Cereplast Inc (OTCMKTS:CERP) Digging Further Down

Back in February we covered Cereplast Inc (OTCMKTS:CERP) when they issued a couple of optimistic press releases. One of them said that during the last two weeks of January CERP managed to register a total of $300 thousand in revenues. Then, a few days later, they announced that the total sales for January amount to as much as $800 thousand. The figures boosted investors’ confidence, the interest brought massive volume and the price shot up to around $0.06 per share. Something went wrong, however, and by the end of February, the ticker stood at around $0.04. After that there were ups and downs but the overall direction was South and the pressure was caused by dilution as well as the poor 2012 results that became public on April 16.

Back in May, however, the investors knew that the time for the 10-Q covering the first three months of 2013 is coming and the demand for CERP shares started rising again. So did the price and it was driven primarily by the optimistic announcements made in February. Traders and shareholders hoped that since January alone yielded around $800 thousand in sales, the total revenue for the period should go beyond the $2 million mark. Unfortunately, reality turned out to be a bit different and the 10-Q stated that the proceeds generated from sales of CERP‘s bioplastics came in at just $950 thousand which, although better than the figure for the same period of 2012, was not enough to retain the interest among traders. What’s more the rest of the figures look even more dismal when compared to their counterparts from the first quarter of 2012. Here’s a quick recap:

• cash: $193 thousand (2013) vs $1 million (2012)
• current assets: $7 million (2013) vs $20 million (2012)
• current liabilities: $20 million (2013) vs $5.9 million (2012)
• quarterly net loss: $18 million (2013) vs $2.3 million (2012)

These figures resulted in a price drop but, more profoundly, they show pretty clearly that the former NASDAQ company is in some serious financial trouble and their failure to meet the expectations of shareholders and potential investors means that people’s trust in them is fading.

On the plus side, they seem to be addressing some issues like the toxic financing that we’ve talked about in previous articles. On May 8 they published an 8-K form according to which they have commenced some legal actions against Magna Group LLC and Hanover Holding LLC. We’ve talked about these two entities in a number of articles and we’ve seen that they have provided funding to a lot of small cap companies like Sitoa Global Inc (OTCMKTS:STOA), Terra Tech Corp (OTCBB:TRTC) and First Liberty Power Corp (OTCMKTS:FLPC). The people at iHub have even bothered to create a special message board where the aforementioned hedge funds as well as their clients are discussed. But you don’t need to dig this deep to see how badly their financing affects the stock performance of small cap ventures. All you need to do is to have a look at CERP‘s chart and you will see that between October 15, 2012 and April 5, 2013 the ticker has dropped from $0.26 all the way down to $0.022. That’s a loss of 92% and according to CERP, Magna and Hanover are to blame. Unfortunately, we can’t be sure if the Court will agree but until then there are some other issues to take care of.

Like, for example, cutting down on the optimistic press releases that give us some exciting news about the performance during the quarter. We can see that a lot of people feel that they have been misled by the figures published in February’s PR’s and their patience is staring to run low. Not to mention the fact that the optimistic projections don’t seem to be working anymore. The update on the current restructuring of CERP from yesterday spoke about cutting down on expenses but all that did was to push the ticker another 11% down.

In many ways, CERP resemble Imageware Systems Inc (OTCMKTS:IWSY) – a company that has been on the rise in recent weeks. IWSY have also shown that they’re capable of producing revenues and just like CERP they are also struggling with achieving a positive cash flow. The difference is, investors still have some confidence in IWSY‘s product and that’s why the ticker follows a relatively steady upward trend – something that we haven’t seen from CERP for quite a while. Let’s hope they can change that.