U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ORGANIC SALES AND MARKETING, INC.
(Name of Small Business Issuer in its charter)
Delaware 33-1069593
(State or other jurisdiction of (I.R.S. employer
Incorporation or formation) identification number)
SAMUEL F.H. JEFFRIES
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
114 Broadway
Raynham, MA 02767
Issuer's telephone number: (508) 823-1117
Copies to:
H. Melville Hicks, Jr., Esq.
551 Fifth Avenue, Suite 1625
New York, NY 10176
(212) 655-5944
(212) 867-3185 facsimile
Securities to be registered under Section 12(b) of |X |the Act:
Title of each class to be so Name of Exchange on which
registered each class is to be registered
Common Stock, $0.0001 par value Over The Counter/Bulletin Board
Securities to be registered under Section 12(g) of the Exchange Act:
None
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
1. FORM AND YEAR OF ORGANIZATION
Organic Sales and Marketing, Inc. (the "Company" or the "Registrant" or the
"Issuer") was incorporated in the State of Delaware as Garden Connections, Inc.
on August 23, 2003. On April 20, 2005, Garden Connections, Inc. changed its name
to Organic Sales and Marketing, Inc. Since inception, the Company has been
engaged in product development, sales and marketing of privately labeled
non-food organic products, and in obtaining initial financing. The Company
purchased the assets of Garden Connections LLC, a Massachusetts limited
liability company in September 2003.
2. ANY BANKRUPTCY, RECEIVERSHIP OR SIMILAR PROCEEDING. Not Applicable
3. ANY MATERIAL RECLASSIFICATION, MERGER, CONSOLIDATION, OR PURCHASE OR
SALE OF A SIGNIFICANT AMOUNT OF ASSETS NOT IN THE ORDINARY COURSE OF BUSINESS.
Not Applicable
(b) BUSINESS OF ISSUER
The Company is a sales and marketing company that specializes in private
labeling of non-food organic products and bringing them to multiple markets
through the internet, radio and our established distribution network consisting
of independent representatives and distributors. Through our two hour weekly
radio garden talk show and affiliation with recognized national communication
networks, including Clear Channel, Citadel, and Entercom, we can generate market
interest in organic and natural product alternatives, knowledge of the
importance of organics, and where to purchase these related products.
The Company expects to contract the services of well established and experienced
sales organizations to introduce, promote, and sell its newly designed non-food
organic-based product lines on a commission basis. Initial sales of our
organic-based cleaners have recently begun. Consumer response is most favorable
and indications of this trend are continuing and promising. The Company recently
launched their organic-based jewelry shiner ("Glitz") through a major nationwide
distributor. A licensing agreement to provide our organic-based cleaners for
their worldwide clientele, is expected to be completed with NEVR DULL, an
internationally known manufacturer of metal polish. The Company also has an
initial order for our industrial organic-based cleaners with Fisher Scientific,
a nine billion dollar entity in multiple international markets. As a major
international medical instrument distributor the Company will now have our
organic-based cleaners added to their product selection. Initial orders have
been received from a Massachusetts governmental agency for the Company's
organic-based Odor Eliminator for use in its mass transit system. The Company's
intention is to expand into additional states.
2
The Company is currently shipping its household organic-based cleaning products
to 110 Hannaford Supermarkets stores in the New England and Florida markets. In
addition, our proposals have been accepted by Shaw's Supermarkets (150 stores
with a separate in- aisle display) and Stop & Shop Supermarkets (50 stores). The
Company has also received a strong interest for its products from United Food
International (UNFI), the leading organic and natural distributor in the county
supplying such outlets a Whole Foods.
The Company is also planning to sell and market its line of organic fertilizers.
We expect to formally sign an agreement with Bradfield Organics, a division of
Land O'Lakes, Inc. in the near future. Plans call for the Company to private
label a line of organic fertilizers developed by the Company, and produced,
manufactured, and shipped by Bradfield Organics. These products are poised for
sale to such retail outlets as Home Depot, Lowes, and Agway. The intrigue of
these items is due to the fact that they are plant based products rather than
animal waste. A new rubberized mulch product, from recycled tires has been
laboratory tested and shown to have multiple and favorable applications in
various industries, such as pre-school playgrounds, green buildings, commercial
and residential landscapes. We plan to market this new product starting in 2007.
The Company plans to concentrate its marketing efforts solely in the rapidly
growing non-food organic field.. We believe consumers are being drawn to organic
products by a compelling desire for less chemicals and additives in their
everyday lives.
The Company believes that the organic industry, consisting of food and non-food
products, is one of the fastest growing segments of our economy. Research
conducted by the Natural Market Institute, (NMI) showed that in 2005 $13 billion
was spent on food and non-food organic products, an increase of 17% over the
previous year. Based on reported consumers usage patterns, future shopping and
other trended data, NMI projects that industry sales could reach $20 billion by
2009. Organic non-foods, had consumer sales of $744 million in 2005, a growth of
32.5% for that year. Compared to organic foods, which had a penetration rate of
2.5% in 2005, organic non-food products are still emerging as a category and
accounted for only 0.22% of total sales in this sector in 2005 according to
Organic Trade Association Forecasting Survey 2005. Wal-Mart's recent decision to
vigorously enter the organic marketplace along with other major companies who
decide to become "greener" could cause industry sales to rise even more
dramatically than anticipated.
We believe non-food organic products will participate in the anticipated
industry growth. We specialize in the more rapidly growing non-food organic
areas, such as private label premium fertilizers and consumer and industrial
cleaners where profit margins are substantially greater. The Company has
established important outsourcing manufacturing and marketing relationships with
Land O'Lakes and North Eastern Sales Solutions, a major independent sales
representative organization in the New England area, to the nation's largest
retail chains such as CVS, Rite Aid, and others.
The Company's successful weekly radio show the "Garden Guys" broadcast over
three stations (WHJJ, WXLM, and WBSM), and now also heard on WRKO, the largest
and most popular station in Boston, MA, covering a large radio audience
throughout New England. We intend to expand our 2 hour weekly radio show
currently on three stations and guest hosting on WRKO, to as many as 8 stations
on a nationwide basis along with deriving additional agency income from in-house
selected advertisers.
3
The Company generates brand awareness and consumer loyalty, for a growing array
of selective non-food organic products, by educating the consumer, and acts as a
distributor and marketer for the retailers that carry our products. The Company
intends to capitalize on the growing interest in organics in several different
markets with the intention of using the radio to increase awareness as to why
organic products offer healthy alternatives without sacrificing expected
results.
The Company's business purpose is to establish an extensive portfolio of
non-food organic and natural products, having multiple applications in many
industries, by developing strategic relationships with manufacturers without the
financial strength or marketing acumen to sell and take advantage of their own
products. The Company has strong indications of interest for the financial
backing and marketing program it needs to establish it as a major factor in the
non-food organic products arena. There is being proposed, through a letter of
intent, up to $6 million financing by the investment banking firm of Andrew
Garrett, Inc. The absence of an internal sales staff and solely utilizing
outside independent sales professionals, as well as customary manufacturing
needs, will afford the Company to keep its operating expenses fairly limited.
1. PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKETS
Currently the major non-food organic products that the Company is selling are
organic-based cleaners, which include stain remover, odor control, glass
cleaner, floor cleaner, degreaser, concrete cleaner, eyeglass cleaner, jewelry
cleaner, surface prep and glue cleaner, rubber mulch, solely utilizing outside
independent sales professionals, as well as organic insecticide-fungicide,
organic soy candles and fertilizers. Since the Company sells only non-food
organic products, the shelf-life of its products can be in excess of one year or
more, depending upon storage and climatic conditions. The Company uses a
proprietary blend of organic compounds in its organic products which are
non-toxic, biodegradable and safe for use around children and pets.
The Company receives revenues through different methods: (1) it currently
receives a percentage (ranging from 5%-20%) of the gross sales of a
manufacturer's product by acting as a distributor, (2) it receives marketing
dollars through our endorsement program of plants from select growers, that are
sold in garden centers by independent sales groups, (3) sales of product from
our www.garden-guys.com website, (4) products sold directly by the Company or by
independent reps who work with us to sell to other distributors who then sell to
retail stores or co-ops, (5) products sold to retail stores directly by us or by
independent reps who are contracted by us, (6) re-selling our organic products
to other companies and industries who wish to private label or license our
products, and (8) lectures to garden clubs, civic organizations and other
associations.
Organic Fertilizer Market:
The Company is focusing marketing efforts on organic fertilizers, a rapidly
growing segment of the fertilizer industry. In our opinion, organic fertilizer
sales have risen so
4
rapidly in the last three years that they have commanded a premium price in the
marketplace. Accordingly, we foresee some of our greatest growth over the next
3-5 years in this arena.
We have been selected by Land O'Lakes/Purina (LOL) to act as their private label
organic fertilizer marketer, starting in the Spring of 2007. A strong marketing
focus will be on the major home and garden retail chains such as Home Depot,
Lowe's and Agway, which LOL they does not supply internally. LOL has over 30
manufacturing facilities, and 70 distribution centers, which contribute overall
7.56 million dollars in annual sales. We are currently in the process of
formalizing a marketing arrangement with LOL which we expect to complete within
90 days. We will be receiving from LOL a complete line of fertilizers, as
jointly formulated, designed and marketed by us under our trademarked Dragonfly
Organix and Garden Guys brands. Under the arrangement, they will also assist in
product registration for each state, manufacturing, logistics, and distribution.
They will also provide sales and marketing expertise for us, when needed. Under
our trademarks, the organic fertilizers will be sold retail, with the estimated
sales price range of eighteen to twenty-five dollars for a 25lb bag. Other size
bags will be similarly priced. This will potentially lead to major sales, as it
is to be introduced into the 30 billion dollar lawn and garden market.
Plans call for LOL to become a prime advertiser on our weekly radio show, as
well as on the anticipated new stations we intend to add. A planned radio
campaign is scheduled to start in the spring of 2007, with LOL as one of the
advertisers. In addition to our Dragonfly Organix brand, LOL will also advertise
their own brand of Bradfield Organics fertilizers, whose market is strictly
geared to their existing independent channel and does not compete in the markets
we will be pursuing.
Organic Based Household Cleaner Market:
Another area, which we believe holds considerable promise, is the consumer
cleaner market. As with the rise in organic food sales, due primarily to the
growing education of how toxic chemicals, regardless of age or gender, can have
either a direct or indirect impact on human health; we believe that that
momentum will continue to grow with that of non-food organic products, which may
pose similar health hazards and risks. Our weekly radio show allows us the
opportunity to educate consumers about these potential hidden risks and the
branded products (including our own), that offer healthy alternatives to
chemical cleaners, and then integrate those stores who share the same
philosophy. While currently at 19 million dollars annually, according to the OTA
this category grew by 29% in 2005.
Jewelry, Modeling, and Bead Markets
We are currently supplying two of the major distributors in these trade areas,
each of whom does over 100 million dollars in sales annually. Their customers
are some of the major retail jewelry and bead shops, including Zales and other
distributors within the trade. We anticipate that a constant advertising
presence in industry-related magazines will help to create brand awareness,
which could translate into sales growth for our Glitz Jewelry Shiner and ODX
Surface Cleaner products, in these markets.
5
Funeral Industry & Medical Examiners Market:
We are currently supplying our Funeral Organix product line to the Boston
Medical Examiners office and to some independent funeral homes. Albeit
visionary, this class of trade has an upside potential because there is a need
for, cleaners and deodorizers due to the large amounts of chemicals used by this
profession on a daily basis. The Company has contracted with a sales
organization, that specializes in this industry, for the sale of our Funeral
Organix, " From the Earth, To the Earth" brand, which we have developed.
Preliminary data indicates a strong acceptance by the industry to replace their
chemicals products with ones that are organic and environmentally friendly.
Marketing plans call for a full product roll-out in the spring of 2007.
According to the latest Funeral Directors Association (FDA) statistics, there
are 21,710 funeral homes nationwide, and 51% of new funeral directors entering
the profession today are women. An adjunct industry to this one would be the
ambulance industry, which has similar issues and problems with the use of
chemicals.
Municipalities & Waste Disposal Markets:
We have discovered through outside testing that the Company's Odor Eliminator
product has a desired effect for both industries, due to the various odor
problems they encounter on a daily basis. Testing is on-going, however, the
Massachusetts Bay Transit Authority ("MBTA") has made small purchases of our
product and has had success with it. Indications of interest to purchase the
product in larger quantities has been given, once the new fiscal year starts in
July, 2007. We see this and other related industrial products in our existing
and growing portfolio of products, to have numerous applications in industries,
such as nursing homes waste management, fishing industry, industrial kitchens,
daycare-Montessori, hospice-home care, kennels.
The Company is capitalizing on the growing interest and desire among consumers
for environment-friendly products. To do this, we have developed strategic
relationships with manufacturers that offer "green" alternatives to some of the
traditional, chemical-intensive products that are currently being used, in
various industries. The Company hopes to be the dominant leader in the non-food
organic industry, so we are aggressively working with several manufacturing
companies to further develop and perfect our growing line of non-food organic
product offerings. With the assistance of a company we are developing a rubber
tire mulch product which has definite ecological benefits also with the
assistance of another company we are developing an industrial degreaser product
which has been successfully tested and has the ability to separate oil from
water. We believe this product will be beneficial in industrial waste remedial
projects.
The last three years have been spent establishing what we believe to be a
strong, solid foundation needed to support the next phase in the Company's
business plan. Our new, rapidly growing non-food organic product lines are
growing demand. They are targeted to sophisticated, environmentally aware
companies and consumers various markets. We strongly believe that strategic
affiliations we have developed with well-established
6
manufacturers and sales and marketing companies, including the marketing,
expertise and reach of LOL; will pave the way for our non-food organic products
to be available in thousands of retail outlets across the country.
2. DISTRIBUTION
Our sales, marketing and promotional efforts are accomplished through the
following:
o Television
o Radio
o E-Commerce Website
o Industry-related Magazines and Newspapers
o Face-to-face Client and Prospect Meetings
o Sales Brochures and Product Samples
o Point-of-Sale and End Cap Displays
o Trade Shows
o Membership in Trade Organizations
o Garden Clubs
o School Lectures
o E-mail and Direct Mailings
o Telemarketing
o Strategic Alliances
o Cooperative Advertising
We are now able to bridge the gap between manufacturer and consumer, with very
limited financial exposure. We have the added advantage of being able to market
our products not only through our independent marketing associates, but through
our own radio programs, with a recognized growing interest in organics. The
Garden Guys(R) ensure that brand awareness reaches the consumer through the
radio. This creates a multi-faceted, multi-revenue channel model for the
company. Moreover, we expect to add eight (8) new strategically selected radio
stations to our radio family over the next three years with a reach that goes
beyond the New England area, giving us a total of eleven (11) stations by the
end of 2008. Because of the knowledge we have obtained of how the communications
industry works, as a result of the Garden Guys radio talk show, we believe that
this is a very attainable goal. Currently, we on three stations, one of which is
a Clear Channel station, the largest network in the country with over 1000
stations nationwide with the addition of WRKO the number of stations is four.
We have executed and delivered major distribution contracts with North Eastern
Sales Solutions, a major independent sales and marketing organization to
represent our organic products to retail pharmaceutical and supermarket chains
such as CVS, Rite-Aid, Shaw's Supermarkets, Hannaford Supermarkets, Stop & Shop
and others in the northeast and North East Garden Group, another major
independent sales and marketing company to represent our organic products to
retail outlets like Agway and other independent garden centers also in the
northeast. In addition, we are currently negotiating several other distribution
contracts with manufacturers, distributors and retailers in the horticulture
7
industry, jewelry industry and a licensing agreement for an organic line of
industrial metal polish.
The initial radio one year contract with WHJJ (Rhode Island) began on August 28,
2005 for one year and was automatically renewed in 2006 for one year. In
addition three other radio stations have contracted to simultaneously broadcast
the radio show weekly on Sunday mornings from 8:00 a.m. to 10:00 a.m. These
stations are WXLM (Southeastern Connecticut), WBSM (Southeastern Massachusetts)
and WRKO (Boston, Massachusetts). All these contracts are automatically
renewable and have agreed to promote the program with promotional announcements,
print ads and on their respective websites.
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCTS OR SERVICES
Currently the Company has a portfolio of approximately twenty-five items, all of
which consist of Private Label Products and 6 License Name Brands which are
presently available or will be available in 2007 from the manufacturers. The
Company will be able to market its products not only through its distributors
and independent sales organizations but through the Garden Guys(R) radio which
provides a viable channel through the creation of brand awareness in the
consumer and a growing interest in organics. Management believes these non-food
organic products will attract women buyers looking to avoid the health risks and
implications that have been found in non-organic or synthetic compounds.
Management believes this is a promising trend.
All these products are manufactured for the Company under its own
specifications.
The foregoing limits the Company's financial exposure:
o No research and development costs
o No manufacturing facilities and costs
o Reduced inventory costs and facilities
o Limited employee and staff
4. COMPETITION
According to the Organic Trade Association ("OTA"), a leading organic
association publication, the non-food organic market was estimated to be $ 750
million and growing at an annual rate of 32%. The Company believes its' largest
competitor is privately-owned Seventh Generation, located in New Hampshire.
Seventh Generation, we believe,
8
compete with us on a very limited basis in the retail grocery store market due
to the high cost of entry (slotting fees) and the high cost of advertising,
which, as stated above, is one of the Company's significant strengths.
Because the organic cleaner market is relatively small in comparison to the
total organic market, it is a fragmented market, ready for development. Seventh
Generation, Inc. located in New Hampshire is about the only known competition we
have, although they are not heavily involved in the primary markets that we look
to serve. In the absence of a leader, one will emerge, and the Company has
strategically positioned itself to take advantage of that opportunity.
Management believes, and early indications support, that the Company's products
will be accepted into the marketplace due to their unique qualities and eye
catching packaging and radio support.
Competition in lawn and garden organic product sales in New England and the East
Coast, however, is much greater. These markets are large and can support many
companies offering these and similar organic products. We are unique in that we
offer a service (the radio program) in addition to a product. We do not know of
another company that does this. In addition, many companies that make up the
Company's competition in this market are better financed, have more recognizable
or established brand names, have better control over their manufacturing and
distribution process, have a longer history of servicing the retail industry and
may be better positioned to control sales to large retail outlets.
The market for cleaning and garden products is highly competitive. Although our
products are organic and therefore distinguishable from most other more
established brands, which contain chemicals, it is possible that consumers
neither care about that fact nor understand its significance. There are a number
of other established providers that have greater resources, including more
extensive research and development, marketing and capital than we do and also
have greater name recognition and market presence. These competitors could
reduce their prices and thereby decrease the demand for our products and
technologies. These competitors may lower their prices to compete with us. We
expect competition to intensify in the future, which could also result in price
reductions, fewer customer and lower gross margins.
Access to retail outlets may be restricted due to pre-existing agreements that
prohibit retailers from selling our products or retailers may require
substantial payments for shelf space which is beyond the Company's financial
capabilities. Such payments are common in the retail industry, and historically,
it has been the Company's policy not to pay for shelf space due to the
uniqueness of Our products. In the future our existing retailers may require
such payments in order for us to continue to sell through them and new retail
outlets may require payments to sell our product.
5. THE SOURCES AND AVAILABILITY OF RAW MATERIALS.
The Company is not dependent on any raw materials. All products which are sold
and marketed by the Company are manufactured by the Company's manufacturing
clients. Although we believe we can secure other suppliers, we expect that the
deterioration or
9
cessation of any relationship would have a material adverse effect, at least
temporarily, until the new relationships are satisfactorily in place.
We also run the risk of manufacturer price increases and component shortages.
Competition for products or materials in short supply can be intense, and we may
not be able to compete effectively against other purchasers who have higher
volume requirements or more established relationships. Even if manufacturers
have adequate supplies of components, they may be unreliable in meeting delivery
schedules, experience their own financial difficulties, provide components of
inadequate quality or provide them at prices which reduce our profit. Any
problems with our third-party suppliers can be expected to have a material
adverse effect on our financial condition, business, results of operations and
continued growth prospects.
6. DEPENDENCE ON A SINGLE OR FEW CUSTOMERS.
The Company currently has several customers. It has developed and is currently
developing multiple strategic alliances with several distributors and
independent sales organizations. The Company does not anticipate that it will be
dependent on a single or small group of customers.
7. THE IMPORTANCE OF PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND
CONCESSIONS HELD.
To protect its rights to its intellectual property, the Company relies on a
combination of trademark and copyright law, patent, trade secret protection,
confidentiality agreements, and other contractual arrangements with its
employees, affiliates, clients, strategic partners, and others. The protective
steps it has taken may be inadequate to deter misappropriation of the Company's
proprietary information. The Company may be unable to detect the unauthorized
use of, or take appropriate steps to enforce its intellectual property rights.
The Company has registered certain of its trademarks in the United States and
has pending U.S. applications for other trademarks and patents. Effective
trademark, copyright, patent, and trade secret protection may not be available
in every country in which it offers or intends to offer its products or
services. In addition, although The Company believes that its proprietary rights
do not infringe on the intellectual property rights of others, other parties may
assert infringement claims against the Company or claims that it has violated a
patent or infringed a copyright, trademark, or other proprietary right belonging
to them. These claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources on its part which could
materially adversely affect the Company's business, results of operations, and
financial condition. The Company incorporates certain licensed third-party
technology in some if its services. In these license agreements, the licensors
have generally agreed to defend, indemnify, and hold the Company harmless with
respect to any claim by a third party that the licensed software infringes any
patent or other proprietary right. The Company cannot assure that these
provisions will be adequate to protect from infringement claims. The loss or
inability to obtain or maintain any of these technology licenses could result in
delays in introduction of new services.
10
The Company has trade mark protection for its "Garden Guys Down to Earth Up to
Date"(TM) trademark. In addition, the Company has applied to the US Patent and
Trademark Office for trade mark protection for its' "Dragonfly Organix"(TM)
brand-name trade mark. Final action is pending subject to publication in the
Official Gazette.
8. GOVERNMENT APPROVAL.
Government approval is required for some of the Company's current products.
However, this approval is generally obtained by the manufacturer.
9. EFFECT OF ANY EXISTING OR PROPOSED GOVERNMENT REGULATIONS.
Other than normal government regulations that any business encounters, the
Company's business is not effected by any government regulations.
10. RESEARCH AND DEVELOPMENT COSTS.
The cost and expense of Research and Development is borne by the manufacturer.
Since the Company began operations in August 2003 it has spent over one million
on market research and development of its markets. The revenues the Company
achieves will be primarily from strategic alliances. Revenues generated, while
paying directly for research and technology costs accrued to date, will fund the
operations of the Company, which includes funding any on-going research and
development.
11. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND
REGULATIONS.
The Company is not involved in a business which involves the use of materials in
a manufacturing stage where such materials are likely to result in the violation
of any existing environmental rules and/or regulations. Further, the Company
does not own any real property which would lead to liability as a land owner.
Therefore, the Company does not anticipate that there will be any costs
associated with the compliance of environmental laws and regulations.
12. EMPLOYEES.
As of the date hereof, the Company employs approximately 3 full-time employees
and 2 part-time employees. The Company hires independent contractors on an "as
needed" basis only. The Company has no collective bargaining agreements with its
employees. The Company believes that its employee relationships are
satisfactory. In the long term, the Company will attempt to hire additional
employees as needed based on its growth rate.
We will be dependent on our current management team for the foreseeable future.
The loss of the services of any member of this management group would have a
material adverse effect on our operations and prospects. Our success will be
dependent to a substantial degree on Sam Jeffries and other key management
personnel. Sam Jeffries continued involvement is particularly critical. In the
event Sam Jeffries were unavailable, it would have a material adverse effect on
operations. At this time, we have no employment agreement nor have we obtained
"key man" insurance policies on
11
Sam Jeffries. The expansion of our business will be largely contingent on our
ability to attract and retain additional personnel for the management team.
There is no assurance that we can find suitable management personnel or will
have the financial resources to attract or retain such people, if found.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our results of
operations and financial condition, which are based upon our financial
statements and have been prepared in accordance with generally accepted
accounting principles in the USA. The discussion should be read in conjunction
with our financial statements and notes thereto, appearing in this Registration
Statement.
The preparation of these financial statements requires us to make estimates and
judgments that may affect the reported amount of assets and liabilities,
revenues and expenses, and the related disclosure of such contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions and conditions.
The following financial projections contain figures related to plans,
expectations, future results, performance, events or other matters that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended. When used in the Plan of Operations, words such as
"estimate", "project", "intend", "expect", "anticipate", and other similar
expressions are intended to identify forward-looking statements. Such statements
involve numerous risks and uncertainties, including, but not limited to, the
science of organics, the development of the Company's products, markets for
those products, timing and level of customer orders, competitive products and
pricing, changes in economic conditions and other risks and uncertainties.
Actual results, performance and events are likely to differ and may differ
materially and adversely. Investors are cautioned not to place undue reliance on
these forward looking statements which speak only as of the date of the Plan of
Operations. The Company undertakes no obligation to release or deliver to
investor's revisions to these forward-looking statements to reflect events or
circumstances after the date of the Plan of Operations, the occurrence of
unanticipated events or other matters that may occur.
A. PLAN OF OPERATIONS
Since its inception in August 2003, the Company has been involved in the
development and acquisition of a wide variety of organic-based products to be
initially sold to retail supermarket and national pharmacies, lawn and garden
centers and the funeral industry. In addition, new markets being pursued include
costume jewelry, sporting goods, optical, health and beauty, footwear, museum
stores, historical preservation groups, and boating.
12
The Company searches out small companies that have excellent organic products,
and through our own private label, bring them to market at the retail, wholesale
or internet level.
The Company has a limited operating history on which to evaluate its prospects.
The risks, expenses and difficulties encountered by a startup company must be
considered when evaluating the Company's prospects. The Company's plan of
operating for the next twelve months is to further develop its product line
while seeking alliances with manufacturers, retail outlets, sales
representatives and distributors. Management believes that its existing funds in
combination with funds raised in a contemplated private bridgeloan offering, a
minimum of $3 million in a contemplated equity offering and revenues generated
by its operations will be sufficient to fund its operations for more than the
next twelve months. However, there is no guarantee that the Company will be able
to raise sufficient capital. In addition, estimates of costs to develop
products, to market them and to seek strategic alliances with manufacturers and
distributors might be low. The operating expenses cannot be predicted with
certainly. They will depend on several factors, including, but not limited to,
marketing expenses, acceptance of the Company's products in the market and
competition for such products.
The Company currently is in the process of acquiring, developing and introducing
its products to the market. It has acquired and developed approximately 25
different organic non-food products. It has already received and is fulfilling
orders for its new Dragonfly, Organix(TM) Organic- based cleaners from Shaws
Supermarkets (150 stores), Hannaford Supermarkets (110 stores), Boston, Mass.
Transit Authority and ForeThought, LLC. The Company anticipates that it will be
able to launch its organic fertilizer products in approximately 3 - 6 months
under its Dragonfly Organix(TM) and/or Garden Guys private label. While the
company believes that it will comply with this schedule. If it is unsuccessful
in raising additional capital, the probability of the Company complying with the
schedule will be adversely affected.
The Company is currently in the process of rolling out its product line to an
expanding customer base. Over the course of 2007 and 2008, sales will ratchet
themselves up as new customers come on board and reorders start to come in.
Without taking into consideration new customer orders recently ordered the
Company projects a net loss of ($764,000) in calendar 2007, a net profit of
$362,000 in calendar 2008 and a profit of $1,180,000 in calendar 2009. In
calendar 2007, cash flow before investor money is projected to be ($724,000). In
2008, cash flow before investor money projects to be ($224,000) and, in 2009,
cash flow before investor money projects to be $1,033, 000.
We will also use the radio as the primary source for marketing our products. Sam
Jeffries, the Company's President, hosts a two-hour Sunday morning garden talk
radio show. Using this vehicle we inform customers why they should consider
organic alternatives, how they should use organic products and where they can
buy them. Since the Company pays for the air time, we are also receive an
inventory of commercials that will be partially used to educate consumers and
let them know where to buy the products, as well as, selling commercials to help
offset the cost of the radio expense.
13
The Company also has strategic relationships established with key Sales
Representative and Distributor organizations in the markets that we service and
has developed very strong relationships with two vendors for the fulfillment of
our organic liquid and fertilizer product lines. The Company plans to vigorously
pursue strategic relationships that enhance our ability to deliver quality
products, at reasonable prices.
To cover these anticipated cash shortfalls, the Company anticipates collecting
$160,000 in the first quarter of 2007, from the open January 3, 2006 current
Stock offering. In addition, we are in the process of negotiating short-term
bridge loan financing of $500,000, which the Company projects will be in place
within the next 30 days. The Company has also received a Letter of Intent for a
private placement offering of up to $6,000,000, that will take place 6 months
after the current offering is closed.
Assuming an anticipated total investment to be received of at least $3,160,000,
combined with the short-term financing of $500,000, the Company will adequately
cover anticipated cash shortfalls from January, 2007 to December, 2009.
The Company's projected Plan of Operations for calendar years 2007, 2008 and
2009 consist of the following key figures. (000's omitted)
Year 2007 Year 2008 Year 2009
--------- --------- ---------
Revenues $ 1,619 $6,022 $9,936
Margin 537 1,814 3,184
Selling, General and 950 1,451 2,003
Administrative Expense
Other (Income)/Expense 351 1 1
Net Profit/(Loss) Before Taxes $ (764)(1) $ 362 $1,180
There is no assurance that the Company's actual operations will reflect the
above projections. Market conditions, competition, the ability to raise capital
and all other risks associated with the operation of a business could adversely
impact upon the Company achieving the above projections. This section contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this document.
14
(1) Not including revenues from sales to as yet unidentified customers
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL
CONDITION AND RESULTS OF ITS OPERATIONS
Detailed information regarding the Company's operations is contained in the
Financial Statements section of this registration statement. The following table
sets forth, for the periods indicated, certain key information about the
Company.
The Company financed its expenditures since its inception primarily through
private placement issuances for cash of 6% convertible debenture and convertible
promissory notes totaling $328,215 and a $1,000,000 private placement stock
offering commencing on January 3, 2006, of which $455,000 had been raised as of
December 31, 2006. Of the 1,258,244 shares of stock offered, 442,917 were
allocated to the convertible debenture holders and convertible promissory note
holders at a conversion price of $.42 per share and 815,327 shares of common
stock were made available to accredited investors at $1.00 per share.
It is anticipated that, in total, $615,000, of the potential raise of $815,327,
will be received prior to the expected close out of the January 3, 2006 stock
offering before this Registration Statement becomes effective. This means that
an additional $160,000 is expected to be received from the current offering in
the first quarter of 2007.
15
Organic Sales and Marketing, Inc.
Selected Financial Data
For the Years Ended September 30, 2006 and 2005
And for the Three Months Ended December 31, 2006 (Unaudited)
Statement of Operations
Three Months Twelve Months Twelve Months
Ended Ended Ended
December 31, 2006 September 30, 2006 September 30, 2005
(Unaudited)
----------------- ------------------ ------------------
Revenues $ 4,930 $ 50,111 $ 78,946
Margin 2,415 8,151 45,471
Selling, General and 149,879 292,361 174,130
Administrative Expense
Other Income/(Expense) (1,083) (263,357) (80,914)
----------- ----------- -----------
Profit/(Loss) Before Taxes $ (148,547) $ (547,567) $ (209,573)
=========== =========== ===========
Loss per share-Basic and $ (0.03) $ (0.17) $ (.07)
Diluted ============ =========== ===========
Weighted Average Number
of Shares Outstanding- 4,331,801 3,284,827 3,000,000
Basic and Diluted ============ =========== ============
Balance Sheets
Three Months Twelve Months Twelve Months
Ended Ended Ended
December 31, 2006 September 30, 2006 September 30, 2005
(Unaudited)
----------------- ------------------ ------------------
ASSETS
Cash $ 118,159 $ 226,322 $ 3,953
Accounts Receivable 8,345 6,081 2,775
Inventories 67,024 29,174 9,714
Fixed Assets 7,213 2,711 338
Other Assets 200 200 200
----------- ----------- ---------
TOTAL ASSETS $ 200,941 $ 264,488 $ 16,980
=========== =========== =========
LIABILITIES
Accounts Payable $ 122,243 $ 83,953 $ 81,159
Accrued Expenses 80,766 68,335 49,255
Notes Payable-Current 60,338 47,319 108,809
Note Payable-Long Term 24,468 27,058 42,767
----------- ----------- ---------
TOTAL LIABILITIES $ 287,815 $ 226,665 $ 281,990
STOCKHOLDERS
EQUITY/(DEFICIT)
Common Stock (Note 1) $ 433 $ 431 $ 300
Additional Paid in Capital 1,155,323 1,131,475 281,206
Accumulated (Deficit) (1,242,630) (1,094,083) (546,516)
----------- ----------- ---------
TOTAL STOCKHOLDERS $ (86,874) $ 37,823 $(265,010)
EQUITY/(DEFICIT)
TOTAL LIABILITIES
AND STOCKHOLDERS
EQUITY/(DEFICIT) $ 200,941 $ 264,488 $ 16,980
=========== =========== =========
16
Note 1:
Common Stock, $.0001 par value, 100,000,000 shares authorized, 4,335,426;
4,311,576 and 3,000,000 shares issued and outstanding respectively
The Company is a development stage company and did not generate any significant
operating revenues from its inception on August 23, 2003 to September 30, 2006.
The Company is currently focusing its efforts on developing and acquiring
quality organic products and establishing a large viable distribution network
for these products. While there is no assurance, the Company anticipates that by
developing quality products and establishing a broad distribution network, it
will be in a position to receive revenues in the future.
From its inception, the Company has incurred costs associated with the
development and launching of its products, probable markets and business. The
Company has established brand names, consumer recognition and interest in
organics through private labels, the internet and radio and established a
distribution network which increase the quality and marketability of the
Company's products. While there is no assurance, management believes that the
Company's products will commence generating revenues during the first quarter of
2007.
The Company financed its expenditures through sales pursuant to private
placements of its securities. It raised $125,000 between August and December of
2003 from the private placement of its 6% Convertible Debentures. There also was
issued two 6% convertible promissory notes to two individual accredited
investors in the aggregate amount of $15,000 (one note for $10,000 and the other
for $5,000). In addition there was issued a series of non-interest convertible
notes to a director of the Company from March 2004 to March 2006 in the
aggregate amount of $188,218. All the debentures and notes were issued for cash
and converted by the holders thereof to 880,476 shares of common stock, at the
17
stipulated exercise price of $.42 per share in payment of the outstanding
principal and any accrued interest thereon.
The Company also financed its expenditures primarily through the sale of its
common stock. Since inception through March, 2007, the Company issued 4,912,533
shares of common stock. It raised $554,050 pursuant to certain commitments it
received from the stock offering in 2006 and to March 2007 for cash at $1.00 per
share and through the conversion of the 6% convertible debenture, and
convertible promissory notes issued. 671,890 of these shares were issued as
free-trading shares under Rule 504 of Regulation D of the federal Securities Act
of 1933. 4,240,643 of these shares are currently restricted.
From inception through December 31, 2006 the Company's selling, general and
administrative expenses were $894,598. These expenses are partially offset by
income from radio ads, website, garden and cleaning products sales in the amount
of $217,197.
As of December 31, 2006, the Company had current assets of $193,528 and $7,413
in furniture, equipment and other assets, resulting in total assets of $200,941.
The Company's current liabilities were $263,347.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below.
Principles of Accounting
The Company employs the accrual method of accounting for both financial
statements and tax purposes. Using the accrual method, revenues and related
assets are recognized when earned, and expenses and the related obligations are
recognized when incurred. The Company has elected a September 30 year end.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
18
Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements" ("SAB 104"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We earn our revenues from the distribution of garden and
cleaning products to retailers and directly to consumers via our internet site
and from advertising contracts. Four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
Revenue from garden and cleaning products is recognized upon shipment of the
product. The distribution of products is governed by purchase orders or direct
sale agreements which fix the price and delivery date. The Company records a
provision for product returns and price markdowns as a reduction of gross sales
at the time the product passes to these retailers or consumers. The provision
for anticipated product returns and price markdowns is primarily based upon the
Company's analysis of historical product return and price markdown results.
Should product sell-through results at retail store locations fall significantly
below anticipated levels this allowance may be insufficient. The Company will
review the adequacy of its allowance for product returns and price markdowns and
if necessary will make adjustments to this allowance on a quarterly basis. In
compliance with Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," distribution costs charged to customers
are recognized as revenue when the related product is shipped. Advance payments
are recorded on the Balance Sheet as deferred revenue until the revenue
recognition criteria is met.
Revenue from radio advertising is derived from two sources, the sale of
commercial spots on the Garden Guys radio talk show and hosting live remote
broadcasts. Revenue from radio advertising is recognized after the commercial
has been aired and/or a remote broadcast has taken place. Customers will prepay
for radio spots or remote broadcasts at the time they contract with the Company
to air their commercials or host a remote broadcast. The Company will carry this
prepayment as liability, until such time as economic performance takes place.
Money received is refundable prior to the airing of commercials or the airing of
the remote broadcast, adjusted by any production or other direct costs incurred
up to that point in time.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original a maturity of
three months or less at the time of purchase to be cash equivalents. During
fiscal 2006, the Company maintained cash in bank accounts which, at times,
exceeded Federal Deposit Insurance Corporation insured limits. The Company has
not experienced any losses on this account and believes their risk to be
minimal.
19
Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for
doubtful accounts. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on a
history of past write-offs and collections and current credit conditions. The
Company feels that the entire balance of accounts receivable as of December 31,
2006, September 30, 2006 and 2005 is collectable and therefore no allowance has
been taken.
Inventory
The inventory is stated at the lower of cost (first-in-first-out method) or
market. Inventory items consist of raw material and finished goods. Raw
materials consist of labels, bottles, sprayers and shipping materials. Finished
goods consist of fertilizer bags and bottles of organic cleaning products ready
for shipment. The inventory consists of newly purchased items; therefore, there
is currently no allowance for excess or obsolete inventory.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for
minor replacements, maintenance and repairs which do not increase the useful
lives of the property and equipment are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of five to
seven years.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense primarily consists of the Company's two hour
weekly radio Garden Call In program with Clear Channel Communications and
Citadel Communications Company. The total annual advertising expense for the
contract with Clear Channel and Citadel Communications is $41,700 and $30,030
for the years ended September 30, 2006 and 2005, respectively. The Company also
advertises its products throughout area garden clubs and its own website.
Income Taxes
The Company is a C Corporation registered in the state of Delaware. Income taxes
are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due. Income taxes are accounted for in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS No. 109 income taxes are recognized for the following: i) amount of taxes
payable for the current year, and ii) deferred tax assets and liabilities for
the future tax consequences of events that have been recognized differently in
the financial statements than for tax purposes. Deferred tax assets and
liabilities are established using statutory tax rates and are adjusted for tax
rate changes. SFAS 109 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
20
Net Income (Loss) per Share
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY ASSETS
AN AMENDMENT OF APB OPINION NO. 29", based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that opinion, however, included certain exceptions to
that principle. This statement amends Opinion 29 to eliminate the exception for
non-monetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of non-monetary assets that do not have
commercial substance. This statement is effective during fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have
a material impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123(R), "SHARE-BASED PAYMENT". This
Statement revises SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" and
supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" SFAS
No. 123(R) focuses primarily on the accounting for transactions in which an
entity obtains employee services in share-based payment transactions. SFAS No.
123(R) requires companies to recognize in the statement of operations the cost
of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards. This Statement is effective as of
the first reporting period that begins after June 15, 2005. The Company has
evaluated the provisions of SFAS 123(R) and determined that the share based
employee compensation programs are a valuable instrument in retaining and
rewarding employees and, as a result, the Company will appropriately expense the
costs of administering share based compensation programs as required by SFAS
123(R).
In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS", an amendment
of ARB No. 43, Chapter 4 (SFAS 151), to clarify that abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage) should
be recognized as current period charges, and that fixed production overheads
should be allocated to inventory based on normal capacity of production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not
expected to have a material impact on the Company's financial statements.
In June 2005, the FASB issued Statement of Financial Accounting Standard No.
154, Accounting Changes and Error Corrections, ("SFAS 154"). SFAS 154 replaces
21
Accounting Principle Bulletin No. 20 ("APB 20"), and Statement of Financial
Accounting Standard No. 3, Reporting Accounting Changes in Interim Financial
Statements ("SFAS 3"), and applies to all voluntary changes in accounting
principle, and changes the requirements for accounting for and reporting of a
change in accounting principle. APB 20 previously required that most voluntary
changes in accounting principle be recognized by including in net income of the
period of change a cumulative effect of changing to the new accounting
principle, whereas SFAS 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. SFAS 154 enhances the consistency of financial information
between periods. SFAS 154 is effective for fiscal years beginning after December
15, 2005. Our adoption of SFAS 154 is not expected to have a material impact on
our results of operations or financial position.
In February 2006, the FASB issued SFAS Statement No. 155, "ACCOUNTING FOR
CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133
AND 140" ("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, "APPLICATION OF STATEMENT 133 TO BENEFICIAL INTERESTS IN SECURITIZED
FINANCIAL ASSETS." This Statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement 133,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS 155 is effective for all financial instruments
acquired or issued for the Company for fiscal year begins after September 15,
2006. The adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
In July 2006, the FASB issued FASB Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in the financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken in a tax return. The adoption of this standard is not
expected to have a material effect on the Company's results of operations or
financial position.
In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS"
("SFAS 157"). While SFAS 157 formally defines fair value,
22
establishes a framework for measuring fair value and expands disclosure about
fair value measurements, it does not require any new fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or permit
fair value measurements. SFAS 157 is required to be adopted effective January 1,
2008 and the Company does not presently anticipate any significant impact on its
consolidated financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158, "EMPLOYERS' ACCOUNTING FOR
DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88, 106 AND 132(R)" ("SFAS 158"). SFAS 158 requires an
employer to recognize the funded status of its defined benefit pension and other
postretirement plans as an asset or liability in its statement of financial
position and to recognize changes in the funded status in the year in which the
changes occur through other comprehensive income. The funded status of a plan is
measured as the difference between plan assets at fair value and the benefit
obligation, which is represented by the projected benefit obligation for pension
plans and the accumulated postretirement benefit obligation for other
postretirement plans. SFAS 158 requires the recognition, as a component of other
comprehensive income, net of tax, of the gains or losses and prior service costs
or credits that arise during the period but are not recognized as a component of
net periodic benefit cost in accordance with existing accounting principles.
Amounts required to be recognized in accumulated other comprehensive income,
including gains and losses and prior service costs or credits are adjusted as
they are subsequently recognized as components of net periodic benefit cost
pursuant to the recognition and amortization provisions of existing accounting
principles. In addition, SFAS 158 requires plan assets and obligations to be
measured as of the date of the employer's year-end statement of financial
position as well as the disclosure of additional information about certain
effects on net periodic benefit cost for the next fiscal year from the delayed
recognition of the gains or losses and prior service costs or credits.
The Company is required to adopt those provisions of SFAS 158 attributable to
the initial recognition of the funded status of the benefit plans and disclosure
provisions as of December 31, 2006. Those provisions of SFAS 158 applicable to
the amortization of gains or losses and prior service costs or credits from
accumulated other comprehensive income to the net periodic benefit cost are
required to be applied on a prospective basis effective January 1, 2007. The
Company does not anticipate that the adoption of SFAS 158 will have any impact
on its financial statements.
Reclassifications
Certain immaterial amounts from prior years have been reclassified to conform to
the 2006 presentation.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term maturity of these
instruments. The
23
carrying value of notes payable approximates fair value because negotiated terms
and conditions are consistent with current market rates.
Equity Issuances for Services
We account for all transactions under which employees, officers and directors
receive shares of stock in accordance with the provisions of Accounting
Principles Board Opinion No.25 "Accounting for Stock Issued to Employees". In
accordance with Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock -Based Compensation", we adopted the pro-forma
disclosure requirements of SFAS 123. Accordingly, no compensation has been
recognized in the results of operations for the employees, officers and
directors stock option plan other than for those options issued to non-employees
for other services. Issuances of stock to employees are valued at the fair
market value at the time of issuance or earned by the agreement and then
expensed over the respective term of such agreement.
We account for non-employee equity transactions in accordance with SFAS No. 123
and EITF 96-18. The valuing of such equity considers the fair value of the stock
at issuance or contract date, the volatility of the stock, risk free rates of
return, the term for which services are to be rendered and the date upon earning
such equity. We may utilize the Black Scholes formula to arrive at the intrinsic
value of certain equity rights issued for services for non-employee issuances.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements we are
required to estimate our income taxes. Management judgment is required in
determining our provision of our deferred tax asset. We recorded a valuation for
the full deferred tax asset from our net operating losses carried forward due to
us not demonstrating any consistent profitable operations. In the event that the
actual results differ from these estimates or we adjust these estimates in
future periods we may need to adjust such valuation recorded.
ITEM 3. DESCRIPTION OF PROPERTY
The Company is in a "tenant at will" agreement with Leo S. Arcand (Lessor) of
114 Broadway, Raynham, MA. The premises encompass the North side of a one story,
commercial, wood building with approximately 500 square feet of office space.
The monthly lease payment is $600.00 per month. It is located in an area that
has easy access to major highways. Products are received and shipped by contract
carriers.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 5, 2007 certain information with
respect to the beneficial ownership of the common stock by (1) each person known
by us to beneficially own more than 5% of our outstanding shares, (2) each of
our directors, (3) each named executive officer and (4) all of our executive
officers and directors as a
24
group. Except as otherwise indicated, each person listed below has sole voting
and investment power with respect to the shares of common stock set forth
opposite such person's name.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (1)BENEFICIAL OWNERSHIP OUTSTANDING SHARES
-------------------- ------------------
Samuel F.H. Jeffries 1,500,000 30.53%
Stephen B. Jeffries 25,000 0.51%
Leonard B. Colt, Jr. 150,000 3.05%
Jerry Adelstein 1,338,065 27.24%
Joanne L.H.Anderson 256,940 5.23%
Laurie Basch-Levy 75,000 1.53%
Michael Ernst 43,877 0.89%
All Executive Officers and Directors 3,388,882 68.98%
as a Group (7 persons)
Bruno Kordish 500,000(2) 10.18%
(1) Beneficial ownership so determined in accordance with the rules of the
Securities and Exchange Commission. Unless otherwise indicated, this column
reflects amounts as to which the beneficial owner has sole voting power and sole
investment power.
(2) Bruno Kordish disclaims beneficial ownership to 150,000 shares beneficially
owned by his former wife Maryanne Kordish.
Applicable percentage of ownership is based on 4,912,533 shares of our common
stock outstanding on March 20, 2007.
The address of each of the executive officers and directors is care of Organic
Sales and Marketing, Inc. 114 Broadway, Raynham, MA 02767.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MANAGEMENT
The following table sets forth our current directors, officers, and
significant employees, their ages, and all offices and positions with our
company;
25
NAME AGE POSITION
Samuel F.H. Jeffries 45 President, Chief Executive Officer and
Chairman of the Board of Directors
Stephen B. Jeffries 46 Director
Leonard B. Colt, Jr. 70 Director, Secretary
Jerry Adelstein 74 Director
Joanne L.H. Anderson 48 Director, Vice President
Laurie Basch-Levy 53 Director and Member of Audit Committee
Michael Ernst 55 Director
Mark J. McEvoy 54 Treasurer and Chief Financial Officer
The following is a biographical summary of our directors and officers:
Samuel F.H. Jeffries has been president, Chief Executive Officer, and Chairman
of the Board of Directors since inception. He is also a member of the Executive
Committee Prior to such time, he was president and co-managing member of Garden
Connections, LLC, from its inception in 2002. From 1999 to 2001, was Eastern
Regional Sales Manager and area manager for Etera Corporation based in Mount
Vernon, Washington. His responsibilities included sales, management, forecasts,
hiring, computer training, new accounts, budgeting, advertising and promotions.
From 1992 to 2000, Mr. Jeffries owned Jeffries Horticultural Sales based in
Franklin, Massachusetts.
In 1984, Mr. Jeffries received his bachelor of science degree in environmental
design from the University of Massachusetts at Amherst. He minored in
arboriculture. He was also a certified Occupational Education instructor at the
Norfolk County Agricultural High School, Walpole, MA. He is the first cousin of
Stephen B. Jeffries.
Joanne L.H. Anderson, Director, Vice President and member of the Executive
Committee Designer, Artist and Art Director of North American Carrousel Company
since 1980 has been a director since May, 2005. Since 1980, Joanne has been
employed as an artist, designer, and head of the art department of North
American Carrousel Company located in Minneapolis, Minnesota. She is experienced
in website design and graphic and commercial art. She is trained as an artistic
painter, sculptor and art conservationist. She apprenticed for four years with
leading portrait artist Jerome Ryan. She majored in art at Hamline University in
Saint Paul, Minnesota. Restored paintings and ceilings in the Minnesota State
Capital and St. Paul Courthouse
Len Colt, has been our director since the inception. Since 1993.He has been
owner of Pegasus Marketing & Sales based in Little Compton, Rhode Island.
Pegasus is in the packaging consultancy firm and sales representative for
various packaging manufacturers. In 1958, Mr. Colt received his bachelor of arts
degree in history from Middlebury College located in Middlebury, Vermont.
26
Jerry Adelstein, has been a director since the inception and is a member of the
Audit Committee and is a member of the Executive Committee. Since 1968, he has
been the president of H&J Associates, a textile sales company, based in Long
Island, New York. In 1953, he received a bachelor of science in economics from
Alfred University, in New York State. In 1957, he received a Masters in business
administration in economics from New York University.
Stephen B. Jeffries, has been a director since the inception. He has been the
owner of S.B. Jeffries Consultants since 1990. S.B. Jeffries Consultants is
based in Boston, Massachusetts, and is in the business of equity analysis and
financial portfolio and estate management. In 1983, he received a bachelor of
arts in economics from the University of Chicago. He has completed C.F.A. Level
1 Examination and C.F.P. Level 1 Examination.
Laurie Basch-Levy, Director and is a member of the Audit Committee Foremost
textile designer, creating designs widely used by major fashion designers in New
York City until 1982 when she became treasurer of The George Basch Co. She
became President and CEO of The George Basch Co. in January 2001, a privately
held manufacturer and global distributor of the product Nevr-Dull Metal Polish,
which was formed in 1929
Education
Fashion Institute of Technology in New York City
Michael Ernst, Director, since the inception
Senior Energy Consultant, Tetra Tech Ec Inc. 2006 -
Vice President of Permitting and Siting for TransEnergie U.S. Ltd. 2001-2006
Associate Attorney, Rubin & Rudman, Boston
General Counsel and Legislative Director of the Massachusetts Department of
Telecommunications and Energy, 1992-2001
Hearing Officer for the Massachusetts Energy Facilities Siting Board, 1990-1992
Counsel to the Joint Committee on Energy of the Massachusetts Legislature,
1984-1990
Safe Energy Advocate, MASSPIRG, 1981-1983
Education
Northeastern University School of Law, J.D., Davidson College, B.S.
Mark J. McEvoy, on November 15, 2006 was elected Treasurer and Chief Financial
Officer has practiced in the accounting profession for 32 years, graduated from
Bentley College in 1977 with a Bachelor's degree in Accounting. Most recently he
has been a Controller/CFO for over 10 years and prior to that, an entrepreneur
having owned an Accounting and Tax practice for 9 years.
27
B. Significant Employees.
We intend to enter into employment agreements with our officers and significant
employees, but we have not yet done so.
We have not compensated our directors for serving in such capacity, and we have
not adopted a policy for compensating them.
C. Family Relationships. Samuel F.H. Jeffries and Stephen B. Jeffries are first
cousins
D. Involvement in Certain Legal Proceedings. None
E. The Executive Committee and the Audit Committee of the Board are separate
committees. Stephen Jeffries is a qualified financial expert.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information concerning annual and long-term
compensation, for our Chief Executive Officer and for each of our other
executive officers (the "Named Executive Officers") whose compensation on an
annualized basis is anticipated to exceed $100,000 during fiscal 2006.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL ANNUAL STOCK UNDERLYING OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS (NO. OF SHARES) COMPENSATION
-------- ---- ------ ----- ------------ ------ -------------- ------------
NONE
Except that for all officers and directors the Company paid aggregate salaries
of $49,866.00
STOCK OPTIONS
We did not grant stock options in Fiscal Year 2006.
The following table sets forth information with respect to stock options granted
to the Named Executive Officers during fiscal year 2006
OPTION GRANTS IN FISCAL 2006
(INDIVIDUAL GRANTS)(1)
NUMBER OF % OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED FISCAL 2006 PRICE DATE
---- --------------------- ------------------------ -------- ----------
None
28
(1) No Executive Officer held options during the 2006 fiscal year.
The following table sets forth information as to the number of shares of common
stock underlying unexercised stock options and the value of unexercised
in-the-money stock options projected at the 2006 fiscal year end:
None
No retirement, pension, profit sharing, stock option or insurance programs or
other similar programs have been adopted by the Company for the benefit of its
employees, except a 401(k) Plan... (note: see financial statement).
There are no understandings or agreements regarding compensation our management
will receive after a business combination that is required to be included in
this table, or otherwise.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We pay $1,000 per year to Jeffries Landscape & Design (a company owned by,
Samuel F.H. Jeffries) for the storage of certain products we sell.
We have a contract with Pegasus Marketing & Sales, owned by Leonard B. Colt, Jr.
The contract provides for a payment of $1,250 per month to Pegasus and
reimbursement of expenses incurred at trade shows, and other expenses agreed to
by the parties. The contract provides that Pegasus will provide us with
consulting services for all aspects of our business including, but not limited
to, administrative, sales and marketing. The agreement can be terminated on one
month's notice by either party. As of December 31, 2006, we owed Pegasus
Marketing $25,544.
We owe three notes payable to Samuel F.H. Jeffries and his wife Yvonne M.
Jeffries in an aggregate amount of $45,000 ($20,000, $20,000 and $5,000) plus
interest at the rate of 10% per annum which are being amortized in monthly
payments aggregating $635.55 per month. The first $20,000 note matures December
20, 2011, the second $20,000 note matures January 16, 2012, and the third $5,000
note matures March 25, 2012.
There was a consulting agreement between us and Joanne L.H. Anderson which
provides for her services in connection with the operation of our internet sales
business, which services included among other things the building and designing
of our website, implementation of our e-commerce capabilities, product logo
designs, designing our company logo and designing our "Garden Guys" trademark
logo. The agreement
29
commenced February 1, 2003 and terminated February 28, 2005. Ms. Anderson
received on August 27, 2003, 250,000 shares of restricted common stock for these
services pursuant to our agreement.
Jerry Adelstein also had a consulting agreement with us which commenced
September 1, 2002 and terminated August 30, 2005 to perform consulting services
in connection with our business including but not limited to: financial planning
on an on-going strategic basis, long term investment policies and product
development, promotion and sales. Mr. Adelstein on or about August 27, 2003
received 850,000 shares of restricted common stock for his services pursuant to
our agreement and in payment of $9,178 cash loan we owed to him. In addition,
Mr. Adelstein received on or about January 1, 2007, 200,117 shares of restricted
common stock in payment of a $74,418 promissory Convertible Note with accrued
interest of $9,629 or an aggregate of $84,047 at a conversion price of $.42 per
share. Also on the same date he received 287,948 shares of restricted common
stock in payment of another Convertible Note in the amount of $113,800.00 plus
accrued interest of $7,138.00 or an aggregate of $120,938 at the same conversion
exercise price.
Stephen B. Jeffries holds a demand note dated February 4, 2002 of the Company in
the amount of $20,000 with interest at the rate of 12% per annum. Any interest
not paid according to its terms shall accrue interest and added to the
principal. As of December 31, 2006 the balance owed on the Note is $35,968
including accrued and unpaid interest.
Bruno Kordich, an affiliated shareholder, received on September 30, 2004,
150,000 restricted shares of common shares at $.0001 par value in a non-cash
transaction for financial advisory and consulting services rendered from April,
2004 to September 2004 on our behalf in connection with the valuation and
acquisition of new organic-based products for development and marketing as well
as acquiring ownership interests therein. In addition, Mr. Kordich has received,
as of January 1, 2007, an additional 500,000 restricted shares for additional
services rendered since September, 2004, of which 150,000 shares were designated
to MaryAnn Kordich to which he disclaims any beneficial interest.
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
(a) Common Stock.
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 100,000,000 shares of capital stock, of which 100,000,000 are
shares of Common Stock, par value $0.0001 per share (the "Common Stock").
The following is a summary description of our capital stock and certain
provisions of our certificate of incorporation and by-laws, copies of which have
been incorporated by
30
reference as exhibits to the registration statement of which this prospectus
forms a part. The following discussion is qualified in its entirety by reference
to such exhibits.
All common shares are equal to each other with respect to voting and dividend
rights and are equal to each other with respect to liquidation rights. Special
meetings may be called by the Board of Directors or by any officer instructed by
the directors to call the meeting. The shareholders have no right to call
special meetings. Holders of common shares are entitled to one vote at any
meeting of the shareholders for each common share they own as of the record date
fixed by the Board of Directors. At any meeting of shareholders, a majority of
the outstanding common shares entitled to vote, represented in person or by
proxy, constitutes a quorum. A vote of the majority of the common shares
represented at the meeting will govern, even if this is substantially less than
a majority of the common shares outstanding. Directors are elected by a
plurality of votes. Holders of shares are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefore, and on liquidation are entitled to participate pro rata in a
distribution of assets available for such a distribution to shareholders. There
are no conversion, pre-emptive or other subscription rights or privileges with
respect to any share, except outstanding options. The shares do not have
cumulative voting rights, which means that the holders of more than fifty
percent of the common shares voting for election of directors may elect all the
directors, if they choose to do so. In such event, the holders of the remaining
shares aggregating less than fifty will not be able to elect directors.
The description of certain matters relating to the securities of the Company is
a summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to this Form 10-SB.
(b) Debt Securities. None
(c) Other Securities To Be Registered. None
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information. The Company's common stock is not trading on any
stock exchange nor the over-the-counter. The Company is not aware of any market
activity in its stock since its inception through the date of this filing.
(b) Holders. As of March 20, 2007, there are 109 record holders of
4,412,533 shares of the Company's common stock.
31
(c) Dividends. The Registrant has not paid any cash dividends to date and
does not anticipate or contemplate paying dividends in the foreseeable future.
It is the present intention of management to utilize all available funds for the
development of the Registrant's business.
ITEM 2. LEGAL PROCEEDINGS.
There are not presently any material pending legal proceedings to which the
Registrant is a party or as to which any of its property is subject, and no such
proceedings are known to the Registrant to be threatened or contemplated against
it.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are not and have not been any disagreements between the Registrant and its
accountants on any matter of accounting principles, practices or financial
statement disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On May 4, 2005 we issued 25,000 restricted shares of common stock to Stephen F.
McCarthy pursuant to a Separation Agreement between Mr. McCarthy and the
Company. In addition to the issuance of the common stock, the Company forgave an
indebtedness of $16,059 he owed to the Company
On August 27, 2003 we issued 150,000 restricted shares to Leonard B. Colt, Jr.
pursuant to a consulting agreement for services rendered to us in connection
with the administration of our business and the sales and marketing of our
products. Also, on July 26, 2006 we issued 6,938 restricted shares in payment of
a $2,500 Convertible Debenture Note issued to him for cash plus accrued interest
thereon at the exercise price of $.42 per share.
On August 27, 2003 we issued 850,000 restricted shares to Jerry Adelstein
pursuant to a consulting agreement for services rendered and in payment of
$9,178 cash loans made by him to the Company. In addition there were issued to
Mr. Adelstein a series of non-interest bearing convertible notes for cash loans
made by him from March 2004 to March 2006 in the amount of $188,218. These notes
were converted at the conversion price of $.42 per share to 488,065 restricted
shares of common stock in January of 2007.
On August 27, 2003 we issued 250,000 restricted shares to Joanne Anderson for
services rendered in revising and updating our web site, logo's, labels,
packaging design, product
32
development and advertising. Also, on July 26, 2006 we issued to her and her
husband, Howard Anderson, as joint tenants 6,940 restricted shares in payment of
our $2,500. 6% Convertible Debenture issued to them for a cash loan accrued
interest thereon at the conversion price of $.42 per share.
On December 21, 2006 we issued 14,003 shares of common stock to Robert
Adelstein, an accredited investor, upon his conversion of our $5,000 Convertible
Promissory Note dated June 24, 2004 issued for a cash loan at the exercise price
of $.42 per share in payment of the principal balance and accrued interest
thereon.
On December 21, 2006 we issued 27,896 shares of common stock to Vincent Innone,
an accredited investor, upon his conversion of our $10,000 6% Convertible Note
dated March 25, 2004 issued for a cash loan at the exercise price of $.42 per
share in payment of the principal balance and accrued interest thereon.
In each of the above issuances, our shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. No commissions were paid for the issuance of such shares. All of the above
issuances of shares of our common stock qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance of such shares by us did
not involve a public offering. Each of the accredited investors is a
sophisticated investor and had access to information normally provided in a
prospectus regarding us. The transactions were not a "public offering" as
defined in Section 4(2) due to the insubstantial number of persons involved,
size of the transactions, manner of the offering and number of shares offered.
We did not undertake an offering in which we sold a high number of shares to a
high number of investors. In addition, the investors had the necessary
investment intent as required by Section 4(2) since all, except those who
received free trading shares pursuant to Rule 504 of the 1933 Act, agreed to and
received a share certificates, bearing a legend stating that such shares are
restricted pursuant to Rule 144 of the Securities Act. These restrictions ensure
that these shares would not be immediately redistributed into the market and
therefore not be part of a "public offering". Based on an analysis of the above
factors, we believe we have met the requirements to qualify for exemption under
Section 4(2) of the Securities Act of 1933 for the above transactions.
Commencing January 3, 2006, the Company commenced an offering of 1,258,244
shares of its common stock up to the limit of $1,000,000 at a price of $1.00 per
share to accredited investors in reliance upon the exemption pursuant to Rule
504 of Regulation D of the Securities Act of 1933 and to holders of the
Company's 6% Convertible Debentures or the holders of its convertible promissory
notes at the conversion exercise price of $.42 per share. This offering
qualifies under Rule 504 of Regulation D because cash proceeds are for
$1,000,000 or less and the registration of the offering by qualification
pursuant to Section 49:3-61 of the New Jersey Uniform Securities Laws (1997) and
pursuant to Section 35(e) of the New York General Business Law. Shares issued in
states other than the states of New Jersey and New York qualified for exemption
from registration pursuant to Rule 506 of the 1933 Securities Act or the Uniform
Accredited Investor Exemption Rule. As of December 31, 2006 the Company had
issued 431,100 shares of its common stock for cash at $1.00 per share to
accredited investors and had issued 880,476 shares to convert a total of
$328,218 of debt and $41,582 of related interest on the debt.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
33
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify directors and officers as well as other employees and individuals
against expenses including attorneys' fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys' fees
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's certificate of incorporation, bylaws, agreement, a
vote of stockholders or disinterested directors or otherwise.
The Company's Amended and Restated Bylaws provides that it will indemnify and
hold harmless, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
section grants us the power to indemnify.
The Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation or bylaws that a director of the corporation shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for:
o any breach of the director's duty of loyalty to the corporation or
its stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o payments of unlawful dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper personal
benefit.
The Company's Amended and Restated Bylaws provides that, to the fullest extent
permitted by applicable law, none of our directors will be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this provision will be prospective only
and will not adversely affect any limitation, right or protection of a director
of our company existing at the time of such repeal or modification.
34
SEC POSITION OF INDEMNIFICATION FOR SECURITY ACT LIBILITY
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to our directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that it is the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment of expenses
incurred or paid by any of our directors, officers or controlling persons in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, we will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized
Date: March 26, 2007
ORGANIC SALES AND MARKETING, INC.
Registrant
By: /s/ Samuel F.H. Jeffries
-----------------------------
Samuel F.H. Jeffries
Chairman and President
35
ORGANIC SALES AND MARKETING, INC.
Financial Statements for the Three Months
Ended December 31, 2006 and 2005 (Unaudited)
and the Years Ended September 30, 2006 and 2005
and Report of Independent Registered
Public Accounting Firm
Chisholm, Bierwolf & Nilson LLC.
533 West 2600 South, Suite 25
Bountiful, Utah 84010
(801) 292-8756 Fax (801) 292-8809
36
CONTENTS
Report of Independent Registered Public Accounting Firm....................... 3
Balance Sheets................................................................ 4
Statements of Operations...................................................... 6
Statements of Stockholders' Equity (Deficit)...................................7
Statements of Cash Flows...................................................... 8
Notes to the Financial Statements............................................. 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Organic Sales and Marketing, Inc.
Raynham, MA
We have audited the accompanying balance sheets of Organic Sales and Marketing,
Inc. (the Company) as of September 30, 2006 and 2005 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the PCAOB (United
States). Those standards require that we plan and perform the audits 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 audits
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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 accompanying financial statements referred to above present
fairly, in all material respects, the financial position of Organic Sales and
Marketing, Inc. at September 30, 2006 and 2005 and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Organic
Sales and Marketing, Inc. will continue as a going concern. As discussed in Note
12 to the financial statements, Organic Sales and Marketing, Inc. has suffered
recurring losses from operations and is poorly capitalized which raises
substantial doubt about the company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 12. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Chisholm, Bierwolf & Nilson LLC
Bountiful, Utah
January 19, 2007
ORGANIC SALES AND MARKETING, INC.
Balance Sheets
ASSETS
------
September 30,
December 31, -----------------------
2006 2006 2005
------------ ---------- -----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $118,159 $226,322 $ 3,953
Accounts receivable, net 8,345 6,081 2,775
Inventories 67,024 29,174 9,714
-------- -------- -------
Total Current Assets 193,528 261,577 16,442
-------- -------- -------
PROPERTY AND EQUIPMENT, NET 7,213 2,711 338
-------- -------- -------
OTHER ASSETS
Deposits 200 200 200
-------- -------- -------
Total Other Assets 200 200 200
-------- -------- -------
TOTAL ASSETS $200,941 $264,488 $16,980
======== ======== =======
The accompanying notes are an integral part of these financial statements.
4
ORGANIC SALES AND MARKETING, INC.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30,
December 31, -----------------------
2006 2006 2005
------------ ---------- -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 122,243 $ 83,953 $ 81,159
Accrued expenses 61,880 50,990 15,219
Accrued interest payable 18,886 17,345 34,036
Line of credit 29,332 15,000 --
Current portion of convertible notes payable,
net of conversion discount - related parties -- -- 3,255
Current portion of convertible notes payable,
net of conversion discount -- -- 81,024
Current portion of notes payable - related parties 31,006 32,319 24,530
----------- ----------- ---------
Total Current Liabilities 263,347 199,607 239,223
----------- ----------- ---------
LONG-TERM LIABILITIES
Notes payable - related parties 24,468 27,058 28,476
Convertible notes payable - related parties -- -- 12,809
Convertible notes payable -- -- 1,482
----------- ----------- ---------
Total Long-Term Liabilities 24,468 27,058 42,767
----------- ----------- ---------
Total Liabilities 287,815 226,665 281,990
----------- ----------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 4,335,426, 4,311,576 and 3,000,000 shares
issued and outstanding, respectively 433 431 300
Additional paid-in capital 1,155,323 1,131,475 281,206
Accumulated defecit (1,242,630) (1,094,083) (546,516)
----------- ----------- ---------
Total Stockholders' Equity (Deficit) (86,874) 37,823 (265,010)
----------- ----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 200,941 $ 264,488 $ 16,980
=========== =========== =========
The accompanying notes are an integral part of these financial statements.
5
ORGANIC SALES AND MARKETING, INC.
Statements of Operations
For the Three Months For the Years Ended
Ended December 31, September 30,
-------------------------- ---------------------------
2006 2005 2006 2005
----------- ------------ ----------- ------------
(Unaudited) (Unaudited)
REVENUES
Product sales, net $ 4,930 $ 6,195 $ 25,000 $ 32,806
Services -- 1,892 25,111 46,140
----------- ----------- ----------- -----------
Total Revenues 4,930 8,087 50,111 78,946
COST OF SALES 2,515 6,319 41,960 33,475
----------- ----------- ----------- -----------
GROSS PROFIT 2,415 1,768 8,151 45,471
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 149,879 54,059 292,361 174,130
----------- ----------- ----------- -----------
Total Operating Expenses 149,879 54,059 292,361 174,130
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (147,464) (52,291) (284,210) (128,659)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 1,388 -- 2,934 --
Interest expense (2,471) (21,161) (266,291) (80,914)
----------- ----------- ----------- -----------
Total Other Income (Expense) (1,083) (21,161) (263,357) (80,914)
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (148,547) (73,452) (547,567) (209,573)
INCOME TAX EXPENSE -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (148,547) $ (73,452) $ (547,567) $ (209,573)
=========== =========== =========== ===========
LOSS PER SHARE - Basic and Diluted $ (0.03) $ (0.02) $ (0.17) $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - Basic and Diluted 4,331,801 3,000,000 3,284,827 3,000,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
6
ORGANIC SALES AND MARKETING, INC.
Statements of Stockholders' Equity (Deficit)
Total
Common Stock Additional Stockholders'
---------------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------ ------ ---------- ----------- -------------
Balance, September 30, 2004 3,000,000 $300 $ 195,262 $ (336,943) $(141,381)
Value attributed to beneficial
conversion feature of notes
payable -- -- 85,944 -- 85,944
Net loss for the year ended
September 30, 2005 -- -- -- (209,573) (209,573)
--------- ---- ---------- ----------- ---------
Balance, September 30, 2005 3,000,000 300 281,206 (546,516) (265,010)
Value attributed to beneficial
conversion feature of notes
payable -- -- 49,500 -- 49,500
Issuance of shares for cash
at $1.00 per share 431,100 43 431,057 -- 431,100
Issuance of shares for
conversion of debt at
$0.42 per share 880,476 88 369,712 -- 369,800
Net loss for the year ended
September 30, 2005 -- -- -- (547,567) (547,567)
--------- ---- ---------- ----------- ---------
Balance, September 30, 2006 4,311,576 431 1,131,475 (1,094,083) 37,823
Issuance of shares for cash at
$1.00 per share (unaudited) 23,850 2 23,848 -- 23,850
Net loss for the three months
ended December 31, 2006
(unaudited) -- -- -- (148,547) (148,547)
--------- ---- ---------- ----------- ---------
Balance, December 31, 2006
(unaudited) 4,335,426 $433 $1,155,323 $(1,242,630) $ (86,874)
========= ==== ========== =========== =========
The accompanying notes are an integral part of these financial statements.
7
ORGANIC SALES AND MARKETING, INC.
Statements of Cash Flows
For the Three Months For the Years Ended
Ended December 31, September 30,
---------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- --------- ---------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(148,547) $(73,452) $(547,567) $(209,573)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 415 85 330 168
Amortization of convertible notes payable
discounts related to beneficial conversions -- 14,450 231,174 52,023
Write-off of receivable from officer -- -- -- 15,689
Change in operating assets and liabilities:
Accounts receivable (2,264) 396 (3,306) (186)
Inventories (37,850) 711 (19,460) 2,445
Deposits -- -- -- (200)
Accounts payable 38,290 12,660 2,794 29,179
Accrued expenses 10,890 12,726 35,771 12,740
Accrued interest payable 1,541 4,079 23,391 17,974
--------- -------- --------- ---------
Net Cash Used in Operating Activities (137,525) (28,345) (276,873) (79,741)
--------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,917) -- (2,703) --
--------- -------- --------- ---------
Net Cash Used in Investing Activities (4,917) -- (2,703) --
--------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 23,850 -- 431,100 --
Net change in line of credit 14,332 -- 15,000 --
Proceeds from convertible notes
payable - related parties -- 34,000 49,500 85,826
Proceeds from notes payable - related -- -- 32,000 --
Payments on notes payable - related (3,903) (7,201) (25,655) (5,588)
--------- -------- --------- ---------
Net Cash Provided by Financing Activities 34,279 26,799 501,945 80,238
--------- -------- --------- ---------
NET INCREASE (DECREASE) IN CASH (108,163) (1,546) 222,369 497
CASH, BEGINNING OF PERIOD 226,322 3,953 3,953 3,456
--------- -------- --------- ---------
CASH, END OF PERIOD $ 118,159 $ 2,407 $ 226,322 $ 3,953
========= ======== ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 2,471 $ 1,132 $ 2,255 $ 3,581
Cash paid for income taxes $ -- $ -- $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of shares in settlement of debt $ -- $ -- $ 369,712 $ --
The accompanying notes are an integral part of these financial statements.
8
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 1 - Organization and Principle Activities of the Company
Business Description
Organic Sales and Marketing, Inc. was incorporated in the state of Delaware on
August 26, 2003. On September 8, 2003, a security exchange agreement was entered
into with Garden Connections, LLC. Garden Connections, LLC partners received all
of the issued and outstanding common stock of Organic Sales and Marketing, Inc.
in exchange for their interests in Garden Connections, LLC.
The Company is located in Raynham, Massachusetts and is engaged in the sale and
marketing of a wide variety of organic products primarily for lawn and garden
application, for distribution and sale in the New England Area to garden centers
and health food stores. The Company is expanding their markets by acquiring
other types of consumer products that have organic origins and can be private
labeled. The Company currently has private label organic products that have been
modified to meet applications in other industries. These new markets include
costume jewelry, sporting goods, grocery, optical, health and beauty, footwear,
museum stores, historical preservation groups, and boating.
Note 2 - Summary of Significant Accounting Policies
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and incorporate the following
significant accounting policies:
Principles of Accounting
The Company employs the accrual method of accounting for both financial
statements and tax purposes. Using the accrual method, revenues and related
assets are recognized when earned, and expenses and the related obligations are
recognized when incurred. The Company has elected a September 30 year end.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements" ("SAB 104"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We earn our revenues from the distribution of garden and
cleaning products to retailers and directly to consumers via our internet site
and from advertising contracts. Four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
9
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Revenue Recognition (continued)
Revenue from garden and cleaning products is recognized upon shipment of the
product. The distribution of products is governed by purchase orders or direct
sale agreements which fix the price and delivery date. The Company records a
provision for product returns and price markdowns as a reduction of gross sales
at the time the product passes to these retailers or consumers. The provision
for anticipated product returns and price markdowns is primarily based upon the
Company's analysis of historical product return and price markdown results.
Should product sell-through results at retail store locations fall significantly
below anticipated levels this allowance may be insufficient. The Company will
review the adequacy of its allowance for product returns and price markdowns and
if necessary will make adjustments to this allowance on a quarterly basis. In
compliance with Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," distribution costs charged to customers
are recognized as revenue when the related product is shipped. Advance payments
are recorded on the Balance Sheet as deferred revenue until the revenue
recognition criteria is met.
Revenue from radio advertising is derived from two sources. The sale of
commercial spots on the Garden Guys radio talk show and hosting a live
broadcast. Revenue from radio advertising is recognized after the commercial has
been aired and/or a remote broadcast has taken place. Customers will prepay for
radio spots or remote broadcasts at the time they contract with the Company to
air their commercials or host a remote broadcast. The Company will carry this
prepayment as liability, until such time as economic performance takes place.
Money received is refundable prior to the airing of commercials or the airing of
the remote broadcast, adjusted by any production or other direct costs incurred
up to that point in time.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original a maturity of
three months or less at the time of purchase to be cash equivalents. During
fiscal 2006, the Company maintained cash in bank accounts which, at times,
exceeded Federal Deposit Insurance Corporation insured limits. The Company has
not experienced any losses on this account and believes their risk to be
minimal.
Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for
doubtful accounts. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on a
history of past write-offs and collections and current credit conditions. The
Company feels that the entire balance of accounts receivable as of December 31,
2006, September 30, 2006 and 2005 is collectable and therefore no allowance has
been taken.
Inventory
The inventory is stated at the lower of cost (first-in-first-out method) or
market. Inventory items consist of raw material and finished goods. Raw
materials consist of labels, bottles, sprayers and shipping materials. Finished
goods consist of fertilizer bags and bottles of organic cleaning products ready
for shipment. The inventory consists of newly purchased items; therefore, there
is currently no allowance for excess or obsolete inventory.
10
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for
minor replacements, maintenance and repairs which do not increase the useful
lives of the property and equipment are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of five to
seven years.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense primarily consists of the Company's two hour
weekly radio Garden Call In program with Clear Channel Communications and
Citadel Communications Company. The total annual advertising expense for the
contract with Clear Channel and Citadel Communications is $41,700 and $30,030
for the years ended September 30, 2006 and 2005, respectively. The Company also
advertises its products throughout area garden clubs and it's own website.
Income Taxes
The Company is a C Corporation registered in the state of Delaware. Income taxes
are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due. Income taxes are accounted for in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS No. 109 income taxes are recognized for the following: i) amount of taxes
payable for the current year, and ii) deferred tax assets and liabilities for
the future tax consequences of events that have been recognized differently in
the financial statements than for tax purposes. Deferred tax assets and
liabilities are established using statutory tax rates and are adjusted for tax
rate changes. SFAS 109 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding and dilutive potential common shares
which includes the dilutive effect of stock options and warrants. Dilutive
potential common shares for all periods presented are computed utilizing the
treasury stock method. There were no stock options or warrants outstanding
during the reporting periods and their effect would be anti-dilutive since the
Company has incurred losses in both years presented.
For the Three Months For the Years Ended
Ended December 31, September 30,
------------------------ -------------------------
2006 2005 2006 2005
----------- ---------- ----------- -----------
Basic and Diluted (Unaudited) (Unaudited)
Net Loss - Numerator $ (148,547) $ (73,452) $ (547,567) $ (209,573)
========== ========= ========== ===========
Weighted Average Shares
- Denominator 4,331,801 3,000,000 3,284,827 3,000,000
========== ========= ========== ===========
Per Share Amount $ (0.03) $ (0.02) $ (0.17) $ (0.07)
========== ========= ========== ===========
11
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards
In June 2005, the FASB issued Statement of Financial Accounting Standard No.
154, Accounting Changes and Error Corrections, ("SFAS 154"). SFAS 154 replaces
Accounting Principle Bulletin No. 20 ("APB 20"), and Statement of Financial
Accounting Standard No. 3, Reporting Accounting Changes in Interim Financial
Statements ("SFAS 3"), and applies to all voluntary changes in accounting
principle, and changes the requirements for accounting for and reporting of a
change in accounting principle. APB 20 previously required that most voluntary
changes in accounting principle be recognized by including in net income of the
period of change a cumulative effect of changing to the new accounting
principle, whereas SFAS 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. SFAS 154 enhances the consistency of financial information
between periods. SFAS 154 is effective for fiscal years beginning after December
15, 2005. Our adoption of SFAS 154 is not expected to have a material impact on
our results of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY ASSETS
AN AMENDMENT OF APB OPINION NO. 29", based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that opinion, however, included certain exceptions to
that principle. This statement amends Opinion 29 to eliminate the exception for
non-monetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of non-monetary assets that do not have
commercial substance. This statement is effective during fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have
a material impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 152, "ACCOUNTING FOR REAL ESTATE
TIME-SHARING TRANSACTIONS AN AMENDMENT OF FASB STATEMENTS NO. 66 AND 67", to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, "Accounting for Real Estate Time-Sharing Transactions". This Statement
also amends FASB Statement No. 67, "ACCOUNTING FOR COSTS AND INITIAL RENTAL
OPERATIONS OF REAL ESTATE PROJECTS", to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in SOP 04-2. This statement is
effective during fiscal years beginning after June 15, 2005. The adoption of
SFAS 152 is not expected to have a material impact on the Company's financial
statements. In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS",
an amendment of ARB No. 43, Chapter 4 (SFAS 151), to clarify that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as current period charges, and that fixed
production overheads should be allocated to inventory based on normal capacity
of production facilities. This statement is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS
151 is not expected to have a material impact on the Company's financial
statements.
12
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards (Continued)
In December 2004, the FASB issued SFAS No. 123(R), "SHARE-BASED PAYMENT". This
Statement revises SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" and
supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" SFAS
No. 123(R) focuses primarily on the accounting for transactions in which an
entity obtains employee services in share-based payment transactions. SFAS No.
123(R) requires companies to recognize in the statement of operations the cost
of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards. This Statement is effective as of
the first reporting period that begins after June 15, 2005. The Company has
evaluated the provisions of SFAS 123(R) and determined that the share based
employee compensation programs are a valuable instrument in retaining and
rewarding employees and as a result, the Company will appropriately expense the
costs of administering share based compensation programs as required by SFAS
123(R).
In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 154 ("SFAS No. 154"), "ACCOUNTING CHANGES AND
ERROR CORRECTIONS." This statement requires entities that voluntarily make a
change in accounting principle to apply that change retrospectively to prior
periods' financial statements, unless this would be impracticable. SFAS No. 154
supersedes APB Opinion No. 20, "ACCOUNTING CHANGES," which previously required
that most voluntary changes in accounting principle be recognized by including
in the current period's net income the cumulative effect of changing to the new
accounting principle. SFAS No. 154 also makes a distinction between
"retrospective application" of an accounting principle and the "restatement" of
financial statements to reflect the correction of an error. SFAS No. 154 applies
to accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005. Management has adopted these provisions.
In February 2006, the FASB issued SFAS Statement No. 155, "ACCOUNTING FOR
CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133
AND 140" ("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, "APPLICATION OF STATEMENT 133 TO BENEFICIAL INTERESTS IN SECURITIZED
FINANCIAL ASSETS." This Statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement 133,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS 155 is effective for all financial instruments
acquired or issued for the Company for fiscal year begins after September 15,
2006. The adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
13
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards (Continued)
In July 2006, the FASB issued FASB Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in the financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken in a tax return. The adoption of this standard is not
expected to have a material effect on the Company's results of operations or
financial position.
In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS"
("SFAS 157"). While SFAS 157 formally defines fair value, establishes a
framework for measuring fair value and expands disclosure about fair value
measurements, it does not require any new fair value measurements. SFAS 157
applies under other accounting pronouncements that require or permit fair value
measurements. SFAS 157 is required to be adopted effective January 1, 2008 and
the Company does not presently anticipate any significant impact on its
consolidated financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158, "EMPLOYERS' ACCOUNTING FOR
DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88, 106 AND 132(R)" ("SFAS 158"). SFAS 158 requires an
employer to recognize the funded status of its defined benefit pension and other
postretirement plans as an asset or liability in its statement of financial
position and to recognize changes in the funded status in the year in which the
changes occur through other comprehensive income. The funded status of a plan is
measured as the difference between plan assets at fair value and the benefit
obligation, which is represented by the projected benefit obligation for pension
plans and the accumulated postretirement benefit obligation for other
postretirement plans. SFAS 158 requires the recognition, as a component of other
comprehensive income, net of tax, of the gains or losses and prior service costs
or credits that arise during the period but are not recognized as a component of
net periodic benefit cost in accordance with existing accounting principles.
Amounts required to be recognized in accumulated other comprehensive income,
including gains and losses and prior service costs or credits are adjusted as
they are subsequently recognized as components of net periodic benefit cost
pursuant to the recognition and amortization provisions of existing accounting
principles. In addition, SFAS 158 requires plan assets and obligations to be
measured as of the date of the employer's year-end statement of financial
position as well as the disclosure of additional information about certain
effects on net periodic benefit cost for the next fiscal year from the delayed
recognition of the gains or losses and prior service costs or credits.
The Company is required to adopt those provisions of SFAS 158 attributable to
the initial recognition of the funded status of the benefit plans and disclosure
provisions as of December 31, 2006. Those provisions of SFAS 158 applicable to
the amortization of gains or losses and prior service costs or credits from
accumulated other comprehensive income to the net periodic benefit cost are
required to be applied on a prospective basis effective January 1, 2007. The
Company does not anticipate that the adoption of SFAS 158 will have any impact
on its financial statements.
14
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Reclassifications
Certain immaterial amounts from prior years have been reclassified to conform to
the 2006 presentation.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term maturity of these
instruments. The carrying value of notes payable approximates fair value because
negotiated terms and conditions are consistent with current market rates.
Note 3 - Inventories
Inventories consisted of the following as of:
September 30,
December 31, ------------------
2006 2006 2005
---------- ------- ------
(Unaudited)
Raw materials $62,662 $25,684 $8,552
Finished goods 4,362 3,490 1,162
------- ------- ------
Totals $67,024 $29,174 $9,714
======= ======= ======
At December 31, 2006, September 30, 2006 and 2005, no provision for obsolete
inventory was recorded by the Company.
Note 4 - Property and Equipment
Property and equipment consisted of the following as of:
September 30,
December 31, ------------------
2006 2006 2005
---------- ------- ------
(Unaudited)
Property and equipment $ 8,295 $ 3,378 $ 675
Less: accumulated depreciation (1,082) (667) (337)
------- ------- -----
Property and equipment, net $ 7,213 $ 2,711 $ 338
======= ======= =====
Depreciation expense on property and equipment was $415 and $85 for the three
months ended December 31, 2006 and 2005 (unaudited), respectively, and $330 and
$168 for the years ended September 30, 2006 and 2005, respectively.
15
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 5 - Income Taxes
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expense. Net operating losses would create possible tax assets in
future years. Due to the uncertainty as to the utilization of net operating loss
carry forwards an evaluation allowance has been made to the extent of any tax
benefit that net operating losses may generate. No provision for income taxes
has been recorded due to the net operating loss carry-forward of $914,412 and
$765,865 as of December 31, 2006 (unaudited) and September 30, 2006,
respectively, which may be offset against future taxable income through 2026. No
tax benefit has been reported in the financial statements.
Deferred tax assets and the valuation account are as follows:
September 30,
December 31, ---------------------
2006 2006 2005
---------- ------- ------
(Unaudited)
Deferred tax asset:
Net operating loss carryforward $ 356,621 $ 298,687 $ 175,294
Valuation allowance (356,621) (298,687) (175,294)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
The components of income tax expense are as follows:
For the Three Months For the Years Ended
Ended December 31, September 30,
------------------------ ----------------------
2006 2005 2006 2005
----------- ----------- --------- ---------
(Unaudited) (Unaudited)
Current Federal tax $ -- $ -- $ -- $ --
Current State tax -- -- -- --
Change in NOL benefit 57,933 28,646 123,393 61,445
Change in valuation allowance (57,933) (28,646) (123,393) (61,445)
-------- -------- --------- --------
$ -- $ -- $ -- $ --
======== ======== ========= ========
16
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 6 - Convertible Notes Payable
Between February 2002 and March 2006, the Company issued a number of interest
bearing and non-interest bearing notes that were convertible into the Company's
common stock at the option of the holder at an exercise price of $0.42 per
common share. One group of 6% interest bearing notes of identical terms were
issued to ten individual investors between August 30, 2003 and December 4, 2003
totaling $120,000 (the "$120,000 Notes") all of which matured (including
extensions) on September 30, 2006. Two additional interest bearing notes were
issued to related parties in December 2003 (both are board members, the "Board
Notes") totaling $5,000 under the same terms as the $120,000 Notes. Two other
parties were issued 6% interest bearing notes totaling $15,000 (the "$15,000
Notes"), maturing nine years after issuance under the same terms as the $120,000
notes. The $15,000 Notes were broken out as follows: $5,000 to a related
individual and $10,000 to an un-related individual. A series of non-interest
bearing convertible notes were issued to another related party, Jerry Adelstein,
for a total of $188,218 (the "Adelstein Notes") between the period of March 2004
and March 2006, all of which matured nine years after their issuance. All notes
were issued in return for cash or cash disbursements and not for services
rendered. On July 26, 2006, each of these convertible notes was converted into a
total of 781,471 shares of the Company's common stock and the related accrued
but unpaid interest on these convertible notes was also converted into 99,005
shares of common stock (see Note 12). As a result of the conversions into common
stock, the balance due on these convertible notes at September 30, 2006 was
$-0-.
The Company has accounted for the above convertible notes as follows: under the
provisions of EITF 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock ("EITF 00-19").
EITF 00-19 provides that an equity classification is appropriate if the
settlement criteria set forth therein for such classification are met and that
the additional conditions necessary for equity classification, set forth
therein, are also met. The Company has determined that the notes do not meet the
criteria set forth in EITF 00-19 to be classified as equity as the notes are
convertible only at the option of the holder. All the notes described above were
evaluated under EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible
Instruments" ("EITF 00-27") and determined to have an embedded conversion
feature which exceeded the face value of the notes. As such, the discount to the
notes was limited to the face amount of the notes. The beneficial conversion
feature is accreted on a straight-line basis over the maturity period of the
notes. The excess beneficial conversion feature is deferred and recorded as
interest expense upon the conversion of the note. If the notes are never
converted, the excess is not recorded.
17
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 6 - Convertible Notes Payable (Continued)
The schedule below summarizes the impact of the beneficial conversion feature of
the notes:
Embedded beneficial conversion feature-
Common
At At At Shares if
issuance 9/30/06 9/30/05 Converted
-------- ------- ------- ---------
$120,000 Notes $120,000 $ -- $ 38,976 285,714
Board Notes 5,000 -- 1,745 11,905
$15,000 Notes 15,000 -- 12,731 35,714
Adelstein Notes 138,718 -- 126,696 330,281
Adelstein Notes (December
2005 & March 2006) 49,500 -- N/A 117,857
-------- -------- -------- -------
$328,218 $ -- $180,148 781,471
======== ======== ======== =======
Beneficial conversion interest expense-
For the Three Months For the Years Ended
Ended December 31, September 30,
------------------------ ----------------------
2006 2005 2006 2005
----------- ----------- --------- ---------
(Unaudited) (Unaudited)
$120,000 Notes $ -- $ 9,744 $ 38,976 $38,976
Board Notes -- 436 1,745 1,745
$15,000 Notes -- 417 12,731 1,667
Adelstein Notes -- 3,853 177,722 9,635
------- -------- -------- -------
$ -- $ 14,450 $231,174 $52,023
======= ======== ======== =======
18
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 7 - Notes Payable - Related Parties
Notes payable - related parties consisted of the following at:
September 30,
December 31, -------------------------------
2006 2006 2005
------------ --------- ----------
(Unaudited)
Note payable with a director of the Company,
interest at 6% per annum, payments of
$1,000 due monthly beginning April 1, 2007,
matures March 2010, unsecured $ 32,026 $ 32,026 $ --
Note payable with the President of the Company,
interest at 10% per annum, payments of $636
due monthly, accelerated payments are
permitted, matures October 2007, unsecured 3,448 7,351 33,006
Note payable with a related individual, interest
at 10% per annum, no current repayment
requirements, due on demand, unsecured 20,000 20,000 20,000
-------- -------- --------
Total Notes Payable - Related Parties 55,474 59,377 53,006
Less: Current Portion (31,006) (32,319) (24,530)
-------- -------- --------
Long-Term Notes Payable - Related Parties $ 24,468 $ 27,058 $ 28,476
======== ======== ========
Annual maturities of notes payable - related parties are as follows:
Years Ending September 30, Amount
-------
2007 $32,319
2008 10,810
2009 11,333
2010 4,915
2011 --
Thereafter --
-------
$59,377
=======
19
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 8 - Commitments and Contingencies
The Company leases facilities for its corporate offices with an expiration in
fiscal 2007. Rental expense for fiscal 2006 and 2005 was $7,800 and $6,600,
respectively. In addition, the Company has various equipment leases and radio
station syndication agreements with commitments accounted for as operating
leases. The radio station agreements are generally for a short period (90 days)
and the Company intends to renew them at the end of each term. The company also
has a one year consulting agreement with one of its sales representatives. The
future minimum annual lease commitments as of September 30, 2006 are as follows:
Years Ending September 30, Amount
-------------------------- -------
2007 $79,739
2008 3,125
2009 3,125
2010 --
2011 --
Thereafter --
-------
$85,989
=======
Note 9 - Related Party
The Company had a monthly consulting agreement, effective January, 2004 with
Leonard Colt, a shareholder, Corporate Secretary and member of the Board of
Directors. Leonard Colt is the sole owner of Pegasus Marketing, which provided
consulting services to the Company for $1,250 per month plus out-of-pocket
travel expenses. The contract was for a one year period and renewable upon an
annual review by the directors of the Company. As of January 1, 2006, the
contract had not been renewed. The amount due Pegasus Marketing on September 30,
2006 was $25,545. The amount paid to Pegasus Marketing during the years ended
September 30, 2006 and 2005 $-0- and $2,935, respectively.
Note 10 - Line of Credit
In August 2006, the Company entered into a Line of Credit / Overdraft Protection
Agreement ("LOC Agreement") with a financial institution. The LOC Agreement
allows the Company to borrow up to a maximum of $75,000. Interest accrues at the
Wall Street Journal Prime Rate ("WSJ Prime Rate") less 1% for the first six
months and at the WSJ Prime Rate thereafter. All amounts due on the line of
credit are due on demand. The balance outstanding at December 31, 2006
(unaudited), September 30, 2006 and 2005 was $29,332, $15,000 and $-0-,
respectively. The LOC Agreement is also guaranteed by an officer of the Company.
Note 11 - Equity Transactions
Effective January 3, 2006, the Company completed a stock offering whereby they
issued 431,100 shares of its common stock for cash of $431,100. In addition, the
Company issued 880,476 shares of its common stock to convert $328,218 of debt
and $41,582 of related interest on the debt (see also Note 6 - Convertible Notes
Payable).
20
Organic Sales and Marketing, Inc.
Notes to the Financial Statements
December 31, 2006 (Unaudited), September 30, 2006 and 2005
Note 12 - Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is poorly capitalized and
has had recurring operating losses for the past several years and is dependent
upon financing to continue operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. It is
management's plan to continue to implement their strategy to commence sales. As
the Company's revenues are established, management expects to report net income
possibly within one year. With the commencement of sales, management believes
that the Company will eventually, possibly within one year, generate sufficient
funds to support operations. In the interim, management believes that shortfalls
in cash flow will be satisfied with funds raised on the open Rule 504 offering
and by Officers and Directors as necessary.
21
PART III
INDEX TO EXHIBITS
The following is a list of Exhibits which comprise a part of the
Regulation Statement.
Exhibit
No. Description of Exhibit
------- ----------------------
Charter and By-Laws
1.1 Certificate of Incorporation of Garden Connections, Inc.
2.2 Amendment of Certificate of Incorporation Changing name from Garden
Connections, Inc. to Organic Sales and Marketing, Inc. 2.3 Amended and
Restated By-Laws
Instruments Defining Rights of Security Holders
3.1 Form of Certificate evidencing Shares of Common Stock
Material Contracts
10.1 WHJJ Radio (Rhode Island) Contract
10.2 WXLM Radio (Southeastern Connecticut) Contract
10.3 WBSM Radio (Southeastern Massachusetts) Contract
10.4 WRKO Radio (Boston, Massachusetts) Contract
10.5 Consulting Agreement dated February 1, 2003 with Joanne L. H. Anderson
10.6 Consulting Agreement dated September 1, 2002 with Jerry Adelstein 10.7
Consulting Agreement dated January 1, 2004 with Leonard Colt DBA
Pegasus Marketing & Sales
10.8 Office Lease
Additional Exhibits
99.1 State of New Jersey Notice of Effective Securities Registration
99.2 State of New York Notice of Effective Registration