-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dq3wtUYE26YNE+ygKvyiRvxLFdrj8cTX68j2zzOwd/qYzEosSUD+C7VFkjvZxo+Z +J0DEMLztlG2xIYaW2sYyQ== 0001269127-07-000201.txt : 20071012 0001269127-07-000201.hdr.sgml : 20071012 20071012152258 ACCESSION NUMBER: 0001269127-07-000201 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20071012 DATE AS OF CHANGE: 20071012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAWAY VALLEY CAPITAL CORP CENTRAL INDEX KEY: 0000884380 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 043053538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11115 FILM NUMBER: 071169545 BUSINESS ADDRESS: STREET 1: 10-18 PARK STREET, 2ND FLOOR CITY: GOUVERNEUR STATE: NY ZIP: 13642 BUSINESS PHONE: 315-287-1122 MAIL ADDRESS: STREET 1: 10-18 PARK STREET, 2ND FLOOR CITY: GOUVERNEUR STATE: NY ZIP: 13642 FORMER COMPANY: FORMER CONFORMED NAME: GS CARBON CORP DATE OF NAME CHANGE: 20061207 FORMER COMPANY: FORMER CONFORMED NAME: DIRECTVIEW INC DATE OF NAME CHANGE: 20030828 FORMER COMPANY: FORMER CONFORMED NAME: BOSTON PACIFIC MEDICAL INC DATE OF NAME CHANGE: 19930328 10QSB/A 1 gscb10qa101207.txt GS CARBON 10QSB/A OCTOBER 12, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-QSB/A Amendment No. 1 ------------------------- QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED MARCH 31, 2007 COMMISSION FILE NO.: 0-52356 SEAWAY VALLEY CAPITAL CORPORATION (FORMERLY KNOW AS "GS CARBON CORPORATION") - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 20-5996486 - -------------------------------------------------------------------------------- (State of other jurisdiction of (IRS Employer incorporation or organization Identification No.) One Penn Plaza, Suite 1612, New York, N.Y. 10119 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 994-5374 - -------------------------------------------------------------------------------- (Registrant's telephone number including area code) Check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ___ No X The number of outstanding shares of common stock as of May21, 2007 was: 421,577,063. Transitional Small Business Disclosure Format: Yes No X . ---- --- EXPLANATORY NOTE RESTATEMENT OF FINANCIAL STATEMENTS This Amendment No. 1 on Form 10-QSB/A, which amends and restates items identified below with respect to the Form 10-QSB, filed by Seaway Vally Capital Corporation (formerly known as "GS Carbon Corporation") ("we" or "the Company") with the Securities and Exchange Commission (the "SEC") on May 22, 2007 (the "Original Filing"), is being filed to reflect the restatement of our financial statements for the three months ended March 31, 2007. As previously announced, our management, on July 26, 2007, concluded that the Company's previously filed financial statements as of and for the three months ended March 31, 2007, should no longer be relied upon as a result of the Company's determination that it was liable for approximately $498,000 of convertible debt along with approximately $59,000 of related derivative liabilities at October 9, 2006, the reverse merger date, December 31, 2006 and March 31, 2007. In addition, management reviewed and revised its conclusions regarding its derivative instruments at December 31, 2006 and March 31, 2007. These conclusions were based upon conversations between the Company and its independent auditors (Rosenberg Rich Baker Berman, CPA). During this process, management and the Board of Directors of the Company were alerted to the facts and circumstances related to the Company's liability for these debts and the revisions to the derivative calculations. Authorized officers of the Company discussed this matter with the Company's independent public accounting firm who agreed that the Company's previously issued financial statements described above could not be relied upon and needed to be restated. See "Note 12 - Restatement" in the Notes to Financial Statements for further details. This Form 10-QSB/A also amends the disclosure under "Item 3. Controls and Procedures" in the Original Filing. This Form 10-QSB/A only amends and restates certain information in Item 1 (Financial Statements), Item 2 (Management's Discussion and Analysis or Plan of Operation), Item 3 (Controls and Procedures) and Item 6 (Exhibits), and such amendment and restatement with respect to Items 1 and 2 only reflect the restatement of the financial statements as described above. Except for the foregoing amended and restated information, this Form 10-QSB/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that have occurred or facts that have become known to us after the date of the Original Filing (other than the restatement), and such forward-looking statements should be read in their historical context. This Form 10-QSB/A should be read in conjunction with the Company's filings made with the SEC subsequent to the Original Filing, including any amendments to those filings 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3
GS CARBON CORPORATION AND SUBSIDIARIES, A DEVELOPMENT STAGE COMPANY CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2007 (AS RESTATED, SEE NOTE 12) ASSETS Current assets: Cash ................................................... $ 58,887 Property and equipment, net ................................. 140,953 Other Assets: Investments - at cost .................................. 1,935,763 Investments - equity method ............................ 303,078 Security deposits ...................................... 7,548 Due from related party (Note 6) ........................ 368,566 Deferred financing costs (Note 5) ...................... 119,792 Technology licenses, net (Note 4) ...................... 418,494 ----------- Total other assets ................................. 3,153,241 ----------- TOTAL ASSETS ................................................ $ 3,353,081 =========== LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current liabilities: Accounts payable ....................................... $ 300,585 Accrued expenses ....................................... 175,899 Derivative liability - convertible debentures (Note 5) ................. 2,980,069 ----------- Total current liabilities .......................... 3,456,553 Convertible debentures payable, net - long term (Note 5) 1,286,542 Investments payable (Note 4) ........................... 191,427 Due to related parties ................................. 740,417 ----------- TOTAL LIABILITIES ........................................... 5,674,939 Commitments (Note 11) ....................................... -- STOCKHOLDERS' DEFICIENCY Series A voting preferred stock ($.0001 par value; 100,000 shares authorized; no shares issued and outstanding) ...... -- Series B voting preferred stock ($.0001 par value; 100,000 shares authorized; 78,250 shares issued and outstanding) .. 7 Common stock, $0.0001 par value, 2,500,000,000 authorized; 178,244,542 issued and outstanding ......................... 17,825 Additional paid-in capital .................................. 3,426,590 Deficit accumulated during the development stage ............ (5,766,280) ----------- Total stockholders' deficiency .............................. (2,321,858) ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY .............. $ 3,353,081 =========== The notes to the consolidated condensed financial statements are an integral part of these statements.
4
GS CARBON CORPORATION AND SUBSIDIARIES, A DEVELOPMENT STAGE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 THE PERIOD OF INCEPTION (JANUARY 14, 2006) TO MARCH 31, 2007 Period of Period of Inception Inception Three Months (Jan. 14, 2006) (Jan. 14, 2006) Ended to to March 31, 2007 March 31, 2006 March 31, 2007 ---------------------------------------------- (As restated) (As Restated) (See Note 12) (See Note 12) Selling, general and administrative expenses ...... $ 356,929 $ 38,147 $ 1,245,770 Share based compensation .......................... 1,810,654 -- 1,810,654 ------------ ------------ ------------ Operating loss .................................... (2,167,583) (38,147) (3,056,424) Other income (expense): Forgiveness of the registration rights penalty -- -- 480,290 Unrealized loss on derivative instruments .... (2,389,705) -- (1,588,485) Interest expense ............................. (180,093) (4,090) (351,187) Interest income .............................. 11,078 -- 11,078 ------------ ------------ ------------ Net loss .......................................... $ (4,726,303) $ (42,237) $ (4,504,728) ============ ============ ============ Basic and diluted income per share ................ $ (0.06) $ (42.24) $ -- ============ ============ ============= Weighted average of shares of common stock outstanding, basic and diluted .................. 75,211,131 1,000 -- ============ ============ ============= The notes to the consolidated condensed financial statements are an integral part of these statements.
5
GS CARBON CORPORATION AND SUBSIDIARIES, A DEVELOPMENT STAGE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND THE PERIOD OF INCEPTION (JANUARY 14, 2006) TO MARCH 31, 2006 Period of Period of Inception Inception Three Months (Jan. 14, 2006) (Jan. 14, 2006) Ended to to March 31, 2007 March 31, 2006 March 31, 2007 ------------------------------------------------ (As Restated) (As Restated) (See Note 12) (See Note 12) Net cash used in operating activities .................................... $ (333,352) $ (108,900) $(1,090,007) Cash flows from investing activities: Purchase of machinery and equipment ................................. -- -- (156,977) Acquisition of technology license ................................... -- (50,000) (50,000) ----------- ----------- ----------- Cash used in investing activities ............................... -- (50,000) (206,977) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from convertible debt ...................................... 1,000,000 -- 1,000,000 Advances from/(payments to) related parties, net .................... (607,949) 349,437 355,871 ----------- ----------- ----------- Cash provided by financing activities ........................... 392,051 349,437 1,355,871 Net increase in cash ..................................................... 58,699 190,537 58,887 Cash at beginning of the period .......................................... 188 -- -- ----------- ----------- ----------- Cash at end of the period ................................................ $ 58,887 $ 190,537 $ 58,887 =========== =========== =========== Supplemental Schedule of non-Cash Investing and Financing Activities Issuance of GS Carbon Trading, inc. shares in exchange for the transfer of holdings in cost and equity method investment ................................... $ -- $ -- $ 107,134 =========== =========== =========== DirectView, inc. net liabilities assumed, October 9, 2006 ................ $ -- $ -- $ 2,645,360 =========== =========== =========== Acquisition of technology license ........................................ $ 191,427 $ 211,328 $ 402,755 =========== =========== =========== Discount on convertible debt ............................................. $ 954,603 $ -- $ 954,603 =========== =========== =========== The notes to the consolidated condensed financial statements are an integral part of these statements.
6 Note 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Rule 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of operations have been included. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results of operations for the full year. When reading the financial information contained in this Quarterly Report, reference should be made to the amended financial statements, schedule and notes contained in the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 2006. Note 2 - BASIS OF PRESENTATION, ORGANIZATION AND OTHER MATTERS On October 9, 2006, DirectView, Inc. ("Directview"), acquired all of the outstanding capital stock of GS Carbon Trading, Inc. GS Carbon Trading became a wholly owned subsidiary of DirectView. The business of GS Carbon Trading, Inc. is the only business of DirectView after the acquisition. DirectView completed its Subsidiary Stock Purchase Agreement between the DirectView and DirectView Holdings, Inc. ("DR Holdings") pursuant to the Share Purchase Agreement with GS Energy Corporation ("GS Energy") immediately prior to the acquisition of GS Carbon Trading, Inc. DR Holdings agreed to accept and assume all the outstanding capital stock of the DirectView's subsidiaries together with all of the liabilities and obligations of the DirectView's subsidiaries arising prior to the closing of the Share Purchase Agreement with GS Energy. DirectView, Inc. was originally incorporated under the laws of the Commonwealth of Massachusetts on June 12, 1989 with the name "Boston & Pacific Company Inc." On May 5, 2003, DirectView changed its domicile from the Commonwealth of Massachusetts to the State of Nevada and changed its name to DirectView, Inc. DirectView was a full-service provider of teleconferencing services to businesses and organizations. GS Carbon Trading, Inc. was incorporated under the State of Delaware on August 30, 2006. GS Carbon Trading, Inc. was a development stage company that owned two cost method investments and one equity method investment. The Company accounted for the acquisition of GS Carbon Trading, Inc. by the Company on October 9, 2006 as a recapitalization. The recapitalization was the merger of a private operating company (GS Carbon Trading, Inc.) into a non-operating public shell corporation (DirectView) with nominal net assets and as such is treated as a capital transaction, rather than a business combination. As a result no Goodwill is recorded. The transaction is the equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation. The pre acquisition financial statements of GS Carbon Trading, Inc. are treated as the historical financial statements of the consolidated companies. On October 23, 2006 GS Carbon acquired General Ultrasonics from its parent Greenshift Corporation for the assumption of the liabilities and General Ultrasonics' ongoing cash needs. The acquisition was treated as a common control acquisition under the provisions of Appendix D of SFAS No. 141, Business Combinations. Effective on November 27, 2006, DirectView, Inc., a Nevada corporation, reincorporated in the State of Delaware by merging with and into GS Carbon Trading, Inc., who changed its name to GS Carbon Corporation, a Delaware corporation which was a wholly owned subsidiary of DirectView. As a result of the merger, GS Carbon Corporation is the surviving corporation; the name of the surviving corporation is GS Carbon Corporation; and the Certificate of Incorporation and Bylaws of GS Carbon Corporation (the "Company") are the Certificate of Incorporation and Bylaws of the surviving corporation. The Merger Agreement provided that each two hundred and fifty (250) shares of common stock, $.0001 par value, of DirectView outstanding prior to the merger would be converted into one (1) share of common stock, $.0001 par value, of GS Carbon Corporation. Each share of preferred stock, $.001 par value, of each series of DirectView outstanding prior to the merger was converted into one share of preferred stock of the comparable series of GS Carbon Corporation. No other changes were effected with respect to the registrant or its capitalization. On February 26, 2007, the Company formed new subsidiary called General Carbonics Corporation ("GCC"). Development Stage Company The Company is a development stage company that was founded to facilitate decarbonization in ways that cost-effectively capitalize on the evolving carbon markets. GS Carbon's ambition is to affect reductions in the carbon intensity of energy consumption by investing in carbon trading, developing and commercializing advanced new decarbonization technologies, and by developing and owning renewable energy production assets. Since its formation the Company has not realized any revenues from its planned operations. The Company's primary 7 activities since incorporation have been conducting research and development, performing business and strategic and financial planning. Going Concern The financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. As of March 31, 2007, the Company has no established source of revenues. The Company has also, accumulated losses of $4,504,728 and used $1,090,007 in cash from operations since its commencement. Its ability to continue as a going concern is dependent upon achieving production or sale of goods, the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due and upon profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. The Company intends to overcome the circumstances that impact its ability to remain a going concern through a combination of the commencement of revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. The Company's ability to obtain additional funding will determine its ability to continue as a going concern. There can be no assurances that these plans for additional financing will be successful. Failure to secure additional financing in a timely manner and on favorable terms if and when needed in the future could have a material adverse effect on the Company's financial performance, results of operations and stock price and require the Company to implement cost reduction initiatives and curtail operations. Furthermore, additional equity financing may be dilutive to the holders of the Company's common stock, and debt financing, if available, may involve restrictive covenants, and may require the Company to relinquish valuable rights. Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Technology License Costs associated with the Company's technology licenses are capitalized and amortized over their useful lives of ten years using the straight-line method. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, General Ultrasonics and General Carbonics Corporation. All significant inter-company transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from these estimates. Derivative Financial Instruments Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, "require all derivatives to be recorded on the balance sheet at fair value. The embedded derivatives are separately valued and accounted for on our balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining fair value of our derivatives is the Black Scholes Pricing Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management's judgment and may impact net income. Net Loss per Common Share In accordance with SFAS No. 128,"Earnings per Share," Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss adjusted for income or loss that would result from the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company had 51,652,000 warrants outstanding at March 31, 2007. The inclusion of the warrants and any shares to be issued upon conversion have an 8 anti-dilutive effect on diluted loss per share because the Company incurred a loss from continuing operations for the three month period ended March 31, 2007 and the period of inception (January 14, 2006) to March 31, 2006. The following table sets forth the computation of basic and diluted loss per share:
March 31, 2007 2006 - --------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) Numerator: Net loss - basic and diluted ............................................. $ (4,726,303) $ (42,237) ------------ ------------ Denominator: Weighted average shares - basic .......................................... 75,211,131 1,000 ------------ ------------ Effect of dilutive stock warrants and convertible preferred stock and debt -- -- ------------ ------------ Denominator for diluted earnings per share ............................... 75,211,131 1,000 ------------ ------------ Loss per share Basic .................................................................... $ (0.06) $ (42.24) ------------ ------------ Diluted .................................................................. $ (0.06) $ (42.24) ============ ============
Recent Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 clarifies the principal that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 if effective for the Company on January 1, 2008. The Company is in the process of evaluating SFAS 157 but does not believe it will have a significant effect on its financial position or results of operation. In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 ("SFAS 159"). SFAS159 permits an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 are elective, however, the amendment to SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities", applies to all entities with available for sale or trading securities. SFAS 159 is elective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. SFAS 159 was recently issued and the Company is currently assessing the financial impact the statement will have on our financial statements. Note 4 - TECHNOLOGY LICENSES On January 14, 2006, General Ultrasonics Corporation acquired 70% of H2 Energy Solutions, Inc. H2 Energy owned the rights to certain patented ultrasonics technologies used in the reformation of synthetic fuels. The purchase price of $261,328 was paid $50,000 in cash and current liabilities of $211,328 were assumed. H2 Energy subsequently ceased operations. The technology is under development by General Ultrasonics and the entire purchase price of $261,328 was assigned to technology license. The technology use agreement between H2 energy and the technology owner is for a term of ten years and requires certain minimum royalties for the Company to maintain its exclusive use. On February 26, 2007, GCC acquired patent-pending technologies involving carbon aerogel composites (United States Patent Application Nos. 10/327,300, 10/695,214, 10/800,993, 10/840,544, and 10/198,095) (the "GCC Technologies") and several executory contracts pertaining to the GCC Technologies in return for $191,427 and preferred stock convertible into five percent of the fully diluted capital stock of the Company. Among these contracts is a contract with United Technologies Corporation for work to be performed in cooperation with the U.S. Department of Energy. As of March 31, 2007, the $191,427 is classified as an investment payable and the preferred stock has not been issued. 9 Technology licenses consist of the following at March 31, 2007: Technology licenses $452,755 Less: Accumulated amortization 34,261 ---------- Technology licenses, net $418,494 ======== Amortization expense related to the technology license was $8,128, $4,533 and $6,533 for the three months ended March 31, 2007 and 2006 and the period of inception (January 14, 2006) to March 31, 2007, respectively. The estimated aggregate amortization expense for the next five years is estimated to be approximately $45,000 for each year. Note 5 - CONVERTIBLE DEBENTURES PAYABLE - LONG TERM On March 23, 2006, DirectView entered into a Securities Purchase Agreement (the "Agreement"), with Cornell Capital Partners, LP, ("Cornell"), and Highgate (Cornell and Highgate collectively, "Buyers"). In connection with this Agreement, Highgate converted old debentures for conversion into new 10% Secured Convertible Debentures amounting to $1,062,329 (including accrued interest of $62,329) and Cornell purchased additional secured convertible debentures amounting to $150,000 for the total purchase price of $1,212,329 (the "Purchase Price"). The debentures are due on March 23, 2009. In connection with the Agreement, DirectView paid Yorkville Advisors LLC a fee equal to $15,000 and a structuring fee to Yorkville Advisors LLC of $5,000 from the proceeds of the Closing. Accordingly, DirectView received net proceeds of $130,000. Each of the 10% Secured Convertible Debentures provides for interest in the amount of 10% per annum and are convertible at the lesser of $0.015 or 85% of the lowest closing bid price of DirectView's common stock during the 10 trading days immediately preceding the conversion date. The Company at its option shall have the right, with three (3) business days advance written notice (the "Redemption Notice"), to redeem a portion or all amounts outstanding under the 10% Secured Debenture prior to the Maturity Date provided that the Closing Bid Price of the Company's common stock, as reported by Bloomberg, LP, is less than the Fixed Conversion Price at the time of the Redemption Notice. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium ("Redemption Premium") equal to twenty percent (20%) of the principal amount being redeemed, and accrued interest, (collectively referred to as the "Redemption Amount"). In connection with this Agreement, the Company issued to the Buyer warrants to purchase 1,636,000 shares of the Company's Common Stock (the "Warrants") in such amounts as set forth on below. Exercise price Number of warrants per share - -------------------------------------------------------- 400,000 $2.50 660,000 $0.875 576,000 $1.00 - --------------------------------------------------------- 1,636,000 ========= In order to secure its obligations under the secured convertible debenture and related documents, the Company has granted the debenture holders a security interest in all of its assets and property, and the Company has pledged 1,000,000 shares of its common stock. A certificate representing the pledged shares together with a stock power has been deposited in escrow with a third party. If the Company should default under the Securities Purchase Agreement, 10% convertible secured debentures or the related transactional documents, Highgate is entitled to voting, dividend and other rights over these pledged shares, and may take possession of and sell the pledged shares to satisfy the Company's obligations to the debenture holders. A foreclosure by Highgate of the pledged shares could result in a change of control of the Company. Upon the satisfaction or conversion of the secured convertible debentures, the pledged shares will be returned to the Company for cancellation and return to its treasury. Under the terms of the Securities Purchase Agreement, secured convertible debentures and warrants, no conversion of the debentures or exercise of the warrants may occur if a conversion or exercise would result in Highgate and any of its affiliates beneficially owning more than 4.99% of the Company's outstanding common shares following such conversion or exercise. Highgate may waive this provision upon 65 days prior notice to the Company. The Company determined that the conversion feature of the convertible debentures represents an embedded derivative since the debentures are convertible into a variable number of shares upon conversion. Accordingly, the convertible debentures are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The Company believes that the aforementioned 10 embedded derivative meets the criteria of SFAS 133 and EITF 00-19, and should be accounted for as separate a derivative with a corresponding value recorded as liability. Accordingly, the fair value of these derivative instruments has been recorded as a liability on the consolidated balance sheet. The change in the fair value of the liability for derivative contracts will be credited to other income/ (expense) in the consolidated statements of operations. The $1,212,329 face amount of the debentures were stripped of their conversion feature due to the accounting for the conversion feature as a derivative, which was recorded using the residual proceeds method, whereby any remaining proceeds after allocating the proceeds to the warrants and conversion option would be attributed to the debt. The beneficial conversion feature (an embedded derivative) included in this debenture resulted in an initial debt discount of $1,192,329 and an initial loss on the valuation of derivative liabilities of $262,219. At March 31, 2007 the conversion derivative liability on the Highgate debt calculated using the Black-Scholes model was $1,514,428. For the three months ended March 31, 2007 the unrealized loss on the conversion derivative on the Highgate date was $ 983,095. On February 26, 2007, the Company entered into a Securities Purchase Agreement (the "February 2007 CCP Agreement"), with Cornell Capital Partners, LP. ("Cornell"). In connection with the February 2007 CCP Agreement, Cornell purchased secured convertible debentures amounting to $1,125,000 due on February 26, 2009. The February 26, 2007 Cornell debentures provide for interest in the amount of 10% per annum and are convertible at the lesser of $0.05 or 90% of the lowest closing bid price of the Company's common stock during the 30 trading days immediately preceding the conversion date. Cornell will be entitled to convert the February 26, 2007 debenture on the basis of the conversion price into the Company's common stock, provided that Cornell cannot convert into shares that would cause Cornell to own more 4.9% of the Company's outstanding common stock. The Company at its option shall have the right, with three (3) business days advance written notice (the "Redemption Notice"), to redeem a portion or all amounts outstanding under the 10% Secured Debenture prior to the Maturity Date provided that the Closing Bid Price of the Company's common stock, as reported by Bloomberg, LP, is less than the Fixed Conversion Price at the time of the Redemption Notice. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium ("Redemption Premium") equal to twenty percent (20%) of the principal amount being redeemed, and accrued interest, (collectively referred to as the "Redemption Amount"). In connection with the February 2007 CCP Agreement, the Company paid Yorkville Advisors, LLP a fee equal to $100,000 and a structuring fee of $25,000 from the proceeds of the closing. Accordingly, the Company received net proceeds of $1,000,000. These fees were treated as a deferred financing fees and beginning on February 27, 2007 are being amortized over the term of the loan. The Company used $900,000 of the proceeds from the Cornell Debenture to repay loans payable to GreenShift Corporation and GS Ethanol Technologies. In addition the Company issued to Cornell a warrant to purchase 50,000,000 shares of the Company's common stock at $0.03 a share. The value of the warrant was calculated to be $712,125 at the time of the issuance using the guidance found in APB Opinion 14, "Accounting for Convertible Debt and Debt issued with Detachable Stock Purchase Warrants" and was recorded as a discount. The discount is amortized to interest expense using the effective interest method of amortization. The Company determined that the conversion feature of the convertible debenture represents an embedded derivative since the debenture is convertible into a variable number of shares upon conversion. Accordingly, the convertible debenture is not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The embedded derivative feature created by the variable conversion meets the criteria of SFAS 133 and EITF 00-19, and should be accounted for as a separate derivative. At March 31, 2007 the fair value of the conversion derivative liability created by this debenture calculated using the Black-Scholes model was $1,406,250. For the three months ended March 31, 2007 the unrealized gain on the derivative instrument created by this debenture was $1,406,250. On August 30, 2006, Candent Corporation ("Candent") purchased $255,077 of convertible debt previously issued by the Company to an unaffiliated third party. The Convertible Debenture provides for no interest and is convertible into the Company's common stock at the lesser of (a) 0.001 per share or (b) the amount of this debenture to be converted divided by 90% of the closing market price of the Maker's common stock for the day prior to the date of the exercise of such conversion right. Candent will be entitled to convert the debenture on the basis of the conversion price into the Company's common stock, provided that Candent cannot convert into shares that would cause Candent to own more 4.9% of the Company's outstanding common stock. The Candent debenture matured on December 31, 2006. As of March 31, 2007 the Company has not been notified by Candent to demand payment of the convertible debenture. The former president of Candent is the wife of the Company's former Chief Executive Officer. On August 30, 2006, Candent purchased $85,049 of convertible debt previously issued by the Company to a former officer of the Company, the principal balance of which debt was originally $242,997. These convertible debentures provide for no interest and conversion into the Company's common stock at a rate equal to 90% of the closing market price of the Company's common stock for the day prior to the date of the exercise of such conversion right. Each holder will be entitled to convert their debenture on the basis of the conversion price into the Company's common stock, provided that each holder cannot convert into shares 11 that would cause that holder to own more than 4.9% of the Company's outstanding common stock. Each debenture matured on December 31, 2006. During February 2007, Candent purchased $25,000 of the former officer debenture and Cornell purchased the Candent debenture of $85,049 and the $132,948 remained on the former officer's debenture. The terms of the purchased debentures were not changed. As of March 31, 2007 the Company has not been notified by any party to demand payment of the convertible debentures. The Company determined that the conversion features of the assumed convertible debentures represent an embedded derivative since the debentures are convertible into a variable number of shares upon conversion. Accordingly, the assumed convertible debentures are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The embedded derivative feature created by the variable conversion meets the criteria of SFAS 133 and EITF 00-19, and should be accounted for as a separate derivative. At March 31, 2007 the fair value of the conversion derivative liability created by the assumed debentures calculated using the Black-Scholes model was $59,391. For the three months ended March 31, 2007 the unrealized loss on the derivative instruments created by these debentures was $360. The following assumptions were applied to all convertible debt: March 31, 2007 - ---------------------------------------------------------- Market price $0.04 Exercise prices $0.017- $0.369 Expected volatility 183% - 187.7% Expected dividends None Expected term (in days ) 10-30 Risk-free interest rate 4.54%% The convertible debentures liability is as follows at March 31, 2007: Convertible debentures payable $2,768,793 Less: unamortized discount on debentures 1,482,251 ---------- Convertible debentures, net - Long term $1,286,542 ========== Note 6 - DUE TO/FROM RELATED PARTIES At March 31, 2007 the Company owed Greenshift Corporation $539,254 and GreenShift owed the Company $907,820, for a net amount of $368,566. Due to related parties consists of the following at March 31, 2007: Candent Corporation $ 466,000 GS Ethanol Technologies, Inc. 219,317 GS Advanced Application 5,100 Due to officer 50,000 --------- $ 740,417 ========= During the three months ended March 31, 2007, the Company recorded $6,802 of interest expense for amounts due to GreenShift Corporation and $11,078 of interest income for amounts due from Greenshift Corporation. GreenShift Corporation is the Company's parent. GS Ethanol Technologies, Inc. is a subsidiary of GreenShift, and the former president of Candent is the wife of the Company's chairman. All of the issued and outstanding capital stock of Candent is held in trust for the benefit of its former president. GS Advanced Application is a subsidiary of GS CleanTech Corporation and GS CleanTech is a subsidiary of GreenShift. Amounts due to officer represent amount loaned by the Company's Chairmen and Chief Executive officer. All amounts are non-interest bearing. Note 7 - INCOME TAXES The Company currently files an income tax return in the U.S. federal jurisdiction as well as in the State of New York. Tax returns for the year 2006 remain open for examination in various tax jurisdictions in which the Company and its subsidiaries operates or operated. The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109, Accounting for Income Taxes" ("FIN 48"), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no material adjustment in the 12 liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, and at March 31, 2007, there were no unrecognized tax benefits. Interest and penalties related to uncertain tax positions will be recognized in income tax expense. As of March 31, 2007, no interest related to uncertain tax positions had been accrued. Note 8 - STOCKHOLDER'S EQUITY The Company accounts for its share-based employee compensation arrangements under SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"), which requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. On January 4, 2007 the Company issued 130 shares of common stock to an employee for services provided. The fair value of the award was determined by the closing price of its stock on the issuance date. For the three months ended March 31, 2007 the Company incurred $16 of share based compensation related to these issuance. On January 16, 2007 the Company issued 6,914,892 shares of common stock to employees for services provided. The fair value of the awards was determined by the closing price of its stock on the issuance date. For the three months ended March 31, 2007 the Company incurred $760,638 of share based compensation related to these issuance. On February 26, 2007, GreenShift converted its 6,250 shares of the Company's Series B Voting Preferred Stock into 101,402,363 shares of the Company's Common Stock. On February 26, 2007, the Company increased its additional paid in capital by $712,125 for the value of the detachable warrants issued in connection with the February 26, 2007 Cornell Convertible debenture (Note 5) in accordance with the guidance found in APB Opinion 14, "Accounting for Convertible Debt and Debt issued with Detachable Stock Purchase Warrants". On March 2, 2007, Cornell Capital converted $52,850 of its convertible debentures into 5,285,000 shares of the Company's Common Stock On March 21, 2007, Cornell Capital converted $13,760 of its convertible debentures into 1,376,000 shares of the Company's Common Stock On March 29, 2007, the Company issued 35,000,000 shares of common stock to employees for services provided. The fair value of the awards was determined by the closing price of its stock on the issuance date. For the three months ended March 31, 2007 the Company incurred $1,050,000 of share based compensation related to these issuance. Note 9 - COMMITMENTS EMPLOYMENT AGREEMENT In February 2007 the Company entered into a three-year employment agreement with the President of its newly formed wholly owned subsidiary. The annual salary stipulated in the agreement is $125,000 but could increase to $150,000 based on the subsidiary's achievement of pre-tax operating profits for two consecutive calendar quarters. The Company purchased its aerogel technology from GCC's president. Note 10 - CONTINGENT LIABILITY The Company's General Ultrasonics subsidiary is party to the matter entitled LeBlanc v. Tomoiu, et. al., which action was filed in the Superior Court of Connecticut. The verified complaint, which also names GreenShift Corporation and certain of its affiliates, seeks damages relating to the acquisition by General Ultrasonics of the stock of H2 Energy Solutions, Inc. from substantially all of its shareholders, as well as attorney's fees and costs. General Ultrasonics has responded to the verified complaint and denies any liability. Note 11 - SUBSEQUENT EVENT In April 2007, the company entered into an amended employment with the Chief Science Officer of General Ultrasonics. The agreement is for a term of five years calls for an annual salary of $150,000, a minimum annual bonus of $250,000, a signing bonus of $62,500, and requires the Company to Issue Series B Preferred Stock corresponding to 5% of the Company's fully diluted capital stock to the Chief Science Officer. In April 2007, GreenShift converted 12,500 shares of the Company's Series B Preferred Stock into 200,832,521 shares of common stock. On May 4, 2007, GCC amended the February 26, 2007 Technology Acquisition Agreement. The amendment provided for the replacement of the GSCR preferred stock with 400,000 shares of common stock in General Carbonics Corporation equal to 40% of GCC. On May 14, 2007, the Company's parent, GreenShift Corporation, executed an agreement to sell its majority stake in the company to Seaway Capital, Inc. Seaway Capital, Inc. has agreed to assume up to 4500,000 of the Company's legacy debt and GreenShift Corporation will retain the Company's current operating subsidiaries by transferring the stock of the subsidiaries to GS CleanTech Corporation. 13 Note 12 - RESTATEMENT The Company has restated its financial statements for the period of inception (January 14, 2006) to December 31, 2006 and the three months ended March 31, 2007. On July 26, 2007, the Company determined that it was liable for approximately $498,000 of convertible debt along with approximately $59,000 of related derivative liabilities at October 9, 2006, the reverse merger date and at December 31, 2006 and March 31, 2007. The following outlines the changes: 1. A subsidiary of the Company that was spun-off in 2006 issued convertible debt in the principal amount of $498,074 several years ago. Management of the Company was presented with evidence that the convertible debentures along with the related derivative liability of $58,884 for the conversion features related to these debentures were liabilities of the Company at the reverse merger date of October 9, 2006. The Company calculated the derivative liability to be $59,391 and $59,031 on the conversion feature related to these debentures at March 31, 2007 and December 31, 2006, respectively, and incurred an unrealized loss of $360 and $147 for the three months ended March 31, 2007 and the period of inception (January 14, 2006) to December 31, 2006, respectively . The Company originally did not record the long-term convertible debentures and related derivative liability at the December 31, 2006 and March 31, 2007 and did not calculate the unrealized loss on these derivative instruments for the three months ended March 31, 2007 and period of inception (January 14, 2006) to December 31, 2006. In addition the Company reviewed and revised its conclusions regarding its derivative instruments at December 31, 2006. The following outlines the changes: 1. The expected term used in the Black-Scholes model used to calculate derivative liability of $1,514,428 and $531,333 at March 31, 2007 and December 31, 2006, respectively, related to conversion feature on the Highgate/Cornell convertible debenture was ten days. The unrealized gain/(loss) on derivative instruments related to the conversion feature on the Highgate/Cornell debenture was $(983,095) and $801,367 for the three months ended March 31, 2007 and the period of inception (January 14, 2006) to December 31, 2006, respectively. The Company originally used an expected term of 2.0 and 2.25 years in the original Black-Scholes model used to calculate the original derivative liability of $2,536,931 and $1,474,827 at March 31, 2007 and December 31, 2006, respectively. The Company originally recorded an unrealized loss of derivative instruments of $1,062,104 and $142,127 for three months ended March 31, 2007 and the period of inception (January 14, 2006) to December 31, 2006, respectively. 2. The 1,652,000 warrants attached to the Highgate/Cornell convertible debenture were determined not to be a derivative instrument under accounting principles generally accepted in the United States of America. The Company originally recorded a derivative liability of $1,230,330 and $198,193 at October 9, 2006 (reverse merger date) and December 31, 2006, respectively, and an unrealized gain on derivative instruments of $1,032,137 for the period of inception (January 14, 2006) to December 31, 2006. In addition the Company originally recorded a derivative liability of $50,396 and an unrealized gain on derivative instruments of $147,797 as of and for the three months ended March 31, 2007. 3. The Company determined that a beneficial conversion did not exist when the February 26, 2007 Cornell convertible debenture was issued. The Company originally recorded $221,208 in interest expense for the three months ended March 31, 2007 related to the beneficial conversion. 4. The Company determined the offset to the discount of $712,125 created by the detachable warrants granted in conjunction with the issuance of the Cornell Convertible debenture on February 26, 2007 was additional paid in capital. The Company originally recorded the offset to derivative liability. The Company also determined that the detachable warrants issued with the Cornell Convertible debenture were not derivative instruments. The Company originally recorded an unrealized loss on the derivative instruments of $1,227,875 for the three months ended March 31, 2007. 5. The Company determined that the conversion feature on the February 26, 2007 Cornell debenture was not an embedded derivative and a further discount on the debt did not exist. The Company originally recorded the transaction as follows; a. The fair value of the embedded derivative of $242,478 as a derivative liability with a corresponding amount recorded as a discount on the debenture on February 26, 2007. 14 b. A derivative liability created by this debenture of $76,423 and an unrealized gain on derivative instruments of $166,055 for the three months ended March 31, 2007. c. $10,103 in interest expense for the three months ended March 31, 2007 based on the amortization of the original debt discount recorded. The impact of these adjustments on the Company's financial results as originally reported as of and for the three months ended March 31, 2007 is summarized below: As Reported As Restated ----------------------------- Current liabilities ............................ $ 5,080,234 $ 3,456,553 Total liabilities .............................. $ 6,568,171 $ 5,674,939 Total Stockholders' Deficiency ................. $(3,215,090) $(2,321,858) Net loss ....................................... $(4,544,026) $(4,726,303) 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION BUSINESS RISK FACTORS There are many important factors that have affected, and in the future could affect, GS Carbon's business, including but not limited to the factors discussed below, which should be reviewed carefully together with other information contained in this report. Some of the factors are beyond our control and future trends are difficult to predict. There is substantial doubt concerning our ability to continue as a going concern. GS Carbon had approximately $58,887 in cash at March 31, 2007 and had current liabilities totaling $3,456,553. These matters raise substantial doubt about GS Carbon's ability to continue as a going concern. Management's plans include raising additional proceeds from debt and equity transactions and completing strategic acquisitions. The issuance of shares under our agreements with Cornell and Highgate could increase our outstanding shares by over 30%. While Cornell and Highgate are subject to restrictions on conversion of their respective debentures limiting their ownership to 4.9% of our common stock, upon default the Cornell March 31, 2007. The issuance of these shares would dilute the interest of our current shareholders by over 30%. The conversion of our convertible debentures, the exercise of any outstanding warrants and options and GS Carbon's various anti-dilution and price-protection agreements could cause the market price of our common stock to fall, and may have dilutive and other effects on our existing stockholders. The conversion of our outstanding convertible debentures (including the Cornell Debenture and Highgate Debenture), and the exercise of our outstanding warrants and options could result in the issuance of up to 55,000,000 shares of common stock. Such issuances would reduce the percentage of ownership of our existing common stockholders and could, among other things, depress the price of our common stock. This result could detrimentally affect our ability to raise additional equity capital. In addition, the sale of these additional shares of common stock may cause the market price of our stock to decrease. We may be unable to satisfy our current debts. Our total liabilities as of March 31, 2007 were $5,674,939. We cannot afford to pay these amounts out of our operating cash flows and our ability to operate will be significantly impaired if we cannot reduce the Cornell and Highgate debt with registered stock. We lack capital to fund our operations. During the three months ended March 31, 2007 our operations used $333,352 in cash. In addition, during those twelve months we were required to make payments on some of our outstanding debts. Loans from some of our shareholders and the issuance convertible debentures funded both the cash shortfall from operations and our debt service. Those individuals may not be able to continue to fund our operations or our debt service. Our operations will suffer if we are unable to manage our rapid growth. We are currently experiencing a period of rapid growth through internal expansion and strategic acquisitions. This growth has placed, and could continue to place, a significant strain on our management, personnel and other resources. Our ability to grow will require us to effectively manage our collaborative arrangements and to continue to improve our operational, management, and financial systems and controls, and to successfully train, motivate and manage our employees. If we are unable to effectively manage our growth, we may not realize the expected benefits of such growth, and such failure could result in lost sales opportunities, lost business, difficulties operating our assets and could therefore significantly impair our financial condition. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued) BUSINESS RISK FACTORS (continued) We may have difficulty integrating our recent acquisitions into our existing operations. Acquisitions will involve the integration of companies that have previously operated independently from us, with focuses on different geographical areas. We may not be able to fully integrate the operations of these companies without encountering difficulties or experiencing the loss of key employees or customers of such companies. In addition, we may not realize the benefits expected from such integration. Our failure to attract qualified engineers and management personnel could hinder our success. Our ability to attract and retain qualified engineers and other professional personnel when we need them will be a major factor in determining our future success. There is a very competitive market for individuals with advanced engineering training, and we are not assured of being able to retain the personnel we will need. Key personnel are critical to our business and our future success depends on our ability to retain them. Our success depends on the contributions of our key management, environmental and engineering personnel. The loss of these officers could result in lost sales opportunities, lost business, difficulties operating our assets, difficulties raising additional funds and could therefore significantly impair our financial condition. Our future success depends on our ability to retain and expand our staff of qualified personnel, including environmental technicians, sales personnel and engineers. Without qualified personnel, we may incur delays in rendering our services or be unable to render certain services. We may not be successful in our efforts to attract and retain qualified personnel as their availability is limited due to the demand of hazardous waste management services and the highly competitive nature of the hazardous waste management industry. We do not maintain key person insurance on any of our employees, officers or directors. GreenShift Corporation can exert control over us and may not make decisions that further the best interests of all stockholders. GreenShift Corporation controls 100% of our outstanding Series B preferred stock. The preferred shares are convertible into 85% of our Common Stock. As a result, GreenShift Corporation exerts a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of us and might affect the market price of our common stock, even when a change in control may be in the best interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders and accordingly, they could cause us to enter into transactions or agreements which we would not otherwise consider. GS Carbon is not likely to hold annual shareholder meetings in the next few years. Delaware corporation law provides that members of the board of directors retain authority to act until they are removed or replaced at a meeting of the shareholders. A shareholder may petition the Delaware Court of Chancery to direct that a shareholders meeting be held. But absent such a legal action, the board has no obligation to call a shareholders meeting. Unless a shareholders meeting is held, the existing directors elect directors to fill any vacancy that occurs on the board of directors. The shareholders, therefore, have no control over the constitution of the board of directors, unless a shareholders meeting is held. Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. Kevin Kreisler who is currently the sole director of GS Carbon was appointed to that position by the previous directors. If other directors are added to the Board in the future, it is likely that Mr. Kreisler will appoint them. As a result, the shareholders of GS Carbon will have no effective means of exercising control over the operations of GS Carbon. Investing in our stock is highly speculative and you could lose some or all of your investment. The value of our common stock may decline and may be affected by numerous market conditions, which could result in the loss of some or the entire amount invested in our stock. The securities markets frequently experience extreme price and volume fluctuations that affect market prices for securities of companies generally and very small capitalization companies such as us in particular. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued) BUSINESS RISK FACTORS (continued) The volatility of the market for GS Carbon common stock may prevent a shareholder from obtaining a fair price for his shares. The common stock of GS Carbon is quoted on the OTC Bulletin Board. It is impossible to say that the market price on any given day reflects the fair value of GS Carbon, since the price sometimes moves up or down by 50% or more in a week's time. A shareholder in GS Carbon who wants to sell his shares, therefore, runs the risk that at the time he wants to sell, the market price may be much less than the price he would consider to be fair. Our common stock qualifies as a "penny stock" under SEC rules which may make it more difficult for our stockholders to resell their shares of our common stock. Our common stock trades on the OTC Bulletin Board. As a result, the holders of our common stock may find it more difficult to obtain accurate quotations concerning the market value of the stock. Stockholders also may experience greater difficulties in attempting to sell the stock than if it were listed on a stock exchange or quoted on the NASDAQ National Market or the NASDAQ Small-Cap Market. Because our common stock does not trade on a stock exchange or on the NASDAQ National Market or the NASDAQ Small-Cap Market, and the market price of the common stock is less than $5.00 per share, the common stock qualifies as a "penny stock." SEC Rule 15g-9 under the Securities Exchange Act of 1934 imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an "established customer" or an "accredited investor." This includes the requirement that a broker-dealer must make a determination on the appropriateness of investments in penny stocks for the customer and must make special disclosures to the customer concerning the risks of penny stocks. Application of the penny stock rules to our common stock affects the market liquidity of the shares, which in turn may affect the ability of holders of our common stock to resell the stock. Only a small portion of the investment community will purchase "penny stocks" such as our common stock. GS Carbon common stock is defined by the SEC as a "penny stock" because it trades at a price less than $5.00 per share. GS Carbon common stock also meets most common definitions of a "penny stock," since it trades for less than $1.00 per share. Many brokerage firms will discourage their customers from purchasing penny stocks, and even more brokerage firms will not recommend a penny stock to their customers. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not consider a purchase of a penny stock due, among other things, to the negative reputation that attends the penny stock market. As a result of this widespread disdain for penny stocks, there will be a limited market for GS Carbon common stock as long as it remains a "penny stock." This situation may limit the liquidity of your shares. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FORWARD LOOKING STATEMENTS In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans to," "estimates," "projects," or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Business Risk Factors." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. OVERVIEW GS Carbon Corporation ("we," "our," "us," "GS Carbon," or the "Company") is a development stage company that was founded to facilitate decarbonization in ways that cost-effectively capitalize on the evolving carbon markets. GS Carbon's ambition is to affect reductions in the carbon intensity of energy consumption by investing in carbon trading, developing and commercializing advanced new decarbonization technologies, and by developing and owning renewable energy production assets. GS Carbon currently has two operating subsidiaries: General Ultrasonics Corporation ("GUC") and General Carbonics Corporation ("GCC"). GS Carbon also has three investments: Sterling Planet, Inc. ("Sterling"), TerraPass, Inc. ("TerraPass"), and Air Cycle Corporation ("Air Cycle"). Sterling has established a strong reputation as the premier market maker for renewable energy sales. Sterling has sold over 4 billion kilowatt hours of renewable energy since its inception, representing enough energy to power 350,000 homes for a full year and offset 2.6 million tons of carbon dioxide. Sterling Planet currently services an impressive array of clients including Alcoa, The Coca-Cola Company, DuPont, Delphi Corporation, Duke University, University of Utah, Nike, Pitney Bowes, U.S. Environmental Protection Agency, the U.S. General Services Administration, the Homeland Security Department, Western Area Power Administration, New York State Energy Research and Development Authority (NYSERDA), the U.S. Army, Staples, Whirlpool Corporation, the World Resources Institute and over 150 other companies. GS Carbon holds a 10% stake in Sterling. By issuing a "TerraPass" to its members, TerraPass utilizes its members' contributions to promote global energy efficiency and greenhouse gas reduction through targeted projects. It is through these clean energy projects that TerraPass counterbalances pollution from its members' vehicles. TerraPass recently partnered with Ford Motor Company in a program called "Greener Miles," which allows consumers to calculate the amount of carbon dioxide produced by their car in one year of driving, and then to purchase a TerraPass linked to the cost of producing an amount of clean energy equivalent to the carbon dioxide produced. Individual purchases range from $29.95 to $79.95 annually, depending on the type of vehicle, amount of carbon dioxide emitted and miles traveled, and the funds are used to invest in U.S. based renewable energy projects. GS Carbon holds a 10% stake in TerraPass. GS Carbon holds a 30% stake in Air Cycle, a lamp, ballast, battery and e-waste recycling company. Air Cycle's Bulb Eater(R) product line crushes spent fluorescent lamps into small fragments and compacts them into 55-gallon containers which are then shipped for recycling. Air Cycle's EasyPak(TM) Recycling Program is offered as an alternative for customers who generate spent lamps, batteries, and/or ballasts and cannot meet Air Cycle's quantity minimums for bulk pick-ups. Small shipments are instead shipped through pre-paid FedEx transportation services. GS Carbon's GUC subsidiary focuses on the research and development of commercially viable advanced applications of cutting-edge clean technologies. GS Carbon's testing laboratory is currently focused on commercializing new technologies that increase the efficiency and reduce the emissions profile of energy production. Current research and development projects include ultrasonic reformation of carbon-based liquids and gases into clean fuels. GS Carbon's GCC subsidiary focuses on the synthesis and use of novel carbon-based products. GS Carbon owns 70% of GUC 100% of GCC. GUC owns the exclusive rights to proprietary new ultrasonic reformation process uses water, carbon-based materials and high intensity ultrasonic energies to synthesize clean burning fuels and other materials. GCC owns patent-pending technologies involving carbon aerogel composites. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2007 Revenues Total revenues were $0 for the three months ended March 31, 2007. Selling, General and Administrative Expenses Selling, general and administrative expenses for the period ended March 31, 2007 were $356,929 which amount was primarily attributable to the operating activities of our research and development unit, General Ultransonics Corporation. Interest Expense and Financing Costs Interest expenses and financing costs for the period ended March 31, 2007 were $180,093 and were primarily attributable to our existing financing agreements with Candent, Cornell Capital Partners, LLP and Highgate House Funds, Ltd. Net Income Our net loss for the period ended March 31, 2007 was $4,726,303. The net loss incurred was due to the expenses and other factors described above. Liquidity and Capital Resources The Company had $476,484 in accounts payable and accrued expenses at March 31, 2007. GS Carbon intends to satisfy these amounts predominantly out of cash flows from its operations and financing activities. The Company had negative working capital of $3,397,666 at March 31, 2007, of which $2,980,069 related to derivative liabilities created by the conversion features found on the Highgate, Cornell and Candent debentures. 20 ITEM 3. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our principal executive officer and principal financial officer participated in and supervised the evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by us in the reports that we file is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. In connection with that evaluation, the Company's chief executive officer and chief financial officer determined that: o The recently discovered debts that are the reason for the restatement in this amended filing were incurred prior to the 2006 acquisition of a controlling interest in GS Carbon by GreenShift Corporation o In connection with the acquisition of control by GreenShift, a complete change in management occurred. No person who had knowledge of those debts remained associated with GS Carbon on March 31, 2007. o As soon as management became aware of the debts, it disclosed its awareness of the debts in the Annual Report on Form 10-KSB for 2006 and commenced an investigation of the debts. The Company's chief executive officer and chief financial officer determined that, as of the end of the period covered by this report, these controls and procedures are adequate and effective in alerting him in a timely manner to material information relating to the Company that are required to be included in the Company's periodic SEC filings. In addition the Company reviewed and revised its conclusions regarding its derivative instruments at December 31, 2006 and March 31, 2007 based on subsequent review of the facts and circumstances that existed at December 31, 2006 and March 31, 2007. Based on the foregoing analyses, the Company's chief executive officer and chief financial officer concluded that there was a flaw in the Company's disclosure controls and procedures as of March 31, 2007 to the extent that its books and records for the periods prior to the acquisition of control by GreenShift were incomplete and there was no employee remaining from the period prior to the acquisition who could provide information to the chief executive officer and chief financial officer regarding the missing information. Except as set forth above there was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company's third fiscal quarter that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting. 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company's General Ultrasonics subsidiary is party to the matter entitled LeBlanc v. Tomoiu. et. al., which action was filed in the Superior Court of Connecticut. The verified complaint, which also names GreenShift Corporation and certain of its affiliates, seeks damages relating to the acquisition by General Ultrasonics of the stock of H2 Energy Solutions, Inc. from substantially all of its shareholders, as well as attorney's fees and costs. General Ultrasonics has responded to the verified complaint and denies any liability. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None during the three months ended March 31, 2007 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS The following are exhibits filed as part of the Company's Form 10-QSB/A for the period ended March 31, 2007: Exhibit Number Description 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the date indicated. SEAWAY VALLEY CAPITAL CORPORATION (FORMERLY KNOWN AS "GS CARBON CORPORATION") By: /S/ THOMAS SCOZZAFAVA -------------------------- THOMAS SCOZZAFAVA Chairman & Chief Executive Officer Chief Financial Officer Date: October 11, 2007 EX-31 2 gscbqex31-1.txt EXHIBIT 31.1 CERTIFICATION Exhibit 31.1 CERTIFICATION OF QUARTERLY REPORT I, THOMAS SCOZZAFAVA, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB/A of Seaway Valley Corporation (formerly known as "GS Carbon Corporation"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and, c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Company's Board of Directors of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and, b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /S/ THOMAS SCOZZAFAVA --------------------------------- THOMAS SCOZZAFAVA Date: October 11, 2007 EX-32 3 gscbqex32-1.txt EXHIBIT 32.1 CERTIFICATIONS Exhibit 32.1 CERTIFICATION OF PERIODIC REPORT Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Seaway Valley Capital Corporation (formerly known as "GS Carbon Corporation") (the "Company"), certifies that: 1. The Quarterly Report on Form 10-QSB/A of the Company for the Quarter ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ THOMAS SCOZZAFAVA ---------------------------------- THOMAS SCOZZAFAVA Dated: October 11, 2007 Chief Executive Officer Chief Financial Officer This certification is made solely for the purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. -----END PRIVACY-ENHANCED MESSAGE-----