2017 Report Malibu Compost
Filed on May 01, 2018
Dear investors,
2017 was a monumental year not only for Malibu Compost, but for awareness of soil health. Scientific research continues to tout the importance of COMPOST as it relates to carbon sequestration, organics recycling, drought conditions, soil microbes, and the role all this plays in the quality and characteristics of the foods we eat.
Malibu Compost has emerged as a consumer leader in the regenerative agriculture movement as we partner with retailers, consumers, nonprofits and more to teach the importance of organic cultivation for farm and garden.At classes, conferences, festivals and plant sales, we strive to reach as many individuals as possible.
Now more than ever, we feel it is critical to align ourselves with organic farmers, advance animal welfare issues, promote regenerative practices, and continue to raise awareness regarding the devastating impacts that conventional use of herbicides and pesticides have on our ecosystems. Our mission is not only to halt the harm caused by use of synthetics and chemicals, but taking the additional step to heal the earth through living soil biology, garden by garden and farm by farm.
And this is our story 'beyond the bag': the larger role our company plays in the health and vitality of our planet and the opportunities we give our customers to make a real difference in their communities through the ancillary benefits of using our compost: sequestering carbon, feeding the soil, reducing runoff, holding moisture, supporting local organic farmers, and steering dollars and support away from large-scale, conventional agricultural and waste management models of soil amendments.
We need your help!
Since its inception, Malibu Compost has grown thanks to word of mouth advertising. Our investors can help us grow in a myriad of ways! First, please tell your local nurseries and garden centers about the Malibu Compost family of products! The top determinant for stores to bring in new products is requests from customers. Second, tell your friends and family - whether they order online, purchase in person or simply tell their stores about our Company, this can have a tremendous impact. Third, follow us on social media and share our posts! Social media has been the #1 driver for expanded sales outside of the West Coast. And lastly, let us know if you think of any investors who may be aligned with and excited by our mission and company. We look forwart to growing with you!
Sincerely,
How did we do this year?
☺ The Good
This fall we front-loaded production; this allowed us to avoid costly weather-related delays
All trade show pre-orders were packaged and shipped on time, allowing for faster re-order times
Significanly lowered production costs while increasing revenues due in part to scalability and raw materials investment.
☹ The Bad
We didn't raise enough excess capital through equity to bring more outsourced production functions inhouse.
Have not been able to expand production to the East Coast yet, focusing instead on west coast capabilities.
Prioritized raw material acquisition, still need to upgrade home office phones and computers to better support sales and operations
2017 At a Glance
September 11 to December 31
$1,207,460 [18%]
Revenue
-$13,329 [133%]
Net Loss
$312,151 +39%
Short Term Debt
$0
Raised in 2017
$28,422
Cash on Hand
As of 04/26/18
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Any investor or prospective investor should read the following detail and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere from the offering.
Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Malibu Compost makes certified biodynamic and organic compost on organic farms that is sold through national and regional distribution to the lawn and garden industry, the organic growing market and to organic farms and vineyards. Our flagship product: Bu’s Blend Biodynamic Compost is also the cornerstone of our Potting Soil, Lawn Products and Compost Tea Line. Our compost is unique to both the gardening and agricultural markets, as it is the only farm-made, and completely finished compost that is available to either sector. Our proprietary formulas and protocols create a product of superior quality, result and ease of usage.
Our compost, as well as our compost production, has become legendary in just over 8 years of business. Our reputation for creating the highest quality, and first, truly premium brand of compost has put Malibu Compost on the map as an industry leader and innovator. We’ve been invited to speak at several national garden and industry events.
We have built a national customer base, a recognized brand, and a diverse distribution network across 30 states. By creating regional production facilities in addition to the CA and OR farms, our company will be able to more than double existing margins on bagged soils, lower the price point for consumers, and minimize our carbon footprint by eliminating shipping distances. Expanded production capacity will also allow Malibu Compost to service industry segments such as farms and vineyards that clamor for larger quantities of compost but are forced to settle for inferior substitutes. In addition to expanding to Pennsylvania in 2018, the Midwest and South in 2019, and Texas in 2020, our ambition is to define and set the industry standard for the new premium compost and potting soils categories. Finally, Malibu Compost has and will continue to change how our world integrates a truly organic and sustainable approach to the ways we grow our food, plants, and soil health.
Find more on Malibu Compost’s current activities at www.malibucompost.com.
Milestones
A few of our highlights from 2017:
- Slashing expenses and reducing COGS while significantly increasing sales revenues
- Launched WeFunder crowdfunding equity raise, attracted 158 new investors
- Generated more trade show pre-orders than ever before, with advance orders in excess of $400k
- Selected to speak at multiple national and international conferences and expos
- Successfully shipped ALL show orders on time and in great condition, allowing for additional seasonal sell-through
- Expanded distribution to more East Coast and Midwest states
- More than doubled production capabilities in Oregon allowing us to tap into the bulk soils market for Summer 2018 for the first time ever
Historical Results of Operations
Malibu Compost, Inc was incorporated in September 2017 and continued operations. Previously, the company was operated as Malibu Compost LLC in the State of California. Malibu Compost sold their first product in November 2009.The company has limited operational history upon which prospective investors may base an evaluation of its performance.
Revenues & Gross Margin. For the period ended December 31, 2017, the Company realized revenues of $1,207,460. This is compared to the year ended December 31, 2016, when the Company had revenues of $1,468,956. Gross Margins were 59.8% in fiscal year 2017, compared to 43.72% in 2016.
Net Income/Loss. The Company had a net loss of $-13,329 for the fiscal year ended December 31, 2017, compared to Net Income of $40,259 the prior year ending December 2016. and December 31, 2016, respectively.
Assets. As of December 31, 2017, the Company had total assets of $445,447, including $33,759 in cash. As of December 31, 2016, company assets were $319,860, including $16,394 in cash.
Liquidity & Capital Resources
At year end 2017, the company’s financial statements detail $33,759 in cash and $58,244 in equity.
Since its inception, Malibu Compost had raised just over $1,027,750 in equity from multiple offerings and numerous investors. That amount does not include the crowdfunding campaign from this Form C which didn’t close until after December 31, 2017. Completion of this raise will result in proceeds from this offering utilized as set forth in its Form C under "Use of Funds".
We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.
Runway & Short/Mid Term Expenses
Malibu Compost, Inc. cash on hand was $33,759, at year end December 2017. Over the last three months of the year, revenues averaged $36,946./month, cost of goods sold averaged $18,282./month, and operational expenses for the entire company averaged $38,950/month. That equates to an average net burn rate of $20,286/month at the end of 2017. This snapshot does not, however, portray an accurate picture of annual operations for several reasons such as seasonal sales which spike in Spring and Summer, and heavy investment in raw materials and production through Fall and Winter.
The Company plans to raise additional outside investment in 2018.
Additional detail is available in the financial statements in the Appendix. These statements were prepared in accordance with U.S. generally accepted accounting principles. These financial statements are certified to be true and complete in all material respects by the CFO and Treasurer.
- Net Margin: -1%
- Gross Margin: 44%
- Return on Assets: -3%
- Earnings per Share: -$0.01
- Revenue per Employee: $241,492
- Cash to Assets: 8%
- Revenue to Receivables: 2,557
- Debt Ratio: 86%
We Our 157 Investors
Thank You For Believing In Us
Thank You!
From the Malibu Compost Team
A former City Councilman who grew up on a biodynamic farm, Colum got his Masters in Business at Loyola Marymount University, where he found his love for sustainability as a business strategy.
CEO
After graduating from Pepperdine University, Randy bought a landscape design firm and created the first sustainable and ecologically based landscape company in Los Angeles.
CFO
After a career in finance at both for-profit and nonprofit companies, Renie turned her skills towards Malibu Compost in 2010, becoming the CFO in 2017.
Details
The Board of Directors
| Director | Occupation | Joined |
|---|---|---|
| Randy Ritchie | Management @ Malibu Compost | 2009 |
| Colum Riley | Management @ Malibu Compost | 2009 |
| Renie Byrne | Management @ Malibu Compost | 2011 |
Officers
| Officer | Title | Joined |
|---|---|---|
| Randy Ritchie | CEO Secretary | 2009 |
| Colum Riley | COO | 2009 |
| Renie Byrne | CFO Treasurer | 2011 |
| Holder | Securities Held | Voting Power |
|---|---|---|
| Randy Ritchie | 210,842 Class F Common shares | 21.1% |
| Colum Riley | 210,842 Class F common shares | 21.1% |
| Renie Byrne | 327,542 Class F common shares | 32.8% |
Past Equity Fundraises
| Date | Amount | Security | Exemption |
|---|---|---|---|
| 02/2012 | $1,027,750 | Units | Section 4(a)(2) |
| 02/2018 | $101,835 | 4(a)(6) |
Outstanding Debts
None.Related Party Transactions
The CEO has borrowed money from the Company. As of 9/30/2017, related party loans outstanding totaled $4,804. The loan has an interest rate of 3.75%. The loan is being repaid at $200/month.
| Key | Value |
|---|
Capital Structure
| Class of Security | Securities (or Amount) Authorized |
Securities (or Amount) Outstanding |
Voting Rights |
|---|---|---|---|
| Common F | 1,000,000 | 1,000,000 | Yes |
| Common A | 8,000,000 | 0 | Yes |
| Preferred | 800,000 | 0 | No |
| Preferred A | 200,000 | 0 | No |
| Securities Reserved for Issuance upon Exercise or Conversion |
|
|---|---|
| Warrants: | 0 |
| Options: | 0 |
Form C Risks:
Failure to raise enough capital to fund expansion in developing geographic markets will result in slower growth, loss of 1st-mover advantage, and over-reliance on sales for expansion capital.
In addition to distribution deals with two of the largest national distributors in the garden industry, Malibu Compost relies on other smaller regional distributors to help reach as many retail outlets as possible. As the packaged soil amendments industry continues to explode due to new markets, potential consolidation of regional distributors and/or acquisition by national distributors could result in demands for exclusive distribution rights or other factors affecting our diversity of retailers.
The Company’s authorized but unissued stock includes 8,000,000 shares of Class A Common Stock and 1,000,000 shares of Preferred Stock. In this offering, the Company will sell up to 142,666 shares of Series A Preferred Stock. The remaining Preferred Stock (that is, the portion of the 1,000,000 authorized shares that are not sold in this offering) and any of the 8,000,000 Class Common shares could be offered in one or more subsequent offerings. As a result of any subsequent offerings, investors in this offering could have their economic rights substantially diluted. And while holders of Series A Preferred Stock could convert their shares to Class A Common Stock beginning in 2019 and thereby acquire voting rights, those voting rights would likewise be diluted by the issuance of any additional voting stock. Therefore, the potential ability of investors in this offering to influence Company decisions in the future may be substantially reduced by the issuance of additional voting stock.
A sudden increase in petroleum pricing will affect significant cost drivers, including the cost of shipping finished product, receiving raw materials, and the plastic packaging we use.
Malibu Compost relies on Certified Organic dairy farmers for our raw materials. Significant loss of dairy suppliers due to market price fluctuations, closure, or other factors could affect Malibu geographically or nationally.
Not enough capital to cover cash-flow cycle from acquisition of raw materials through receipt of payment. This affects how much product can be produced, which in turn affects how much product is available for sale and cause product shortages.
Over-regulation of the composting industry. States which make no distinction between 'waste management' and intentional composting may pose significant barriers to entry due to site design costs and considerations.
Current reliance on third parties for inbound/outbound trucking, packaging and distribution.
Cost of goods and inputs from third parties for materials, packaging and more due to lack of available capital to ensure stability and pricing agreements.
Potential watering down of the "Biodynamic" and "Organic" trademark standards in the consumer marketplace.
More competition entering the marketplace as a result of Malibu Compost pioneering a new "premium" category in the soil products industry. While most competition still comes from wastestream-driven companies, young upstarts are starting to create consumer-driven soil products.
Extreme weather can affect the gardening cycles of end users. While overall demand will undoubtedly right itself, it may result in a longer cash flow cycle and carrying more inventory for a longer duration.
As a matter of principle, Malibu Compost does NOT deal with big-box stores. Excessive shuttering of independent garden centers and nurseries due to big-box store competition would adversely affect our current sales and distribution strategy.
The Company's articles of incorporation include restrictions on transfer of the Series A Preferred Stock intended to ensure compliance with securities laws. A transfer of any class of the Company's stock will not be permitted if the transfer (1) is not in compliance with securities laws; (2) would require the Company to register its securities under state or federal securities laws; or (3) would cause the Company to become subject to the types of reporting obligations that apply to publicly-traded companies in accordance with section 12(g) of the Securities Act 1933. While the Company does not believe that the Series A Preferred Stock offered in this offering or the Class A Common Stock that may be issued to investors in this offering as a result of the exercise of investors' conversion rights will count toward the number of shareholders that could trigger section 12(g) reporting obligations, the SEC could take the position that stock issued as a result of a conversion does count toward the section 12(g) triggers; and as a result, the restrictions on transfer in the Company's articles of incorporation could prevent certain transfers by investors in this offering, which would make it more difficult or impossible for investors to sell their shares.
Investors' ability to convert their shares to Common Stock is subject to the availability of authorized but unissued Class A Common Stock. Investors in the Series A Preferred Stock offered in this offering have a right to convert their shares on a one-to-one basis to Class A Common Stock at any time beginning on January 1, 2019, but subject to there being authorized but unissued shares of Class A Common Stock available. There are currently 8,000,000 authorized but unissued shares of Class A Common Stock. If the maximum amount is raised in this offering, 142,666 shares of Series A Preferred Stock will be issued. If all of those shares are converted, an equal number, or 142,666 shares of Class A Common Stock would be issued as a result of those conversions. The Company believes the 8,000,000 authorized shares of Class A Common Stock (together with future series of Preferred Stock that may be created) will be more than enough to meet the Company's capital needs for the foreseeable future and intends to reserve a sufficient number of shares of Class A Common Stock to cover conversions of any outstanding Series A Preferred Stock. However, it is possible that the Company will, prior to these conversions, issue enough Class A Common Stock such that there would no longer be enough shares of authorized but unissued Class A Common Stock to cover all conversions of Series A Preferred Stock. In that situation, it would be impossible for investors to convert their Series A Preferred Stock into Class A Common Stock. As a result, those investors would be unable to benefit from any increase in the Company's value; the value of their shares would decline; and it may be more difficult or impossible to sell their shares.
The Company has the right to redeem the Series A Preferred Stock beginning in 2022. Any shares of Series A Preferred Stock that have not been converted to Class A Common Stock may, beginning on July 8, 2022, be redeemed by the Company, in its discretion, at their original issue price of $7.50 per share. While the intent is for investors to have the ability to convert their Series A Preferred Stock to Class A Common Stock prior to such redemption, the effect of such a redemption is that investors will receive only the original purchase price (together with any accrued but unpaid dividends) and will no longer have any opportunity to share in any increase in the Company's value.
Description of Securities for Prior Reg CF Raise
Additional issuances of securities. Following the Investor’s investment in the Company, the Company may sell interests to additional investors, which will dilute the percentage interest of the Investor in the Company. The Investor may have the opportunity to increase its investment in the Company in such a transaction, but such opportunity cannot be assured. The amount of additional financing needed by the Company, if any, will depend upon the maturity and objectives of the Company. The declining of an opportunity or the inability of the Investor to make a follow-on investment, or the lack of an opportunity to make such a follow-on investment, may result in substantial dilution of the Investor’s interest in the Company.
Issuer repurchases of securities. The Company will have authority to repurchase the Series A Preferred Stock from shareholders at any time on or after July 8, 2022, at the original issue price, which may serve to decrease any liquidity in the market for such securities, decrease the percentage interests held by other similarly situated investors to the Investor, and create pressure on the Investor to convert its Series A Preferred Stock to Class A Common Stock before the Company redeems the Series A Preferred.
A sale of the issuer or of assets of the issuer. As a minority owner of the Company, the Investor will have limited or no ability to influence a potential sale of the Company or a substantial portion of its assets. Thus, the Investor will rely upon the executive management of the Company and the Board of Directors of the Company to manage the Company so as to maximize value for shareholders. Accordingly, the success of the Investor’s investment in the Company will depend in large part upon the skill and expertise of the executive management of the Company and the Board of Directors of the Company. If the Board Of Directors of the Company authorizes a sale of all or a part of the Company, or a disposition of a substantial portion of the Company’s assets, there can be no guarantee that the value received by the Investor, together with the fair market estimate of the value remaining in the Company, will be equal to or exceed the value of the Investor’s initial investment in the Company.
Transactions with related parties. The Investor should be aware that there will be occasions when the Company may encounter potential conflicts of interest in its operations. On any issue involving conflicts of interest, the executive management and Board of Directors of the Company will be guided by their good faith judgement as to the Company’s best interests. The Company may engage in transactions with affiliates, subsidiaries or other related parties, which may be on terms which are not arm’s-length, but will be in all cases consistent with the duties of the management of the Company to its shareholders. By acquiring an interest in the Company, the Investor will be deemed to have acknowledged the existence of any such actual or potential conflicts of interest and to have waived any claim with respect to any liability arising from the existence of any such conflict of interest.
Minority Ownership
An Investor in the Company will hold a minority position in the Company, and thus be limited as to its ability to control or influence the governance and operations of the Company.
The marketability and value of the Investor’s interest in the Company will depend upon many factors outside the control of the Investor. The Company will be managed by its officers and be governed in accordance with the strategic direction and decision-making of its Board Of Directors, and the Investor will have no independent right to name or remove an officer or member of the Board Of Directors of the Company.
Following the Investor’s investment in the Company, the Company may sell interests to additional investors, which will dilute the percentage interest of the Investor in the Company. The Investor may have the opportunity to increase its investment in the Company in such a transaction, but such opportunity cannot be assured.
The amount of additional financing needed by the Company, if any, will depend upon the maturity and objectives of the Company. The declining of an opportunity or the inability of the Investor to make a follow-on investment, or the lack of an opportunity to make such a follow-on investment, may result in substantial dilution of the Investor’s interest in the Company.
Exercise of Rights Held by Principal Shareholders
As holders of a majority-in-interest of voting rights in the Company, the principal shareholders may make decisions with which the Investor disagrees, or that negatively affect the value of the Investor’s securities in the Company, and the Investor will have no recourse to change these decisions. The Investor’s interests may conflict with those of other investors, and there is no guarantee that the Company will develop in a way that is optimal for or advantageous to the Investor.
For example, the principal shareholders may change the management of the Company, cause the Company to enter new lines of business, or force a change in the Company's mission. They may also vote to engage in new offerings and/or to register certain of the Company’s securities in a way that negatively affects the value of the securities the Investor owns. Other holders of securities of the Company may also have access to more information than the Investor, leaving the Investor at a disadvantage with respect to any decisions regarding the securities he or she owns. In cases where additional shares of the Company's stock are issued, an Investor’s interests in the Company may be diluted. This means that the pro-rata portion of the Company represented by the Investor’s securities will decrease, which could also diminish the Investor’s economic rights. Based on the risks described above, the Investor could lose all or part of his or her investment in the securities in this offering, and may never see positive returns.
The securities offered via Regulation Crowdfunding may not be transferred by any purchaser of such securities during the one year period beginning when the securities were issued, unless such securities are transferred:
- to the issuer;
- to an accredited investor ;
- as part of an offering registered with the U.S. Securities and Exchange Commission; or
- to a member of the family of the purchaser or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance.
Valuation Methodology for Prior Reg CF Raise
The offering price for the securities offered pursuant to this Form C has been determined by the Company, and is based on the Company's belief that the Company's current value as a going concern is approximately $7.5 million, based on the Company's revenues, profits, and growth trajectory. There are currently one million outstanding shares of Common Stock, which implies a value of $7.50 per share of Common Stock. The Series A Preferred Stock offered in this offering is convertible (beginning in 2019) to Class A Common Stock on a one-to-one basis and is therefore presumed to have the same value as the Common Stock, $7.50 per share.
The Company does not intend to conduct or commission a formal valuation of the Company. Accordingly, the actual market value of the Company and of the Series A Preferred Stock being offered may be materially more or less than $7.50 per share.
Company
Malibu Compost Inc.- California Corporation
- Organized September 2017
- 5 employees
Berkeley CA 94710 http://www.malibucompost.com
Business Description
Refer to the Malibu Compost profile.
EDGAR Filing
The Securities and Exchange Commission hosts the official version of this annual report on their EDGAR web site. It looks like it was built in 1989.
Compliance with Prior Annual Reports
Malibu Compost is current with all reporting requirements under Rule 202 of Regulation Crowdfunding.
All prior investor updates
You can refer to the company's updates page to view all updates to date. Updates are for investors only and will require you to log in to the Wefunder account used to make the investment.
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