By Dan McCue

CHARLESTON -- A certified public accountant asked by an anxious investor to review CaroLinks’ books deemed the company insolvent after a review of what he described as “incomplete documents” provided for his perusal.

According to Robert Faulkner, a licensed CPA and a principal officer with the Rock Hill, S.C., accounting firm of Faulkner and Thompson P.A., CaroLinks incurred operating losses of $7.8 million in its two years of existence.

He also concluded that it appeared CaroLinks and the Safe-Ports holding company, under which it operated, raised $4.5 million of equity by selling stock to investors but had no other source of revenue.

During the same period, Faulkner said, Safe-Ports spent nearly $9.5 million and incurred significant debts.

Faulkner was retained by the law firm of James, McElroy & Diehl P.A. to inspect CaroLinks’ books on behalf of investor G. Robert Kraus Jr.

Kraus owns 5.5 Class A units of the company, while he and his father, George Kraus, collectively own 312 Class B units of the company.

The Krauses filed suit against CaroLinks, the Safe-Ports holding company under which it operates, and its principals on Oct. 19 in the Court of Common Pleas in Charleston. The investors are seeking the dissolution of the company under the watch of a court-appointed receiver.

Charleston attorney E. Bart Daniel, who has been retained to represent CaroLinks, said, “We disagree with the allegations in the complaint. They are not true, and we intend to contest them.”

Asked about the CPA’s conclusions, Daniel initially declined to comment, but then quickly added, “A lot has happened financially for this company since he performed his analysis.”

Alan Capper, CaroLinks spokesman, said in regard to the Kraus lawsuit, “I want to make clear that the loans they made to the company and that are now part of this lawsuit were repaid.”

Capper was referring to $1.7 million in loans the Krauses made to CaroLinks in 2006. Their lawsuit contends that the company defaulted on the loans, leading to a rewrite of the company’s operating rules. The amended rules forbid CaroLinks from taking on more debt without the Krauses’ approval.

The debt was ultimately repaid in March 2007.

“That’s what makes their now taking this action somewhat extraordinary,” Capper said. “I can only tell you, having worked with Lucy for over two years, the account described in this lawsuit is not accurate and it will be vigorously refuted.”

Faulkner reviewed the company’s books, financial records and supporting documentation at its Broad Street office on May 31, 2007.

According to an affidavit he submitted in connection with the Kraus lawsuit, upon his arrival at the office he was given a small binder with a select few documents to review.

“Of the 20 items requested, five appeared to be supplied completely, four items were partially provided, and 11 items were not provided,” Faulkner said. “No explanation was given as to why the information was not provided despite the fact that the information requested is relevant to the company’s valuation, financial viability, solvency, use or misuse of corporate assets, and prospects for future revenue.”

Upon his review, Faulkner said, he found several items to question.