UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 0-3338
ORGANIC SALES AND MARKETING, INC.
ed in its Charter)
Delaware
Delaware 33-1069593
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
114 Broadway, Raynham, MA 02767
-------------------------------
(Address of Principal Executive Office)
(508) 823-1117
--------------
(Registrant's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes ___ No X
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ___ No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court.
Yes ___ No X
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
5,359,426 - common stock
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
Persons who are to respond to the collection of information contained in this
form are not required to respond unless the form displays a currently valid OMB
control number.
Item 1. Financial Statements.
The accompanying financial statements are unaudited for the interim
periods, but include all adjustments (consisting only of normal recurring
adjustments), which we consider necessary for the fair presentation of results
for the nine months ended June 30, 2007, and inception to June 30, 2007.
Moreover, these financial statements do not purport to contain complete
disclosure in conformity with the U.S. generally accepted accounting principles
and should be read in conjunction with our audited financial statements at, and
for the fiscal year ended September 30, 2006 as contained in Registrant's Form
10SB/A registration statement.
The results reflected for the nine months ended June 30, 2007 are not
necessarily indicative of the results for the entire fiscal year.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward Looking Statements
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. The discussion should be read in conjunction with our financial
statements and notes thereto, appearing in this Report.
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.
This Report also contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:
o Business strategy
o Expansion of our manufacturing capabilities
o Plans for entering into collaborative agreements
o Anticipated sources of funds, to finance our operations following
the date of this Report
o Plans, objectives, expectations and intentions contained in this
prospectus that are not historical fact
The following words and financial projections contain figures related to plans,
expectations, future results, performance, events or other matters that are
"forward-looking statements". 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
investors 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.
2
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 supermarkets, convenience stores, colleges and
universities, laboratories, national pharmacies, lawn and garden centers and the
funeral industry. In addition, new markets being pursued include costume
jewelry, sporting goods, optical, hobby and craft, health and beauty, footwear,
automotive, and boating.
The Company searches out small companies that have excellent organic products,
and through our own private label, seeks to brings 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 minimum of $3 million in an
equity offering and combined with revenues generated by its operations will be
sufficient to fund its operations for more than the next 24 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.
Management has no competent basis for projecting the increase in revenue
required to sustain operations as anticipated above. Such assumptions are based
almost entirely on the valuable relationships that the Company has forged which
it believes will translate into operating revenues. It is stressed that these
assumptions are not at all based on firm commitments from customers or on other
tangible evidence.
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), and the Boston,
Mass. Transit Authority. The Company anticipates that it will be able to launch
its organic fertilizer products in approximately 3 - 6 months under its Mother
Natures Cuisine(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 meeting 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 received 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 from operations is projected to be ($724,000). In 2008,
cash flow from operations projects to be ($224,000) and, in 2009, cash flow from
operations 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 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.
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 several vendors for the fulfillment
of our organic liquid and fertilizer product lines. The Company plans to
vigorously pursue strategic relationships that enhance its ability to deliver
quality products, at reasonable prices.
3
To cover these anticipated cash shortfalls, the Company collected $547,850 in
the first nine months of fiscal 2007, from the now completed January 3, 2006
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 60 days. The Company has also received a placement agent
agreement from Andrew Garrett, Inc. for a private placement offering of up to
$6,000,000 that will take place in the next six months.
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 believes that it
will adequately cover anticipated cash shortfalls through 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 Administrative Expense 950 1,451 2,003
Other (Income)/Expense 351 1 1
Net Profit/(Loss) Before Taxes $ (764)(1) $ 362 $ 1,180
----------
(1) Not including revenues from sales to as yet unidentified customers.
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.
The Company anticipates that in order to fulfill its plan of operations, it will
need to attract key supermarket chains to accept and sell its household organic
cleaning products. To this end the Company has received and filled orders and
re-orders during the current fiscal year (i.e. October 2006 to July, 2007)
aggregating approximately $117,000 from recognized chains such as Hannaford
Supermarkets, Shaws Supermarkets and others. In addition, the Company has
entered into an agreement with an established sales representative organization,
North Eastern Sales Solutions, to represent its cleaning products as well as
other products in New England supermarkets, drug, convenience and mass merchant
trade retail outlets. Their clients include, among others, Hannaford, Shaws,
Stop and Shop Supermarkets and CVS Pharmacies.
The Company must have the capability of producing and delivering its cleaning
products in sufficient volume or quantities and in a timely manner to fulfill
orders. To this end we have utilized on an order by order basis a fulfillment
company, Webco Chemical Co., located in Dudley, Massachusetts which we believe
has the capacity and ability to handle our requirements and more, over the next
three years. Their function is to take the ingredients in concentrated form, add
water fill the bottles, label them, fill the cartons and ship the order to the
customer.
In addition, the Company anticipates that it will need to seek financing from
outside sources as it expects our operating expenses to increase as a result of
the planned expansion into 2008 and 2009. In order to provide this necessary
additional financing, the Company has entered into a conditional private
placement agreement with Andrew Garrett, Inc., an investment banking firm as the
Placement Agent for possible financing of up to $6,000,000, as stated above.
4
The Company believes the material trends and uncertainties that can adversely
affect it are:
o Economic or industry-wide factors relevant to the Company:
Should consumer interest in "organic" or "natural" products diminish or
even discontinue (which is unlikely in the Company's' opinion), the
industry and Company could be adversely impacted. Should there be a
natural disaster, for example, garden product sales business could be
adversely impacted by extreme weather conditions throughout each area of
the United States. Should there be a shortage of suppliers in enzyme
technology which is the make-up of some of the products, the Company could
be adversely impacted. A slower than anticipated roll-out of products to
customers due to such external factors would materially affect the
Company's ability to realize a profit and to yield a positive cash flow
from operations as quickly as we expect.
o Material opportunities, challenges:
Should the suppliers not be able to deliver in the quantities the Company
needs at any given time in order to supply the orders, this would have an
adverse effect on the sales and commitments. Should the contract
manufacturer not be able to deliver the finished goods in a timely manner,
or should they suffer any type of physical plant disaster or labor strikes
or shortages, it would adversely impact the Company's' business.
Challenges will be incurred as more and more companies enter into the same
or similar market(s) which companies may be more heavily financed than is
the Company.
o Risks in short and long term and the actions we are taking to address
them:
Undercapitalization could impose growth restraints on the Company so as
not to be able to enter other markets and regions as planned. If Sam
Jeffries were not able to host the weekly talk show, this could impact the
education and promotions done on a weekly basis.
The Company is currently negotiating a bridge loan on its own, recently
closed out an equity offering on its own, and has obtained a conditional
private placement commitment letter for 3 million to 6 million dollars
with a major investment banking firm, Andrew Garrett, Inc.
Should Sam Jeffries not be able to produce the radio show, the present
co-hosts could produce and conduct the show. In addition, the Company has
added Jim Zoppo of WRKO as a feature to our show which has expanded the
audience reach into central Massachusetts, southern Maine and southern New
Hampshire in conjunction with the Company's financial commitment to WRKO
to assist in promotion of any or all of the Company's products each week
on the garden talk radio show. The Company also anticipates that in order
to reach a national audience it can franchise the Garden Guys concept
throughout the country and have local talk shows discussing lawn and
gardening techniques and problems indigenous to each local area.
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 Report. 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, in which $978,950 had been raised as of
June 30, 2007. 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.
As of the date of this Report, the private placement is complete and an
aggregate of $999,500 has been received from investors. In the June 30, 2007
quarter, 383,000 shares were sold for $383,000 in cash.
5
The Company is a development stage company and did not generate any significant
operating revenues from its inception on August 23, 2003 to June 30, 2007. 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 would 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 second half of
calendar 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
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 June, 2007, the Company issued 5,359,426
shares of common stock. It raised an aggregate of $924,123 pursuant to certain
commitments it received from the stock offering in 2006 through June 2007 for
cash at $1.00 per share and through the conversion of the 6% convertible
debenture, and convertible promissory notes issued. 978,950 of these shares were
issued as free-trading shares under Rule 504 of Regulation D of the federal
Securities Act of 1933. A total of 4,478,036 of the Company's outstanding common
shares are currently restricted.
From inception through June 30, 2007 the Company's selling, general and
administrative expenses were $1,665,813. These expenses are partially offset by
income from radio ads, website, garden and cleaning products sales in the amount
of $340,127.
As of June 30, 2007, the Company had current assets of $374,841 and $80,872 in
furniture, equipment and other assets, resulting in total assets of $386,117.
The Company's current liabilities were $439,233.
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
6
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.
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 a 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 June 30, 2007
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.
7
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 was $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.
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
8
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
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 years that begin 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, 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
9
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 were
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 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 when 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
our not having demonstrated 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 as recorded.
10
Item 3. Controls and Procedures.
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). This term refers to the controls and procedures of a company that are
designed to ensure that information required to be disclosed by a company in the
reports that it files under the Exchange Act is recorded, processed, summarized,
and reported within the required time periods. Our Chief Executive Officer and
our Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this quarterly
report. They have concluded that, as of that date, our disclosure controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in our reports filed under the Exchange Act.
No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period
covered by this Report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are not presently any material pending legal proceedings to which the
Company is a party or as to which any of its property is subject, and no such
proceedings are known to the Company to be threatened or contemplated against
it.
Item 2. Recent Sales of Unregistered Securities and Use of Proceeds
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 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.
11
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 aggregate limit of $1,000,000; prices not
exceeding $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
$1,000,000 or less and by virtue of 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 June 30,
2007 the Company had issued 978,950 shares of its common stock (383,000 in the
June 30, 2007 quarter) 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.
The aggregate proceeds of $1,348,750 realized by the Company through sale of its
securities as described above was used for general working capital and
substantially applied to ordinary operating overhead. This is typical of
companies in their developmental stage until such time as they can meet their
ongoing costs from operating revenues.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
12
Item 6. Exhibits
*10.9 Agreement with Andrew Garrett, Inc. (Private Placement Agent)
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 from the Company's Chief Executive Officer.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 from the Company's Chief Financial Officer.
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from the Company's Chief Executive Officer.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from the Company's Chief Financial Officer.
* Previously filed as an exhibit to the Company's Registration Statement on
Form 10SB/A and accordingly it is incorporated by reference herein.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Organic Sales and Marketing, Inc.
---------------------------------
(Registrant)
August 17, 2007 /s/ Samuel F. H. Jeffries
--------------- --------------------------------
Date Chief Executive Officer
SAMUEL F.H. JEFFRIES
(Signature)
August 17, 2007 /s/ Mark J. McEvoy
--------------- --------------------------------
Date Chief Financial Officer
MARK J. McEVOY
(Signature)
14
Organic Sales and Marketing, Inc.
(A Development Stage Company)
Financial Statements for the Three Months
Ended June 30, 2007 and 2006 (Unaudited)
and the Nine Months Ended June 30 ,2007 and 2006 (Unaudited)
and Report of Independent Registered
Public Accounting Firm
CONTENTS
Balance Sheets............................................................... 3
Statements of Operations..................................................... 5
Statements of Stockholders' Equity (Deficit)................................. 6
Statements of Cash Flows..................................................... 7
Notes to the Financial Statements............................................ 8
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
------
June 30, September 30,
2007 2006
----------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $239,076 $226,322
Accounts receivable, net 23,082 6,081
Inventories 43,087 29,174
Prepaid Expense 69,596 --
-------- --------
Total Current Assets 374,841 261,577
-------- --------
PROPERTY AND EQUIPMENT, NET 11,076 2,711
-------- --------
OTHER ASSETS
Deposits 200 200
-------- --------
Total Other Assets 200 200
-------- --------
TOTAL ASSETS $386,117 $264,488
======== ========
The accompanying notes are an integral part of these financial statements.
3
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, September 30,
2007 2006
----------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 219,218 $ 83,953
Accrued expenses 145,838 50,990
Accrued interest payable 22,151 17,345
Line of credit -- 15,000
Current portion of notes payable - related parties 52,026 52,319
----------- -----------
Total Current Liabilities 439,233 219,607
----------- -----------
LONG-TERM LIABILITIES
Notes payable - related parties -- 7,058
----------- -----------
Total Long-Term Liabilities -- 7,058
----------- -----------
Total Liabilities 439,233 226,665
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 5,359,426 and 4,811,576 shares issued and
outstanding, respectively 536 481
Additional paid-in capital 1,869,270 1,321,475
Prepaid Expenses -- (4,166)
Deficit Accumulated during the Developmental Stage (1,922,922) (1,279,967)
----------- -----------
Total Stockholders' Equity (Deficit) (53,116) 37,823
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 386,117 $ 264,488
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Accumulated from
August 23, 2003
For the Three Months For the Nine Months (inception) through
Ended June 30, Ended June 30, June 30,
2007 2006 2007 2006 2007
----------- ----------- ----------- ----------- -------------------
REVENUES
Product sales, net $ 97,509 $ 18,686 $ 127,613 $ 35,095 $ 229,694
Services -- -- -- 2,527 110,433
----------- ----------- ----------- ----------- -----------
Total Revenues 97,509 18,686 127,613 37,622 340,127
COST OF SALES 73,327 11,210 93,427 23,053 187,915
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 24,182 7,476 34,186 14,569 152,212
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 243,377 91,468 670,681 205,318 1,665,813
----------- ----------- ----------- ----------- -----------
Total Operating Expenses 243,377 91,468 670,681 205,318 1,665,813
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (219,195) (83,992) (636,495) (190,749) (1,513,601)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 837 1,165 3,065 1,165 6,129
Interest expense (3,866) (25,808) (9,525) (73,111) (415,450)
----------- ----------- ----------- ----------- -----------
Other expense --
----------- ----------- ----------- -----------
Total Other Income (Expense) (3,029) (24,643) (6,460) (71,946) (409,321)
----------- ----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (222,224) (108,635) (642,955) (262,695) (1,922,922)
INCOME TAX EXPENSE -- -- -- -- --
----------- ----------- ----------- ----------- -----------
NET LOSS $ (222,224) $ (108,635) $ (642,955) $ (262,695) $(1,922,922)
=========== =========== =========== =========== ===========
LOSS PER SHARE-
Basic and Diluted $ (0.04) $ (0.03) $ (0.13) $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING-
Basic and Diluted 5,042,241 3,931,100 4,921,662 3,781,084
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
For the period August 23, 2003 (inception) through June 30, 2007
(Deficit)
Accumulated Total
Additional during the Stockholders'
Common Stock Paid-In Development Prepaid Equity
Shares Amount Capital Stage Expenses (Deficit)
----------- --------- ---------- ----------- --------- -------------
Balance, August 23, 2003 (inception) $ -- $ -- $ -- $ -- $ -- $ --
Value attributed to discount on
convertible note -- -- 112,500 112,500
Shares issued for services
at $.0001/share 1,600,000 160 -- 160
Cash Contribution to Capital 2,328 2,328
Shares issued for services
at $.10/share 1,250,000 125 124,875 (125,000) --
Amortization of Prepaid Expenses 49,433 49,433
Net loss for the year ended
September 30, 2003 (119,383) (119,383)
----------- --------- ---------- ----------- --------- ---------
Balance, September 30, 2003 2,850,000 $ 285 $ 239,703 $ (119,383) $ (75,567) $ 45,038
----------- --------- ---------- ----------- --------- ---------
Value attributed to discount on
convertible note -- -- 80,274 80,274
Cash Contribution to Capital 350 350
Shares issued for services
at $.10/share 150,000 15 14,985 -- -- 15,000
Shares issued for services
at $.10/share 500,000 50 49,950 (50,000) --
Amortization of Prepaid Expenses 56,885 56,885
Net loss for the year ended
September 30, 2004 (337,157) (337,157)
----------- --------- ---------- ----------- --------- ---------
Balance, September 30, 2004 3,500,000 $ 350 $ 385,262 $ (456,540) $ (68,682) $(139,610)
----------- --------- ---------- ----------- --------- ---------
Value attributed to discount on
convertible note -- -- 85,944 -- 85,944
Amortization of Prepaid Expenses 47,849 47,849
Net loss for the year ended
September 30, 2005 -- -- -- (259,420) (259,420)
----------- --------- ---------- ----------- --------- ---------
Balance, September 30, 2005 3,500,000 $ 350 $ 471,206 $ (715,960) $ (20,833) $(265,237)
----------- --------- ---------- ----------- --------- ---------
Value attributed to discount on
convertible note -- -- 49,500 -- 49,500
Amortization of Prepaid Expenses 16,667 16,667
Shares issued for cash at $1.00/share 431,100 43 431,057 -- 431,100
Shares issued for conversion of
debt at $.42/share 880,476 88 369,712 -- 369,800
Net loss for the year ended
September 30, 2006 -- -- -- (564,007) (564,007)
----------- --------- ---------- ----------- --------- ---------
Balance, September 30, 2006 4,811,576 $ 481 $1,321,475 $(1,279,967) $ (4,166) $ 37,823
----------- --------- ---------- ----------- --------- ---------
Shares issued for cash at $1.00/share 547,850 55 547,795 -- 547,850
Amortization of Prepaid Expenses 4,166 4,166
Net loss for the nine months ended
June 30, 2007 (unaudited) -- -- -- (642,955) (642,955)
----------- --------- ---------- ----------- --------- ---------
Balance, June 30, 2007 (unaudited) 5,359,426 $ 536 $1,869,270 $(1,922,922) $ -- $ (53,116)
=========== ========= ========== =========== ========= =========
The accompanying notes are an integral part of these financial statements.
6
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Accumulated from
August 23, 2003
For the Nine Months (inception) through
Ended June 30, June 30,
2007 2006 2007
----------- ----------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(642,955) $(262,693) $(1,922,922)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 1,705 339 2,372
Shares issued for services -- -- 15,160
Shares issued for convertible debt interest -- -- 41,582
Amortization of prepaid expense 4,166 12,501 175,000
Amortization of discount on notes payable -- 99,134 328,218
Write-off of receivable from officer -- -- 15,689
Change in operating assets and liabilities: --
Accounts receivable-trade (17,001) (3,552) (23,082)
Inventories (13,914) 949 (43,088)
Deposits -- -- (200)
Prepaid expense (69,596) -- (69,596)
Due from officers -- -- (15,689)
Accounts payable 135,266 (8,437) 219,219
Accrued expenses 94,850 42,698 145,840
Accrued interest payable 4,806 19,160 22,151
--------- --------- -----------
Net Cash Used in Operating Activities (502,673) (99,901) (1,109,346)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (10,070) (2,703) (13,448)
--------- --------- -----------
Net Cash Used in Investing Activities (10,070) (2,703) (13,448)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 547,850 284,500 978,950
Cash Contribution to Capital -- -- 2,678
Proceeds from Line of Credit 39,500 -- 54,500
Payments on Line of Credit (54,501) -- (54,501)
Proceeds from convertible notes -- -- --
payable - related party -- 80,000 193,218
Proceeds from convertible notes payable -- -- 135,000
Proceeds from notes payable - related party -- -- 94,987
Payments on notes payable - related party (7,352) (22,933) (42,962)
--------- --------- -----------
Net Cash Provided by Financing Activities 525,497 341,567 1,361,870
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH 12,754 238,963 239,076
CASH, BEGINNING OF PERIOD 226,322 3,953 --
--------- --------- -----------
CASH, END OF PERIOD $ 239,076 $ 242,916 $ 239,076
========= ========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 6,188 $ 6,407 $ 31,037
Cash paid for income taxes $ -- $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares issued for conversion of notes payable
and accrued interest $ -- $ -- $ 369,800
Shares issued for services $ -- $ -- $ 15,160
Shares issued for prepaid services $ 4,166 $ 12,501 $ 175,000
The accompanying notes are an integral part of these financial statements.
7
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2007 (Unaudited)
Note 1 - Basis of Financial Statement Presentation
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financials statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such rules and
regulations. The information furnished in the interim financial statements
include normal recurring adjustments and reflects all adjustments, which in the
opinion of management, are necessary for a fair presentation of such financial
statements. Although management believes the disclosures and information
presented are adequate to make the information not misleading, it is suggested
that these interim financial statements be read in conjunction with the
Company's audited financial statements and notes thereto included in its Form
10SB/A filing on August 3, 2007. Operating results for the nine months ended
June 30, 2007 are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 2007.
Note 2 - 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 periods presented.
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------
Basic and Diluted (Unaudited) (Unaudited) (Unaudited) (Unaudited)
-----------------
Net Loss - Numerator $ (222,224) $ (108,635) $ (642,955) $ (262,695)
========== =========== ========== ===========
Weighted Average Shares - Denominator 5,042,241 3,931,100 4,921,662 3,781,084
========== =========== ========== ===========
Per Share Amount $ (0.04) $ (0.03) $ (0.13) $ (0.07)
========== =========== ========== ===========
8
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2007 (Unaudited)
Note 3 - Inventories
Inventories consisted of the following as of:
June 30, September 30,
2007 2006
----------- -------------
(Unaudited)
Raw materials $37,185 $25,684
Finished goods 5,902 3,490
------- -------
Totals $43,087 $29,174
======= =======
At June 30, 2007 and September 30, 2006, no provision for obsolete inventory was
recorded by the Company.
Note 4 - Line of Credit
In August 2006, the Company entered into a Line of Credit / Overdraft Protection
Agreement ("LOC Agreement") with a financial institution. 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 June 30, 2007 (unaudited)
and September 30, 2006 was $-0- and $15,000, respectively. Accrued Interest
Payable at June 30, 2007 (unaudited) and September 30, 2006 was $-0- and $74,
respectively. The LOC Agreement is guaranteed by an officer of the Company.
On June 14, 2007, the Company paid $51,938 to pay off the Line of Credit in
full, while retaining its ability to borrow on the LOC up to the maximum of
$75,000.
Note 5 - Equity Transactions
Effective January 3, 2006, the Company commenced a stock offering, whereby it
has issued an aggregate of 978,950 shares of its common stock for cash of
$978,950 as of June 30, 2007 (unaudited). Included in this, is an aggregate of
383,000 shares of its common stock for cash of $383,000 issued during the 3
months ended June 30, 2007.
9
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2007 (Unaudited)
Note 6 - 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 of acquiring new
customers and accepting reorders from existing customers. As the Company's
revenues are become more established, management expects to report net income,
possibly within the next year. With the expansion of sales, management believes
that the Company will eventually, possibly within the next year, generate
positive cash flow from operations. In the interim, management believes that
shortfalls in cash flow will be satisfied with funds raised from the Rule 504
private stock offering, through convertible debt and additional Rule 504 private
stock offerings that are in compliance with Security and Exchange Commission
integration rules and regulations governing the same.