PART I -- FINANCIAL INFORMATION

 

ITEM I -- FINANCIAL STATEMENTS

ALLEGRO BIODIESEL CORPORATION

 

	September 30, 2009					December 31, 2008
	(Unaudited)					(Audited)
Assets
Current assets:
Cash and cash equivalents		$	233,691			$	48,339
Other current assets			6,729				7,820
Total current assets			240,420				56,159
Investments			237,839				788,550
Other			18,401				25,896
Total assets		$	496,660			$	870,605
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable		$	165,493			$	319,978
Accrued expenses			472,200				469,560
Accrued dividends			6,388,156				4,715,501
Due to Ocean Park Advisors, LLC.			84,486				216,440
Total current liabilities			7,110,335				5,721,479
Total liabilities			7,110,335				5,721,479
Shareholders’ deficit:
Convertible preferred stock, $0.01 par value:
50,000,000 shares authorized – 23,581,440 and 23,860,112 shares issued and outstanding shares at September 30, 2009 and December 31, 2008, respectively			262,766				265,553
Common stock, $0.01 par value
150,000,000 shares authorized – 28,847,667 and 28,919,779 shares issued and outstanding shares at September 30, 2009 and December 31, 2008, respectively			280,174				280,895
Additional paid-in capital			317,459,598				317,395,124
Accumulated deficit			(324,616,213	)			(322,792,446	)
Total shareholders’ deficit			(6,613,675	)			(4,850,874	)
Total liabilities and shareholders' deficit		$	496,660			$	870,605

 

 

See accompanying Notes to Consolidated Financial Statements.

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ALLEGRO BIODIESEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Operating expenses:
General and administrative		$	162,749			$	411,910			$	486,746			$	1,385,440
Total operating expenses			162,749				411,910				486,746				1,385,440
Operating loss			(162,749	)			(411,910	)			(486,746	)			(1,385,440	)
Interest expense			--				--				--				(67,094	)
Interest income			218				1,537				881				15,311
Other, net			--				152,705				946,430				200,126
Impairment charges			--				(211,450	)			(550,711	)			(211,450	)
Loss before income taxes			(162,531	)			(469,118	)			(90,146)				(1,448,547	)
Income taxes			--				--				--				(4,535	)
Net loss from continuing operations			(162,531	)			(469,118	)			(90,146	)			(1,453,082	)
Discontinued operations and sale of discontinued operations, net of income taxes			--				589,459				--				(5,140,011	)
Net income (loss)			(162,531	)			120,341				(90,146	)			(6,593,093	)
Dividends on preferred stock			(587,362	)			(553,254	)			(1,733,621	)			(1,725,257	)
Net loss available to common shareholders		$	(749,893	)		$	(432,913	)		$	(1,823,767	)		$	(8,318,350	)
Net income (loss) per share
Basic:
Continuing operations		$	(0.03	)		$	(0.04	)		$	(0.07	)		$	(0.12	)
Discontinued operations						$	0.02							$	(0.20	)
Diluted:
Continuing operations		$	(0.03	)		$	(0.04)			$	(0.05	)		$	(0.12	)
Discontinued operations						$	0.02							$	(0.20	)
Weighted average number of common shares used in per share calculations:
Basic			28,847,670				28,846,509				28,816,871				25,928,350
Diluted			28,847,670				28,846,509				28,816,871				25,928,350

 

See accompanying Notes to Consolidated Financial Statements.

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ALLEGRO BIODIESEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Nine Months Ended September 30,
		2009				2008
Cash flows from operating activities:
Net loss		$	(90,146	)		$	(6,593,093	)
Adjustments to reconcile net loss to net cash from operating activities:
Impairment charges for Vanguard Synfuels, LLC			--				5,655,036
Impairment of investment in CPC			550,711				--
Gain on sale of Vanguard Synfuels, LLC			--				(615,501	)
Stock-based compensation			--				120,316
Bad debt expense			--				66,240
Accretion of convertible notes payable and amortization of debt discount			--				49,834
Changes in operating assets and liabilities:
Accounts receivable			--				5,072
Inventory			--				9,941
Prepaid expenses and other assets			8,586				117,218
Accounts payable			(154,485	)			28,354
Due to Ocean Park Advisors, LLC.			(131,954	)			234,399
Accrued expenses			2,640				20,548
Net cash provided by (used in) operating activities			185,352				(901,636	)
Cash flows from investing activities:
Capital expenditures			--				(15,435	)
Sale of Vanguard Synfuels, LLC			--				(382	)
Net cash used in investing activities			--				(15,817	)
Cash flows from financing activities:
Proceeds from repayment of issued promissory note			--				500,000
Payments on line of credit and notes payable			--				(150,000	)
Net cash provided by financing activities			--				350,000
Net change in cash and cash equivalents			185,352				(567,453	)
Cash and cash equivalents at beginning of period			48,339				874,693
Cash and cash equivalents at end of period		$	233,691			$	307,240
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	--			$	134,188
Cash paid during the period for income taxes		$	16,909			$	--
Supplemental disclosure of non-cash investing and financing activities:
Conversion of accrued dividends into common stock		$	60,967			$	545,799

See accompanying Notes to Consolidated Financial Statements.

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 ALLEGRO BIODIESEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

(UNAUDITED)

 

1.

Business

Allegro Biodiesel Corporation (“Allegro”, “we”, “us” or “Company”) is a publicly-traded shell company which from September 20, 2006 through September 9, 2008 owned a biodiesel production facility that used renewable agricultural-based feedstock (primarily soybean oil) to produce biodiesel fuel (the “Pollock Facility”).

During 2007, the biodiesel industry experienced a significant increase in the cost of soybean oil. The increase in the cost of soybean oil had a significant negative effect on our profit margins and cash flows. Given these economic conditions, on October 15, 2007 we adopted a Company-wide cost reduction plan to reduce our costs. We also significantly reduced, and then halted, production at the Pollock Facility during the fourth quarter of 2007.

Due to the continuing difficult conditions in the biodiesel industry described above, during the second quarter of 2008, the independent member of our board of directors recommended to our stockholders to approve the sale (the “Sale”) of 100% of the membership interests of our wholly owned subsidiary, Vanguard Synfuels, LLC (“Vanguard”), to Consolidated Energy Holdings, LLC, a Louisiana limited liability company (“CEH”).

As a consequence of the Sale, we have reduced our outstanding liabilities and eliminated our secured debt. While we no longer have any operating assets, and are considered a “shell company” under the rules and regulations of the Securities and Exchange Commission, we continue to operate as a publicly-traded corporation with non-operating assets, including cash and our equity investment in Community Power Corporation, a developer of modular biomass gasification technology (“CPC”).  In February 2009, we increased our cash balance significantly due to our receipt of an arbitration award relating to our 2006 acquisition of Vanguard totaling $875,428 in cash plus accrued interest of $63,900, and 519,736 shares of our common stock.  The escrow proceeds received have been classified as “Other, net” in the accompanying statement of operations for the nine months ended September 30, 2009.  

As of September 30, 2009, we had negative working capital of $6,869,915. Included as a reduction to working capital is $6,388,156 of accrued dividends which the Company may pay, at its option, in shares of its Series A convertible preferred stock.

As stated in the Company’s most recent Form 8-K, management has not yet received any suitable offers in its search for strategic alternatives, such as an additional financing or  potential strategic transactions.  We are now focused on pursuing an orderly wind-down in a manner that will be in the best interest of stakeholders.  A bankruptcy proceeding is unlikely to yield the best results for our stakeholders due to, among other things, the high costs of such a proceeding.  Instead, we hope to effect a gradual wind-down over time, and without resort to bankruptcy court.  However, there can be no assurances that we will be able to effect such a wind-down.  We continue to attempt to sell our minority interest in CPC to raise working capital for Allegro.  However, given the difficult economic environment and the challenging market for shell companies to raise capital, find suitable merger partners or dispose of assets, management will continue on its path to wind up and dissolve Allegro. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

We do not expect to have sufficient assets to make any liquidating distribution to the holders of our Common Stock. There can be no assurance that we will be able to pay or otherwise provide for our outstanding liabilities. Even if we are able to do so, under the terms of our outstanding Series A Convertible Preferred Stock, we would not be able to make any distributions to the holders of our Common Stock unless we first satisfied the liquidation preference of the Convertible Preferred Stock. The aggregate liquidation preference of the Series A Convertible Preferred Stock is approximately $30.0 million. We do not foresee any set of circumstances that would allow us to fully satisfy this liquidation preference. Thus, we do not foresee any set of circumstances that would allow us to make any distribution to the holders of our Common Stock.

 

The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

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2.	Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

The consolidated financial statements of Allegro are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2008 as reported in the Company's Form 10-K have been omitted.  The results of operations for the three month and nine month periods ended September 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year. All accounts and intercompany transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the Company's financial position, results of operations and cash flows. These statements should be read in conjunction with the financial statements and related notes which are part of the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 168 – “The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles,” a replacement of SFAS 162.  SFAS 168 provides that the FASB Accounting Standards Codification (the “Codification”) is the single source of U.S. GAAP in the preparation of financial statements, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative guidance for SEC registrants. The Codification was not meant to create new accounting and reporting guidance, but rather to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into accounting topics within a consistent organizational structure. The Codification supersedes all existing non-SEC accounting and reporting standards and is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

Following SFAS 168, the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU’s). The FASB will not consider ASU’s as authoritative in their own right; rather these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification. In the description that follows, the Company will provide reference to both the Codification Topic reference and the previously authoritative references related to Codification Topics and Subtopics, as appropriate.

 

Fair Value Accounting

Effective July 1, 2008, the Company adopted ASC 820, previously SFAS 157, “Fair Value Measurements and Disclosures” (previously known as SFAS 157), to account for our financial assets and liabilities. SFAS 157 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

	·	Level 1 - Observable quoted prices for identical instruments in active markets;
	·	Level 2 - Observable quoted prices for similar instruments in active markets, observable quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; or
	·	Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted average common shares outstanding during the period. Diluted net loss per share reflects the potential dilution to basic EPS that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the weighted average fair value of our common shares during the period. The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation because to do so would be anti-dilutive for the periods indicated below:

		September 30,
		2009				2008
Convertible preferred stock - Series A			39,479,799				36,904,510
Convertible preferred stock - Series B			1,413,900				1,413,900
			40,893,699				38,318,410

 

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Recent Accounting Pronouncement

In May 2009, the FASB issued SFAS 165, Subsequent Events (“SFAS 165”). This statement provides guidance on management’s assessment of subsequent events. Historically, management relied on U.S. auditing literature in AICPA Professional Standard, AU Section 560. SFAS 165 did not significantly change practice because its guidance is similar to AU Section 560. This standard was adopted by the Company as of June 30, 2009. The date through which subsequent events have been evaluated is the date on which the financial statements were issued (November 12, 2009).  SFAS 165 was codified in the ASC topic on Subsequent Events.

 

3.	Discontinued Operation

 

In September 2006, the Company acquired Vanguard. The Company committed to a plan to sell Vanguard, which was approved by the board of directors, during the second quarter of 2008.  Vanguard’s financial results have been classified as a discontinued operation in our consolidated financial statements for all periods presented.  Accordingly, the condensed consolidated financial statements have been revised for all periods presented to reflect the Vanguard biodiesel business as a discontinued operation. Unless noted otherwise, discussions in the notes to the consolidated financial statements pertain to our continuing operations.

The financial results of Vanguard included in discontinued operation are as follows for the three months and nine months ended September 30, 2008:

 

		Three Months Ended September 30, 2008				Nine Months Ended September 30, 2008
Sales		$	-			$	55,014
Income taxes			-				--
Income (loss) from discontinued operations after income taxes		$	589,459			$	(5,140,011)

During the three and nine months ended September 30, 2008, the Company incurred impairment charges totaling $0 and $5,655,036, respectively related to Vanguard’s biodiesel facility and intangible assets.

4.	Investment in CPC

 

In November 2007, the Company acquired a minority interest in CPC for $1,000,000.  During the third quarter of 2008, the Company recorded an impairment charge of $211,450 with respect to this investment. The impairment charge resulted from the sale of stock by CPC at a lower price per share than that paid by Allegro at the time of its purchase of the minority interest. During the second quarter of 2009, management reviewed the carrying value of the investment which included a review of CPC's sales pipeline, business prospects and financial situation. CPC’s execution of its business plan has been slower than we anticipated.  CPC continues to make progress, but has not achieved the revenue targets initially anticipated by us.  Furthermore, we believe the cost of capital for early-stage companies has increased, while the availability of future funding sources for such companies has decreased. We measured the carrying value of the investment using the discounted cash flow method. CPC may need to raise capital within the next 3 to 9 months.  As a result, management has recorded an impairment charge of $550,711 during the nine months ended September 30, 2009.  

5.	Common Stock

 

During the nine months ended September 30, 2009, 278,672 shares of Series A convertible preferred stock together with accrued dividends of $60,967 were converted into 447,627 shares of common stock at the original conversion price of $0.76 per share.

In February 2009, 519,736 shares of the Company’s common stock were awarded to us in connection of the arbitration award relating to our 2006 acquisition of Vanguard. The underlying shares were cancelled by the Company.

 

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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

As of September 30, 2009, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, 2009, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal controls over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

Allegro Biodiesel Corporation v. Darrell J. Dubroc, et al., Civil Action No. 09-CV-08037-SHS, United States District Court, Southern District of New York

The Company has recently filed a complaint in the United States District Court for the Southern District of New York against certain former members (the “Former Members”) of Vanguard Synfuels, LLC (“Vanguard”).  The complaint alleges that the Former Members made certain material misstatements and failed to disclose certain material facts in connection with the Company’s original acquisition of Vanguard from the Former Members in September 2006.  The complaint seeks an unspecified amount of damages, interest and attorneys’ fees.  We intend to vigorously pursue this claim; however, litigation is inherently uncertain and there can be no assurances as to whether we will be successful.

 

ITEM 5.  OTHER INFORMATION

 

As we discussed in our most recent Form 8-K, we have been exploring the possibility of terminating our status as a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"). We have now determined that we are eligible to do so, therefore we will be filing a Form 15 with the Securities and Exchange Commission shortly after the filing of this Form 10-Q. Upon the filing of that document, most of our obligations to file reports under the Exchange Act, including the filing of Forms 8-K, 10-Q and 10-K, will immediately cease.

 

Item 6.  Exhibits

Exhibit No.
31.1		Certification of the Chief Executive Officer and Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer and Chief Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

ALLEGRO BIODIESEL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ALLEGRO BIODIESEL CORPORATION

By:  /s/ W. Bruce Comer III

W. Bruce Comer III

Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer)

Date: November 12, 2009

 

 

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