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First, Safe-Ports, from its inception in 2005 through May 2007, had not recorded any revenue, Faulkner said.
The company was also delinquent in its payroll taxes, though Faulkner said he was told by Safe-Ports’ controller that the company was in the process of working out a payment plan with the Internal Revenue Service.
According to financial statements provided by Safe-Ports, as of May 31, CaroLinks had approximately $50,000 on hand and was owed approximately $66,000 from Safe-Ports. “This comprised most of Safe-Ports’ available current assets, which were reported to be $118,000,” Faulkner wrote.
As of May 31, Safe-Ports’ reported liabilities exceeded its current assets by $1.8 million, he said.
The company has since sold all of its land options to Jafza International for an undisclosed sum. Jafza International, which operates under a holding company owned by the royal family of Dubai, intends to build a massive warehouse, distribution center and light manufacturing park on the land in Orangeburg.
In the weeks after the sale of the options, CaroLinks settled one outstanding investor lawsuit and also paid off its state and federal payroll tax obligations.
But back in May, Faulkner said, CaroLinks’ finances were eye-opening. For instance, the CPA found that according to its own financial statements, Safe-Ports/CaroLinks has written off about $2 million in fees associated with expired real estate options or deposits.
“The lost deposits represent approximately 40 percent of the total equity raised by Safe-Ports,” Faulkner said.
“It is apparent that a significant portion of the equity raised by Safe-Ports was lost due to large deposits made on land that was never purchased,” he added.
Based upon the check register he was provided, Faulkner said it appeared that CaroLinks made several payments to CaroLinks’ principals, Lucy Duncan-Scheman and Ron Scheman, and Safe-Ports Inc. Those payments totaled $704,277.
The S.C. Attorney General office’s securities division has charged that the Safe-Ports Bank of America account was used for personal purchases by the Schemans.
Of the $9.5 million the company spent between 2005 and 2007, Faulkner said $2 million was related to the expired deposits on land, options and fees; $2.5 million was spent on “professional fees,” $1.8 million went to salaries and fees; $1.3 million was spent on land and unexpired deposits; $500,000 went to rent; $500,000 to travel and entertainment; $350,000 was spent on interest on outstanding debt; $300,000 was spent on furniture; fixtures and other assets; $100,000 was spent on marketing, and $150,000 was spent on “other” outlays.
Faulkner stated in his analysis of the company’s general ledger that several entries did not adequately describe the purported expense, creditor or business purpose.
As one example, he cited an entry listed as “corporate condo rent” of approximately $33,000 a year. “The ‘corporate condo rent’ is in addition to corporate office rent,” Faulkner said.
Another example of unexplained expenditures was $10,000 given to Spoleto USA, an organization of which Duncan-Scheman serves as a board member.
Faulkner said CaroLinks/Safe-Ports provided no financial projections or plans to indicate how the company expects to repay its creditors or to provide a reasonable return for its equity investors.
“Based on the financial records I reviewed, Safe-Ports/CaroLinks appeared to be insolvent and did not have the assets available to satisfy its financial obligations as they become due,” he said.
Despite the sale of its land options to Jafza International, Faulkner declined to revise his assessment.
“The presence of cash from the sale of non-operating assets would not imply that the company’s lack of operating revenue, dissipation of cash or operating loses will change going forward,” he said.
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