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SECURITIES AND EXCHANGE COMMISSION
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Nevada | 91-2154289 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
300 Continental Blvd., Suite 100 | ||
El Segundo, California | 90245 | |
(Address of principal executive office) | (Zip Code) |
Large accelerated filero | Accelerated filero | Non-accelerated filero | Smaller reporting companyþ |
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PART III | ||||||||
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PART IV | ||||||||
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Exhibit 31.1 | ||||||||
Exhibit 32.1 |
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Item 1. | Business |
• | Cereplast Compostables Resins®are renewable, ecologically-sound substitutes for petroleum-based plastics targeting primarily single-use disposables and packaging applications. We offer 17 commercial grades of Compostables Resins in this product line. These resins are compatible with existing manufacturing processes and equipment making them a ready substitute for traditional petroleum-based resins. We commercially introduced our Compostables line in November 2006. |
• | Cereplast Hybrid Resins® replace up to 50% of the petroleum content in conventional plastics with bio-based materials such as industrial starches sourced from plants. The Hybrid Resin line is designed to offer similar properties to traditional polyolefins such as impact strength and heat deflection temperature, and is compatible with existing converter processes and equipment. Hybrid Resins provide a viable alternative for brand owners and converters looking to partially replace petroleum-based resins in durable goods applications. Hybrid Resins address this need in a wide range of markets, including automotive, consumer goods, consumer electronics, medical, packaging, and construction. We commercially introduced our first grade of Hybrid Resin, Hybrid 150, at the end of 2007. We currently offer two commercial grades in this product line. |
• | Cereplast Algae Plastics™. In October 2009, we announced that we have been developing a new technology to transform algae into bioplastics and intend to launch a new family of algae-based resins that will complement the company’s existing line of Compostables & Hybrid resins. Although we do not expect this new technology to become commercial before the end of 2010 or early 2011, it remains an important development as we believe that the potential open by algae is quite substantial. Cereplast algae-based resins could replace in a first step 50% or more of the petroleum content used in traditional plastic resins. Currently, Cereplast is using renewable material such as starches from corn, tapioca, wheat and potatoes and Ingeo® PLA. Recently the algae production business has attracted a lot of attention when Exxon announced a $600 million investment in Synthetic Genomics and BP’s $10 million investment in Martek Biosciences. The Company retains that algae is a very attractive feedstock as it does offer a low carbon footprint alternative and at the same time could be accessible in very large quantity. We also have a future plan to create algae plastic made of 100% algae component abandoning any reliance on fossils fuels. |
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• | Injection molding |
• | Thermoforming |
• | Blown film |
• | Blow molding |
• | Extrusion for profiles |
• | Extrusion coating |
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• | Targeted marketing aimed at the highest potential opportunities together with industry leaders in each market segment |
• | Extensive commercial and technical support to customers to enhance their processing and product economics and speed to market |
• | Assistance to our converter customers with end-user customer demand creation as well as product performance improvement and end user positioning |
• | Selective extension of our global sales reach through our own resources and exclusive distributors |
• | Pursuit of certain key market commercialization opportunities through exclusive, co-development agreements |
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Annual Compostable Resin | Annual Hybrid Resin | |||||||
Production Capacity | Production Capacity | |||||||
Production Line 1 | 9,600,000 | — | ||||||
Production Line 2 | 11,200,000 | — | ||||||
Production Line 3 | 17,600,000 | — | ||||||
Production Line 4 (Seymour) | — | 50,000,000 | ||||||
Total | 38,400,000 | 50,000,000 | ||||||
• | Improve the properties and processing window of our portfolio of resins |
• | Broaden the suitable conversion technologies and market applications of our resins |
• | Reduce the cost of our resins to improve their competitiveness with fossil fuel alternatives |
• | Continue to introduce and patent new resins to satisfy the demand of our converter customers and protect our intellectual property |
• | Explore new alternatives and source new natural raw materials as platforms for new types of bio-based resins |
• | Explore the possibility to increase the renewable content in Hybrid resins |
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• | the speed at which our products are accepted into the market; |
• | the level of spending to increase and enhance manufacturing capacity; |
• | costs of recruiting and retaining qualified personnel; and |
• | the level of research and development and market commercialization spending. |
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• | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
• | that the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
• | obtain financial information concerning the person’s financial situation, and investment experience and investment objectives of the person; and |
• | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
• | sets forth the basis on which the broker or dealer made the suitability determination; and |
• | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
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Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
• | a lease for office, industrial and warehouse space with monthly rents of $15,405 which expired in January 2010; |
• | a lease for office and warehouse space with monthly rents of $20,644 expiring in April 2012 has been vacated and terminated prior to expiration; and |
Item 3. | Legal Proceedings |
Item 4. | Reserved |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
2009 | 2008 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter ended March 31 | $ | 6.80 | $ | 2.80 | $ | 28,00 | $ | 20.80 | ||||||||
Second Quarter ended June 30 | $ | 6.40 | $ | 2.80 | $ | 21.20 | $ | 12.80 | ||||||||
Third Quarter ended September 30 | $ | 6.00 | $ | 3.60 | $ | 14.00 | $ | 7.60 | ||||||||
Fourth Quarter ended December 31 | $ | 6.00 | $ | 3.20 | $ | 9.20 | $ | 3.20 |
• | On December 11, 2009,we issued 1,090,000 shares of the Company’s common stock at a price of $2.00 per share on a post-split basis, for aggregate net proceeds of $2,230,000. |
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Number of shares remaining available | ||||||||||||
Number of shares to be issued | Weighted-average exercise | for future issuance under equity | ||||||||||
upon exercise of outstanding | price of outstanding options | compensation plans (excluding | ||||||||||
Plan Category | options and warrants | and warrants | securities reflected in column (a)) | |||||||||
Equity Compensation Plans approved by security holders | — | — | — | |||||||||
Equity Compensation Plan not approved by security holders | 71,250 | $ | 18.40 | 334,375 | ||||||||
Total | 71,250 | 334,375 | ||||||||||
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Item 6. | Selected Financial Data |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Inability to raise sufficient additional capital to finance operations |
• | potential fluctuation in quarterly results |
• | our failure to earn profits |
• | inadequate capital to expand its business, inability to raise additional capital or financing to implement its business plans; |
• | decline in demand for our products and services; |
• | rapid and significant changes in markets and other factors which encourage use of bioplastics; |
• | successful commencement of operations at our new Seymour facility and relocation of manufacturing activities from California to Indiana; |
• | failure to commercialize sufficient new grades of resin being pursued in our technical / market development “pipeline��; |
• | competitor actions which curtail our market share, negatively affect pricing or limit sales growth; |
• | litigation with or legal claims and allegations by outside parties; |
• | insufficient revenues to cover operating costs. |
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• | Cereplast Compostables Resins®are renewable, ecologically-sound substitutes for petroleum-based plastics targeting primarily single-use disposables and packaging applications. We offer 17 commercial grades of Compostables Resins in this product line. These resins are compatible with existing manufacturing processes and equipment making them a ready substitute for traditional petroleum-based resins. We commercially introduced our Compostables line in November 2006. |
• | Cereplast Hybrid Resins® replace up to 50% of the petroleum content in conventional plastics with bio-based materials such as industrial starches sourced from plants. The Hybrid Resin line is designed to offer similar properties to traditional polyolefins such as impact strength and heat deflection temperature, and is compatible with existing converter processes and equipment. Hybrid Resins provide a viable alternative for brand owners and converters looking to partially replace petroleum-based resins in durable goods applications. Hybrid Resins address this need in a wide range of markets, including automotive, consumer goods, consumer electronics, medical, packaging, and construction. We commercially introduced our first grade of Hybrid Resin, Hybrid 150, at the end of 2007. We currently offer two commercial grades in this product line. |
• | Cereplast Algae Plastics™. In October 2009 we announced that we have been developing a new technology to transform algae into bioplastics and intend to launch a new family of algae-based resins that will complement the company’s existing line of Compostables & Hybrid resins. Although we do not expect this new technology to become commercial before the end of 2010 or early 2011, it remains an important development as we believe that the potential open by algae is quite substantial. Cereplast algae-based resins could replace in a first step 50% or more of the petroleum content used in traditional plastic resins. Currently, Cereplast is using renewable material such as starches from corn, tapioca, wheat and potatoes and Ingeo® PLA. Recently the algae production business has attracted a lot of attention when Exxon announced a $600 million investment in Synthetic Genomics and BP’s $10 million investment in Martek Biosciences. The Company retains that algae is a very attractive feedstock as it does offer a low carbon footprint alternative and at the same time could be accessible in very large quantity. We also have a future plan to create algae plastic made of 100% algae component abandoning any reliance on fossils fuels. |
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CRITICAL ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. (“GAAP”) The consolidated financial statements include the financial condition and results of operations of our wholly-owned subsidiary, Cereplast International, S.A., a Luxembourg company organized during the year ended December 31, 2009, for the purpose of conducting sales operations in Europe. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance and the fair value of stock options. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At various times throughout the year, the Company may have exceeded federally insured limits.
Concentration of Credit Risk
We had unrestricted cash, cash equivalents, and short-term investment, totaling $1,291,353 and $501,699 at December 31, 2009 and 2008, respectively. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Some of the securities in which we invest, however, may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, debt securities and certificates of deposit. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. As of December 31, 2009, all of our investments were held in money market accounts and short-term instruments. We actively monitor changes in interest rates.
Other Concentration
During the year ended months ended December 31, 2009, we had two significant suppliers that accounted for 27.9% and 18.7%, respectively, of total cost of goods sold and had one customer, Dorel Juvenile Group, which accounted for 32.7% of total sales. No other supplier or customer accounted for more than 10% of cost of sales or sales during this period
Restricted Cash
We had restricted cash in the amount of $0 and $48,628 at December 31, 2009 and 2008, respectively. The restricted cash amount consists of a “Certificate of Deposit” which supports a “Letter of Credit” for a leased facility.
Accounts Receivable
We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management performs a review of the receivables past due from customers on a monthly basis and reserves against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The allowance for doubtful accounts was $39,743 and $29,350 as of December 31, 2009 and 2008, respectively.
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Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or market, and consist primarily of raw materials used in the manufacturing of bioplastic resins, finished bioplastic resins and finished goods. Inventories are reviewed for excess and obsolescence and a reserve is established accordingly.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are between five and seven years. Repairs and maintenance expenditures are charged to expense as incurred.
Intangibles
Intangibles are stated at cost and consist primarily of patents and trademarks. Amortization is computed on the straight-line method over the estimated life of these assets, estimated to be between five and fifteen years.
Deferred Income Taxes
Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income.
Revenue Recognition
We recognize revenue at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured.
Marketing and Advertising
We expense marketing and advertising costs as incurred.
Research and Development Costs
Research and development costs are charged to expense as incurred. These costs consist primarily of research with respect to new grades of bioplastic resins, testing of both the bioplastic resins as well as testing of finished products made from the bio-based resins.
Stock-Based Compensation
Compensation cost for all stock-based awards is measured at fair value on the date of grant and recognized over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight-line method. Adjustments to this expense are made periodically to recognize actual rates of forfeiture which vary significantly from estimates.
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Loss per Share Calculations
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Our diluted loss per share is the same as the basic loss per share for the years ended December 31, 2009 and 2008 as inclusion of any potential shares would have had and anti-dilutive effect due to us generating a loss.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.
• | Salaries and wages, including non-cash stock based compensation of $273,919, decreased by $4,140,742 for the year ended December 31, 2009, compared to the year ended December 31, 2008. The decrease is attributable to head count reductions in accordance with our restructuring program. Non-cash compensation for the year was comprised of the issuance of 137,400 restricted common shares, valued at $563,309 to employees for services rendered together with $259,056 of expenses relating to unvested employee stock options granted in the prior year. |
• | Marketing expense decreased by $1,176,310 for the year ended December 31, 2009, compared to the year ended December 31, 2008. The decrease for the period is directly attributable to focusing our “pipeline process” and implementing more rigorous market and customer selection processes. |
• | Research and Development costs decreased by $758,736, or 70.8%, to $313,078, for the year ended December 31, 2009, compared to the year ended December 31, 2008. This is also as a result of an improved focus of our “pipeline process” for technical development and expansion of our resin families. |
• | Rent expense decreased by $514,810 or 48.3%, to $549,995 for the year ended December 31, 2009, compared to the year ended December 31, 2008. The decrease for the period was the result of rental income from the sublease of one of our office and warehouse premises in Hawthorne offsetting rent expense and the subsequent termination of this lease. No rental income was earned on any of our leased premises for the year ended December 31, 2008. |
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Item 8. | Financial Statements and Supplementary Data |
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Item 9(T). | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
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Item 10. | Directors, Executive Officers, and Corporate Governance |
Name | Age | Position | ||||
Frederic Scheer | 54 | CEO, Founder and Chairman of the Board of Directors | ||||
William Kelly | 63 | Senior Vice President Technology | ||||
Mark Barton | 50 | Senior Vice President, Operations | ||||
Margaret McMurray | 61 | Chief Administrative Officer | ||||
Peter Kitsos | 43 | Director | ||||
Jacques Vincent | 63 | Director | ||||
Steve Hanni | 42 | Director |
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• | Reviews and recommends to the board the compensation and benefits of our executive officers; |
• | Administers our stock option plans and employee stock purchase plan; and |
• | Establishes and reviews general policies relating to compensation and employee benefits. |
NOMINATING COMMITTEE
The functions of the Nominating Committee are: (i) leading the search for, screening, evaluating and recommending to the Board qualified candidates or nominees for election or appointment as directors; (ii) recommending the number of members that shall serve on the Board; and (iii) reviewing the processes and performance of the Board in order to identify areas of concern or potential issues relating to Board and committee processes, performance and effectiveness and to assess and evaluate the overall effectiveness of individual directors. Petros Kitsos, Jacques Vincent and Steve Hanni were on our Nominating Committee.
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• | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
• | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
• | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
• | the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
• | the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Item 11. | Executive Compensation |
Change in | ||||||||||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||||||||||
Non- | and Non- | |||||||||||||||||||||||||||||||||||
Equity | Qualified | |||||||||||||||||||||||||||||||||||
Incentive | Deferred | All | ||||||||||||||||||||||||||||||||||
Stock | Option | Plan | Compensation | Other | ||||||||||||||||||||||||||||||||
Name & Principal Position | Year | Salary ($) | Bonus ($) | Awards ($) | Awards ($) | Compensation ($) | Earnings ($) | Compensation ($) | Total ($) | |||||||||||||||||||||||||||
Frederic Scheer, CEO | 2009 | $ | 112,201 | $ | — | $ | 83,836 | $ | — | $ | — | $ | — | $ | 74,400 | $ | 270,437 | |||||||||||||||||||
2008 | $ | 202,909 | $ | — | $ | 164,367 | $ | — | $ | — | $ | — | $ | 98,422 | $ | 465,698 | ||||||||||||||||||||
Kelly, William, Senior VP Technology | 2009 | $ | 135,247 | $ | — | $ | 106,250 | $ | — | $ | — | $ | — | $ | — | $ | 241,497 | |||||||||||||||||||
2008 | $ | 135,347 | $ | — | $ | 76,755 | $ | — | $ | — | $ | — | $ | — | $ | 212,102 | ||||||||||||||||||||
Larrivee, Gary, Senior VP Technology Services | 2009 | $ | 109,314 | $ | — | $ | 25,686 | $ | — | $ | — | $ | — | $ | — | $ | 135,000 | |||||||||||||||||||
2008 | $ | 106,795 | $ | — | $ | 53,543 | $ | — | $ | — | $ | — | $ | — | $ | 160,338 |
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Change in Pension | ||||||||||||||||||||||||||||
Fees Earned | Non-Equity | Value and Nonqualified | ||||||||||||||||||||||||||
or Paid in | Option | Incentive Plan | Deferred Compensation | All Other | ||||||||||||||||||||||||
Name | Cash ($) | Stock Awards ($) | Awards ($) | Compensation ($) | Earnings ($) | Compensation ($) | Total ($) | |||||||||||||||||||||
Petros Kitsos | $ | — | $ | 54,572 | $ | — | $ | — | $ | — | $ | — | $ | 54,572 | ||||||||||||||
Jacques Vincent | $ | — | $ | 54,572 | $ | — | $ | — | $ | — | $ | — | $ | 54,572 | ||||||||||||||
Steve Hanni | $ | — | $ | 49,000 | $ | — | $ | — | $ | — | $ | — | $ | 49,000 |
• | In November 2006, we entered into an Employment Agreement effective January 1, 2007 with our Chief Executive Officer pursuant to which he agreed to serve as CEO for a period of five (5) years. He is entitled to a yearly cash compensation of $400,000 but has agreed to substitute part of his cash compensation for restricted stock until the cash flow of the company will permit. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters |
• | each person known by us to be the beneficial owner of more than 5% of our Common Stock; |
• | each of our directors; |
• | each of our executive officers; and |
• | our executive officers and directors as a group. |
Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class | ||||||
Frederic Scheer(1)(2) | 2,732,621 | 27.66 | % | |||||
William Kelly | 66,009 | * | ||||||
Gary Larrivee | 18,545 | * | ||||||
Mark Barton | 13,459 | * | ||||||
Margaret McMurray | 8,421 | * | ||||||
Petros Kitsos | 31,250 | * | ||||||
Jacques Vincent | 31,250 | * | ||||||
Steve Hanni | 12,500 | * | ||||||
All officers and directors as a group | 2,914,055 | 29.50 | % |
* | Less than one percent | |
(1) | Mr. Scheer beneficially owns such shares jointly with his wife, Jocelyne Scheer and through their private foundation The Frederic & Jocelyne Scheer Foundation. | |
(2) | Mr. Scheer gifted 42,125 shares to certain members of the management of Cereplast on March 10, 2009. |
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Item 13. | Certain Relationships, Related Transactions, and Director Independence |
Item 14. | Principal Accountant Fees and Services |
Fee Type | 2009 | 2008 | ||||||
Audit Fees | $ | 68,000 | $ | 67,485 | ||||
Tax Fees | 1,871 | 2,281 | ||||||
$ | 69,871 | $ | 69,766 | |||||
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Exhibit | ||||
Number | Description | |||
3.1 | Articles of Incorporation. (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 5, 2005.) | |||
3.2 | Certificate of Amendment to the Articles of Incorporation dated February 26, 2003 (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 5, 2005.) | |||
3.3 | Certificate of Amendment to the Articles of Incorporation dated July 19, 2004 (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 5, 2005.) | |||
3.4 | Certificate of Amendment to the Articles of Incorporation dated March 18, 2005 (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 5, 2005.) | |||
3.5 | Certificate of Amendment to the Articles of Incorporation filed January 6, 2010 (Incorporated by reference to the Registrant’s current report on Form 8-K filed with the SEC on January 8, 2010) | |||
3.6 | Bylaws (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 5, 2005.) | |||
3.7 | Amendment to Bylaws (Incorporated by reference to the Registrant’s current report on Form 8-K filed with the SEC on December 28, 2009) | |||
3.8 | Employment Agreement effective January 1, 2007, with our Chief Executive Officer. | |||
4.1 | Form of Subscription Agreement used in connection with private offering dated April 2005 (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated August 26, 2005) | |||
4.2 | Stock Option Plan(Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated August 26, 2005) | |||
4.3 | Form of Subscription Agreement used in connection with private offering of 21,800 shares of common stock (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated August 26, 2005) | |||
4.4 | Periodic Equity Investment Agreement dated February 13, 2006 between the Company and Cumorah Capital, Inc. (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated February 14, 2006) | |||
4.5 | Registration Rights Agreement dated February 13, 2006 between the Company and Cumorah Capital, Inc. (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated February 14, 2006) | |||
4.6 | Letter Agreement dated March 31, 2006 by and between the Company and Cumorah Capital, Inc. (Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission dated December 21, 2006) | |||
4.7 | Periodic Equity Investment Agreement dated December 8, 2008 between the Company and Cumorah Capital, Inc. (Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission dated December 8, 2008) | |||
10.1 | Sale and Purchase Agreement entered between the Company and Cargill Dow LLC (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated August 26, 2005) |
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Exhibit | ||||
Number | Description | |||
10.6 | Promissory Note in the amount of $100,000 in the name of Wings Fund Inc. (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated September 21, 2005.) | |||
10.7 | Promissory Note in the amount of $50,000 in the name of Yanosan Group (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated September 21, 2005.) | |||
10.8 | Form of Subscription Agreement used in connection with private offering of 958,526 shares of common stock (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 6, 2007) | |||
10.9 | Letter re Termination of Periodic Equity Investment Agreement dated December 8, 2008 (Incorporated by reference to the Registrant’s current report on Form 8-K filed with the SEC on February 19, 2010) | |||
10.10 | Lease between Continental Grand I, L.P. and Cereplast, Inc. dated December 31, 2009 (Incorporated by reference to the Registrant’s current report on Form 8-K filed with the SEC on January 6, 2010) | |||
14.1 | Code of Ethics (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated July 5, 2005.) | |||
31.1 | Certification of the Chief Executive Officer and the Principal Accounting and Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |||
32.1 | Certification of the Chief Executive Officer and the Principal Accounting and Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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CEREPLAST, INC. | ||||
Dated: March 31, 2010 | By: | /s/ Frederic Scheer | ||
Frederic Scheer, Chairman, | ||||
Chief Executive Officer, Director and Principal Accounting and Financial Officer |
Dated: March 31, 2010 | By: | /s/ Frederic Scheer | ||
Frederic Scheer, | ||||
Chairman, Chief Executive Officer, Director and Principal Accounting and Financial Officer | ||||
Dated: March 31, 2010 | By: | /s/ Jacques Vincent | ||
Jacques Vincent, Director | ||||
Dated: March 31, 2010 | By: | /s/ Petros Kitsos | ||
Petros Kitsos, Director | ||||
Dated: March 31, 2010 | By: | /s/ Steve Hanni | ||
Steve Hanni, Director |
37
Table of Contents
Item 15. | Exhibits and Financial Statement Schedules |
36 | ||||
37 | ||||
38 | ||||
39 | ||||
40 | ||||
41 |
Cereplast, Inc.
By: | /s/ HJ Associates & Consultants, LLP | |||
HJ Associates & Consultants, LLP | ||||
Salt Lake City, Utah | ||||
March 31, 2010 |
F-1
Table of Contents
12/31/2009 | 12/31/2008 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 1,305,771 | $ | 501,699 | ||||
Accounts Receivable, Net | 325,270 | 280,102 | ||||||
Inventory, Net | 847,527 | 1,838,775 | ||||||
Prepaid Expenses | 215,356 | 160,863 | ||||||
Total Current Assets | 2,693,924 | 2,781,439 | ||||||
Property and Equipment | ||||||||
Property and Equipment | 5,416,436 | 5,729,051 | ||||||
Accumulated Depreciation | (1,519,714 | ) | (1,132,337 | ) | ||||
Net Property and Equipment | 3,896,722 | 4,596,714 | ||||||
Other Assets | ||||||||
Restricted Cash | — | 48,628 | ||||||
Intangibles, Net | 184,039 | 173,285 | ||||||
Deposits | 89,286 | 44,943 | ||||||
Total Other Assets | 273,325 | 266,856 | ||||||
Total Assets | $ | 6,863,971 | $ | 7,645,009 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts Payable | $ | 989,927 | $ | 962,096 | ||||
Other Payables | 1,413 | 33,634 | ||||||
Accrued Expenses | 604,015 | 829,933 | ||||||
Capital Leases, Current Portion | 25,341 | 47,440 | ||||||
Convertible Shareholder Loan | — | 212,482 | ||||||
Loan Payable, Current Portion | 53,487 | 156,522 | ||||||
Total Current Liabilities | 1,674,183 | 2,242,107 | ||||||
Long-Term Liabilities | ||||||||
Capital Leases | 8,897 | 40,045 | ||||||
Total Long-Term Liabilities | 8,897 | 40,045 | ||||||
Total Liabilities | 1,683,080 | 2,282,152 | ||||||
Shareholders’ Equity | ||||||||
Preferred Stock, $0.001 Par Value; 5,000,0000 Authorized Preferred Shares , Zero Outstanding | — | — | ||||||
Common Stock, $0.001 Par Value; 495,000,000 Authorized Shares; 9,825,476 Shares & 7,028,359 Shares Issued and Outstanding, Respectively | 9,825 | 7,028 | ||||||
Common Stock Subscribed, Not Issued | — | 250,000 | ||||||
Additional Paid in Capital | 40,578,981 | 34,449,129 | ||||||
Retained Earnings/(Deficit) | (35,444,968 | ) | (29,372,020 | ) | ||||
Other Comprehensive Income | 37,053 | 28,720 | ||||||
Total Shareholders’ Equity | 5,180,891 | 5,362,857 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 6,863,971 | $ | 7,645,009 | ||||
F-2
Table of Contents
Year Ended | Year Ended | |||||||
12/31/2009 | 12/31/2008 | |||||||
GROSS SALES | $ | 2,751,445 | $ | 4,599,303 | ||||
Sales Discounts, Returns & Allowances | (12,437 | ) | (87,147 | ) | ||||
NET SALES | 2,739,008 | 4,512,156 | ||||||
COST OF SALES | 2,401,424 | 4,431,976 | ||||||
GROSS PROFIT | 337,584 | 80,180 | ||||||
OPERATING EXPENSES | ||||||||
Depreciation and Amortization | 538,098 | 545,832 | ||||||
Financing Costs | — | 100,027 | ||||||
Marketing Expense | 371,237 | 1,547,547 | ||||||
Professional Fees | 728,454 | 996,322 | ||||||
Rent Expense | 549,955 | 1,064,765 | ||||||
Research and Development | 313,078 | 1,071,814 | ||||||
Salaries & Wages | 1,708,537 | 3,263,518 | ||||||
Salaries & Wages — Stock Based Compensation | 273,919 | 2,859,680 | ||||||
Other Operating Expenses | 1,230,979 | 1,829,864 | ||||||
TOTAL OPERATING EXPENSES | 5,714,257 | 13,279,369 | ||||||
LOSS FROM OPERATIONS BEFORE OTHER INCOME(EXPENSES) | (5,376,673 | ) | (13,199,189 | ) | ||||
OTHER INCOME (EXPENSES) | ||||||||
Gain on Marketable Securities | — | 346,280 | ||||||
Restructuring Costs | (448,846 | ) | — | |||||
Loss on Settlement of Litigation | (67,200 | ) | — | |||||
Loss on Sale of Equipment | (172,366 | ) | (4,588 | ) | ||||
Interest Income | 20,935 | 117,628 | ||||||
Interest Expense | (28,798 | ) | (8,832 | ) | ||||
TOTAL OTHER INCOME (EXPENSES) | (696,275 | ) | 450,488 | |||||
LOSS BEFORE PROVISIONS FOR TAXES | (6,072,948 | ) | (12,748,701 | ) | ||||
Provision for Taxes | — | — | ||||||
NET LOSS | (6,072,948 | ) | (12,748,701 | ) | ||||
OTHER COMPREHENSIVE INCOME | ||||||||
Gain on Foreign Currency Translation | 8,333 | 28,720 | ||||||
TOTAL COMPREHENSIVE LOSS | $ | (6,064,615 | ) | $ | (12,719,981 | ) | ||
BASIC AND DILUTED LOSS PER SHARE | $ | (0.75 | ) | $ | (1.92 | ) | ||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED | 8,044,487 | 6,644,184 | ||||||
F-3
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Other | ||||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Additional | Accumulated | Comprehensive | Subscribed | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Paid-In Capital | Deficit | Income | Stock | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2007 | 6,482,560 | $ | 6,482 | — | $ | — | $ | 28,983,367 | $ | (16,623,319 | ) | $ | — | $ | — | $ | 12,366,530 | |||||||||||||||||||
Issuance of common stock as compensation. Stock price ranging from $4.40 per share to $25.60 per share | 169,431 | 169 | — | — | 1,688,644 | — | — | — | 1,688,813 | |||||||||||||||||||||||||||
Issuance of common stock to 3rd parties and directors for services. Stock price ranging from $4.40 per share to $25.60 per share | 51,652 | 52 | — | — | 749,061 | — | — | — | 749,113 | |||||||||||||||||||||||||||
Expense relating to stock options under employee stock option plan | — | — | — | — | 578,066 | — | — | — | 578,066 | |||||||||||||||||||||||||||
Issuance of common stock for cash. Stock price ranging from $8.80 per share to $15.20 per share | 299,716 | 300 | — | — | 2,637,200 | — | — | — | 2,637,500 | |||||||||||||||||||||||||||
Issuance of common stock to Cumorah for commitment fee on equity line of financing | 25,000 | 25 | — | — | 99,975 | — | — | — | 100,000 | |||||||||||||||||||||||||||
Stock subscription for stock not issued | — | — | — | — | — | — | — | 250,000 | 250,000 | |||||||||||||||||||||||||||
Stock Offering Costs | — | — | — | — | (287,184 | ) | — | — | — | (287,184 | ) | |||||||||||||||||||||||||
Net loss for the year ended December 31, 2008 | — | — | — | — | — | (12,748,701 | ) | — | — | (12,748,701 | ) | |||||||||||||||||||||||||
Gain on foreign currency translation | — | — | — | — | — | — | 28,720 | — | 28,720 | |||||||||||||||||||||||||||
Balance, December 31, 2008 | 7,028,359 | 7,028 | — | — | 34,449,129 | (29,372,020 | ) | 28,720 | 250,000 | 5,362,857 | ||||||||||||||||||||||||||
Stock issued in fulfillment of subscriptions at $2.00 per share | 125,000 | 125 | — | — | 249,875 | — | — | (250,000 | ) | — | ||||||||||||||||||||||||||
Issuance of common stock in repayment of a convertible shareholder loan at $3.47 per share. | 61,250 | 61 | — | — | 212,421 | — | — | — | 212,482 | |||||||||||||||||||||||||||
Issuance of common stock for the services of directors and employees. Stock at prices ranging from $3.60 per share to $6.00 per share | 212,400 | 212 | — | — | 860,597 | — | — | — | 860,809 | |||||||||||||||||||||||||||
Issuance of common stock to 3rd parties for prepaid services and debt repayment. Stock price ranging from $3.60 per share to $5.20 per share | 318,590 | 319 | — | — | 1,300,961 | — | — | — | 1,301,280 | |||||||||||||||||||||||||||
Expense relating to cancellation of stock options under employee stock option plan | — | — | — | — | (259,056 | ) | — | — | — | (259,056 | ) | |||||||||||||||||||||||||
Issuance of common stock for cash. Stock price ranging from $1.60 per share to $2.00 per share | 1,948,170 | 1,948 | — | — | 3,894,393 | — | — | — | 3,896,341 | |||||||||||||||||||||||||||
Issuance of common stock to Cumorah for commitment fee on equity line of financing | 114,207 | 114 | — | — | 299,886 | — | — | — | 300,000 | |||||||||||||||||||||||||||
Issuance of common stock for litigation settlement. | 17,500 | 18 | — | — | 67,182 | — | — | — | 67,200 | |||||||||||||||||||||||||||
Stock Offering Costs | — | — | — | — | (496,407 | ) | — | — | — | (496,407 | ) | |||||||||||||||||||||||||
Net loss for the year ended December 31, 2009 | — | — | — | — | — | (6,072,948 | ) | — | — | (6,072,948 | ) | |||||||||||||||||||||||||
Gain on foreign currency translation | — | — | — | — | — | — | 8,333 | — | 8,333 | |||||||||||||||||||||||||||
Balance, December 31, 2009 | 9,825,476 | $ | 9,825 | — | $ | — | $ | 40,578,981 | $ | (35,444,968 | ) | $ | 37,053 | $ | — | $ | 5,180,891 | |||||||||||||||||||
F-4
Table of Contents
Year Ended | Year Ended | |||||||
12/31/2009 | 12/31/2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Loss | $ | (6,072,948 | ) | $ | (12,748,701 | ) | ||
Adjustment to Reconcile Net Loss to Net Cash Used in Operating Activities | ||||||||
Depreciation and Amortization | 538,098 | 545,832 | ||||||
Reserve for Inventory Obsolescence | (132,000 | ) | 132,000 | |||||
Allowance for Doubtful Accounts | 4,987 | 18,051 | ||||||
Loss on Sale of Equipment | 172,366 | 4,588 | ||||||
Gain on Sale of Securities | — | (346,280 | ) | |||||
Common Stock and Common Stock Equivalents Issued for Services, Salaries & Wages | 712,153 | 3,115,992 | ||||||
Loss on Settlement of Litigation | 67,200 | — | ||||||
(Increase) Decrease in: | ||||||||
Accounts Receivable | (50,155 | ) | 132,867 | |||||
Inventory | 1,123,248 | (143,108 | ) | |||||
Deposits | (44,343 | ) | (14,465 | ) | ||||
Prepaid Expenses | 1,026,173 | (93,273 | ) | |||||
Restricted Cash | 48,628 | 24,264 | ||||||
Intangibles | (19,377 | ) | (161,122 | ) | ||||
Increase (Decrease) in: | ||||||||
Accounts Payable | 88,497 | 514,455 | ||||||
Accrued Expenses | (255,918 | ) | 676,986 | |||||
Other Payables | (32,220 | ) | 33,488 | |||||
NET CASH USED IN OPERATING ACTIVITIES | (2,795,611 | ) | (8,308,426 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of Property and Equipment | (18,319 | ) | (2,891,918 | ) | ||||
Proceeds from Sale of Equipment | 3,617 | 2,936 | ||||||
Proceeds from Sale of Securities | — | 346,780 | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (14,702 | ) | (2,542,202 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Advances/(Payments) on Shareholder Loans | — | 212,482 | ||||||
Payments on Capital Leases | (53,247 | ) | (71,767 | ) | ||||
Payments on Term Loan Payable | (3,874 | ) | (11,138 | ) | ||||
Payments on Notes Payable | (36,761 | ) | — | |||||
Proceeds from Issuance of Common Stock and Subscription Receivable | 4,196,341 | 2,877,500 | ||||||
Stock Offering Costs | (496,407) | (287,184) | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 3,606,052 | 2,729,893 | ||||||
FOREIGN CURRENCY TRANSLATION | 8,333 | 28,720 | ||||||
NET DECREASE IN CASH | 804,072 | (8,092,015 | ) | |||||
CASH, BEGINNING OF PERIOD | 501,699 | 8,593,714 | ||||||
CASH, END OF PERIOD | $ | 1,305,771 | $ | 501,699 | ||||
F-5
Table of Contents
• | Cereplast Compostables Resins® are renewable, ecologically-sound substitutes for petroleum-based plastics targeting primarily single-use disposables and packaging applications. We offer 17 commercial grades of Compostables Resins in this product line. These resins are compatible with existing manufacturing processes and equipment making them a ready substitute for traditional petroleum-based resins. We commercially introduced our Compostables line in November 2006. | ||
• | Cereplast Hybrid Resins® replace up to 50% of the petroleum content in conventional plastics with bio-based materials such as industrial starches sourced from plants. The Hybrid Resin line is designed to offer similar properties to traditional polyolefins such as impact strength and heat deflection temperature, and is compatible with existing converter processes and equipment. Hybrid Resins provide a viable alternative for brand owners and converters looking to partially replace petroleum-based resins in durable goods applications. Hybrid Resins address this need in a wide range of markets, including automotive, consumer goods, consumer electronics, medical, packaging, and construction. We commercially introduced our first grade of Hybrid Resin, Hybrid 150, at the end of 2007. We currently offer two commercial grades in this product line. | ||
• | Cereplast Algae Plastics™. In October 2009 we announced that we have been developing a new technology to transform algae into bioplastics and intend to launch a new family of algae-based resins that will complement the company’s existing line of Compostables & Hybrid resins. Although we do not expect this new technology to become commercial before the end of 2010 or early 2011, it remains an important development as we believe that the potential open by algae is quite substantial. Cereplast algae-based resins could replace in a first step 50% or more of the petroleum content used in traditional plastic resins. Currently, Cereplast is using renewable material such as starches from corn, tapioca, wheat and potatoes and Ingeo® PLA. Recently the algae production business has attracted a lot of attention when Exxon announced a $600 million investment in Synthetic Genomics and BP’s $10 million investment in Martek Biosciences. The Company retains that algae is a very attractive feedstock as it does offer a low carbon footprint alternative and at the same time could be accessible in very large quantity. We also have a future plan to create algae plastic made of 100% algae component abandoning any reliance on fossils fuels. |
F-6
Table of Contents
The Company extends unsecured credit to its customers in the normal course of business. Periodically, the Company performs credit and valuations of its customers’ financial condition for determination of allowance for doubtful accounts.
We have incurred a net loss of $6,072,948 for the year ended December 31, 2009, and $12,748,701 for the year ended December 31, 2008, and have an accumulated deficit of $35,444,968 as of December 31, 2009. Based on our operating plan, our existing working capital will not be sufficient to meet the cash requirements to fund our planned operating expenses, capital expenditures and working capital requirements through December 31, 2010 without additional sources of cash.
Our plan to address the shortfall of working capital is to generate additional financing through a combination of financing of assets, incremental product sales and the sale of equity securities. There are no assurances that we will be able to obtain any sources of financing on acceptable terms, or at all.
If we cannot obtain sufficient additional financing in the short-term, we may be forced to file for bankruptcy or cease operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be forced to take such actions.
During the year ended December 31, 2009, we had two significant suppliers that accounted for 27.9% and 18.7%, respectively, of total cost of goods sold and had three customers, Dorel Juvenile Group, which accounted for 32.7% of total sales. Innoware Plastics Inc. which accounted for 10.3% of total sales, and Solo Cup Company which accounted for 11.3% of total sales. No other supplier or customer accounted for more than 10% of cost of sales or sales during this period.
We had restricted cash in the amount of $0 and $48,628 at December 31, 2009 and 2008, respectively. The restricted cash amount consists of a “Certificate of Deposit” which supports a “Letter of Credit” for a leased facility.
The carrying amounts of our financial instruments as of December 31, 2009 and 2008, which include cash equivalents, accounts receivable, unbilled receivable, accounts payable, accrued expenses, and advances on financing from investors, approximate their fair values due to the short-term nature of these instruments.
F-7
Table of Contents
2009 | 2008 | |||||||
Raw Materials | $ | 344,489 | $ | 608,984 | ||||
Bioplastic Resins | 355,082 | 1,040,255 | ||||||
Finished Goods | 76,458 | 291,890 | ||||||
Packaging Materials | 14,978 | 29,646 | ||||||
WIP | 56,520 | — | ||||||
Reserve for Obsolescence | — | (132,000 | ) | |||||
Inventories, Net | $ | 847,527 | $ | 1,838,775 | ||||
2009 | 2008 | |||||||
Equipment | $ | 2,518,132 | $ | 2,582,204 | ||||
Construction in Progress | 2,588,904 | 2,593,937 | ||||||
Furniture & Fixtures | 275,055 | 325,738 | ||||||
Leasehold Improvements | 34,345 | 227,172 | ||||||
5,416,436 | 5,729,051 | |||||||
Less Accumulated Depreciation | (1,519,714 | ) | (1,132,337 | ) | ||||
Net Property and Equipment | $ | 3,896,722 | $ | 4,596,714 | ||||
2009 | 2008 | |||||||
Intangibles | $ | 208,304 | $ | 188,927 | ||||
Less Accumulated Amortization | (24,265 | ) | (15,642 | ) | ||||
Net Intangibles | $ | 184,039 | $ | 173,285 | ||||
F-8
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F-9
Table of Contents
• | In private placement transactions, which were made in reliance upon an exemption from registration under rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended the “Securities Act”), we issued 1,948,170 restricted shares of common stock for gross cash proceeds of $3,896,341, and 125,000 restricted shares of common stock in fulfillment of subscriptions received prior to December 31, 2008 of $250,000. | ||
• | Also on February 18, 2009 we also issued 61,250 shares of restricted common stock valued at $212,482 to one of our shareholders, a party related to our Chief Executive Officer, in repayment of a convertible shareholder loan. The stock issuance includes 36,250 shares related to the original principal amount of $212,482 and 25,000 additional shares related to an agreement to waive default penalties. | ||
• | We issued 318,590 shares of restricted common stock valued at $1,301,280 for debt repayment and services from third parties rendered during the year. | ||
• | We issued 212,400 shares of restricted common stock valued at $860,809 to directors and various employees during the period. | ||
• | We issued 114,207 shares of restricted common stock for net cash proceeds of $300,000 pursuant to the Periodic Equity Investment Agreement with Cumorah Capital, Inc. dated December 8, 2008. | ||
• | We issued 17,500 shares of restricted common stock valued at $67,200 under the terms of a litigation settlement. |
• | In a private placement transaction completed on September 8, 2008, which was made in reliance upon an exemption from registration under rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), we issued 299,716 restricted shares of common stock for gross cash proceeds of $2,637,500, less related fees and expenses in the amount of $287,184. | ||
• | We issued 25,000 shares of restricted common stock valued at $100,000 as a commitment fee related to a Periodic Equity Investment Agreement with Cumorah Capital, Inc entered into on December 8, 2008. | ||
• | We issued 221,083 shares of common stock valued at $2,437,926 to various employees, directors, and third parties for services rendered. |
F-10
Table of Contents
Year ended | ||||
December 31, | ||||
2009 | ||||
Average risk-free interest rate | 3.84 | % | ||
Average expected life (in years) | 5.1 | |||
Volatility | 102.2 | % |
• | Expected Volatility:The fair values of stock based payments were valued using a volatility factor based on our historical stock prices. | ||
• | Expected Term:We elected to use the “simplified method” as discussed in SAB No. 107 to develop the estimate of the expected term. | ||
• | Expected Dividend:We have not paid any dividends and do not anticipate paying dividends in the foreseeable future. | ||
• | Risk-Free Interest Rate:We base the risk-free interest rate used on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining term equivalent to the expected term of the options. |
2009 | 2008 | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Shares | Exercise Price | Shares | Exercise Price | |||||||||||||
Outstanding—beginning of year | 249 | $ | 22.40 | 290 | $ | 22.40 | ||||||||||
Granted at fair value | — | — | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Canceled/forfeited | (178 | ) | 22.40 | (41 | ) | 22.40 | ||||||||||
Outstanding—end of year | 71 | 18.40 | 249 | 22.40 | ||||||||||||
Options exercisable at year-end | 71 | $ | 18.40 | 171 | $ | 22.40 | ||||||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||||||||||||
Average | Remaining | Aggregate | Average | Remaining | Aggregate | |||||||||||||||||||||||||||
Exercise | Contract | Intrinsic | Exercise | Contract | Intrinsic | |||||||||||||||||||||||||||
Range of Exercise Prices | Shares | Price | Life | Value | Shares | Price | Life | Value | ||||||||||||||||||||||||
$0.0-$22.40 | 71 | $ | 18.40 | 4.3 | — | 71 | $ | 18.40 | 4.3 | — | ||||||||||||||||||||||
F-11
Table of Contents
• | a lease for office, industrial and warehouse space with monthly rents of $15,405 expiring in January 2010; | ||
• | a lease for office and warehouse space with monthly rents of $20,644 expiring in April 2012 has been vacated and terminated prior to expiration; and |
2010 | $ | 120,000 | ||
2011 | 300,000 | |||
2012 | 300,000 | |||
2013 | 300,000 | |||
2014 | 300,000 | |||
Thereafter | 1,200,000 | |||
2,520,000 | ||||
F-12
Table of Contents
2009 | 2008 | |||||||
Income tax benefit computed at U.S. Federal statutory rate (34%) | $ | (1,442,434 | ) | $ | (4,231,111 | ) | ||
State income taxes, net of benefit federal taxes | (211,810 | ) | (622,222 | ) | ||||
Meals & Entertainment | 490 | 3,225 | ||||||
Stock for services | 723,536 | 1,201,189 | ||||||
Depreciation | 37,611 | (80,980 | ) | |||||
Accruals | 25,143 | 153,850 | ||||||
Disposal of Assets | (23,040 | ) | 1,593 | |||||
Bad Debt Expense | 1,945 | — | ||||||
Inventory Reserve | (51,480 | ) | — | |||||
Less Valuation Allowance | 940,039 | 3,574,456 | ||||||
Income tax expense | $ | — | $ | — | ||||
2009 | 2008 | |||||||
Deferred Tax Assets: | ||||||||
NOL Carryover | $ | 9,146,078 | $ | 7,572,160 | ||||
R&D Carryover | 83,948 | 48,630 | ||||||
Contribution Carryover | 1,349 | — | ||||||
Allowance for Doubtful Accounts | 13,391 | 11,125 | ||||||
Inventory Reserve | — | 51,480 | ||||||
RP Accruals | 120,799 | 95,655 | ||||||
Deferred tax Liabilities: | ||||||||
Depreciation | (210,813 | ) | (290,900 | ) | ||||
Less Valuation Allowance | (9,154,752 | ) | (7,488,150 | ) | ||||
Income Tax Expense | $ | — | $ | — | ||||
F-13
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2009 | 2008 | |||||||
Capital lease at 15% interest, with monthly principal and interest payments of $513 due January 2010, secured by mold equipment. The purchase option at the end of the lease is $1.00. | $ | 506 | $ | 6,125 | ||||
Capital lease at 9.99% interest, with monthly principal and interest payments of $2,054 due May 2010, secured by MAS Computer Software. The purchase option at the end of the lease is $1.00. | 7,843 | 30,249 | ||||||
Capital lease at 13% interest, with monthly principal and interest payments of $1,128 due April 2009, secured by equipment. The purchase option at the end of the lease was $1.00. | — | 4,389 | ||||||
Capital lease at 29% interest, with monthly principal and interest payments of $1,369 due June 2010, secured by equipment. The purchase option at the end of the lease is $1.00. | 7,558 | 19,757 | ||||||
Capital lease at 8% interest, with monthly principal and interest payments of $505 due November 2011, secured by equipment. The purchase option at the end of the lease is $1.00. | 10,467 | 15,662 | ||||||
Capital lease at 13% interest, with monthly principal and interest payments of $385 due November 2011, secured by equipment. The purchase option at the end of the lease is $1.00. | 7,864 | 11,303 | ||||||
34,238 | 87,485 | |||||||
Less Current Portion | (25,341 | ) | (47,440 | ) | ||||
$ | 8,897 | $ | 40,045 | |||||
Years ending December 31, | ||||
2010 | $ | 27,390 | ||
2011 | 9,280 | |||
Total Payments | 36,670 | |||
Less Interest Portion | (2,432 | ) | ||
Present Value of Future Payments | $ | 34,238 | ||
2009 | 2008 | |||||||
Assets Under Capital Leases | $ | 318,122 | $ | 318,122 | ||||
Less Accumulated Depreciation | (217,190 | ) | (172,236 | ) | ||||
$ | 100,932 | $ | 145,886 | |||||
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• | We received funds of $212,482 pursuant to a loan agreement with one of our shareholders, Mrs. Nathalie Leblanc, a sibling of our CEO, in the amount of $212,482. The loan was secured by the Company’s assets up to the value of the loan, bears no interest, and was repayable on or before January 15, 2009 at the Company’s discretion in cash or 36,250 shares of Cereplast common stock. In February, 2009 this loan was repaid in full through the issue of 61,250 shares of Cereplast common stock, including the 36,250 shares related to the original principal conversion and 25,000 additional shares related to the agreement to waive default penalties. |
F-15