|
|
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|
PART
I
|
|
FINANCIAL
INFORMATION
|
3
|
|
|
|
|
Item
1
|
|
Financial
Statements
|
3
|
|
|
|
|
Item
2
|
|
Management's
Discussion and Analysis or Plan of Operation
|
17
|
|
|
|
|
Item
3
|
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Controls
and Procedures
|
19
|
|
|
|
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PART
II
|
|
OTHER
INFORMATION
|
21
|
|
|
|
|
Item
1
|
|
Legal
Proceedings
|
21
|
|
|
|
|
Item
2
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
|
|
|
|
Item
3
|
|
Defaults
Upon Senior Securities
|
21
|
|
|
|
|
Item
4
|
|
Submission
of Matters to a Vote of Security Holders
|
21
|
|
|
|
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Item
5
|
|
Other
Information
|
21
|
|
|
|
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Item
6
|
|
Exhibits
|
21
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|
|
|
|
SIGNATURES
|
|
|
22
|
June
30,
|
December
31,
|
||||||
2007
|
2006
|
||||||
Current
assets
|
(unaudited)
|
||||||
Cash
and cash equivalents
|
$
|
14
|
$
|
97
|
|||
Receivable
for cash in escrow for securities sold
|
9
|
1,244
|
|||||
Accounts
receivable
|
331
|
-
|
|||||
Inventory
|
205
|
213
|
|||||
Prepaid
expenses and other current assets
|
17
|
62
|
|||||
Total
current assets
|
576
|
1,616
|
|||||
Property
and equipment, net
|
7,553
|
5,894
|
|||||
Deferred
debt issue costs, net
|
1,484
|
2,736
|
|||||
Other
assets
|
47
|
37
|
|||||
Total
assets
|
$
|
9,660
|
$
|
10,283
|
|||
Current
liabilities
|
|||||||
Accounts
payable
|
$
|
1,489
|
$
|
534
|
|||
Accounts
payable - related party
|
563
|
468
|
|||||
Accrued
interest
|
1,042
|
374
|
|||||
Accrued
liabilities
|
1,129
|
709
|
|||||
Current
portion of capital lease obligations
|
5
|
7
|
|||||
Notes
payable to directors
|
577
|
-
|
|||||
Current
portion of convertible notes payable, net of debt discount
|
|||||||
Held
by related party Directors, net of debt discount of $2,783 and
$1,567
|
4,775
|
783
|
|||||
Held
by others, net of debt discount of $897 and $1,613
|
2,616
|
1,409
|
|||||
Current
portion of note payable to California Integrated Waste Management
Board
|
196
|
192
|
|||||
Participation
Certificates obligations issued prior to 2004
|
354
|
354
|
|||||
Total
current liabilities
|
12,746
|
4,830
|
|||||
Non-current
liabilities
|
|||||||
Capital
lease obligations, net of current portion
|
-
|
9
|
|||||
Convertible
notes payable, net of debt discount and current portion
|
|||||||
Held
by related party Directors, net of debt discount of $751 and
$4,264
|
154
|
420
|
|||||
Held
by others, net of debt discount of $2,581 and $417
|
514
|
588
|
|||||
Note
payable to California Integrated Waste Management Board, net of discount
and current portion
|
1,589
|
1,706
|
|||||
Total
non-current liabilities
|
2,257
|
2,723
|
|||||
Total
liabilities
|
15,003
|
7,553
|
|||||
Commitments
and contingencies (Note 6)
|
|||||||
Stockholders'
Equity (deficit)
|
|||||||
Preferred
stock, $0.001 par value, 10,000,000 shares authorized, none issued
and
outstanding
|
-
|
-
|
|||||
Common
stock, $0.001 par value, 750,000,000 shares authorized,
|
|||||||
136,546,687
and 114,263,824 shares issued and outstanding
|
137
|
114
|
|||||
36,664
and 15,083,715 shares issuable
|
-
|
15
|
|||||
Additional
paid-in capital
|
56,102
|
48,747
|
|||||
Deferred
stock-based consulting
|
(251
|
)
|
-
|
||||
Accumulated
deficit
|
(61,331
|
)
|
(46,146
|
)
|
|||
Total
stockholders' equity (deficit)
|
(5,343
|
)
|
2,730
|
||||
Total
liabilities and stockholders' equity (deficit)
|
$
|
9,660
|
$
|
10,283
|
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Revenue
|
$
|
418
|
$
|
14
|
$
|
517
|
$
|
50
|
|||||
Cost
of goods sold
|
430
|
19
|
604
|
45
|
|||||||||
Gross
profit
|
(12
|
)
|
(5
|
)
|
(87
|
)
|
5
|
||||||
Operating
expenses
|
|||||||||||||
Plant
operations and technology development
|
1,515
|
423
|
2,556
|
708
|
|||||||||
Consulting
and legal fees
|
165
|
1,206
|
478
|
2,218
|
|||||||||
General
and administrative
|
2,204
|
239
|
4,176
|
538
|
|||||||||
Settlement
expense
|
740
|
-
|
740
|
-
|
|||||||||
Total
operating expenses
|
4,624
|
1,868
|
7,950
|
3,464
|
|||||||||
Loss
from operations
|
(4,636
|
)
|
(1,873
|
)
|
(8,037
|
)
|
(3,459
|
)
|
|||||
Other
income (expense)
|
|||||||||||||
Interest
expense
|
(3,739
|
)
|
(729
|
)
|
(7,148
|
)
|
(843
|
)
|
|||||
Change
in fair value liability of warrants and derivatives
|
-
|
(986
|
)
|
-
|
(1,953
|
)
|
|||||||
Total
other income (expense)
|
(3,739
|
)
|
(1,715
|
)
|
(7,148
|
)
|
(2,796
|
)
|
|||||
Loss
before income taxes
|
(8,375
|
)
|
(3,588
|
)
|
(15,185
|
)
|
(6,255
|
)
|
|||||
Income
taxes
|
-
|
-
|
-
|
-
|
|||||||||
Net
loss
|
$
|
(8,375
|
)
|
$
|
(3,588
|
)
|
$
|
(15,185
|
)
|
$
|
(6,255
|
)
|
|
Net
loss per share, basic and diluted
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.11
|
)
|
$
|
(0.09
|
)
|
|
Weighted
average shares used in computing
|
|||||||||||||
net
loss per share, basic and diluted
|
135,024
|
68,684
|
133,139
|
67,564
|
Common
stock
|
Common
Stock Issuable
|
Additional
paid-in |
Deferred
stock-
based |
Accumulated
|
|||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
consulting
|
deficit
|
Total
|
||||||||||||||||||
Balance
at December 31, 2006
|
114,263,824
|
$
|
114
|
15,083,715
|
$
|
15
|
$
|
48,747
|
$
|
-
|
$
|
(46,146
|
)
|
$
|
2,730
|
||||||||||
Issuance
of shares upon exercise of warrants
|
2,089,911
|
2
|
(1
|
)
|
1
|
||||||||||||||||||||
Issuance
of shares for services
|
2,747,698
|
3
|
521
|
(251
|
)
|
273
|
|||||||||||||||||||
Issuance
of shares for accrued compensation
|
492,308
|
1
|
132
|
133
|
|||||||||||||||||||||
Issuance
of shares recorded as issuable in 2006
|
15,083,715
|
15
|
(15,083,715
|
)
|
(15
|
)
|
-
|
||||||||||||||||||
Shares
issued for executive compensation
|
1,100,000
|
1
|
291
|
292
|
|||||||||||||||||||||
Shares
issuable for services
|
36,664
|
-
|
7
|
7
|
|||||||||||||||||||||
Warrants
issued for services
|
482
|
482
|
|||||||||||||||||||||||
Stock-based
compensation expense
|
1,681
|
1,681
|
|||||||||||||||||||||||
Value
of beneficial conversion feature
|
-
|
||||||||||||||||||||||||
and
warrants issued with notes payable
|
4,167
|
4,167
|
|||||||||||||||||||||||
Issuance
of shares upon conversion of notes payable
|
769,231
|
1
|
75
|
76
|
|||||||||||||||||||||
Net
loss
|
(15,185
|
)
|
(15,185
|
)
|
|||||||||||||||||||||
Balance
at June 30, 2007
|
136,546,687
|
$
|
137
|
36,664
|
$
|
-
|
$
|
56,102
|
$
|
(251
|
)
|
$
|
(61,331
|
)
|
$
|
(5,343
|
)
|
Six
Months ended June 30,
|
|||||||
2007
|
2006
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(15,185
|
)
|
$
|
(6,255
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
used
by operating activities:
|
|||||||
Depreciation
and amortization
|
492
|
181
|
|||||
Change
in fair value of warrants and derivatives
|
-
|
1,953
|
|||||
Stock-based
compensation and settlement
|
2,807
|
1,751
|
|||||
Amortization
of debt issue costs and discount
|
6,438
|
526
|
|||||
Provision
for settlement
|
740
|
-
|
|||||
Expenses
paid by issuance of notes payable
|
75
|
-
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(331
|
)
|
-
|
||||
Inventory
|
8
|
27
|
|||||
Prepaid
expenses and deposits
|
34
|
(80
|
)
|
||||
Accounts
payable
|
1,050
|
341
|
|||||
Accrued
liabilities
|
396
|
7
|
|||||
Net
cash used by operating activities
|
(3,476
|
)
|
(1,549
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Purchase
of property, plant & equipment
|
(2,151
|
)
|
(656
|
)
|
|||
Net
cash used by investing activities
|
(2,151
|
)
|
(656
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Decrease
in restricted cash in CIWMB escrow
|
-
|
58
|
|||||
Payments
on CIWMB note payable
|
(113
|
)
|
(18
|
)
|
|||
Principal
payments on capital lease obligations
|
(11
|
)
|
(4
|
)
|
|||
Proceeds
from issuance of notes payable
|
5,245
|
2,320
|
|||||
Proceeds
from exercise of warrants
|
2
|
||||||
Payments
of debt issue costs
|
(156
|
)
|
(219
|
)
|
|||
Proceeds
from notes payable - directors and officers
|
577
|
97
|
|||||
Net
cash provided by financing activities
|
5,544
|
2,234
|
|||||
Net
decrease in cash and cash equivalents
|
(83
|
)
|
29
|
||||
Cash
and cash equivalents, beginning of period
|
97
|
32
|
|||||
Cash
and cash equivalents, end of period
|
$
|
14
|
$
|
61
|
|||
Supplemental
disclosures of cash flow information:
|
|||||||
Cash
paid for interest
|
$
|
40
|
$
|
149
|
|||
Cash
paid for income taxes
|
$
|
-
|
$
|
-
|
|||
Supplemental
disclosures of non-cash investing and financing
activities:
|
|||||||
Warrants
issued as debt issue costs
|
$
|
95
|
$
|
241
|
|||
Stock
issued in exchange for accrued compensation
|
$
|
48
|
$
|
-
|
|||
Notes
issued in exchange for expenses
|
$
|
75
|
$
|
-
|
|||
Debt
discount
|
$
|
4,010
|
$
|
2,320
|
|||
Deferred
debt issue costs
|
$
|
-
|
$
|
-
|
|||
Reclassification
of temporary equity on termination of contingent price
reduction
|
$
|
-
|
$
|
163
|
|||
Conversion
of note and interest to convertible note
|
$
|
-
|
$
|
52
|
|
|
Unamortized
|
|
Notes,
net of
|
|
|||||
|
|
Notes
|
|
Debt
discount
|
|
debt
discount
|
||||
Private
Placement Notes
|
$
|
12,069
|
$
|
(6,591
|
)
|
$
|
5,478
|
|||
Subordinated
Notes
|
3,002 |
(421
|
)
|
2,581
|
||||||
Total
|
15,071
|
(7,012
|
)
|
8,059
|
||||||
Less
current portion
|
(11,071
|
)
|
3,680
|
(7,391
|
)
|
|||||
Convertible
Notes payable, net
|
$
|
4,000
|
$
|
(3,332
|
)
|
$
|
668
|
Weighted
|
Weighted
average remaining
|
|
Aggregate
|
||||||||||
|
|
average
|
|
contractual
|
|
intrinsic
value
|
|
||||||
|
|
Outstanding
|
|
exercise
price
|
|
life
in years
|
|
(in
thousands)
|
|||||
Balance
at December 31, 2006
|
59,858,439
|
$
|
0.09
|
5.8
|
$
|
3,518
|
|||||||
Granted
|
12,032,310
|
0.06
|
|||||||||||
Exercised
|
(2,278,439
|
)
|
0.01
|
||||||||||
Expired/cancelled
|
-
|
-
|
|||||||||||
Balance
at June 30, 2007
|
69,612,310
|
$
|
0.09
|
6.5
|
$
|
7,062
|
Weighted
|
Weighted
average remaining
|
|
Aggregate
|
||||||||||
|
|
average
|
|
contractual
|
|
intrinsic
value
|
|
||||||
|
|
Outstanding
|
|
exercise
price
|
|
life
in years
|
|
(in
thousands)
|
|||||
Balance
at December 31, 2006
|
32,194,871
|
$
|
0.08
|
7.4
|
$
|
2,433
|
|||||||
Granted
|
382,429
|
0.08
|
|||||||||||
Exercised
|
-
|
-
|
|||||||||||
Expired/Cancelled
|
-
|
-
|
|||||||||||
Balance
at June 30, 2007
|
32,577,300
|
$
|
0.08
|
7.0
|
$
|
3,583
|
|
|
Weighted
|
|
Weighted
average remaining
|
|
Aggregate
|
|
||||||
|
|
|
|
average
|
|
contractual
|
|
intrinsic
value
|
|
||||
|
|
Outstanding
|
|
exercise
price
|
|
life
in years
|
|
(in
thousands)
|
|||||
Balance
at December 31, 2006
|
31,850,000
|
$
|
0.07
|
9.2
|
$
|
2,416
|
|||||||
Granted
|
725,000
|
0.12
|
|||||||||||
Exercised
|
-
|
-
|
|||||||||||
Expired/
Cancelled
|
-
|
-
|
|||||||||||
Balance
at June 30, 2007
|
32,575,000
|
$
|
0.08
|
8.9
|
$
|
3,525
|
Weighted
|
Weighted
average remaining
|
|
Aggregate
|
||||||||||
|
|
average
|
|
contractual
|
|
intrinsic
value
|
|
||||||
|
|
Outstanding
|
|
exercise
price
|
|
life
in years
|
|
(in
thousands)
|
|||||
Balance
at December 31, 2006
|
123,903,310
|
$
|
0.08
|
6.9
|
$
|
8,425
|
|||||||
Granted
|
13,139,739
|
0.06
|
|||||||||||
Exercised
|
(2,278,439
|
)
|
0.01
|
||||||||||
Expired/
Cancelled
|
-
|
-
|
|||||||||||
Balance
at June 30, 2007
|
134,764,610
|
$
|
0.08
|
6.6
|
$
|
14,170
|
Weighted
average
|
|
weighted
average
|
||||||||
Range
of exercise prices
|
Shares
|
|
remaining
life
|
|
exercise
price
|
|||||
$
0.001
|
910,000
|
3.5
years
|
$
|
0.001
|
||||||
$ 0.05
|
1,100,000
|
3.6
years
|
0.05
|
|||||||
$ 0.06
|
78,124,489
|
7.7
years
|
0.06
|
|||||||
$
0.09 - $ 0.10
|
17,950,000
|
9.6
years
|
0.10
|
|||||||
$
0.12 - $ 0.13
|
35,868,000
|
3.6
years
|
0.12
|
|||||||
$ 0.19
|
500,000
|
3.9
years
|
0.19
|
|||||||
$ 0.25
|
300,000
|
3.3
years
|
0.25
|
|||||||
12,121
|
0.6
years
|
29.70
|
||||||||
Total
|
134,764,610
|
6.7
years
|
$
|
0.08
|
ECO2 PLASTICS, INC. | |||
/s/ Rodney S. Rougelot | |||
Rodney
S. Rougelot
|
|||
Director,
Chief Executive Officer and Interim Chief Financial
Officer
|
|||
DATE
August 14, 2007
|
Exhibit
No.
|
Description
|
Location
|
|||||
3.1(i)
|
Amendment
to Restated Certificate of Incorporation
|
Incorporated
by reference to Exhibit A to the DEFR14C filed by the Company on
November
30, 2005
|
|||||
3.2(i)
|
Restated
Certificate of Incorporation
|
Incorporated
by reference to Exhibit B to the DEF-14C filed by the Company on
September
9, 2002
|
|||||
3.3(i)
|
Certificate
of Incorporation
|
Incorporated
by reference to the Form S-18 Registration Statement filed by the
Company
File No. 33-31-67
|
|||||
3.4(i)
|
Restated
Certificate of Incorporation
|
Incorporated
by reference to the DEF-14C filed by the Company on February 22,
2007.
|
|||||
3.5(ii)
|
Bylaws
|
Incorporated
by reference to Exhibit B to the DEF-14C filed by the Company on
September
9, 2002.
|
|||||
31.1
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
|
Attached.
|
|||||
31.2
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act
|
Attached.
|
|||||
32.1
|
Certification
of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
|
Attached.
|
|||||
32.2
|
Certification
of CFO pursuant to Section 906 of the Sarbanes-Oxley Act
|
Attached.
|