mach_10k.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31,
2009
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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For
the transition period from _____________ to
____________
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Commission
file number 333-146744
MACH
ONE CORPORATION
(Exact
name of small business issuer as specified in its charter)
Nevada
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88-0338837
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(State
or other jurisdiction of incorporation)
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(IRS
Employer Identification No.)
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974
Silver Beach Road Belgium, WI 53004
(Address
of principal executive offices) (Zip Code)
(888)
400-7179
(Issuer’s
telephone number)
Securities
registered under Section 12(b) of the Exchange Act:
None.
Securities
registered under Section 12(g) of the Exchange Act: Common Stock,
par value $0.001
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o
Yes o No
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S−B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10−K or any
amendment to this Form 10−K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer o Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
Aggregate
market value of the voting stock held by
non-affiliates: $7,839,917 as of the
last day of the Company’s most recently completed second quarter of June 30,
2009 when the reported sale price was $0.10 per share.
Number of
shares outstanding of common stock at April 12, 2010: Common Stock:
188,813,574.
Transitional
Small Business Disclosure Format: Yes o No x
Table
of Contents
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Page
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PART
I
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Item
1.
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Description
of Business
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2
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Item
1A.
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Risk
Factors
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4
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Item
1B.
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Unresolved
Staff Comments
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8
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Item
2.
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Properties
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8
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Item
3.
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Legal
Proceedings
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8
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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8
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity and Related Stockholder Matters, and Issuer
Purchases of Equity Securities
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9
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Item
6.
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Selected
Financial Data
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12
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Item7.
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Management’s
Discussion and Analysis Of Financial Condition and Results of
Operations
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12
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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17
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Item
8.
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Financial
Statements and Supplemental Data
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17
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Item
9.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
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18
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Item9A(T).
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Controls
and Procedures
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19
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Item
9B.
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Other
Information
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19
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PART
III
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Item
10.
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Directors,
Executive Officers, Promoters and Control Persons; Compliance With Section
16(a) of the Exchange Act
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19
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Item
11.
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Executive
Compensation
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22
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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23
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Item
13.
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Certain
Relationships and Related Transactions
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24
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Item
14.
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Principal
Accountant Fees and Services
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24
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Part
IV
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Item
15.
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Exhibits;
Financial Statement Schedules
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25
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SIGNATURES
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26
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1
PART
I.
ITEM
1. DESCRIPTION OF BUSINESS
History
The
Company was organized as Underdog, Inc., under the laws of the State of Utah on
March 19, 1982. The Company went through various name changes and
business combinations to finally be named Mach One Corporation (“Mach One”) in
connection with a business combination on July 20, 1994.
Mach One
operated as an inactive shell prior to acquiring all of the outstanding shares
of VDx Inc. (VDx), a private corporation, in exchange for 30,000,000 shares of
common stock on January 17, 2006. VDx is a biotech company that specializes in
immune/gamma globulin solutions (Iggs) for the equine and bovine
markets. Subsequent to the merger, Mach One had 30,287,451 total
common shares outstanding. This transaction has been accounted for as
a reverse merger with VDx treated as the accounting acquirer as their
stockholders controlled approximately 99% of the post-merger common
stock. As such, the accompanying financial statements include the
activity of VDx since its inception in 2004.
On
December 31, 2008, Mach One acquired all of the issued and outstanding capital
stock of Pacific Rim in exchange for 28,000,000 shares of Mach One common stock
and an aggregate of $1,500,000 Five Year Zero Coupon Convertible Promissory
Notes. Pacific Rim is now a wholly-owned subsidiary of Mach One.
During
the year ended December 31, 2009, Mach One acquired certain assets of Modular
Process Constructors, LLC (MPS), a transaction that closed February 19, 2009 and
all of the issued and outstanding stock of Ceres Organic Harvest, Inc. (Ceres),
a transaction that closed February 21, 2009.
Business
of the Company
The
mission of Mach One is to seek, acquire and develop innovative global wellness
organizations that provide bio-based solutions to help address one of the
world’s most pressing and costly needs—positive, long-term health and longevity
benefits for animals and humans. While animal wellness, organic and sustainable
products are our initial, primary focus, we intend in the near future
to add nutraceuticals to our growing list of ventures.
Overview
Mach One
has begun a process of gathering promising enterprises, biotechnologies,
expertise and funding into a single organization that can address the needs of
global wellness in a time of new threats and challenges. Currently, we have
three Mach One Operating Groups: Animal Wellness, Organics and Sustainables, and
BioPharm Process Systems. They offer a broad range of solutions to wellness
problems from helping calves develop immunity at birth to carefully managed
organic grain crops to testing equipment that helps detect compromised food
products long before they can cause a problem.
At Mach
One, we are committed to delivering solutions that positively impact global
wellness—through application of biotechnology to enhance the defensive
capabilities of both animal and human immune systems. While active immunity is
based on a seek and destroy model that does not allow foreign intruders to
survive once they enter the body, passive immunity reduces the chances of those
intruders from ever entering in the first place. As a team, these two immune
systems provide a much more formidable line of defense against anything that
might compromise the integrity of wellness in animals and humans.
Our
commitment is to bring to market passive immunity products that offer
broad-spectrum solutions to the challenges food producers and consumer health
providers face today.
In a
global village, where our health, and the health of our food supply is
vulnerable to the rapid spread of new and old threats, our vision at Mach One is
to play a major role in sustaining wellness.
2
Animal
Wellness Group (AWG)
Mach One
is a global wellness company that provides biotechnology-based solutions to help
address one of the world’s most pressing and costly needs—positive, long-term
health and longevity benefits for disease-threatened animals of commercial
operations. Through our AWG, we are focused on major opportunities
within the commercial livestock and poultry industries—with an initial focus on
the beef and dairy industries.
Production
animals, particularly dairy cows and beef cattle, have two critical periods of
vulnerability during their life span that can dramatically lower their
productivity and threaten even their ability to survive—problems that cost
production animal industries enormous amounts of money—hundreds, sometimes
billions of dollars per year. One vulnerability period occurs during the first
days of life when the immune system is in its development stage. And the second
occurs when environmental factors such as shipping and receiving put the immune
system under stress.
To
address these high-stress and immune challenged times, our AWG has developed a
line of unique and effective products which yield bottom line improvements. We
provide targeted, broad spectrum immunoglobulins (Iggs) that offer a new level
of cost effectiveness, improved health and ease of
administration. AWG brings together proven science with cutting edge
techniques for achieving totally new levels of success—for more efficient and
effective ways to deliver essential, preventative strategies—giving beef and
dairy herd managers a fresh line of defense against some of the biggest health
challenges in the industry.
Organics
and Sustainables Group
Ceres,
the flagship of Mach One’s Organics and Sustainables Group (OSG), addresses the
growing needs of food manufacturers in the organic foods market. The agriculture
sector is faced with a growing challenge to increase production capacity for
organic raw commodities and feed stocks that go into the finished products.
Ceres has built a successful model for conducting business that meets this
challenge. It has created reliable supply programs for its customers by working
with organic producers, transportation companies, and food manufacturers
to:
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Contract
crop production annually with growers over a wide growing region to limit
the risks related to weather;
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Create
efficiencies in transportation and logistics for raw and finished products
to control costs;
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Manage
the processing and inventory of the organic ingredients to meet the
specifications and quantities of the end user;
and
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●
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Access
offshore resources for organic commodities and ingredients as a backup
source of supply
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Ceres
creates a reliable production process that meets the needs of the market by
enrolling the growers, manufacturers, and customers as stakeholders in the
process of building sustainable supply-chains.
BioPharm
Process Systems Group
MPS is
now a pivotal part of Mach One’s BioPharm Process Systems (BPS)
Group. Along with servicing its key biopharmaceutical clients, BPS
will also be integral in setting up and servicing the projected three
laboratories around the U.S.—for production of Mach One’s Animal Wellness Group
Bridge™ product line. These labs are in our plan to ramp up supply of various
products, both animal and human, that are fundamental to Mach One’s business
model.
Through
our own skilled work force and a large network of subcontractors, BioPharm
Process Systems (BPS) provides documentation, process modules, process skids,
custom tanks and vessels and custom stainless steel fabrication to the
biopharmaceutical industry—and has access to over 90,000 square feet of
engineering and fabrication space. Additional products and services include
professional project management, design qualifications, detailed design,
component procurement, schedule metrics and reporting, data entry and
environmental threats and opportunities modeling.
3
Our
Products and Services
Dairy
Products
AWG has
developed a line of products called Bridge™ to help with the wellness management
of dairy herds. We have a proprietary processing system that allows for the
elimination of microorganisms from first milk that would otherwise be
transmitted to a calf along with production of immunogens that can be used to
immunize cattle. This process includes the collection of plasma from the
vaccinated animals to produce the Bridge™ products which provides coverage of a
broad spectrum of microbes. Key to our success has been our ability to
demonstrate that delivery of Iggs to various mucus membrane lined parts of the
animal’s body will prevent the entrance of microbes to those areas. The Iggs can
be fed orally, sprayed into the mouth or nasal passages or given in dry form. We
describe our process as Intramucosal Passive Protectant™. It is designed to
cross-react with given groups of microbes such as Pasteurella, Hemophilus, M.
paratuberculosis (Johnnes disease), Mycoplasma, E.coli, Salmonella, Mastitis
organisms, Bovine Viral Diarrhea (BVD) viruses, and Influenza viruses such as
H1N1, H3N2, and H5N2. This produces the concentrated, broad spectrum,
functional bovine gamma globulins used in Bridge™.
Uses for
our Bridge™ products are numerous. They are particularly important at
the birth of a calf when its immune system is still challenged. Given within the
first 12 hours via milk and then from day 2-35 as a milk replacement, the calf
is protected and given a strong and healthy path to wellness. Bovines are also
susceptible to stress and challenging health issues during shipping and
adjusting to feed lots. Nasal sprays, lick tank solutions and mixing Bridge™
with normal feeding procedures allows herd managers to efficiently address these
threats—no matter how Bridge™ products are administered.
Beef
Products
AWG
Bridge™ products also help with the wellness management of beef herds. We offer
a preventative approach with proprietary supplements that reduce the chance of
microorganisms from entering a newborn calf. Follow up feedings keep the calf
safe from the second day until day 35 when the calf’s own immune system takes
over. Bridge™ is also a great way to assist an animal’s immune system when it is
under stress from shipping or adjustment to a new feed lot.
The AWG
process includes the collection of plasma from vaccinated bovines to produce the
Bridge™ products. Key to our success is our ability to demonstrate that delivery
of Iggs to various mucus membrane lined parts of an animal’s body will prevent
the entrance of microbes. The Iggs can be fed orally, sprayed into the mouth or
nasal passages or given in dry form. We describe our process as Intramucosal
Passive Protectant™. It is designed to cross-react with given groups of microbes
such as Pasteurella, Clostridium, M. paratuberculosis (Johnnes disease),
Mycoplasma, E.coli, Salmonella, Mastitis organisms, and BVD
viruses. This produces the concentrated, broad spectrum, functional
bovine gamma globulins that are at the core of our beef wellness solutions.
Nasal sprays, lick tanks and mixing Bridge™ with normal feeding procedures
allows herd managers to efficiently address a broad range of threats—no matter
how Bridge™ products are administered.
Industrial Ingredients
The
primary ingredient offerings of Ceres include:
·
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organic
unenriched semolina
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·
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organic
durum patent flour
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·
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organic
whole wheat durum flour
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·
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organic
spring wheat flour
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·
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organic
winter wheat flour
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·
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imported
organic roasted Greenwheat Freekeh™ (Currently not available as a
certified organic product)
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Employees
As of the
date of this Report, the Company has 10 full time employees and 2 part time
employees.
ITEM
1A. RISK FACTORS
A
description of risk factors is not required for smaller reporting
companies. However, we note that a variety of factors could cause our
actual results and future experiences to differ materially from management’s
anticipated results or other expectations expressed in this Annual Report. The
risks and uncertainties that may affect our operations, performance, development
and results include, but are not limited to, the following:
·
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whether
we will be able obtain additional financing to continue or expand
operations and the terms on which we will be able to obtain this
financing, if at all;
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·
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whether
our products will perform as expected in commercial
applications;
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4
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our
ability to obtain any commercial financing to allow us to inventory for
processing for our Organics and Sustainables Group, and to obtain such
financing in amounts required and on commercially reasonable
terms;
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·
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our
ability to negotiate contracts and purchase orders with distributors and
retailers;
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·
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risks
related to inventory costs, shipping and handling and
spoilage;
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·
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our
ability to obtain one or more third-party manufacturers for our system
components and other products;
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·
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the
cost at which we will be able to have our system components and other
products manufactured, if at all, and the time it will take to have our
system components and other products
manufactured;
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·
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our
ability to obtain all required components for our systems on a timely
basis and at the prices we
anticipate;
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·
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whether
our systems and products are viewed as providing the benefits we
expect;
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·
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our
systems and products performing in the manner we expect in customer
applications and without any material
modifications;
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·
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our
ability to obtain all necessary governmental approvals for our systems and
other products, including all required import-exporter licenses and
permits;
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·
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whether
the introduction of the Bridge™ brand will
succeed in creating preferences with the consuming
public;
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·
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the
pace at which we will utilize our existing working capital and whether our
existing working capital will be sufficient for us to continue to develop
our systems and products to the extent we
anticipate;
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·
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our
ability to protect our intellectual property and obtain and maintain
patents and other protections for our intellectual
property;
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·
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the
possible impact from competing products or
technologies;
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·
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our
ability to hire, train and retain a consistent supply of reliable and
effective employees, both domestically and in any countries in which we
might be able to install one of our processing
systems;
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·
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the
risk of non-payment by, and/or insolvency or bankruptcy of, our customers
and others with indebtedness to us;
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·
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the
costs of complying with applicable labor laws and requirements, including,
without limitation, with respect to health
care
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·
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economic
and political instability in foreign countries or restrictive actions by
the governments of foreign countries in which we may seek to conduct our
business or obtain customers;
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·
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changes
in tax laws or the laws and regulations governing our products and on
income generated outside the United
States;
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·
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general
economic, business and social conditions in the United States and in
foreign countries where we may conduct our
business;
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·
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fluctuation
in interest rates, insurance, shipping, energy, fuel and other business
utilities in any countries in which we conduct
business;
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·
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the
stability of and fluctuations in currencies in which we conduct
business;
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·
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threats
or acts of terrorism or war; strikes, work stoppages or slowdowns by labor
organizations in any countries in which we conduct business;
and
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·
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natural
or man-made disasters that could adversely impact the industries or
countries in which we conduct
business.
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Risks
Related to Our Stock
Stocks
traded on the OTCBB are subject to limitations in connection with the
availability of quotes and order information.
Our
shares currently trade on the Over The Counter Bulletin Board. Trades and
quotations on the OTCBB involve a manual process and the market information for
those securities cannot be guaranteed. In addition, quote information, or even
firm quotes, may not be available. The manual execution process may delay order
processing and intervening price fluctuations may result in the failure of a
limit order to execute or the execution of a market order at a significantly
different price. Execution of trades, execution reporting and the delivery of
legal trade confirmation may be delayed significantly. Consequently, one may not
able to sell shares of our common stock at the optimum trading
prices.
5
Stocks
quoted on the OTCBB may be subject to delays in order
communications.
Electronic
processing of orders is not available for securities traded on the OTCBB and
high order volume and communication risks may prevent or delay the execution of
one’s trading orders. This lack of automated order processing may affect the
timeliness of order execution reporting and the availability of firm quotes for
shares of our common stock. Heavy market volume may lead to a delay in the
processing of security orders for shares of our common stock, due to the manual
nature of these markets. Consequently, you may not able to sell shares of our
common stock at the optimum trading prices.
Penny
stock regulations impose certain restrictions on marketability of our
securities.
Our
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Subject to certain
exceptions, penny stocks are stock:
●
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With
a price of less than $5.00 per share or an exercise price of less than
$5.00 per share;
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That
are not traded on a “recognized” national exchange;
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Whose
prices are not quoted on the NASDAQ automated quotation system;
or
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●
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In
issuers with net tangible assets less than $2.0 million (if the issuer has
been in continuous operation for at least three years) or $5.0 million (if
in continuous operation for less than three years), or with average
revenues of less than $6.0 million for the last three
years.
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As a
result, our common stock is subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse). For transactions covered by such rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser’s written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker dealer must also disclose the commission payable
to both the broker dealer and the registered representative, current quotations
for the securities and, if the broker dealer is the sole market maker, the
broker dealer must disclose this fact and the broker dealer’s presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. In addition, the SEC currently intends to create
additional obligations with respect to the transfer of penny stocks. Most
importantly, the SEC proposes that broker-dealers must wait two business days
after providing buyers with disclosure materials regarding a security before
effecting a transaction in such security. Consequently, the “penny stock” rules
may restrict the ability of broker dealers to sell our securities and may affect
the ability of investors to sell our securities in the secondary market and the
price at which such purchasers can sell any such securities, thereby affecting
the liquidity of the market for our common stock.
Shareholders
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Those patterns
include:
●
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control
of the market for the security by one or more broker-dealers that are
often related to the promoter or issuer;
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●
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manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
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“boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales persons;
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excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
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Risk
of market fraud.
Shares
traded on OTCBB securities are frequent targets of fraud or market manipulation.
Not only because of their generally low price, but also because the reporting
requirements for these securities are less stringent than for listed or NASDAQ
traded securities, and no exchange requirements are imposed. Dealers may
dominate the market and set prices that are not based on competitive forces.
Individuals or groups may create fraudulent markets and control the sudden,
sharp increase of price and trading volume and the equally sudden collapse of
the market price for shares of our common stock.
6
Limited
liquidity on the OTCBB.
When
fewer shares of a security are being traded on the OTCBB, volatility of prices
may increase and price movement may outpace the ability to deliver accurate
quote information. Due to lower trading volumes in shares of our common stock,
there may be a lower likelihood of one's orders for shares of our common stock
being executed, and current prices may differ significantly from the price one
was quoted at the time of one's order entry. Our shares average daily trading
volume for the last two months is 125,000 per trading day.
Limitation
in connection with the editing and canceling of orders on the
OTCBB.
Orders
for OTCBB securities may be canceled or edited like orders for other securities.
Due to the manual order processing involved in handling OTCBB trades, order
processing and reporting may be delayed, and one may not be able to cancel or
edit one's order. Consequently, one may not be able to sell shares of our common
stock at the optimum trading prices.
Demand
for shares of our common stock may be decreased or eliminated.
The
dealer’s spread (the difference between the bid and ask prices) may be large and
may result in substantial losses to the seller of shares of our common stock on
the OTCBB if the stock must be sold immediately. Further, purchasers of shares
of our common stock may incur an immediate “paper” loss due to the price spread.
Moreover, dealers trading in these markets may not have a bid price for shares
of our common stock. Due to the foregoing, demand for shares of our common stock
may be decreased or eliminated.
Our
common stock has experienced a high degree of volatility in price and volume and
may experience the same in the future.
The
market price for our common stock in the past two years has experienced a high
degree of volatility both in price and volume. The stock has a two year low of
$0.015 which occurred on September 8, 2008 and a two year high of $0.36
occurring on January 9, 2009. Because of this, you may experience the same
volatility in the future. You may or may not experience similar volatility in
the future.
You
may experience dilution in your ownership of shares of our common
stock.
We have
financed our operations, in large part, by issuing promissory notes convertible
into our common stock. The prices at which the principal and interest of the
convertible promissory notes are convertible into shares of common stock may be
less than the then-current bid price of our common stock. Sales of shares of our
common stock at prices less than prevailing bid prices has had a dilutive effect
on the owners of our common stock immediately prior to such sales or
conversions. We have also issued a substantial number of shares of our common
stock as payment to service providers for marketing and consulting services. To
the extent we continue to issue shares of our common stock at prices less than
the then-current bid prices or in connection with marketing and consulting
services, existing owners of common stock will continue to suffer dilution of
their share ownership. For the foreseeable future, we do not anticipate being
able to issue shares of our common stock at prices equal, or substantially equal
to, their bid prices at the time of such sales. Furthermore, sales of shares at
prices less than the prevailing bid price of our common stock can be expected to
result in downward pressure on our stock price.
In
November of 2008 and January of 2009, we executed $2,250,000 of promissory notes
with 44 individuals. These notes carry an interest rate of 12% and are due 6
months from date of execution. The notes have a provision for conversion into
equity of the company. If all notes are converted at the end of the term, an
additional 34,733,333 shares will be issued. All notes have been converted
except for one with principal of $100,000 convertible into 2,222,222
shares.
7
We have never
paid dividends on our common stock, and we do not anticipate paying dividends
for the foreseeable future; therefore, returns on your investment may only be
seen by the appreciation of the value in our securities. Investors should
not rely on an investment in our stock for the payment of cash
dividends.
We have
not paid any cash dividends on our capital stock and we do not anticipate paying
cash dividends in the future. Investors should not make an investment in our
common stock if they require dividend income. Any return on an investment in our
common stock will be as a result of any appreciation, if any, in our stock
price. We intend to retain earnings, if any, for use in the operation of our
business and to fund future growth. Because of this, investors may only see a
return on their investment if the value of the shares owned
appreciates.
We
have the ability, without shareholder approval, to issue preferred stock and
designate the rights, preferences and privileges that may be senior to common
stock.
We have a
total of 10,500,000 authorized shares of preferred stock. The Board of Directors
may determine, without shareholder approval, the rights, preferences and
privileges of the preferred stock. Depending on the rights, preferences and
privileges granted when the preferred stock is issued, it may have the effect of
delaying, deferring or preventing a change in control without further action by
the shareholders, may discourage bids for our common stock at a premium over the
market price of the common stock and may adversely affect the market price of
and the voting and other rights of the holders of our common stock.
We
can issue common stock without shareholder approval that may cause dilution to
existing shareholders.
We have
239,500,000 authorized shares of common stock that can be issued by the Board of
Directors. Under most circumstances, the Board of Directors has the right to
issue these shares. If all of these shares were issued, it would substantially
dilute the existing shareholders.
In
January 2010, the Company increased the number of authorized shares to
510,500,000, which includes 500 million shares of common stock, 1 million shares
of Series A preferred stock, 500,000 shares of Series B preferred stock, 8
million shares of Series C preferred stock and 1 million shares of other
preferred stock.
An
investment in our securities is highly speculative and subject to numerous and
substantial risks. Readers are encouraged to review these risks carefully before
making any investment decision.
ITEM
1B. UNRESOLVED STAFF COMMENTS
NONE.
ITEM
2. PROPERTIES
Our
principal executive office is located at 974 Silver Beach Road, Belgium,
Wisconsin 53004. The lease payment of $4,300 per month on 3,500 square feet of
offices and manufacturing expired in March 2010. We also lease office
space in St. Paul, MN. The lease payment is $3,600 per month and is paid on a
month-to-month basis. We also lease a manufacturing facility in Oakland,
Nebraska. The lease payment is $3,000 per month and expires in August 2010. We
have not renewed the lease on the facility in Belgium, but remain in the space
on a month-to-month basis.
ITEM
3. LEGAL PROCEEDINGS
We are
not a party to any material legal proceedings and, to our knowledge, no material
proceedings are threatened or contemplated against us.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
We filed
a preliminary and definitive information statement to increase the number of
authorized shares in the company to 510,500,000 shares and put it to a vote of
our security holders during the quarter ended December 31, 2009. A majority of
shareholders voted to approve the increase.
8
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
Our
common stock is quoted under the symbol "MNCN" on the OTCBB. The following
table sets forth the high and low bid prices for shares of our common stock for
2008, 2009, and the first quarter of 2010 , as reported by the Pink Sheets and
OTCBB. Quotations reflect inter dealer prices, without retail markup,
mark down, or commission, and may not represent actual
transactions.
YEAR
|
PERIOD
|
HIGH
|
LOW
|
|
|
|
|
2008
|
First
Quarter
|
.08
|
.04
|
|
Second
Quarter
|
.10
|
.04
|
|
Third
Quarter
|
.07
|
.015
|
|
Fourth
Quarter
|
.14
|
.02
|
|
|
|
|
2009
|
First
Quarter
|
.36
|
.12
|
|
Second
Quarter
|
.23
|
.06
|
|
Third
Quarter
|
.17
|
.07
|
|
Fourth
Quarter
|
.14
|
.06
|
|
|
|
|
2010
|
First
Quarter
|
.14
|
.05
|
Common
Stock Currently Outstanding
As of
April 12, 2010, 188,813,574 of our current outstanding shares consist of
restricted common stock. All of these shares remaining are eligible for resale
pursuant to Rule 144 of the Securities Act. We have no plans or commitments to
register such shares in the future.
Holders
As of the
date of this Report, we had 519 stockholders of record of our common
stock.
Dividends
We have
not declared any cash dividends on our common stock since our inception and do
not anticipate paying any dividends in the foreseeable future. We plan to retain
future earnings, if any, for use in our business. Any decisions as to future
payments of dividends will depend on our earnings and financial position and
such other facts, as the Board of Directors deems relevant.
9
Reports
to Stockholders
We are
currently subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and will continue to file periodic reports, and
other information with the SEC. We intend to send annual reports to our
stockholders containing audited financial statements.
Transfer
Agent
The
transfer agent and registrar for Mach One’s common stock is Stalt, Inc., 671 Oak
Grove Avenue Suite C, Menlo Park, CA 94025 Telephone: (650)
321-7111.
Recent
Sales of Unregistered Securities
On
February 17, 2009, pursuant to an agreement, Mach One issued 2,273,333 shares of
common stock valued at $170,500 ($0.075 per share) for professional services
related to the issuance of short-term convertible notes payable.
On
February 18, 2009, Mach One issued 500,000 shares of Series B Convertible
Preferred Stock (the “Series B Preferred Stock”) to the Thomsen Group, LLC
(“Thomsen”) for the purchase of all of the assets of Modular Process
Contractors, LLC (“MPC”). Each share of Series B Preferred Stock is convertible
into two shares of Mach One common stock.
On
February 20, 2009, pursuant to a Plan and Agreement of Reorganization, Mach One
issued 8,000,000 shares of its common stock and 8,000,000 shares of Series C
Convertible Preferred Stock (“Series C Preferred Stock”) in exchange for all of
the issued and outstanding common stock of Ceres Organic Harvest, Inc. (Ceres).
Each share of Series C Preferred Stock is convertible into one share of Mach
One’s common stock.
On April
13, 2009, pursuant to an agreement, Mach One issued 400,000 shares of common
stock valued at $30,000 ($0.075 per share) for professional services related to
the issuance of the short-term convertible note payable.
On May
13, 2009, Mach One issued 2,346,698 shares of common stock valued at $23,467
($0.01 per share) for the conversion of a note payable under the terms of the
original agreement.
10
On May
20, 2009, Mach One issued 2,000,000 shares of common stock valued at $200,000
($0.10 per share) for the retention of an investment banking firm for services
performed during the quarter.
On June
2, 2009, Mach One issued 5,000,000 shares of common stock for the conversion of
1,000,000 shares of Series A Convertible Preferred Stock, valued at $50,000
($0.01 per share), under the terms of the agreements.
On
various dates during the three months ended June 30, 2009, Mach One issued
3,189,505 shares of common stock (at prices of $0.045 and $0.075 per share) for
the conversion of $160,000 of short-term notes payable and $8,546 of related
accrued interest under the terms of the agreements.
On
various dates during the three months ended June 30, 2009, Mach One issued
2,220,000 shares of common stock valued at $166,500 for consulting services
provided during the three months ended June 30, 2009.
On July
31, 2009, Mach One issued 500,000 shares of common stock valued at $50,000
($0.10 per share), to an employee of the Company as a retention bonus.
On July
31, 2009, Mach One issued 2,500,000 shares of common stock for the conversion of
4,420,000 shares of Series A Convertible Preferred Stock, valued at $221,000
(approximately $0.09 per share), under the terms of the agreements.
On
various dates during the three months ended September 30, 2009, Mach One issued
31,488,072 shares of common stock (at prices of $0.045 and $0.075 per
share) for the conversion of $1,937,984 of short-term notes payable and $167,955
of related accrued interest under the terms of the
agreements.
On
various dates during the three months ended September 30, 2009, Mach One issued
1,010,284 shares of common stock valued at $105,292 (at approximately $0.10 per
share) for consulting services provided during the three months ended September
30, 2009.
On
various dates during the three months ended December 31, 2009, Mach One issued
2,099,841 shares of common stock valued at $145,987 (approximately $0.07 per
share) for consulting services provided during the three months ended December
31, 2009.
On
various dates during the three months ended December 31, 2009, Mach One issued
725,000 shares of common stock valued at $58,000 ($0.08 per share) for the
purchase of inventory.
On
various dates during the three months ended December 31, 2009, Mach One issued
500,159 shares of common stock valued at $39,850 (approximately $0.08 per share)
for a retention bonus to an employee of the Company.
On
various dates during the three months ended December 31, 2009, Mach One issued
6,000,000 shares of common stock for the conversion of 6,000,000 shares of
Series C preferred stock of the Company.
All of
the investors above are sophisticated individuals who had the opportunity to
review all of the Company’s SEC filings and to discuss with the officers and
directors of the Company the business and financial activities of the
Company. All the investors acquired their warrant, shares and/or
exchange notes for investment and not with a view toward distribution. All of
the stock certificates and exchange notes issued, or to be issued upon
conversion or exercise, to the warrant holder, the thirty Pacific Rim
shareholders and the stock certificates issued to Thomsen and to the six Ceres
shareholders have been, or will be, affixed with an appropriate legend
restricting sales and transfers. Therefore, based on the foregoing,
the company issued the shares and Exchange Notes in reliance upon the exemptions
from registration provided by Section 4(2) of the Securities Act of 1933 and/or
Regulation D, there under
11
Additional
Information
Copies of
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8−K, and any amendments to those reports, are available free of charge
on the Internet at www.sec.gov. All statements made in any of our filings,
including all forward-looking statements, are made as of the date of the
document, in which the statement is included, and we do not assume or undertake
any obligation to update any of those statements or documents unless we are
required to do so by law.
ITEM
6. SELECTED FINANCIAL DATA.
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The
following discussion should be read in conjunction with our audited consolidated
financial statements and related notes that appear elsewhere in this
filing.
Cautionary
Note Regarding Forward-Looking Statements
Some of
the statements made in this section of our report are forward-looking
statements. These forward-looking statements generally relate to and are based
upon our current plans, expectations, assumptions and projections about future
events. Our management currently believes that the various plans, expectations,
and assumptions reflected in or suggested by these forward-looking statements
are reasonable. Nevertheless, all forward-looking statements involve risks and
uncertainties and our actual future results may be materially different from the
plans, objectives or expectations, or our assumptions and projections underlying
our present plans, objectives and expectations, which are expressed in this
section.
In light
of the foregoing, prospective investors are cautioned that the forward-looking
statements included in this filing may ultimately prove to be inaccurate—even
materially inaccurate. Because of the significant uncertainties inherent in such
forward-looking statements, the inclusion of such information should not be
regarded as a representation or warranty by Mach One Corporation or any other
person that our objectives, plans, expectations or projections that are
contained in this filing will be achieved in any specified time frame, if ever.
We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
General
Overview
Overview
In 2006,
Mach One acquired VDx, a biotech company that specialized in immune/gamma
globulin solutions (Iggs) for the equine and bovine markets. This
organization, now operating as the Animal Wellness Group (AWG) is focused on
creating targeted products that deliver positive impact on animal
wellness. Products are currently marketed under the Bridge™ brand
name. Using proprietary and patented protections, Bridge™ solutions provide
vital wellness advantages and are currently focused on bovine herds facing a
broad spectrum of stressful conditions. Mach One has continued to grow and today
is a strong and vibrant organization with a commitment to innovative product
development for other animal species as well as the human market. Mach One and
AWG are headquartered in Belgium, Wisconsin.
Most
recently, Mach One acquired Ceres Organic Harvest Inc. (Ceres) —a transaction
that closed Feb. 21, 2009. Ceres is now part of the Mach One Organics
and Sustainables Group (OSG). Along with its subsidiary, Organic Grain and
Milling Inc. (OGM), Ceres and OGM supplies organic grain and grain-based
ingredients to the food, feed and dairy industries, including varieties of
wheat, flour, oats, corn, flax, barley and other products. Ceres is currently
launching a new line of oat-based products using a proprietary oat cultivar with
substantially higher fiber and beta-glucan content, which was developed in a
cooperative breeding program between the North Dakota State University and the
United States Department of Agriculture’s (USDA) Agricultural Research Service.
Ceres and OGM operate a grain elevator in North Dakota, with corporate offices
in St. Paul, Minnesota. The integration of organic foods and animal feeds to the
Mach One package of global wellness solutions extends Mach One’s reach as well
as its ability to expand its success in sustainable bio-solutions. OSG is
headquartered in Minneapolis, Minnesota.
Modular
Process Constructors, LLC (dba MPS-BioPharm)—a transaction that closed Feb. 19,
2009— is now part of Mach One’s BioPharm Process Systems Group and engages in
the design and manufacture of constructed systems for the biopharmaceutical
industry. It offers process modules and skids, custom tanks and vessels, and
sanitary stainless steel flow equipment, along with professional project
management, design qualifications, detail design, component procurement,
schedule metrics and reporting. With the addition of MPS-BioPharm, it enables
Mach One to accelerate production of biopharmaceutical, Nutraceutical, and
Bridge™ Iggs on a global basis. The BioPharm Process Systems Group is
headquartered in Kenosha, Wisconsin.
Today
Mach One and its three Operating Groups—Animal Wellness, Organics and
Sustainables, and BioPharm Process Systems—offer a broad range of solutions to
global health problems, from helping calves develop immunity at birth to
carefully managing organic grain crops, to testing equipment that helps detect
compromised food products long before they can cause a problem.
We have
not generated significant operating revenues, and as of December 31, 2009 we had
incurred a cumulative consolidated net loss from inception of
$14,636,624.
For the
years ended December 31, 2009 and 2008, our consolidated net losses were
$10,891,864 and $1,474,877 respectively. Our current liabilities exceed current
assets by $1,923,585.
Although
we completed a convertible debt financing with gross proceeds of approximately
$2,250,000 in November 2008 and January 2009, we require significant additional
funding in order to achieve our business plan. We believe that our current cash
position will be able to sustain our proposed operations for 3-6 months. Over
the next 18 months, in order to have the capability of achieving our business
plan, we believe that we will require at least $5,000,000 in additional funding.
We will attempt to raise these funds by means of one or more public or private
offerings of debt or equity securities or both. We do not believe that the
required funds could be generated from the increased cash flows of our divisions
as they become fully integrated.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
Net sales
for year ended December 31, 2009 were $4,897,438 compared to $104,166 for the
same period last year. Net sales increased due to increased revenues from the
acquisitions of Ceres (approximately $4,606,000) and MPS (approximately
$216,000). This was offset by a slight decrease (approximately $30,000) in sales
at Animal Wellness.
Cost of
goods sold were $4,807,510 for the year ended December 31, 2009 compared to
$34,753 for the year ended December 31, 2008. This increase was primarily due to
the acquisitions of Ceres (approximately $4,650,000) and MPS (approximately
$129,000). There were no significant changes in cost of goods sold of Animal
Wellness between the periods presented.
Gross
profit for the year ended December 31, 2009 was $89,928 compared to $69,413 for
the same period last year. Gross profit increased due to increased sales margins
with the acquisition of MPS (approximately $87,000). This was offset by a
negative gross profit at Ceres (approximately $44,000) and a decrease in gross
profit for Animal Wellness (approximately $22,000) in the current
period.
13
Operating
expenses increased to $10,223,080 in the year ended December 31, 2009 from
$1,393,219 in the same period in 2008. The increase is due to the impairments of
goodwill, intangibles and property and equipment of $3,438,466, $1,652,526 and
$287,033, respectively and to additional personnel in Animal Wellness and costs
associated with additional employees and facilities from the acquisition of
Ceres and MPS (approximately $3,400,000). We impaired the goodwill related to
the acquisition of PRF as the Company determined, subsequent to the acquisition
date, to not pursue operating plans related to PRF, but instead to liquidate the
assets acquired for use as working capital. We impaired certain intangible
assets related to the acquisition of Ceres as we subsequently determined that we
would not be able to achieve financial and operational objectives. We impaired
certain equipment related to AWG as we abandoned our initial plan to provide
products to large dairies utilizing this equipment.
Interest
expense for the year ended December 31, 2009 was $639,206 compared to $151,071
for the same period last year. Interest expense increased due to the issuance of
short term notes payable during the two quarters ended March 31, 2009 and due to
the debt incurred with acquisition of Ceres.
Loss on
sale of marketable securities for the year ended December 31, 2009 was $223,087
compared to $0 for the same period last year. The loss on sale of marketable
securities is attributable to the sale of marketable securities acquired with
the acquisition of PRF in 2008. We liquidated those securities as planned during
2009 to provide cash for operations.
Liquidity
and Capital Resources
We had a
cash balance of $79,902 as of December 31, 2009 and a cash balance of $635,334
as of December 31, 2008.
The value
of our marketable securities on December 31, 2009 decreased to $4,223 from
$483,900 as of market close on December 31, 2008. The decrease is due to the
decline in market values and sales generating $244,525 in cash.
Accounts
receivable as of December 31, 2009 increased to $385,794 from $44,603 at
December 31, 2008 due to the acquisitions of Ceres (approximately $261,000) and
MPS (approximately $78,000) as of December 31, 2009.
Inventory
as of December 31, 2009 increased to $323,058 from $0 at December 31, 2008 due
to the acquisitions of Ceres (approximately $320,000) and MPS (approximately
$2,000) as of December 31, 2009.
Total
assets at December 31, 2009 are $3,263,110 compared to $6,196,748 at December
31, 2008. This decrease is attributable to the acquisitions of Ceres and MPS
offset by an impairment to goodwill originally recorded in 2008 of approximately
$3,400,000 related to the acquisition of PRF.
As
of December 31, 2009, we have current liabilities totaling $3,197,518 compared
to $1,223,904 at December 31, 2008. The increase is due to; an increase in
accounts payable, which is due to an increase at Animal Wellness (approximately
$260,000), the acquisitions of Ceres (approximately $1,194,000) and MPS
(approximately $50,000) as of December 31, 2009, an increase in accrued expenses
at Animal Wellness of approximately $140,000, deferred revenues of approximately
$24,000 from the acquisition of MPS and an increase in short-term notes payable
of approximately $250,000.
Long
term debt as of December 31, 2009 is $3,504,130 compared to $3,164,268 at
December 31, 2008. This increase is due to the liability for intangible assets
acquired from Platte Valley Bank of approximately $240,000 and the accretion of
interest on certain notes of approximately $156,000. This is offset by payments
and conversions of notes of approximately $50,000.
Operating
Activities
Net cash
used in operations increased to $1,845,154 during the year ended December 31,
2009 from $929,742 during the year ended December 31, 2008. The decrease in
operating cash flows was primarily due to the acquisitions of Ceres and MPS
(which had losses in their operations), the use of funds to establish operations
for the Animal Wellness Group, an increase in net loss and significant changes
in working capital levels from the prior year. More specifically, the changes in
working capital in the year ended December 31, 2009 included increases in
accounts payable and accrued expenses, and a decrease in accounts receivable,
other assets, and inventory, net of the acquisitions of Ceres and MPS. Accounts
receivable decreased, net of the acquisition of Ceres due to a continuing trend
toward decreased sales at Ceres. The decrease in inventory, net of acquisitions
is primarily a result of a reduction of Ceres inventory levels to generate
working capital. The increase in accounts payable and accrued expenses, net of
acquisitions was driven by our current lack of capital.
14
Investing
Activities
Net cash
used in investing activities decreased to $22,527 during the year ended December
31, 2009 compared to $60,159 of cash being provided by investing activities
during the year ended December 31, 2008. The decrease was due to increased
property and equipment purchases during 2009 and to cash acquired of
approximately $330,000 from the acquisition of PRF in 2008.
Financing
Activities
Net cash
provided by financing activities during the year ended December 31, 2008 was
$1,312,249, compared to $1,497,989 during the year ended December 31, 2008. The
primary reasons for the decrease in cash provided by financing activities were
the net purchases of the Company’s stock for Treasury (approximately $240,000)
in 2009 and by payments made on short term notes payable and long term debt
(approximately $160,000) in 2009.
Given our
low cash position, our near term focus in fiscal 2010 continues to be to reduce
expenses and create positive operating cash flow from our Organics and
Sustainables Group. We strive in the current year to add
revenues while holding expenses relatively flat. We believe that we
will need to raise $1.2 million in short term funding to cover our needs through
June 30, 2010. Coincident with our short term funding, we will start
seeking an additional $5 to $6 million to fund expansion in the years
ahead. If we succeed in raising such amounts, we believe that
we would have sufficient capital to fund our operations and expansion plans
indefinitely.
Certain
vendors have been asking for past due payments in the past 12
months. In those cases where we do not have an express agreement with
vendors, it is possible that a vendor may demand payment or refuse to provide
services that are critical to the ability of the Company to either continue to
operate or to timely file required reports with the SEC. If any
such risks materialize, it would likely decrease our likelihood of obtaining
financing on terms acceptable to us, if at all. In addition, if we
fail to reach sales revenue objectives (for any reason, including due to
continued poor real estate and credit market conditions beyond our control),
additional financing may not be available on terms favorable to us, if at
all.
If
additional funds are raised by the issuance of our equity securities, such as
through the issuance and exercise of common stock, then existing stockholders
will experience dilution of their ownership interest. If additional funds are
raised by the issuance of debt or other types of (typically preferred) equity
instruments, then we may be subject to certain limitations in our
operations. Issuance of such securities may have rights senior to
those of the then existing holders of our common stock. If adequate funds are
not available or not available on acceptable terms, we may be unable to fund
expansion, develop or enhance products or respond to competitive
pressures.
Our
longer-term working capital and capital requirements will depend upon numerous
factors, including revenue and profit generation, the cost of filing,
prosecuting, defending, and enforcing patent claims and other intellectual
property rights, competing technological and market developments, collaborative
arrangements. Additional capital will be required in order to attain our goals.
We cannot assure you that funds from our future operations or funds
provided by our current financing activities will meet the requirements of our
operations, and in that event, we will continue to seek additional sources
of financing to maintain liquidity. We are actively pursuing all potential
financing options as we look to secure additional funds to both stabilize and to
grow our business operations. Our management will review any financing options
at their disposal, and will judge each potential source of funds on its
individual merits. We cannot assure you that we will be able to secure
additional funds from debt or equity financing, as and when we need to, or if we
can, that the terms of this financing will be favorable to us or our
stockholders.
15
Off-balance
Sheet Arrangements
We have no off-balance sheet
arrangements.
Recent
Accounting Pronouncements
Refer to
Note 2. Summary of Significant Accounting Policies in our consolidated financial
statements for a discussion of recent accounting pronouncements.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures. We evaluate these estimates on an on-going
basis. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We
consider the following accounting policies to be those most important to the
portrayal of our results of operations and financial condition:
Revenue Recognition. The Company recognizes
revenue when persuasive evidence of an arrangement exists, transfer of title has
occurred, the selling price is fixed or determinable, collection is reasonably
assured and delivery has occurred per the contract terms. For certain contracts
of MPS, the Company recognizes revenue based on the percentage of completion
method. Revenue is deferred when customer billings exceed revenue
earned.
Income Taxes. We account for
income taxes using an asset and liability approach to financial accounting and
reporting for income taxes. Accordingly, deferred tax assets and
liabilities arise from the difference between the tax basis of an asset or
liability and its reported amount in the consolidated financial
statements. Deferred tax amounts are determined using the tax rates
expected to be in effect when the taxes will actually be paid or refunds
received, as provided under currently enacted tax law. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the
tax payable or refundable, respectively, for the period plus or minus the change
in deferred tax assets and liabilities during the period. We have
recorded a full valuation allowance for our net deferred tax assets as of
December 31, 2009 and 2008 because realization of those assets is not reasonably
assured.
We will
recognize a financial statement benefit of a tax position only after determining
that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority.
Accounts
Receivable. Accounts receivable arise in the normal course of
business in selling products to customers. Concentrations of credit
risk with respect to accounts receivable arise because the Company grants
unsecured credit in the form of trade accounts receivable to its
customers.
Accounts
are written off as they are deemed uncollectible based upon a periodic analysis
of specific customers, taking into consideration the age of past due accounts
and the customer’s ability to pay.
16
Inventory. The
Company maintains its inventory on a perpetual basis utilizing the first-in
first-out (FIFO) method. Inventories have been valued at the lower of
cost or market. As of December 31, 2009 and December 31, 2008, management has
not established an obsolescence reserve for inventory, as we believe that all
inventory is usable and that market values of all inventories exceed
cost.
Property and
Equipment. Property and equipment is reported at cost less
accumulated depreciation. Maintenance and repairs are charged to
expense as incurred. The cost of property and equipment is
depreciated over the following estimated useful lives of the related
assets:
|
Building |
39 years |
|
|
Furniture &
Fixtures |
7 years |
|
|
Machinery &
Equipment |
5 years |
|
Long-Lived and Amortizable Intangible
Assets. The Company periodically evaluates the carrying value
of long-lived and amortizable intangible assets to be held and used, including
but not limited to, capital assets, when events and circumstances warrant such a
review. The carrying value of a long-lived or amortizable intangible
asset is considered impaired when the anticipated undiscounted cash flow from
such asset is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the long-lived or amortizable intangible asset. Fair value
is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived and
amortizable intangible assets to be disposed of are determined in a similar
manner, except that fair values are reduced for the cost to
dispose. The Company has reviewed long-lived and amortizable
intangible assets with estimable useful lives and determined that the remaining
net carrying value, after impairing certain assets in 2009, is
recoverable in future periods.
Goodwill. Goodwill
is the excess of cost of an acquired entity over the amounts assigned to assets
acquired and liabilities assumed in a business combination. Goodwill is not
amortized. We evaluate the carrying value of goodwill annually during the
quarter ending December 31, and between such annual evaluations if events occur
or circumstances change that would indicate a possible impairment. We use a
discounted cash flow model based on management’s judgment and assumptions to
determine the estimated fair value of the Company. An impairment loss generally
would be recognized when the carrying amount of the Company’s net assets exceeds
the estimated fair value of the reporting unit.
Fair Value of Financial
Instruments. The respective carrying value of certain
on-balance sheet financial instruments approximates their fair
values. These financial instruments include cash, accounts
receivable, accounts payable and accrued liabilities, and notes
payable. Fair values were assumed to approximate cost or carrying
values as most of the debt was incurred recently and the assets were acquired
within one year. Management is of the opinion that the Company is not
exposed to significant interest, credit or currency risks arising from these
financial instruments.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
required for smaller reporting companies.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report
of Independent Registered Public Accounting Firm
|
F-1
to F-2
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
|
|
Consolidated
Statements of Operations for Each of the Two Years in the Period Ended
December 31, 2009
|
F-4
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity (Deficit) for Each of
the Two Years in the Period Ended December 31, 2009
|
F-5
|
|
|
Statements
of Cash Flows for Each of the Two Years in the Period Ended December 31,
2009
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
17
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
Mach One
Corporation
Belgium,
Wisconsin
We have
audited the accompanying consolidated balance sheet of Mach One Corporation as
of December 31, 2009, and the related consolidated statements of operations,
stockholders’ equity (deficit) and cash flows for the year then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements of Mach One Corporation as of December 31, 2008, were audited by
other auditors whose report dated April 13, 2009, expressed an unqualified
opinion on these statements.
We
conducted our audit in accordance with the standards of the Public Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the 2009 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mach One Corporation
as of December 31, 2009 and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered losses from
operations since its inception. This factor raises substantial doubt
about its ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/
Moquist Thorvilson Kaufmann Kennedy & Pieper LLC
Edina,
Minnesota
April 16,
2010
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Mach One Corporation
We have
audited the accompanying balance sheets of Mach One Corporation as of December
31, 2008 and 2007, and the related statements of operations, stockholders’
equity and cash flows for each of the years in the two-year period ended
December 31, 2008. Mach One Corporation’s management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Mach One Corporation as of December
31, 2008 and 2007 and the results of its operations and its cash flows each of
the years in the two-year period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Larry O’Donnell,
PC
Larry
O’Donnell, PC
Aurora,
Colorado
April 13,
2009
F-2
MACH
ONE CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$ |
79,902 |
|
|
$ |
635,334 |
|
Accounts receivable, net
|
|
|
290,485 |
|
|
|
44,603 |
|
Accounts receivable pledged as collateral
|
|
|
95,309 |
|
|
|
- |
|
Marketable securities
|
|
|
4,223 |
|
|
|
483,900 |
|
Inventory
|
|
|
323,058 |
|
|
|
- |
|
Other current assets
|
|
|
480,956 |
|
|
|
563,415 |
|
Total Current Assets
|
|
|
1,273,933 |
|
|
|
1,727,252 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
649,412 |
|
|
|
771,030 |
|
Goodwill
|
|
|
280,232 |
|
|
|
3,438,466 |
|
Intangible assets, net
|
|
|
1,034,533 |
|
|
|
80,000 |
|
Other assets
|
|
|
25,000 |
|
|
|
180,000 |
|
TOTAL ASSETS
|
|
$ |
3,263,110 |
|
|
$ |
6,196,748 |
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,510,123 |
|
|
$ |
7,577 |
|
Accrued compensation
|
|
|
487,508 |
|
|
|
377,659 |
|
Accrued interest
|
|
|
60,723 |
|
|
|
23,668 |
|
Deferred revenue
|
|
|
23,725 |
|
|
|
- |
|
Current portion of long-term debt obligations
|
|
|
33,183 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
3,197,518 |
|
|
|
1,223,904 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
3,504,130 |
|
|
|
3,164,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred
stock, $.05 par value, 10,500,000 shares authorized, 2,500,000 and
5,420,000 shares
|
|
|
|
|
|
|
|
|
issued
and outstanding at December 31, 2009 and December 31, 2008,
respectively, liquidation
|
|
|
|
|
|
|
|
|
preference
of $1,500,000 and $0 at December 31, 2009 and December 31,
2008, respectively
|
|
|
125,000 |
|
|
|
271,000 |
|
Common
stock, $.001 par value, 239,500,000 shares authorized, 181,346,946
and
|
|
|
|
|
|
|
|
|
111,094,054
shares issued and outstanding at December 31, 2009 and December
31, 2008, respectively
|
|
|
181,346 |
|
|
|
111,093 |
|
Treasury stock
|
|
|
(327,175 |
) |
|
|
(143,456 |
) |
Additional paid-in capital
|
|
|
11,248,980 |
|
|
|
5,314,699 |
|
Accumulated deficit
|
|
|
(14,636,624 |
) |
|
|
(3,744,760 |
) |
Accumulated other comprehensive loss
|
|
|
(12,065 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity (Deficit)
|
|
|
(3,420,538 |
) |
|
|
1,808,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
$ |
3,263,110 |
|
|
$ |
6,196,748 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
F-3
MACH
ONE CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
net
|
|
$ |
4,897,438 |
|
|
$ |
104,166 |
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
4,807,510 |
|
|
|
34,753 |
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
89,928 |
|
|
|
69,413 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
4,845,055 |
|
|
|
1,393,219 |
|
Property
and equipment impairments
|
|
|
287,033 |
|
|
|
- |
|
Intangible
asset impairments
|
|
|
1,652,526 |
|
|
|
- |
|
Goodwill
impairment
|
|
|
3,438,466 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(10,133,152 |
) |
|
|
(1,323,806 |
) |
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
Realized
loss on sale of marketable securities
|
|
|
(223,087 |
) |
|
|
- |
|
Interest
expense
|
|
|
(639,206 |
) |
|
|
(151,071 |
) |
Total
other expense
|
|
|
(862,293 |
) |
|
|
(151,071 |
) |
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(10,995,445 |
) |
|
|
(1,474,877 |
) |
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(10,995,445 |
) |
|
|
(1,474,877 |
) |
|
|
|
|
|
|
|
|
|
Less:
Net loss attributable to non-controlling interest in variable interest
entity
|
|
|
103,581 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to Mach One Corporation
|
|
$ |
(10,891,864 |
) |
|
$ |
(1,474,877 |
) |
|
|
|
|
|
|
|
|
|
Net
loss per common share (basic and diluted)
|
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
145,623,939 |
|
|
|
85,550,875 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
F-4
MACH
ONE CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
Preferred
Stock
|
|
|
|
|
Common
Stock
|
|
|
|
|
Treasury
|
|
Paid
in
|
|
|
Accumulated
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Stock
|
|
Capital
|
|
|
OCI
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2007
|
|
5,420,000 |
|
|
$ |
271,000 |
|
73,152,387 |
|
$ |
73,152 |
|
|
$ |
- |
|
$ |
1,395,015 |
|
|
$ |
- |
|
$ |
(2,269,883 |
) |
|
$ |
(530,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
- |
|
|
|
- |
|
7,275,000 |
|
|
7,274 |
|
|
|
- |
|
|
350,351 |
|
|
|
- |
|
|
- |
|
|
|
357,625 |
|
Shares
issued under terms of note
|
|
- |
|
|
|
- |
|
1,000,000 |
|
|
1,000 |
|
|
|
- |
|
|
49,000 |
|
|
|
- |
|
|
- |
|
|
|
50,000 |
|
Shares
issued upon conversion of note payable
|
|
- |
|
|
|
- |
|
1,666,667 |
|
|
1,667 |
|
|
|
- |
|
|
48,333 |
|
|
|
- |
|
|
- |
|
|
|
50,000 |
|
Shares
issued for Pacific Rim Foods, LTD acquisition
|
|
- |
|
|
|
- |
|
28,000,000 |
|
|
28,000 |
|
|
|
- |
|
|
3,472,000 |
|
|
|
- |
|
|
- |
|
|
|
3,500,000 |
|
Treasury
stock acquired
|
|
- |
|
|
|
- |
|
- |
|
|
- |
|
|
|
(143,456 |
) |
|
- |
|
|
|
- |
|
|
- |
|
|
|
(143,456 |
) |
Net
loss
|
|
- |
|
|
|
- |
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
(1,474,877 |
) |
|
|
(1,474,877 |
) |
Balance
December 31, 2008
|
|
5,420,000 |
|
|
|
271,000 |
|
111,094,054 |
|
|
111,093 |
|
|
|
(143,456 |
) |
|
5,314,699 |
|
|
|
- |
|
|
(3,744,760 |
) |
|
|
1,808,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for acquisitions
|
|
8,500,000 |
|
|
|
425,000 |
|
8,000,000 |
|
|
8,000 |
|
|
|
- |
|
|
2,217,000 |
|
|
|
- |
|
|
- |
|
|
|
2,650,000 |
|
Conversion
of short term notes and accrued interest
|
|
- |
|
|
|
- |
|
34,513,241 |
|
|
34,514 |
|
|
|
- |
|
|
2,219,429 |
|
|
|
- |
|
|
- |
|
|
|
2,253,943 |
|
Conversion
of long-term debt |
|
- |
|
|
|
- |
|
2,511,034 |
|
|
2,511 |
|
|
|
- |
|
|
41,498 |
|
|
|
- |
|
|
- |
|
|
|
44,009 |
|
Conversion
of preferred stock into common
|
|
(11,420,000 |
) |
|
|
(571,000 |
) |
13,500,000 |
|
|
13,500 |
|
|
|
- |
|
|
557,500 |
|
|
|
- |
|
|
- |
|
|
|
- |
|
Shares
issued for services
|
|
- |
|
|
|
- |
|
10,003,458 |
|
|
10,003 |
|
|
|
- |
|
|
808,276 |
|
|
|
- |
|
|
- |
|
|
|
818,279 |
|
Shares
issued for product
|
|
- |
|
|
|
- |
|
725,000 |
|
|
725 |
|
|
|
- |
|
|
57,275 |
|
|
|
- |
|
|
- |
|
|
|
58,000 |
|
Shares
issued for compensation
|
|
- |
|
|
|
- |
|
1,000,159 |
|
|
1,000 |
|
|
|
- |
|
|
88,850 |
|
|
|
- |
|
|
- |
|
|
|
89,850 |
|
|
|
- |
|
|
|
- |
|
4,346,698 |
|
|
4,347 |
|
|
|
- |
|
|
219,120 |
|
|
|
- |
|
|
- |
|
|
|
223,467 |
|
Treasury
stock purchases
|
|
- |
|
|
|
- |
|
- |
|
|
- |
|
|
|
(407,123 |
) |
|
- |
|
|
|
- |
|
|
- |
|
|
|
(407,123 |
) |
Treasury
stock sales
|
|
- |
|
|
|
- |
|
- |
|
|
- |
|
|
|
223,404 |
|
|
(55,547 |
) |
|
|
- |
|
|
- |
|
|
|
167,857 |
|
Unrealized
loss on investments
|
|
- |
|
|
|
- |
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
(12,065 |
) |
|
- |
|
|
|
(12,065 |
) |
Net
Loss
|
|
- |
|
|
|
- |
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
(10,891,864 |
) |
|
|
(10,891,864 |
) |
Balance
December 31, 2008
|
|
2,500,000 |
|
|
$ |
125,000 |
|
181,346,946 |
|
$ |
181,346 |
|
|
$ |
(327,175 |
) |
$ |
11,248,980 |
|
|
$ |
(12,065 |
) |
$ |
(14,636,624 |
) |
|
$ |
(3,420,538 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
MACH
ONE CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$ |
(10,891,864 |
) |
|
$ |
(1,474,877 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
339,430 |
|
|
|
89,037 |
|
Amortization of deferred financing costs
|
|
|
200,500 |
|
|
|
- |
|
Amortization of prepaid management fees
|
|
|
105,000 |
|
|
|
- |
|
Accretion of interest on long-term debt |
|
|
169,581 |
|
|
|
|
|
Loss on sale of marketable securities
|
|
|
223,087 |
|
|
|
- |
|
Loss on sale of property, plant and equipment, net
|
|
|
22,064 |
|
|
|
|
|
Goodwill impairment
|
|
|
3,438,466 |
|
|
|
- |
|
Intangible asset impairment
|
|
|
1,652,526 |
|
|
|
|
|
Property and equipment impairment
|
|
|
287,033 |
|
|
|
|
|
Common stock issued for services, product &
compensation
|
|
|
765,629 |
|
|
|
407,625 |
|
(Increase) decrease in operating assets (net of
acquisition):
|
|
|
|
|
|
|
- |
|
Accounts receivable
|
|
|
262,136 |
|
|
|
(43,049 |
) |
Inventory
|
|
|
931,464 |
|
|
|
- |
|
Other current assets
|
|
|
245,099 |
|
|
|
|
|
Other assets
|
|
|
(25,000 |
) |
|
|
|
|
Increase in operating liabilities (net of acquisition):
|
|
|
|
|
|
|
- |
|
Accounts payable and accrued expenses
|
|
|
411,169 |
|
|
|
91,522 |
|
Deferred revenue
|
|
|
18,526 |
|
|
|
- |
|
Total
adjustments
|
|
$ |
9,046,710 |
|
|
$ |
545,135 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$ |
(1,845,154 |
) |
|
$ |
(929,742 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the sale of marketable securities
|
|
|
244,525 |
|
|
|
- |
|
Acquisitions, net of cash acquired
|
|
|
30,672 |
|
|
|
337,458 |
|
Purchase of property and equipment, net
|
|
|
(297,724 |
) |
|
|
(277,299 |
) |
Net
cash (used in) provided by investing activities
|
|
$ |
(22,527 |
) |
|
$ |
60,159 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from short term notes payable
|
|
|
1,713,225 |
|
|
|
1,497,989 |
|
Payments on short term notes payable
|
|
|
(101,748 |
) |
|
|
- |
|
Payments on long-term debt
|
|
|
(59,962 |
) |
|
|
- |
|
Proceeds from the sale of treasury stock
|
|
|
167,857 |
|
|
|
- |
|
Purchase of treasury stock
|
|
|
(407,123 |
) |
|
|
- |
|
Net
cash provided by financing activities
|
|
$ |
1,312,249 |
|
|
$ |
1,497,989 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
$ |
(555,432 |
) |
|
$ |
628,406 |
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
635,334 |
|
|
|
6,928 |
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$ |
79,902 |
|
|
$ |
635,334 |
|
Supplemental
cash and non-cash flow information
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of short term notes
payable
|
|
|
|
|
|
|
|
|
and related accrued interest
|
|
$ |
2,253,943 |
|
|
$ |
- |
|
Conversion of preferred stock into common stock
|
|
$ |
571,000 |
|
|
$ |
- |
|
Unrealized loss on marketable securities
|
|
$ |
12,065 |
|
|
$ |
- |
|
Cash paid for interest
|
|
$ |
57,889 |
|
|
$ |
- |
|
Common stock issued for payment of long-term debt
|
|
$ |
44,009 |
|
|
$ |
50,000 |
|
Loss on sale of treasury stock
|
|
$ |
55,547 |
|
|
$ |
- |
|
Liability for license agreement
|
|
$ |
243,700 |
|
|
$ |
- |
|
Common stock issued for debt financing costs
|
|
$ |
200,500 |
|
|
$ |
- |
|
Accounts payable converted to note payable
|
|
$ |
439,646 |
|
|
$ |
- |
|
Product financing arrangement
|
|
$ |
94,818 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
F-6
Note
1. Nature of Operations
Mach One
Corporation is a global wellness solutions company with operations in Animal
Wellness; Organics & Sustainables; and BioPharm Process Systems. Through its
Animal Wellness Group, the Company focuses on major opportunities for positive,
long-term health and longevity benefits for disease-threatened animals in the
commercial livestock and poultry industries, especially the beef and dairy
sectors. The Organics & Sustainables Group, through its flagship company
Ceres Organic Harvest, Inc. (Ceres), addresses the growing needs of food
manufacturers in the organic foods market which are challenged to increase
production capacity for organic raw commodities and feed stocks that go into the
finished products. The BioPharm Process Systems Group provides documentation,
process modules, process skids, custom tanks and vessels and custom stainless
steel fabrication to the biopharmaceutical industry, and also will be integral
in setting up and servicing the projected three U.S.-based laboratories for
production of Mach One's Animal Wellness Group Bridge™ product
line.
Note 2.
Summary of Significant Accounting Policies
Principles of
Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, as of the dates of their acquisitions (refer to Note 6.
Acquisitions). The wholly owned subsidiaries include Ceres,
Pacific Rim Foods, Ltd. (Pacific Rim), and Modular Process Constructors, LLC
(MPS). All inter-company transactions and balances have been eliminated in the
consolidation.
The
Company includes in its consolidated financial results entities determined to be
variable interest entities (VIEs), for which the Company is deemed to be the
VIE’s primary beneficiary.
Variable Interest
Entity: During the year ended December 31, 2009, the Company
was considered the primary beneficiary of Progressive Formulations, Inc. (PFI).
PFI is an importer and distributor of soy-based organic food products whose
initial capitalization was provided in the form of loans and inventory by the
Company. PFI is wholly-owned by a shareholder of the Company. Refer to Note 4. Consolidation of Variable
Interest Entity for further information on our consolidated
VIE.
Management
Estimates: The preparation of consolidated financial
statements in conformity with US 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The Company regularly evaluates
estimates and assumptions related to the realizability of accounts receivable,
inventory valuation, impairment of long-lived assets, and deferred income tax
asset valuation allowances. The Company bases its estimates and assumptions on
current facts, historical experience and various other factors that it believes
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.
Cash and Cash
Equivalents: For purposes of reporting cash flows, the Company
considers all cash accounts which are not subject to withdrawal restrictions or
penalties, and certificates of deposit with original maturities of 90 days or
less to be cash or cash equivalents. The Company maintains cash balances at four
financial institutions. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $250,000. At times, the cash balances in
these accounts may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes they are not exposed to any
significant credit risk on cash and cash equivalents.
Marketable
Securities: Marketable securities consist of equity securities, are
classified as available for sale and are expected to be redeemed within one
year.
Available
for sale securities are stated at fair value, with unrealized gains and losses
reported as accumulated other comprehensive income (loss), a separate component
of stockholders’ equity, until realized. These fair values are primarily
determined using quoted market prices. The carrying amount of securities, for
the purpose of computing unrealized gains and losses, are determined by specific
identification. The cost of securities sold is determined by specific
identification.
Customer Concentrations and
Accounts Receivable: Accounts receivable arise in the normal
course of business in selling products to customers. Concentrations
of credit risk with respect to accounts receivable arise because the Company
grants unsecured credit in the form of trade accounts receivable to its
customers.
The
Company had two customers that each accounted for more than 10% of revenues, and
combined accounted for 32.8% of revenues during 2009. We had no amounts recorded
in accounts receivable from these customers as of December 31, 2009. The Company
had no customers that accounted for more than 10% of revenues during
2008.
F-7
Accounts
are written off as they are deemed uncollectible based upon a periodic analysis
of specific customers, taking into consideration the age of past due accounts
and the customer’s ability to pay. Based on these analyses, management has
recorded $15,000 and $0 in allowance for doubtful accounts as of December 31,
2009 and 2008, respectively.
Inventory: The
Company maintains its inventory on a perpetual basis utilizing the first-in
first-out (FIFO) method. Inventories have been valued at the lower of
cost or market. As of December 31, 2009 and December 31, 2008, management has
not established an obsolescence reserve for inventory, as we believe that all
inventory is usable and that market values of all inventories exceed
cost.
Property and
Equipment: Property and equipment is reported at cost less
accumulated depreciation. Maintenance and repairs are charged to
expense as incurred. The cost of property and equipment is
depreciated over the following estimated useful lives of the related
assets:
|
Building |
39 years |
|
|
Furniture &
Fixtures |
7 years |
|
|
Machinery &
Equipment |
5 years |
|
Long-Lived and Amortizable
Intangible Assets: The Company periodically evaluates the
carrying value of long-lived and amortizable intangible assets to be held and
used, including but not limited to, property and equipment and intangible
assets, when events and circumstances warrant such a review. The
carrying value of a long-lived or amortizable intangible asset is considered
impaired when the anticipated undiscounted cash flow from such asset is less
than its carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk
involved. Losses on long-lived and amortizable intangible assets to
be disposed of are determined in a similar manner, except that fair values are
reduced for the cost to dispose. The Company has reviewed long-lived
and amortizable intangible assets with estimable useful lives and determined
that the remaining net carrying value, after impairing certain assets in 2009,
is recoverable in future periods.
Revenue
Recognition: The Company recognizes revenue when persuasive
evidence of an arrangement exists, transfer of title has occurred, the selling
price is fixed or determinable, collection is reasonably assured and delivery
has occurred per the contract terms. For certain contracts of MPS, the Company
recognizes revenue based on the percentage of completion method. Revenue is
deferred when customer billings exceed revenue earned.
Segment
Reporting: The Company operates and manages the business under
one reporting segment. Currently, neither Animal Wellness nor BioPharm Process
Systems has generated significant revenues or acquired significant assets. As
such, the Company operates and manages the business under one reporting
segment.
Goodwill: Goodwill
is the excess of cost of an acquired entity over the amounts assigned to assets
acquired and liabilities assumed in a business combination. Goodwill is not
amortized. We evaluate the carrying value of goodwill annually during the
quarter ending December 31, and between such annual evaluations if events occur
or circumstances change that would indicate a possible impairment. We use a
discounted cash flow model based on management’s judgment and assumptions to
determine the estimated fair value of the Company. An impairment loss generally
would be recognized when the carrying amount of the Company’s net assets exceeds
the estimated fair value of the reporting unit.
Fair Value of Financial
Instruments: The respective carrying value of certain
on-balance sheet financial instruments approximates their fair
values. These financial instruments include cash, accounts
receivable, accounts payable and accrued liabilities, and notes
payable. Fair values were assumed to approximate cost or carrying
values as most of the debt was incurred recently and the assets were acquired
within one year. Management is of the opinion that the Company is not
exposed to significant interest, credit or currency risks arising from these
financial instruments.
Income
Taxes: The Company provides for income taxes using an asset
and liability approach. Deferred tax assets and liabilities are
recorded based on the differences between the financial statement and tax bases
of assets and liabilities and the tax rates in effect when these differences are
expected to reverse. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized. For all periods presented, the Company has recorded a full
valuation allowance against its deferred tax assets.
The
Company recognizes a financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority.
F-8
Comprehensive Income
(Loss): Comprehensive Income (Loss) includes net loss and items defined
as other comprehensive income. Items defined as other comprehensive income
include unrealized gains (losses) on marketable securities. The Company had
$(12,065) of other comprehensive income (loss) for the year ended December 31,
2009. There were no other comprehensive income (loss) items for the year ended
December 31, 2008.
Reclassifications:
Certain reclassifications have been made to the 2008 financial statement
presentation to correspond to the current year’s format. Total 2008 equity and
net loss are unchanged due to these reclassifications.
Recent Accounting
Developments In June 2009, the
FASB issued guidance to eliminate the quantitative approach previously required
for determining the primary beneficiary of a variable interest entity and
require ongoing qualitative reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity. This guidance is effective
for fiscal years beginning after November 15, 2009. The Company does not expect
the adoption of this standard to have any current impact on the Company's
financial statements.
In
January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair
Value Measurements and Disclosures. This guidance requires new disclosures and
clarifies some existing disclosure requirements about fair value measurements.
Any additional disclosures required under this guidance will be included in our
quarterly report on Form 10-Q for the quarter ending March 31, 2010, with the
exception of disclosures about purchases, sales, issuances and settlements in
the rollforward of activity in Level 3 fair value measurements. Those
disclosures are effective for our quarterly report on Form 10-Q for the quarter
ending March 31, 2011.
Note 3.
Going Concern Uncertainty
The
accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business.
Since inception, until the acquisition of Ceres and MPS in February 2009, the
Company had primarily been engaged in product development and pre-operational
activities. Minimal revenue has been generated to date and the
Company has accumulated losses totaling $14,636,624 from inception through
December 31, 2009, and a net working capital deficit of
$1,923,585. The uncertainty related to these conditions raises
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Over the
next 18 months, in order to have the capability of achieving our business plan,
we believe that we will require at least $5,000,000 in additional funding to pay
down certain payables and accruals and to provide working capital. Should we be
unable to obtain additional funding in the next 3 months, we would be required
to further cut expenses in our Organics and Sustainables group and temporarily
halt operations in our Animal Wellness group until such funding is obtained. We
are currently attempting to raise these funds by means of one or more public or
private offerings of debt or equity securities or both. However, at this point,
we have not specifically identified the type or sources of this
funding. We also are exploring commercial and joint venture financing
opportunities.
However,
at this point, we have not specifically identified the type or sources of this
funding. We also are exploring commercial and joint venture financing
opportunities.
Note 4.
Consolidation of Variable Interest Entity
The
Company identifies variable interest entities and determines when we should
include the assets, liabilities, non-controlling interests and results of
activities of a VIE in its consolidated financial statement.
In
general, a VIE is a corporation, partnership, limited liability company, trust,
or any other legal structure used to conduct activities or hold assets that
either (1) has an insufficient amount of equity to carry out its principal
activities without additional subordinated financial support, (2) has a group of
equity owners that are unable to make significant decisions about its
activities, or (3) has a group of equity owners that do not have the obligation
to absorb losses or the right to receive returns generated by its
operations.
In 2009,
the Company determined they were required to consolidate PFI as a VIE in our
consolidated statement of operations due to us determining we were the primary
beneficiary of PFI. Therefore, for the year ended December 31, 2009, the
consolidated statements of operations have been presented on a consolidated
basis to include the variable interest in PFI. More specifically, for
the year ended December 31, 2009, PFI amounts included in the consolidated
statement of operations of the Company consist of; selling, general and
administrative expenses of $103,810. PFI had no sales during this period. All
significant intercompany accounts and transactions have been eliminated in
consolidation. No amounts from PFI are included in the consolidated balance
sheet as of December 31, 2009 or the consolidated statements of cash flows for
the year ended December 31, 2009 as PFI had reimbursed all advances from Ceres
as of December 31, 2009 and PFI was no longer considered a VIE. No amounts from
PFI are included in the consolidated balance sheet as of December 31, 2008 or
the consolidated statements of operations and cash flows for the year ended
December 31, 2008 as PFI was a VIE of Ceres, which was not then acquired by the
Company
F-9
Note
5. Product License and Asset Purchase
On August
11, 2009, the Company entered into an exclusive license and distribution
agreement to acquire the formulations and worldwide marketing rights to a suite
of products that promote joint and bone health in horses, dogs and humans. These
formulas and related rights are being acquired from Platte Valley State Bank
(Platte Valley), who currently owns all rights pertaining to these products. The
products were previously developed, manufactured and distributed by Clark
Biotechnology, Inc. (CBI). CBI discontinued operations in 2008 due to the death
of its founder.
The
agreement calls for minimum royalties totaling $350,000 to be paid as
follows:
$30,000 |
|
September 11,
2010 |
$80,000 |
|
September 11,
2011 |
$80,000 |
|
September 11,
2012 |
$80,000 |
|
September 11,
2013 |
$80,000 |
|
September 11,
2014 |
The
Company has imputed interest on these installments at a rate of 12%, which is
equivalent to the Company’s estimated borrowing rate as of the date of the
agreement. The discounted value of the licensed asset totals $243,700 and has
been included in intangible assets on our consolidated balance sheet and a
corresponding liability included in current portion of long-term debt and
long-term debt (refer to Note
12. Long-term debt) as of December 31, 2009.
The
Company is treating these minimum royalty payments as a purchase of the related
formulations and marketing rights as once these minimum royalty payments are
made, the Company will have sole title to the formulations and marketing
rights.
In
addition, the Company is required to pay additional royalties of 4% of net sales
of the products that exceed $2,000,000 in each year of the agreement. These
royalties will be recorded as incurred. There were no sales of this product
during the period from August 11, 2009 to December 31, 2009.
On August
11, 2009, the Company also purchased certain related equipment from Platte
Valley for $50,000. We allocated $29,589 to assets that we sold on November 9,
2009 for $50,000, resulting in a gain of $20,411. The remaining $20,411 is
included in property and equipment as of December 31, 2009.
Note 6.
Acquisitions
Pacific
Rim Foods, Ltd.
On
December 31, 2008, pursuant to a Plan and Agreement of Reorganization between
the Company, Pacific Rim Foods, Ltd. (Pacific Rim) and certain shareholders of
Pacific Rim, the Company issued 28,000,000 shares of its common stock, valued at
$3,500,000, and Five Year Zero Coupon Convertible Promissory Notes in the
aggregate amount of $1,500,000 in exchange for of all of the issued and
outstanding capital stock of Pacific Rim. Pacific Rim is a development stage
company with interests in the food and energy sector in China and Australia.
These interests include equity, debt, options, insurance and intellectual
property. The underlying commodities represented by these interests include corn
and oil and gas. The development stage of Pacific Rim reflects its
early interests in acquiring and controlling a number of shelf stable food
processing facilities in China with the intent of growing and processing a broad
range of commodities. Its initial interests have focused on sweet corn and its
platform interests include Jilin Jimei Foods Ltd, which is the oldest sweet corn
joint venture in China. The interests in Jilin Jimei Foods Ltd include options,
debt instruments (inventory loans) and intellectual property (trademark and
brands). For reasons noted further below in this footnote, the Company intends
to liquidate the assets of Pacific Rim to obtain cash for financing other
operations of the Company. We intend to fully liquidate all remaining assets by
December 31, 2010.
Modular
Process Constructors, LLC
On
February 18, 2009, the Company consummated the acquisition and purchase from
Thomsen Group, LLC (Thomsen) of all of the assets of Modular Process
Constructors, LLC (MPS). Pursuant to the Agreement for Purchase and Sale of
Business, in exchange for the MPS assets, the Company issued to Thomsen 500,000
shares of restricted Series B Convertible Preferred Stock (Series B Preferred
Stock), valued at $150,000. Each share of Series B Preferred Stock is
convertible into two shares of the Company’s common stock. In addition to the
issuance of Series B Preferred Stock, the Company executed an Earn-Out Agreement
with Thomsen for the issuance of up to 35% of the Company’s issued and
outstanding common stock based upon the percentage of MPS net income to total
consolidated net income of the Company for the three-year period ending December
21, 2011. Under current accounting guidance, contingent consideration
arrangements such as these are to be recorded as a liability or equity at its
estimated fair value at the time of the acquisition. As of December 31,
2009, the Company determined that the contingent consideration has no fair value
as MPS has agreed to negotiate this contract concurrent with our proposed
acquisition of White Hat Brands, LLC (see Note 17. Subsequent Events). MPS
designs and builds process equipment used by the biopharmaceutical industry.
MPS's skid based solutions offer componentized fabrication for small and large
projects reducing lead time, transport cost, and installation time. MPS provides
entire project solutions including documentation, process modules, custom
stainless steel fabrication, and electronic controls to the biopharmaceutical
markets.
Ceres
Organic Harvest, Inc.
On
February 20, 2009, pursuant to a Plan and Agreement of Reorganization between
the Company and Ceres Organic Harvest, Inc. (Ceres), the Company completed the
acquisition of all of the issued and outstanding capital stock of Ceres in
exchange for 8,000,000 shares of the Company’s common stock and 8,000,000 shares
of Series C Convertible Preferred Stock (Series C Preferred Stock), valued at
$2,500,000. Each share of Series C Preferred Stock is convertible into one share
of Mach One common stock. Ceres and its subsidiary Organic Grain and Milling,
Inc. supply organic grain and grain-based ingredients to the food, feed and
dairy industries, including varieties of wheat, flour, oats, corn, flax, barley
and other products.
F-10
Due to
the nature and timing of these transactions, as of March 31, 2009, the Company
made a good-faith estimate as to the value of the consideration paid for Pacific
Rim, MPS and Ceres and the fair value of acquired assets and assumed
liabilities, including identifiable intangibles, and recorded a preliminary
purchase price allocation. The Company finalized these estimates and
the purchase price allocation during the quarter ended September 30, 2009, with
the exception of the elimination of a Ceres intercompany asset and liability in
the quarter ended December 31, 2009 in the amount of $280,232. The intercompany
elimination had no effect on amounts allocated to intangible assets or
goodwill.
The
following table summarizes the final allocation of the purchase price to the
fair values of the assets acquired and liabilities assumed at the date of
acquisition, in accordance with the purchase method of accounting, as of
December 31, 2009:
|
|
Ceres
|
|
|
MPS
|
|
|
Pacific
Rim
|
|
|
Total
|
|
Current
assets
|
|
$ |
1,670,117 |
|
|
$ |
3,015 |
|
|
$ |
1,514,834 |
|
|
$ |
3,187,966 |
|
Identifiable
intangible assets
|
|
|
2,490,000 |
|
|
|
100,000 |
|
|
|
80,000 |
|
|
|
2,670,000 |
|
Goodwill
subsequently impaired
|
|
|
- |
|
|
|
- |
|
|
|
3,438,466 |
|
|
|
3,438,466 |
|
Goodwill
|
|
|
178,048 |
|
|
|
102,184 |
|
|
|
- |
|
|
|
280,232 |
|
Other
long-term assets
|
|
|
82,544 |
|
|
|
- |
|
|
|
180,000 |
|
|
|
262,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets acquired
|
|
|
4,420,709 |
|
|
|
205,199 |
|
|
|
5,213,300 |
|
|
|
9,839,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
1,856,975 |
|
|
|
55,199 |
|
|
|
213,300 |
|
|
|
2,125,474 |
|
Long-term
liabilities
|
|
|
63,734 |
|
|
|
- |
|
|
|
- |
|
|
|
63,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities assumed
|
|
|
1,920,709 |
|
|
|
55,199 |
|
|
|
213,300 |
|
|
|
2,189,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_
|
|
Total
purchase consideration
|
|
$ |
2,500,000 |
|
|
$ |
150,000 |
|
|
$ |
5,000,000 |
|
|
$ |
7,650,000 |
|
Identifiable
intangible assets acquired in the acquisition of Ceres is comprised of; a
proprietary product license, an exclusive import supplier relationship and a
customer list, originally valued at $980,000, $660,000 and $850,000,
respectively and estimated to have useful lives of 15, 5 and 5 years,
respectively. During the quarter ended December 31, 2009, the Company determined
that the value of these assets were impaired and wrote down these assets to
$680,000, $80,000 and $0, respectively. The Company amortizes the remainder of
these intangible assets using a method that reflects the pattern in which the
assets are expected to be consumed.
Identifiable
intangible assets
acquired in the acquisition of MPS are comprised of engineering methodology and
a customer list that the Company estimates has a useful life of 5 years.
The Company amortizes these intangible assets using a method that
reflects the pattern in which the assets are expected to be
consumed.
Identifiable intangible
assets acquired in the acquisition of Pacific Rim are comprised of a
brand trademark that the Company estimates has a useful life of 15 years. While
the trademark is currently in use, the Company decided to sell it during fiscal
2009 and accordingly, have reported it as an asset held for sale included in
other current assets on the consolidated balance sheet as of December 31,
2009.
As of
December 31, 2008, the Company expected to exploit the assets that Pacific Rim
holds in China, such as the brand trademark and options to acquire joint
ventures. As of June 30, 2009, the Company had reconsidered these options and is
focusing its efforts on the Company’s mission to develop bio-solutions to
provide and promote human and animal wellness. As such, during the quarter ended
June 30, 2009, the Company determined the goodwill initially recorded of
$3,438,466 was impaired and was charged to operating expenses in the Company’s
consolidated statement of operations.
The
Company has recorded the results of the operations of Pacific Rim, Ceres and MPS
in the Company’s consolidated statement of operations beginning with the
effective date of each respective acquisition.
Note 7.
Intangible Assets and Goodwill
Intangible
assets, net at December 31, 2009 and 2008 consisted of the
following:
|
|
2009 |
|
|
2008 |
|
Proprietary product
license |
|
$ |
680,000 |
|
|
$ |
- |
|
Trademark |
|
|
- |
|
|
|
80,000 |
|
Supplier
relationship |
|
|
80,000 |
|
|
|
- |
|
Engineering
methodology and customer list100 |
|
|
100,000 |
|
|
|
- |
|
Licensed assets (See
Note 5) |
|
|
243,700 |
|
|
|
- |
|
|
|
|
1,103,700 |
|
|
|
80,000 |
|
Less: accumulated
amortization |
|
|
(69,167 |
) |
|
|
- |
|
|
|
$ |
1,034,533 |
|
|
$ |
80,000 |
|
F-11
Amortization
of $146,641 and $0 was recorded for the years ended December 31, 2009 and 2008,
respectively.
We
periodically reassess the carrying value, useful lives and classification of
identifiable intangible assets. Estimated aggregate amortization expense based
on current intangibles for the next five years is expected to be as follows:
$95,400 in 2010, $156,800 in 2011, $195,200 in 2012, 262,300 in 2013 and
$324,900 in 2014.
Changes
in goodwill, for the two year period ended December 31, 2009, were as
follows:
Balance,
December 31, 2007
|
|
$ |
- |
|
Acquisition
of PRF
|
|
|
3,438,466 |
|
Balance,
December 31, 2008
|
|
|
3,438,466 |
|
Acquisition
of MPS (1)
|
|
|
102,184 |
|
Acquisition
of Ceres
|
|
|
178,048 |
|
Impairment
charge (PRF goodwill)
|
|
|
(3,438,466 |
) |
Balance,
December 31, 2009
|
|
$ |
280,232 |
|
(1)
|
This
goodwill is deductible for income tax
purposes.
|
Note 8.
Inventories
Inventory
at December 31, 2009 and 2008 consisted of the following:
|
|
December
31, 2009 |
|
|
December
31, 2008 |
|
Raw
materials |
|
$ |
13,879 |
|
|
$ |
- |
|
Finished
goods |
|
|
309,179 |
|
|
|
- |
|
|
|
$ |
323,058 |
|
|
$ |
- |
|
The
Company has entered into an inventory financing arrangement where OGM sells
grain that is reserved for use by Ceres to third-party grain processors (the
“Mill”). The Mill has generally agreed to segregate the grain held for Ceres and
to process the grain solely for Ceres’ use. These sales have been recorded in
the financial statements as a product financing arrangement under ASC 470-40,
“Accounting for Product Financing Arrangements.” As of December 31,2009, $94,818
remained in inventory with a corresponding amount included in
short-term notes payable and other debt, representing the Company’s
non-contractual obligation to repurchase milled products produced from such
inventory.
Note
9. Composition of Certain Financial Statement
Captions
Other
current assets at December 31, 2009 and 2008 consisted of the
following:
|
|
2009 |
|
|
2008 |
|
Prepaid management
fee |
|
$ |
105,000 |
|
|
$ |
30,000 |
|
Brand trademark held
for sale |
|
|
80,000 |
|
|
|
- |
|
Inventory
advance |
|
|
260,095 |
|
|
|
520,020 |
|
Prepaid expenses and
other |
|
|
35,861 |
|
|
|
13,395 |
|
|
|
$ |
480,956 |
|
|
$ |
563,415 |
|
F-12
Note 10.
Property and Equipment
Property
and equipment at December 31, 2009 and 2008 consisted of the
following:
|
|
2009 |
|
|
2008 |
|
Machinery &
equipment |
|
$ |
639,758 |
|
|
$ |
821,879 |
|
Building |
|
|
35,000 |
|
|
|
- |
|
Leasehold
improvements |
|
|
99,507 |
|
|
|
21,790 |
|
Computer
equipment |
|
|
39,590 |
|
|
|
10,322 |
|
Furniture &
fixtures |
|
|
3,074 |
|
|
|
5,287 |
|
Vehicles |
|
|
35,000 |
|
|
|
- |
|
Livestock |
|
|
- |
|
|
|
55,240 |
|
|
|
|
851,929 |
|
|
|
914,518 |
|
Less: accumulated
depreciation |
|
|
(202,517 |
) |
|
|
(143,488 |
) |
|
|
$ |
649,412 |
|
|
$ |
771,030 |
|
Depreciation
expense related to property and equipment was $192,789 and $55,750 for the years
ended December 31, 2009 and 2008, respectively. During the quarter ended
December 31, 2009, the Company evaluated the carrying value of property and
equipment for impairment. We identified refrigeration units that were purchased
in order to execute a portion of our AWG plan. That plan has been subsequently
modified, and it was determined that the refrigeration units were no longer
usable. Our analysis indicated that the remaining value of the equipment was
limited to scrap value. As such, we wrote the remaining net value of the
equipment on our books to $0. Impairment expense related to this write-down was
$287,033 for the year ended December 31, 2009.
Note 11.
Short-term Notes Payable and Other Debt
Short-term
notes payable and other debt at December 31, 2009 and 2008 consisted of the
following:
|
|
2009 |
|
|
2008 |
|
Short-term
convertible notes payable |
|
$ |
794,646 |
|
|
$ |
815,000 |
|
Transfac Financing
Agreement |
|
|
76,345 |
|
|
|
- |
|
Product financing
arrangement |
|
|
94,818 |
|
|
|
- |
|
Short-term loans and
lines of credit |
|
|
98,447 |
|
|
|
- |
|
|
|
$ |
1,064,256 |
|
|
$ |
815,000 |
|
Short-term
Convertible Notes Payable
The
Company entered into two rounds of financing through Commonwealth Capital during
the quarters ended December 31, 2008 and March 31, 2009.
The first
round (Commonwealth One) was closed in the quarter ended December 31, 2008.
Proceeds from the notes were $550,000. Interest at 12.0% is due with the
principal on various dates from April through June 2009. The notes are unsecured
and are convertible into shares of the Company’s common stock at $0.045 per
share at any time during the term of the notes.
The
second round (Commonwealth Two) was closed partially in December 2008, and the
remainder in the quarter ended March 31, 2009. Proceeds from the notes were
$95,000 and $1,602,984 during the quarters ended December 31, 2008 and March 31,
2009, respectively. Interest at 12.0% is due with the principal on various dates
from April through June 2009. The notes are unsecured and are convertible into
shares of the Company’s common stock at $0.075 per share at any time during the
term of the notes.
During
the quarter ended December 31, 2009, $50,000 of the Commonwealth Two notes were
paid off with cash.
During
the three months ended September 30, 2009, $350,000 of the Commonwealth One and
$1,587,984 of the Commonwealth Two notes were converted into 7,777,778 and
21,173,120 shares of the Company’s common stock, respectively. During
the three months ended June 30, 2009, $100,000 of the Commonwealth One and
$60,000 of the Commonwealth Two notes were converted into 2,222,222 and 800,000
shares of the Company’s common stock, respectively. Subsequent to December 31,
2009, and as of the date of this report, the remaining outstanding note totaling
$100,000 has been verbally extended until further notice by the note
holders.
The
Company also entered into loan agreements with an unrelated individual (Plant
Notes). Proceeds from the agreements were $70,000 and $35,000 during the
quarters ended December 31, 2008 and March 31, 2009, respectively. Interest at
5.0% is due with the principal on June 30, 2010. The notes are unsecured and are
convertible into shares of the Company’s common stock at $0.50 per share at any
time during the term of the notes.
In
connection with the acquisition of PRF on December 31, 2008, the Company
acquired a note payable for $100,000 to an unrelated individual (Blake Note).
Interest at 10.0% is payable annually. The note is unsecured and is convertible
into shares of the Company’s common stock at $0.125 per share at any time during
the term of the note.
In
October 2009, Ceres entered into a loan agreement with a vendor to finance the
outstanding trade accounts payable with a vendor (Tiryaki Note). Upon
execution of the note, the Company reclassed $439,646 of outstanding trade
accounts payable to short term loans payable. Interest at 10% is due with the
principal on June 30, 2010. The note is unsecured and is convertible into shares
of the Company’s common stock at $0.08 per share at any time during the
term.
F-13
In
December 2009, the Company entered into a round of financing with Charles Morgan
Securities, Inc. Proceeds from the notes (CMS Notes) was $50,000 as of December
31, 2009. Interest at 12.0% is due with the principal on September 30, 2010. The
notes are unsecured and are convertible into shares of the Company’s common
stock at $0.08 per share at any time during the term of the notes.
The
conversion prices of these convertible notes were established at, or above, the
then current market price of the Company’s common stock and therefore, no
beneficial conversion feature discount has been recorded.
A summary
table of short-term convertible notes payable as of December 31, 2009 and 2008
follows:
|
|
2009 |
|
|
2008 |
|
Commonwealth
One |
|
$ |
100,000 |
|
|
$ |
550,000 |
|
Commonwealth
Two |
|
|
- |
|
|
|
95,000 |
|
Plant
Notes |
|
|
105,000 |
|
|
|
70,000 |
|
Blake
Note |
|
|
100,000 |
|
|
|
100,000 |
|
Tiryaki
Note |
|
|
439,646 |
|
|
|
- |
|
CMS
Notes |
|
|
50,000 |
|
|
|
- |
|
Total |
|
$ |
794,646 |
|
|
$ |
815,000 |
|
Transfac
Financing Agreement
In
connection with the acquisition of Ceres, the Company has an accounts receivable
financing agreement (the “Agreement”) with Transfac Capital, LLC
(“Transfac”). The original Agreement term is one year from the
effective date of June 2, 2008 and is cancelable immediately upon notice by
Transfac, or within ten days of notice by the Company if the Company secures
financing from an FDIC insured institution. Upon the acquisition of
Ceres by the Company, the term changed to month-to-month and is cancelable
within ten days of notice by Ceres. Under the terms of the Agreement, the
Company may offer to sell its accounts receivable to Transfac each month during
the term of the Agreement, up to a maximum amount outstanding at any time of
$1.5 million in gross receivables submitted, or $1.2 million in net amounts
funded based upon an 80.0% advance rate. The Company is obligated to offer
accounts totaling a minimum of $300,000 in each month, and Transfac has the
right to decline to purchase any offered accounts (invoices).
The
Agreement provides for the sale, on a revolving basis, of accounts receivable
generated by specified debtors. The purchase price paid by Transfac reflects a
discount that is generally 0.7% for the first twenty days, plus an aging fee of
0.034% for each day after the first twenty days. The Company continues to be
responsible for the servicing and administration of the receivables purchased.
Transfac fees are reported in the Company’s consolidated statement of operations
as interest expense and were $42,477 for the year ended December 31, 2009. There
were no fees incurred for the year ended December 31, 2008 as the Agreement is
with Ceres, which was not acquired until the first quarter of fiscal
2009.
The
Company accounts for the sale of receivables under the Agreement as a secured
borrowing with a pledge of the subject receivables as collateral. Accounts
receivable pledged as collateral on the accompanying consolidated balance sheets
in the amount of $95,309 as of December 31, 2009, represents the gross
receivables that have been designated as “sold” and serve as collateral for
short-term debt in the amount of $76,345 as of December 31, 2009.
Product
Financing Arrangement
The
Company has entered into inventory financing arrangements with mills in regards
to grain held at these mills for future use and sales of the Company. Refer
to Note 8. Inventories,
for further information regarding these arrangements.
Short
Term Loans and Lines of Credit
In
September of 2009, the Company entered into a loan agreement with Thomsen Group,
LLC. The note balance as of December 31, 2009 is $50,118, interest at 8.0%,
principal and interest payments are due upon demand, and is unsecured. Thomsen
Group, LLC is majority-owned by a director of the Company.
F-14
The
Company acquired a bank line of credit with the acquisition of Ceres. The
balance as of December 31, 2009 is $48,329, interest at 7.5%, interest payments
are due monthly, and principal is due upon demand, and is
unsecured.
The
Company has recorded accrued interest on short-term notes payable and other
debt of $60,723 and $23,668 as of December 31, 2009 and 2008,
respectively.
Note 12.
Long-term Debt
Long-term
debt at December 31, 2009 and 2008 consisted of the following:
|
|
2009 |
|
|
2008 |
|
Zero
Coupon Convertible Subordinated Note Payable, interest at 5.0%, principal
and
interest due December 12, 2013, convertible into shares of common stock
of the Company at $0.125 per share at any time,
unsecured
|
|
$ |
1,558,529 |
|
|
$ |
1,535,000 |
|
|
|
|
|
|
|
|
|
|
Zero
Coupon Convertible Subordinated Note Payable, interest at 5.0%, principal
and
interest due December 12, 2013, convertible into shares of common stock
of the Company at $0.125 per share at any time, unsecured
|
|
|
1,579,072 |
|
|
|
1,500,000 |
|
|
|
|
|
|
|
|
|
|
Liability for
license agreement (See Note 5) |
|
|
255,077 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Unsecured note
payable, related party (See Note 14) |
|
|
105,861 |
|
|
|
105,801 |
|
|
|
|
|
|
|
|
|
|
U.S.
Small Business Administration term loan with interest at prime plus 2.75%,
6.0% at December 31, 2009, due June 7, 2011,
principal
and interest payment of $2,246 due monthly, secured by the assets of
Ceres
|
|
|
38,774 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
- |
|
|
|
23,467 |
|
|
|
|
3,537,313 |
|
|
|
3,164,268 |
|
Less current
portion: |
|
|
(33,183 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total long-term
debt |
|
$ |
3,504,130 |
|
|
$ |
3,164,268 |
|
In
December 2008, the Company issued Zero Coupon Convertible Subordinated notes
payable with a maturity date of December 12, 2013 for proceeds of $3,035,000. No
payments are required on the notes until maturity at which time the principal
amount of $3,828,840 is due. Original interest discount (OID) accrues at a rate
of 5% per year on the accreted value of the note. The holder may at any time
during the term of the note convert the accreted value of the notes into shares
of common stock of the Company. If either an event of default occurs under the
note, as defined in the note agreement, or a change of control occurs with
respect to the Company, the holder of the note may put the note to the Company
at its accreted value.
The
conversion prices of the Zero Coupon Convertible Subordinated notes ($0.125 per
share) were established at, or above, the then current market price of the
Company’s common stock and therefore, no beneficial conversion feature discount
has been recorded. The conversion price is subject to weighted-average
anti-dilution adjustments in the event we issue common stock at a price below
the then-applicable conversion price other than common stock issuances or option
grants to the Company's employees, directors or officers.
The
Company does not consider these anti-dilution features to be an embedded
derivative and therefore subject to variable accounting due to the embedded
instrument not meeting the net settlement characteristic as noted in ASC
815-10-15-83(c) and ASC 815-10-15-99. More specifically, to
meet the net settlement characteristics, an embedded instrument must be able to
be either (1) net settled under contract terms, (2) net settled through a market
mechanism or (3) net settled by delivery of derivative instrument or asset
readily convertible to cash. The Company believes the embedded
instrument cannot be net settled via contract terms or a market mechanism and
although though settlement of the embedded instrument could be made with the
delivery of the Company's common stock (i.e. an asset), due to the Company's
stock being lightly traded as per ASC 815-10-15-130 and as illustrated at ASC
815-10-55-87, 88 and 89 (Cases B through D), to be considered "readily
convertible to cash", the number of shares of stock to be exchanged must be
small relative to the stock's daily transaction volume. Currently,
the Company’s daily transaction volume of their common stock is very
low. However, moving forward, as required in ASC 815-10-15-139, the
Company will continually evaluate whether or not the common stock is considered
to be readily convertible to cash. In the event the Company's daily
trading volume of their common stock were to increase significantly to the point
where the shares to be exchanged in connection with the convertible notes would
be relatively small in relation to the daily trading volume, the contract would
then satisfy the net settlement characteristic and likely may need to be
accounted for as a derivative.
Under
current accounting guidance, If the terms of a contingent conversion option does
not permit an issuer to compute the number of shares that the holder would
receive if the contingent event occurs and the conversion price is adjusted, an
issuer shall wait until the contingent event occurs and then compute the
resulting number of shares that would be received pursuant to the new conversion
price. The number of shares that would be received upon conversion
based on the adjusted conversion price would then be compared with the number
that would have been received before the occurrence of the contingent event. The
excess number of shares multiplied by the commitment date stock price equals the
incremental intrinsic value that results from the resolution of the contingency
and the corresponding adjustment to the conversion price. That incremental
amount shall be recognized when the triggering event occurs.
F-15
Future
minimum payments on long-term debt at December 31, 2009 are as
follows:
Years ending
December 31, |
|
|
|
2010 |
|
$ |
51,050 |
|
2011 |
|
|
203,584 |
|
2012 |
|
|
80,000 |
|
2013 |
|
|
3,888,298 |
|
2014 |
|
|
80,000 |
|
|
|
$ |
4,302,932 |
|
Note 13.
Basic and Diluted Earnings (Loss) Per Share
The
Company computes earnings (loss) per share under two different methods, basic
and diluted, and presents per share data for all periods in which statements of
operations are presented. Basic earnings (loss) per share is computed
by dividing net income by the weighted average number of shares of common stock
outstanding. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common stock and
common stock equivalents outstanding. The table below shows the calculation of
basic and diluted loss per share from continuing operations for the years ended
December 31, 2009 and 2008, respectively:
|
|
2009 |
|
|
2008 |
|
Loss:
|
|
|
|
|
|
|
Net loss
attributable to Mach One Corporation |
|
$ |
(10,891,864 |
) |
|
$ |
(1,474,877 |
) |
Effect of dilutive
potential common shares |
|
|
- |
|
|
|
- |
|
Diluted net loss
from continuing operations |
|
$ |
(10,891,864 |
) |
|
$ |
(1,474,877 |
) |
Number
of shares:
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding |
|
|
145,623,939 |
|
|
|
85,550,875 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per share attributable to Mach One Corporation |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
As of
December 31, 2009, the Company had (i) 3,000,000 shares of common stock issuable
under convertible preferred stock arrangements, (ii) 200,000 shares of common
stock issuable upon the exercise of outstanding warrants and (iii) 38,414,164
shares of common stock issuable under convertible financing arrangements.
As of December 31, 2008, the Company had (i) 25,420,000 shares of common
stock issuable under convertible preferred stock arrangements and (ii)
38,428,889 shares of common stock issuable under convertible financing
arrangements. These 40,349,020 and 63,848,889 shares as of December 31,
2009 and 2008, respectively, which would be reduced by applying the treasury
stock method, were excluded from diluted weighted average outstanding shares
amount for computing the net loss per common share, because the net effect would
be antidilutive for each of the periods presented.
Note 14.
Related Party Transactions
We lease
our office and warehouse facility in Belgium, Wisconsin from Monte B. Tobin, our
Chairman, and his wife, (the Tobins) under a five-year net lease. The facility
consists of approximately 3,500 square feet of office space and 1,000 square
feet of warehouse space, with an option to increase the warehouse space by up to
500 feet. We currently pay a base rent of approximately $4,300 per month. The
Tobins hold a note receivable from the Company representing unpaid rent and
interest from 2005 and 2006 totaling $105,861. Interest accrues at 12% per year.
The note matures on January 1, 2011. Total
rent included in our statements of operations related to this lease was $43,154
and $49,700, for the years ended December 31, 2009 and 2008
respectively.
Note 15.
Stockholders’ Equity
Common
Stock
The
Company is authorized to issue 239,500,000 shares of $.001 par value common
stock. The Company has 181,346,946 shares of its common stock issued and
outstanding at December 31, 2009. Dividends may be paid on outstanding shares as
declared by the Board of Directors. Each share of common stock is entitled to
one vote.
On
January 20, 2010, the Company increased its $.001 par value common stock
authorized to issue to 500,000,000 shares.
Preferred
Stock
The
Company is authorized to issue 10,500,000 shares of $0.05 par value preferred
stock.
As of
December 31, 2008, there were 5,420,000 Series A Convertible Preferred shares
outstanding. Of these outstanding shares, 420,000 are convertible at any time
into common shares at a ratio of one (1) common share for each Series A
Preferred share and 5,000,000 are convertible at any time into common shares at
a ratio of five (5) common shares for each Series A Preferred
share. In addition, each Series A Preferred share has one vote for
each common share outstanding. There is no liquidation preference relative to
Series A Preferred shares.
During
the three months ended March 31, 2009, the Company executed an agreement with
the Series A Convertible Preferred Shareholders for a return to the Company of
4,420,000 Series A Preferred shares in return for 2,500,000 shares of
common stock valued at $221,000.
F-16
During
the three months ended June 30, 2009, the remaining 1,000,000 Series A
Convertible Preferred shares outstanding at December 31, 2008, were converted
into 5,000,000 shares of the Company’s common stock.
Pursuant
to the acquisition of MPS, the Company issued 500,000 shares of Series B
Preferred Stock. The Series B Preferred Stock shares are convertible at any time
into common shares at a ratio of two common shares for each preferred share. In
addition, each preferred share has one vote for each common share outstanding
and has a liquidation preference of $1.00 per share ($500,000 at December 31,
2009).
Pursuant
to the acquisitions of Ceres, the Company issued 8,000,000 shares of Series C
Preferred Stock. The Series C Preferred Stock shares are convertible at any time
into common shares at a ratio of one common share for each preferred share. In
addition, each Preferred share has one vote for each common share outstanding
and has a liquidation preference of $.50 per share ($1,000,000 at December 31,
2009). In December 2009, 6,000,000 shares of the Series C Preferred Stock were
converted into 6,000,000 shares of common stock.
Stock
Issuances
During
the three months ended December 31, 2009, the Company issued:
·
|
2,099,841
shares of common stock valued at $145,987 (approximately $0.07 per share)
for consulting services provided during the three months ended December
31, 2009. This resulted in a charge to operating expenses in the Company’s
consolidated statement of
operations.
|
·
|
725,000
shares of common stock valued at $58,000 ($0.08 per share) for the
purchase of inventory.
|
·
|
500,159
shares of common stock valued at $39,850 (approximately $0.08 per share)
for a retention bonus to an employee of the Company. This amount was
recorded as compensation expense in the Company’s consolidated statement
of operations.
|
·
|
6,000,000
shares of Series C preferred stock were converted to 6,000,000 shares of
common stock of the Company.
|
During
the three months ended September 30, 2009, the Company issued:
·
|
31,488,072
shares of common stock, at prices of $0.045 and $0.075 per share, for the
conversion of $1,937,984 of short term notes payable and $167,955 of
related accrued interest under the terms of the
agreements.
|
·
|
2,500,000
shares of common stock, at approximately $0.09 per share, for the
conversion of 4,420,000 shares of Series A Convertible Preferred Stock,
valued at $221,000, under the terms of the
agreements.
|
·
|
1,010,284
shares of common stock valued at $105,292 (approximately $0.10 per share)
for consulting services provided during the three months ended September
30 2009. This resulted in a charge to operating expenses in the Company’s
consolidated statement of
operations.
|
·
|
500,000
shares of common stock valued at $50,000 ($0.10 per share) for a retention
bonus to an employee of the Company. This amount was recorded as
compensation expense in the Company’s consolidated statement of
operations.
|
During
the three months ended June 30, 2009, the Company issued:
·
|
5,000,000
shares of common stock, at $0.01 per share, for the conversion of
1,000,000 shares of Series A Convertible Preferred Stock, valued at
$50,000, under the terms of the
agreements.
|
·
|
3,189,505
shares of common stock, at prices of $0.045 and $0.075 per share, for the
conversion of $160,000 of short term notes payable and $8,546 of related
accrued interest under the terms of the
agreements.
|
·
|
2,220,000
shares of common stock valued at $166,500 ($0.075 per share) for
consulting services provided during the three months ended June 30, 2009.
This resulted in a charge to operating expenses in the Company’s
consolidated statement of
operations.
|
·
|
2,346,698
shares of common stock valued at $23,467 ($0.01 per share) for the
conversion of a note payable under the terms of the original
agreement.
|
·
|
2,000,000
shares of common stock valued at $200,000 ($0.10 per share) for the
retention of an investment banking firm for services performed during the
quarter. This resulted in a charge to operating expenses in the Company’s
consolidated statement of
operations.
|
·
|
400,000
shares of common stock valued at $30,000 ($0.075 per share) for
professional services related to the issuance of the short-term
convertible note payable. This amount was recorded as deferred financing
costs and was amortized ratably to interest expense over the term of the
related note.
|
F-17
During
the three months ended March 31, 2009, the Company issued:
·
|
2,273,333
shares of common stock valued at $170,500 ($0.075 per share) for
professional services related to the issuance of the short-term
convertible note payable. This amount was recorded as deferred financing
costs and was amortized ratably to interest expense over the term of the
related note.
|
·
|
8,000,000
shares of common stock and 8,000,000 shares of Series C Convertible
Preferred Stock, with an estimated value of $2,500,000 were issued to the
shareholders’ of Ceres in exchange for their shares in Ceres under the
acquisition agreement between the parties and the
Company.
|
·
|
500,000
shares of Series B Convertible Preferred Stock, with an estimated value of
$150,000 were issued to Thomsen in exchange for its share ownership in MPS
under the acquisition agreement between Thomsen and the
Company.
|
Stock
Warrants
In
January 2009, in exchange for services provided, the Company issued a five-year
warrant to a consultant to purchase 200,000 shares of the Company's common stock
at an exercise price of $0.125 per share. The fair value of the
warrant approximated $3,400.
Treasury
Stock
With the
acquisition of Pacific Rim in fiscal 2008, the Company acquired 1,103,500 shares
its own common stock that was valued at $143,456, at an average price of $0.13
per share. During the quarter ended March 31, 2009, the Company purchased an
additional 1,113,000 shares of its common stock for $302,123 in cash, at an
average price of $0.25 per share. During the three months ended June 30, 2009,
the Company sold 402,800 shares of its common stock held in treasury for $63,246
in cash, at an average price of $0.16 per share. During the three months ended
September 30, 2009, the Company sold 754,000 shares of its common held in
treasury stock for $85,663 in cash, at an average price of $0.11. During the
three months ended December 31, 2009, the Company accepted 1,002,835 shares of
its common stock as payment for a loan receivable of $105,000 from PFI, at an
average price of $0.11 per share. Additionally, the Company sold 245,000 shares
of its common stock held in treasury stock for $18,948 in cash, at an average
price of $0.08 per share. Losses on sale of our treasury shares are
recorded in additional paid in capital in the equity section of our consolidated
balance sheet as of December 31, 2009.
Note 16.
Commitments and Contingencies
Operating
Leases
Our
principal executive office is located at 974 Silver Beach Road, Belgium,
Wisconsin 53004. The lease payment of $4,300 per month on 3,500 square feet of
offices and manufacturing and expired in March 2010. We also lease office space
in St. Paul, MN. The lease payment is $3,600 per month and is paid on a
month-to-month basis. We also lease a manufacturing facility in Oakland,
Nebraska. The lease payment is $3,000 per month and expires in August 2010. We
have not renewed the lease on the facility in Belgium. Total rent expense under
operating leases for the years ended December 31, 2009 and 2008, was $88,705 and
$49,700, respectively. Our commitment for rent due in 2010 under these operating
leases is $29,600.
The
Company periodically is subject to claims and lawsuits that arise in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the financial position of the Company.
Note 17.
Income Taxes
The
components of income tax expense (benefit) were as follows:
|
|
2009
|
|
|
2008
|
|
Federal
|
|
$
|
-
|
|
|
$
|
|
|
State
and local
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
- |
|
|
|
|
|
|
|
|
|
|
Current
tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
tax expense
|
|
|
-
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
- |
|
Income
tax expense differs from the amount computed by applying the U.S. federal
statutory income tax rate to earnings (loss) before income taxes as
follows:
|
|
2009
|
|
|
2008
|
|
U.S.
federal statutory rate at 34%
|
|
$
|
(3,703,000)
|
|
|
$
|
(1,100,000 |
)
|
State
tax benefit, net of federal
|
|
|
(329,000)
|
|
|
|
- |
|
Establishment
of a deferred tax liability upon acquisition of certain
intangible
assets acquired in a stock acquisition
|
|
|
926,000 |
|
|
|
- |
|
Change
in valuation allowance |
|
|
1,830,000 |
|
|
|
1,100,000 |
|
Non-deductible
expenses
|
|
|
1,276,000
|
|
|
|
|
|
Income tax expense
|
|
$ |
-
|
|
|
|
- |
|
F-18
The
components of the net deferred tax liability at December 31 were as
follows:
|
|
2009
|
|
|
2008
|
|
Current:
|
|
|
|
|
|
|
Accrued
liabilities and reserves
|
|
$
|
184,000
|
|
|
$ |
- |
|
Valuation
allowance
|
|
|
(184,000)
|
|
|
|
- |
|
Net
current deferred tax asset
|
|
|
-
|
|
|
|
- |
|
Long-term:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
|
2,918,000
|
|
|
|
1,100,000
|
|
Equipment
basis difference
|
|
|
90,000 |
|
|
|
- |
|
Identified
intangible asset basis difference
|
|
|
(260,000 |
)
|
|
|
-
|
|
Goodwill
basis difference
|
|
|
(2,000)
|
|
|
|
- |
|
Valuation
allowance
|
|
|
(2,746,000
|
)
|
|
|
(1,100,000 |
)
|
Net
long-term deferred tax liability
|
|
$ |
-
|
|
|
$
|
- |
|
As of
December 31, 2009, we had net operating loss carryforwards of $6.0 million for
U.S. federal tax purposes and $2.3 million for state tax
purposes. These loss carryforwards expire between 2010 and
2029. To the extent these net operating loss carryforwards are
available, they will be used to reduce any income tax liability associated with
our operations. Section 382 of the U.S. Internal Revenue Code
generally imposes an annual limitation on the amount of net operating loss
carryforwards that might be used to offset taxable income when a corporation has
undergone significant changes in stock ownership. Due to changes in
ownership, some of our net operating loss carryforwards will be limited. A
Section 382 study has not yet been performed as of the date of these financial
statements.
Realization
of our net operating loss carryforwards and other deferred tax temporary
differences are contingent upon future taxable earnings. Our net
deferred tax assets have been reduced fully by a valuation allowance, as
realization is not considered to be likely based on an assessment of the history
of losses and the likelihood of sufficient future taxable
income.
We are
subject to income taxes in the U.S. federal jurisdiction and various state
jurisdictions. As of December 31, 2009, we are no longer subject to U.S. federal
tax examinations for tax years before 2006. We are subject to state
tax audits until the applicable statutes of limitations expire.
We
recognize interest and penalties accrued on any unrecognized tax benefits as a
component of income tax expense. As of December 31, 2009, there were
no such items accrued and we had no unrecognized tax benefits. We do
not expect any material changes in our unrecognized tax positions over the next
12 months.
Note 18.
Subsequent Events
On March
24, 2010, the Company issued 3,333,333 shares of its common stock to an
individual investor for $100,000 in cash for a per share price of
$0.03.
In
February and March 2010, 1,760,000 shares of the Series C preferred stock were
converted to 1,760,000 shares of common stock.
On April
14, 2010, Mach One Corporation, a Nevada corporation (“Mach One”), completed an
acquisition of WhiteHat Holdings, LLC, a Delaware limited liability company
(“WhiteHat”), through the merger of WhiteHat into White Hat Acquisition Corp., a
wholly-owned subsidiary of Mach One (the “Merger Sub”), pursuant to a Plan and
Agreement of Merger entered into by the parties on February 25, 2010 (the
“Merger Agreement”). The Merger Sub will change its name to WhiteHat
Holdings, Inc. and will operate as a wholly owned subsidiary of Mach
One.
Pursuant
to the terms of the Merger Agreement, as partial consideration (i) $400,000
shall be deposited into a WhiteHat account not later than April 30,2010, to be
used by WhiteHat to pay its legal, accounting, marketing and debt
expenses and to further the development of its business, and (ii) all
of the issued and outstanding shares of common and preferred stock of WhiteHat
were converted into 154,798,788 shares of Mach One common stock and distributed
to the WhiteHat shareholders pro rata. In addition, $987,000 of WhiteHat
indebtedness was cancelled and converted into 15,343,750 shares of Mach One
common stock. Upon the close of the acquisition, the former WhiteHat
shareholders owned approximately 45% of the total issued and outstanding common
stock of Mach One. In the event that less than $400,000 is deposited
into a WhiteHat account by April 30, 2010, Mach One shall issue additional
shares of its common stock (“Penalty Shares”) to the WhiteHat shareholders, pro
rata. In addition, Mach One is obligated to provide additional
capital to the WhiteHat subsidiary of not less than $1,600,000 on or before July
4, 2010. In the event Mach One fails to provide such capital within
the required time period, Mach One will issue to the former WhiteHat
shareholders up to 33,691,592 additional shares of its common stock (“Additional
Shares”). However, in no event will the total number of shares issued
to the WhiteHat shareholders at the closing, together with any Penalty Shares
and/or Additional Shares exceed 49.9% of Mach One’s issued and outstanding
common stock.
On March
31, 2010, the Company discontinued the operations of OGM. As such, the Company
will report discontinued operations in its consolidated financial statements
during the quarter ending March 31, 2010.
F-19
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
Not
applicable.
Item
9A(T). CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosures. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance the objectives of the control system are met.
As of
December 31, 2009, our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures as such term is defined
in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on this evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were not effective as of December
31, 2009, because of the identification of the material weaknesses in internal
control over financial reporting described below. Notwithstanding the material
weaknesses that existed as of December 31, 2009, our Chief Executive Officer and
Chief Financial Officer have each concluded that the consolidated financial
statements included in this Annual Report on Form 10-K present fairly, in all
material respects, the financial position, results of operations and cash flows
of the Company and its subsidiaries in conformity with accounting principles
generally accepted in the United States of America (“GAAP”). We continue to
evaluate the potential steps to remediate such material weakness as described
below.
Since we
do not have a formal audit committee, our Board of Directors oversees the
responsibilities of the audit committee. The Board is fully aware that there is
lack of segregation of duties due to the small number of employees dealing with
general administrative and financial matters.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
set of processes designed by, or under the supervision of, a company’s principal
executive and principal financial officers, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our
assets;
|
·
|
Provide
reasonable assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with
authorizations of our management and directors;
and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of internal
control, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system will be met. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting based on criteria
established in “Internal Control-Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), as of December
31, 2009.
As a
result of our continued material weaknesses described below, management has
concluded that, as of December 31, 2009, our internal control over financial
reporting was not effective based on the criteria in “Internal
Control-Integrated Framework” issued by COSO.
Material
Weakness in Internal Control over Financial Reporting
A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or
detected. In connection with the assessment, management continues to identify
the following control deficiencies that represent material weaknesses at
December 31, 2009:
·
|
Due
to the limited number of Company personnel, a lack of segregation of
duties exists. An essential part of internal control is for
certain procedures to be properly segregated and the results of their
performance be adequately reviewed. This is normally
accomplished by assigning duties so that no one person handles a
transaction from beginning to end and incompatible duties between
functions are not handled by the same person. Management plans to
establish a more formal review process by the board members in an effort
to reduce the risk of fraud and financial
misstatements.
|
·
|
The
Company lacks a board oversight role within the financial reporting
process that is actively involved in the preparation of the financial
statements. Management continues to search for additional board members
that are independent and can add financial expertise, in an effort to
remediate part of this material
weakness.
|
We
understand that we continue to have internal control material weaknesses, but
due to the Company’s limited funds and inability to add certain staff personnel,
there were no changes to our internal control system in
2009. Management continues to discuss additional entity-level
controls it can establish in an effort to address the current lack of
segregation of duties. There were no additional material weaknesses
noted during 2009.
This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management’s report in this annual
report.
Changes
in Internal Control over Financial Reporting
During
the fiscal quarter ended December 31, 2009, there was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item
9B. Other Information.
Not
applicable.
PART
III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our Board
of Directors currently consists of five members. Each director holds office
until his successor is duly elected by the stockholders. Executive officers
serve at the pleasure of the Board of Directors. Our current directors and
executive officers are:
Name
|
|
Age
|
|
Position
|
Steven
M. Grubner
|
|
51 |
|
President
and Chief Operating Officer
|
Patrick
G. Sheridan
|
|
50 |
|
Chief
Financial Officer and Secretary
|
Peter
Nash, Ph.D.
|
|
63 |
|
Chief
Science Officer
|
Mark D. Thomas
|
|
49 |
|
Director
|
Tad
M. Ballantyne
|
|
54 |
|
Director
|
Brittin
Eustis
|
|
60 |
|
Director
|
Kevin
Sallstrom
|
|
53 |
|
Director
|
Monte B. Tobin
|
|
62 |
|
Director
|
19
Steven
M. Grubner- President and Chief Operating Officer
Mr.
Grubner
was
appointed as Interim President on September 1, 2009. Prior to his position with
Mach One Corporation, Mr. Grubner was CFO for GeneThera, a publicly traded
biotech company. During his tenure with GeneThera, Mr. Grubner was responsible
for all SEC financial reporting, provided executive management, and executed
public and private capital campaigns. Mr. Grubner has also had a substantial
career in the technology business where he held numerous senior management
positions in sales, finance and operations negotiating corporate transactions
and alliances with multi-national companies that are household names. Mr.
Grubner holds a J.D. from John Marshall Law School and a B.A. in economics from
the University of Michigan.
Patrick
G. Sheridan-Chief Financial Officer and Secretary
Mr.
Sheridan was appointed Chief financial officer of the Company on March 4, 2009.
From 2004 to the present Mr. Sheridan served as a consultant for Hudson
Financial, one of the world’s largest professional staffing firms. His
responsibilities included financial, advisory, and research positions with large
cap companies and included management of global restructuring processes along
with coordination of all accounting activities relating to acquisitions and
financing. Mr. Sheridan also managed and prepared documentation for SEC
reporting for public companies as well as development and documentation of
Financing Offering Memorandums. From 1996 to 2004, Mr. Sheridan was President
and CFO of Leisure Product Solutions, a product development firm. From 1993 to
1996, Mr. Sheridan was Vice President and CFO of HMU Management Corporation
providing financial, administrative and property management services to
long-term care facilities. From 1988 to 1993, Mr. Sheridan worked as a Manager
of Business Assurance for Coopers & Lybrand and acted as a managing auditor
to healthcare and small cap companies. Mr. Sheridan served 6 years in the United
States Navy as a Hospital Corpsman and Medical Lab Technician from 1981 to 1987.
Mr. Sheridan is a CPA and received a BBA in Accounting from the University of
North Florida.
Peter
Nash, Ph.D. - Chief Science Officer
Peter
Nash, Ph.D. originally studied to become a medical doctor and expected to treat
human patients. After obtaining his Ph.D. in microbiology, he taught for 20
years at the Indiana School of Medicine, University of Minnesota and Minnesota
State University, Mankato - covering 13 areas of medicine, from parasitology to
immunology to virology. In 1984, Nash joined BSI, an emerging medical company
(now called Surmodics) specializing in human diagnostics. While with BSI, Dr.
Nash worked to develop tests for strep, whooping cough, salmonella, toxins and
other diagnostics. In the late 1980s, Dr. Nash developed quick swab tests to
detect Listeria in feedlots and E. coli in processing plants. During the first
Gulf War, he worked on anthrax tests until government funding dissipated. Along
with two other BSI founders Dr. Nash spun off Camas Inc. in 1987. From the
University Technical Center in Minneapolis, they expanded their work in rapid
human diagnostics to agriculture — researching Campylobacter, Pasteurella and E.
coli 0157:H7 with federal funding. Under the direction of Dr. Nash, Camas did
work for the U.S. Department of Defense, the U.S. Marine Corps, and the U.S.D.A.
After nearly three decades of microbial study, Dr. Nash designed all-natural
cattle feed additives to inhibit a dangerous E. coli 1057:H7 strain and improve
feed efficiency with "impressive results." Dr. Nash holds three patents as a
result of his work.
Mr.
Thomas has been a Senior Infrastructure Engineer at Denver Water utility in
Denver, Colorado, since February 2006. In that position he is responsible for
that company’s communication systems. From 2001 to 2006 Mr. Thomas was the
Operations Manager for Compel, LLC, a developer of data communication and
telecommunication operations. Prior to Compel, Mr. Thomas was the Vice President
of Northern Communications Group, a regional communications
company.
Tad
M. Ballantyne-Director
Mr. Ballantyne
was appointed to the Board on January 7, 2009. Mr. Ballantyne is an
officer and director of several private companies including Hoopeston Foods,
Inc., Thomsen Group, LLC, and Pacific Rim Foods Ltd. Mr. Ballantyne is a
director and chairman of the audit committee of Life Partners Holdings, Inc.
(NASDAQ:LPHI). He also serves as an independent director of Creat Resources
Holdings Limited (LSE:CRHL), American Lorain Corporation (AMEX:ALN) and Empire
Energy Corporation International (OTCBB: EEGC) and a director of Jilin Jimei
Foods Ltd., a private company in Changchun China. During 2003, Texas Steel
Partners Inc., a Texas-based steel foundry, filed for reorganization and was
liquidated pursuant to a bankruptcy Chapter 7 conversion.
Mr. Ballantyne was an officer and director and 50% shareholder of Texas
Steel Partners. During the last 17 years, Mr. Ballantyne has been active in
acquiring and operating troubled companies or assets being divested by public
and private companies and has focused over the last four years in food
processing plants in both the United States and Asia. He holds a Bachelor of
Science degree in business management from the University of Wisconsin
system.
20
Brittin
Eustis-Director
Mr.
Eustis was appointed to the Board on February 20, 2009. Mr. Eustis
has over thirty years experience in the organic and natural food industry, both
in management and field operations. Mr. Eustis has been the Chief
Executive Officer and a director of Ceres Organic Harvest, Inc. since its
inception in 1992.
Monte Tobin – Director
Monte B.
Tobin served as chief executive officer of The Corporation for Advanced
Applications from 1996 to 2008. TCAA is in the business of bringing to market
various otherwise unrelated products, each embodying a specific technology and
for which its owners believe a market exists (e.g. a glucose testing product, a
test for canine disorders and a fire retardant for use on mattresses and other
fabrics). Our company's products were originally among those marketed by TCAA
through its then VDx subsidiary. Mr. Tobin acquired VDx from TCAA in 2004 under
an agreement requiring Mr. Tobin to contribute 10% of the stock he receives from
any acquiring corporation. TCAA received 3 million shares of Mach One
Corporation. While Mr. Tobin expects to continue supervising the operations of
TCAA, his activities on behalf of that corporation greatly diminished following
the separation of VDx, and those activities are expected to remain minimal
during the foreseeable future. Mr. Tobin served in the United States Air Force
from 1966 to 1970 during which time he also attended the University of Maryland
extension in Germany for two years, studying marketing and sales.
Directors
serve for a one-year term. There are currently no agreements or understandings
whereby any officer or director would resign at the request of another person.
None of our officers or directors is acting on behalf of or will act at the
direction of any other person.
Board
Committees
Audit
committee
We
currently have no audit committee. Our board of directors is responsible for
reviewing and monitoring our financial statements and internal accounting
procedures, recommending the selection of independent auditors by our board,
evaluating the scope of the annual audit, reviewing audit results, consulting
with management and our independent auditor prior to presentation of financial
statements to stockholders and, as appropriate, initiating inquiries into
aspects of our internal accounting controls and financial affairs. Currently,
all members of our board of directors participate in discussions concerning
audit committee matters.
Compensation
and Nominations Committees
We
currently have no compensation or nominating committee or other board committee
performing equivalent functions. Currently, all members of our board of
directors participate in discussions concerning executive officer compensation
and nominations to the board of directors.
Code
of Conduct and Ethics
Our board
of directors has adopted a code of business conduct and ethics applicable to our
directors, officers and employees, in accordance with applicable federal
securities laws and the FINRA Rules.
Indemnification
of Executive Officers and Directors
Our
articles of incorporation generally provide that directors of the corporation
shall not be held corporately liable except where applicable by Nevada statute.
Articles of incorporation and our bylaws neither provides for nor precludes
indemnification of our directors, officers and controlling person. In the event
that a claim for indemnification (other than the payment by us of expenses
incurred or paid by our sole director and officer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is appropriate and will be governed by the final
adjudication of such issue. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to our directors, officers,
and controlling persons, or insofar as indemnification under that Act is
otherwise permitted, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
21
COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's officers and
directors, and persons who own more than ten percent of its Common Stock, to
file reports of ownership and changes of ownership with the Securities and
Exchange Commission ("SEC") and each exchange on which the Company's securities
are registered. Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with copies of all
ownership forms they file.
Based
solely on its review of the copies of such forms received by it, or written
representations from the officers, directors, or persons holding greater than
10% of Company stock, no ownership disclosure form (SEC Form 5) was required for
those persons. Five of the required seven Form 3's for the directors have been
filed with the SEC. Messrs. Tobin and Severson have not filed their
Form 3’s as of the date of this form 10-K. There are no transfers of
the Company's common stock by any persons subject to Section 16(a)
requirements.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth the compensation of our officers during the last two
fiscal years ended December 31, 2009 and 2008. No other officers or directors
received annual compensation in excess of $100,000 during the last two completed
fiscal years.
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Name
and
Principal
Position
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Year
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Salary ($)
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Bonus
($)
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Stock
Awards
($)
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All Other
Compensation ($)
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Total
($)
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Monte
B. Tobin
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(1) |
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2009 |
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$ |
165,000 |
(5) |
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- |
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- |
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- |
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$ |
165,000 |
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Chief
Executive Officer
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2008 |
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180,000 |
(6) |
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- |
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- |
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- |
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180,000 |
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Dr.
Peter Nash
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(2) |
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2009 |
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144,000 |
(7) |
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