as the general economic downturn, financial institutions have been unwilling to provide such financing. As a result, we have been unable to obtain the necessary funding to support the implementation of our business plan at this time. Accordingly, we explored all financing and strategic alternatives available to us, including disposing of or leasing portions of the land in order to continue to support our working capital needs. During 2010 and May 2012, the Company disposed of approximately 3,635 acres of land constituting all of the Company’s property which it had planned to use to deploy its pasture based dairy and beef business plan. It is our intention to either seek additional financing to allow us to implement our pasture based dairy and beef business plan, or to seek alternative opportunities available to us unrelated to our business plan in an effort to maximize shareholder value. To this end, the Company has in the past had, and may in the future have, discussions with potential merger candidates wishing to become publicly traded.   There is no assurance that the Company will be successful in any of such efforts.  If the Company is unable to secure additional financing or find another alternative, the Company will not have sufficient capital to implement its business plan until such time as capital or another alternative is available to it.  

13
 

 

Additionally, we currently have no employees and have curtailed operations in order to reduce operating expenses.

 

Results of Operations and Financial Condition

 

We are a development stage company. Since October 22, 2009, our activities have been primarily focused on raising capital to fund our business plan and the sale of land to meet our working capital requirements and repay our outstanding debt. Prior to October 22, 2009 we and our wholly-owned subsidiary were “shell companies” and conducted no business operations and did not own or lease any real estate or other property. Our activities during this time were limited to our organization, the preparation and filing with the SEC of a Registration Statement on Form S-4 and other matters related to the Merger. To date, we have not generated any revenue.

 

Results of Operations

 

For the three months ended June 30, 2012 and 2011, we had net income of $214,477 and $425,225, respectively. Our general and administrative expenses of $69,166 for three months ended June 30, 2012 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $7,037, $23,390, $540, and $38,199, respectively. Our general and administrative expenses of $135,088 for three months ended June 30, 2011 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $169, $59,876, $28,689, and $46,354, respectively. For the three months ended June 30, 2012, we recognized other income (expense) of $281,839, which include a gain from sales of land of $212,887, $69,205 of rental income and interest expense of $253. For the three months ended June 30, 2011, we recognized other income (expense) of $561,141, consisting of $550,000 reversal of litigation accrual, $17,828 of rental income from leases, and $16,545 of interest income, partially offset by calf deaths and interest expense.

 

For the six months ended June 30, 2012 and 2011, we had net income of $101,139 and $245,564, respectively. Our general and administrative expenses of $186,706 for six months ended June 30, 2012 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $18,563, $91,064, $9,054, and $68,025, respectively. Our general and administrative expenses of $265,637 for three months ended June 30, 2011 consisted primarily of legal, accounting and consulting fees, payroll and employee related expenses, and other general corporate and administrative expenses of $44,681, $73,467, $48,633, and $98,856, respectively. For the six months ended June 30, 2012, we recognized other income (expense) of $288,413, which include a gain from sales of land of $212,887, $76,000 of rental income and interest expense of $474. For the six months ended June 30, 2011 we recognized other income (expense) of $512,356, consisting of $550,000 reversal of litigation accrual, $22,407 of rental income from leases, and $16,545 of interest income, partially offset by calf deaths of $20,320 and loss on grazing agreement of $30,318.

 

For the period from June 3, 2009 (inception) through June 30, 2012, we had a net loss of $4,392,124. We did not generate any revenues during this period and are a development stage company. Our expenses of $2,766,623 for the period from June 3, 2009 (inception) through June 30, 2012 consisted primarily of legal, accounting and consulting fees of $832,454 as well as payroll and employee related expenses of $532,457 and other general corporate and administrative expenses of $1,401,712.

 

Additionally, upon the closing of the Merger, we issued to Cullen Holdings a promissory note in an initial amount of $6,853,918. During the three months ended June 30, 2012 and June 30, 2011 and the period from June 3, 2009 (inception) through June 30, 2012, we incurred interest expense of $-, $13,703, and $456,135, respectively, related to this promissory note. We incurred interest expense of $253 and $255 for the three months ended June 30, 2012 and June 30, 2011, respectively and $2,194 for the period from June 3, 2009 (inception) through June 30, 2012.

 

For the period from June 3, 2009 (inception) through June 30, 2012, we had other expenses, net of $1,619,966 related to lease income, note payable interest expense related to tractor and a mortgage payable to a related party, legal settlement recovery, calf deaths, loss from beef grazing operations, the sale of timber, corn and hay, loss from the sale of land and impairment loss on property, plant and equipment and a $5,535 provision for income tax.

14
 

 

Liquidity and Capital Resources

 

During the period from June 3, 2009 (inception) through June 30, 2012, we did not have any sources of revenue and incurred a net loss of $4,392,124. As of June 30, 2012, we had $2,383,960 available cash and working capital of $2,377,067.

 

 

Off-Balance Sheet Financing Arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

 

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or acquired any non-financial assets.

 

Critical Accounting Policies

 

Our significant accounting policies are described in Note 1 to the unaudited condensed consolidated interim financial statements. However certain accounting policies are particularly important to the portrayal of financial position and results of operations and require the application of significant judgments by management. In applying those policies, management used its judgment to determine the appropriate assumptions to be used in determination of certain estimates. Our accounting policy will be to use estimates based on terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate. 

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the unaudited condensed consolidated interim financial statements.

  

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file with the SEC is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and treasurer (our principal executive and principal financial and accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2012.

 

Based on this evaluation, our principal executive and principal financial and accounting officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2012.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

15
 

 

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is not currently involved in any litigation which it believes could have a materially adverse effect on its financial conditions or results of operations.

 

 

ITEM 6. EXHIBITS

 

(a) Exhibits:  

 

     
  31 Section 302 Certification by CEO and Treasurer
     
  32 Section 906 Certification by CEO and Treasurer
     
  101 Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders' Equity, (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Unaudited Condensed Consolidated Financial Statements, as blocks of text and in detail.*
     
  101.INS  XBRL Instance Document*
     
  101.SCH  XBRL Taxonomy Extension Schema Document *
     
  101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document *
     
   101.DEF  XBRL Taxonomy Extension Definition Linkbase Document *
     
  101.LAB  XBRL Taxonomy Extension Label Linkbase Document*
     
  101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document *

 

 

 

* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

16
 

 

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.

 

Dated: August 3, 2012  
   
  CULLEN AGRICULTURAL HOLDING CORP.
   
   
  /s/ Eric J. Watson
  Eric J. Watson
  Chairman of the Board, Chief Executive Officer, Secretary
and Treasurer (Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)

 

 

17
 

XOTC:CAGZ Cullen Agricultural Holding Corp Quarterly Report 10-Q Filling

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