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 December 31, 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.
---------------------------------
(Exact Name of small business issuer as specified in its Charter)
Delaware 33-1069593
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
114 Broadway, Raynham, MA 02767
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(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 |X| No |_|
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 |_|
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: 5,388,569 - 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 three months ended December 31, 2007, and inception to December 31,
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, 2007 as contained in Registrant's Form
10-KSB filing.
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, cigar catalog houses, the quilting industry and boating.
The Company searches out small companies that have excellent non-food organic
products, and through our own private label, seeks to bring them to market at
the retail, wholesale and/or internet level.
The Company has a limited operating history on which to evaluate its prospects.
The risks, expenses and difficulties encountered by a development stage 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
by strengthening brand awareness, expanding its customer base and seeking
strategic alliances with manufacturers, retail outlets, sales representatives
and distributors. Management believes that existing funds, in conjunction with
funds sought to be raised in a contemplated $2.5 million minimum equity offering
in the spring of 2008 and revenues generated by operations, will be sufficient
to fund its operations for more than the next 36 months. Of course, 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 certainty. 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 firm 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 multiple markets in multiple regions. It has acquired and
developed approximately 25 different non-food organic products. It has already
received and is fulfilling orders for its new Dragonfly, Organix(TM) Organic-
based cleaners from Shaw's, Hannaford, Stop & Shop, Tops, Giant and Roche Bros
Supermarkets in the Northeast and Albertson's and Sweetbay Supermarkets in
Florida. The Company anticipates that it will be able to launch its organic
fertilizer products in the spring of 2008 under its Mother Natures Cuisine(TM)
and/or Garden Guys private label. While the Company believes that it will
accomplish this goal, if it is unsuccessful in raising additional capital, the
probability of the Company hitting the spring target may be adversely affected.
The Company is actively engaged in the process of rolling out its product line
to an ever expanding customer base. Over the course of 2008, sales are
anticipated to ratchet themselves up as new customers come on board and reorders
start to come in. The Company lost about ($850,000) in calendar 2007 and had
negative cash flow from operations of about ($750,000). In 2008, the Company
projects a loss of ($250,000) and negative cash flow from operations of
($150,000).
We will continue to use the radio as the primary source for marketing and
creating brand awareness of our non-food organic products. Sam Jeffries, the
Company's President, hosts a two hour garden talk radio show. From 6AM to 8AM on
Sunday mornings, the show can be heard on WRKO in Boston, Massachusetts and from
8AM to 10AM on Sunday mornings, the show can be heard on WHJJ in Providence, RI,
WXLM in Stonington, Connecticut and WBSM in New Bedford, Massachusetts. In
addition, the show is aired on a taped delay basis from 7AM to 9AM on Saturday
mornings on WGIR in Manchester, NH, WGIN in Rochester, New Hampshire and WGIP in
Exeter, New Hampshire. Using this vehicle we inform customers about the
importance of considering 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 are partially used to educate
consumers and let them know where to buy the products; as well as, selling
commercials to help offset the radio expense.
3
The Company also has established strategic relationships 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 continue
to deliver quality products at reasonable prices.
The Company continues to rely heavily on invested capital and short-term debt to
fund its operations. To cover any anticipated cash shortfall, the Company
collected $575,000 in fiscal 2007, from the now completed January 3, 2006 stock
offering. In addition, short-term bridge loan financing of $332,000 was secured
over the course of the last 6 months of calendar 2007 and a verbal commitment is
in place for an additional $150,000 should it be needed.
As previously mentioned, the Company is also anticipating a minimum of $2.5
million of additional funding from an equity offering in the spring of 2008.
This combined with the expected increase in operating revenues should provide us
with sufficient working capital through 2010 and beyond. On the other hand, if
the Company were only able to raise $1 million in equity and sales did not
increase significantly, the Company would likely exhaust its resources in early
2009.
The Company's projected Plan of Operations for calendar year 2008 consists of
the following: (000's omitted)
2008
------
Revenues $3,000
Margin 900
Selling, General and Administrative Expense 1,140
Other (Income)/Expense 10
Net Profit/(Loss) Before Taxes ($ 250)
Revenue Projections
Our 2008 projections were made on an industry-by-industry basis with 65% of
revenues coming from a combination of Grocery, Convenience and College Book
stores and 35% expected to come from our new association with Fisher Scientific.
In preparing this projection, we factored in existing customers, customers that
we are about to start shipping to and those who have indicated a strong desire
to carry our products at some point during 2008.
In some cases, grocery store slotting fees have been paid which guarantees space
on that store's shelves for one year; however, there is still no guarantee that
the product will sell which is why we have made a heavy commitment to advertise
and promote our products to enhance brand recognition and encourage reorders.
Expense Projections
Cost of sales was projected on an industry-by-industry basis using extensive
product cost data that has been internally developed. It is anticipated that as
revenues and volumes increase our costs will migrate down as a function of
better quantity purchases. Our projections do not, however, take these cost
reductions and the corresponding positive effect on the bottom line into
consideration.
General and Administrative costs were projected with the mindset of keeping
overhead costs low and came in less than 15% of sales. Major expenses in this
category are Administrative payroll, Legal, Accounting and Consulting fees.
Marketing and Selling Expenses were projected at 23% of revenues with the
mindset that if revenues come in higher than projected, more of the additional
revenues will be reinvested into furthering marketing and selling activities.
Major expenses in this category are the radio shows, trade shows, display cases
and slotting fees.
4
Because the Company is still in the early stages of its growth, there can be 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 development stage business
could adversely impact the Company and keep us from 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.
The Company anticipates that in order to fulfill its plan of operations, it will
need to continue to attract key supermarket chains to sell its household organic
cleaning products. To this end the Company has received and filled orders and
re-orders during the past three months of approximately $50,000 from recognized
supermarket chains such as Hannaford, Shaw's, Albertson's and others.
The Company has an agreement with an established sales representative
organization, North Eastern Sales Solutions, to present its gardening and
cleaning products to New England based supermarkets, drug stores, convenience
stores and mass merchant trade retail outlets. In addition, an agreement also
exists with an established sales representative organization, Triangle
Marketing, Inc. based in the South, to present our gardening and cleaning
products to southern supermarket chains.
The Company must have the capability of producing and delivering its cleaning
products in sufficient volume and in a timely manner in order to fulfill orders
and satisfy customer demands. To this end, we have developed a strategic
alliance with a well known fulfillment company, Webco Chemical Co., located in
Dudley, Massachusetts; which we believe has the capacity and ability to handle
our requirements over the next three years and more, if need be. Their role is
to take the concentrated ingredients we purchase and dilute it with water to
come up with a ready-to-use mixture that is then used to fill the bottles, which
are then labeled, put in cartons and shipped to customers.
Risks related to our Business and Operations
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 affected
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 heavily financed companies enter into
the same or similar market(s) and the demand for raw materials increases.
5
o Risks in short and long term and the actions we are taking to
address them:
Undercapitalization could impose growth restraints on the Company
preventing it form entering other markets and regions as opportunities
exist. If Sam Jeffries were not able to host the weekly garden talk radio
show, this could impact the content and quality of the programming of the
show.
Should Sam Jeffries not be able to produce the radio show, the present
co-hosts could produce and conduct the show in his absence. 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 region.
o Risks of a Development Stage Company
We have just begun generating operating revenues. If we are unable to
sustain and increase operating revenues, we will not be able to generate
profits and our business will falter.
o Reliance on Investment Funds
We just recently started to receive cash from customer sales, but, for the
most part, still rely upon external funding sources, primarily equity
capital, to finance our operations. While we believe that increasing cash
flow from customer sales will ultimately provide adequate funds to permit
us to be self sufficient by the end of 2009; until then, we will continue
to require additional capital from investors. If we are unable to obtain
such funding from outside sources, we would likely be forced to reduce the
level of our operations and business failure could become a real
possibility.
o Reliance on Management Team
As stated above, the Company relies heavily upon a small team of full-time
officers and consultants. It has "key man" life insurance on Sam Jeffries
that would compensate us in the event of his unfortunate demise. Sam
Jeffries' continued involvement is deemed especially critical to our
marketing efforts. The loss of Sam Jeffries or one of several key officers
or consultants could have a material adverse impact on the Company's
chances for success. At present, key man insurance coverage is only
available on Sam Jeffries and is currently not being pursued on the other
full-time officers due to cost.
Risks Related to Ownership of Our Stock
o Absence of Trading Market
There is currently no public trading market for our common stock. That
means that our shareholders have no liquidity and should expect to
continue to hold the Company's shares for the foreseeable future. A
broker-dealer registered with the Securities and Exchange Commission has
filed the necessary application to initiate a trading market on the Over
the Counter Electronic Bulletin Board. However, there can be no assurance
that an active trading market will develop. Even if our shares begin to
trade publicly, there is a substantial "overhang" of outstanding shares
that would be eligible for sale under Rule 144. Such sales, if they were
to occur, could tend to suppress the market value of our shares for some
time.
o No Dividends in Foreseeable Future
Our board of directors determines whether to pay cash dividends on our
issued and outstanding shares. Such determination will depend upon our
future earnings, our capital requirements, our financial condition and
other relevant factors. Our board does not intend to declare any dividends
on our shares for the foreseeable future. We anticipate retaining any
earnings to finance the growth of our business and for general corporate
purposes.
6
o Provisions of our Certificate of Incorporation, By-laws and Delaware
Law
Provisions of our Certificate of Incorporation, By-laws and Delaware law
may make it more difficult for someone to acquire control of us or for our
stockholders to remove existing management, and might discourage a third
party from offering to acquire us, even if a change in control or in
management would be beneficial to our stockholders. For example, our
Certificate of Incorporation allows us to issue different series of shares
of common stock without any vote or further action by our stockholders and
our Board of Directors has the authority to fix and determine the relative
rights and preferences of such series of common stock. As a result, our
Board of Directors could authorize the issuance of a series of common
stock that would grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before dividends are
distributed to the holders of other common stock and the right to the
redemption of the shares, together with a premium, prior to the redemption
of other series of our common stock.
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 common stock offering
commencing on January 3, 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.
As of the date of this Report, the private placement commenced on January 3,
2006 is complete and an aggregate of $999,500 has been received from investors.
The Company has issued shares directly to accredited investors and through the
conversion of the 6% convertible debentures and convertible promissory notes
previously issued. All such shares have been issued in reliance upon exemptions
from registration with the Securities and Exchange Commission. A total of 81% of
the Company's outstanding common shares are restricted as of December 31, 2007.
Selected Financial Data
Organic Sales and Marketing, Inc.
(A Development Stage Company)
For the Three Months Ended December 31, 2007 and 2006
Statement of Operations
Three Months Three Months
Ended Ended
December 31, 2007 December 31, 2006
----------------- -----------------
Revenues $ 48,035 4,930
Margin 14,528 2,415
Selling, General and
Administrative Expense 266,701 154,045
Other Income/(Expense) (13,299) (1,083)
----------- -----------
Profit/(Loss) Before Taxes $ (265,472) $ (152,713)
=========== ===========
Loss per share-Basic and Diluted $ (0.05) $ (0.03)
=========== ===========
Weighted Average Number of Shares 5,388,569 4,823,026
=========== ===========
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Balance Sheets
Three Months Three Months
Ended Ended
December 31, 2007 December 31, 2006
----------------- -----------------
Cash $ 91,920 $ 193,341
Accounts Receivable 10,776 30,602
Inventories 99,735 111,304
Fixed Assets 11,955 12,752
Other Assets 200 200
Prepaid Expense 69,400 18,893
----------- -----------
TOTAL ASSETS $ 283,986 $ 367,092
=========== ===========
LIABILITIES
Accounts Payable $ 237,114 $ 239,811
Accrued Expenses 133,892 123,827
Notes Payable-Current 384,026 209,026
Note Payable-Long Term -0- -0-
----------- -----------
TOTAL LIABILITIES $ 755,032 $ 572,664
STOCKHOLDERS EQUITY/(DEFICIT)
Common Stock (Note 1) $ 539 $ 539
Additional Paid in Capital 1,898,410 1,898,410
Prepaid Expenses -0- -0-
Accumulated (Deficit) (2,369,995) (2,104,521)
----------- -----------
TOTAL STOCKHOLDERS
EQUITY/(DEFICIT) $ (471,046) $ (205,572)
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY/(DEFICIT) $ 283,986 $ 367,092
=========== ===========
Note 1:
Common Stock, $.0001 par value, 100,000,000 shares authorized, 5,388, 569;
5,388,569 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 December 31, 2007.
The Company is currently focusing its efforts on developing and acquiring
quality non-food 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 substantial 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. The Company's products commenced generating revenues during
the second half of calendar 2007.
8
From inception through December 31, 2007 the Company's selling, general and
administrative expenses were $2,174,403. These expenses were partially offset by
income from radio ads, website and garden and cleaning product sales in the
amount of $450,625.As a development stage company, significant resources have
been allocated to growing and expanding the Company. These costs include, but
are not limited to, $394,460 for Legal and Accounting Fees, $453,924 for
Payroll, $328,218 for Convertible Debt Expense, $291,734 for Advertising,
$216,784 for brokered time purchased for our radio shows and $104,955 for
Interest Expense.
As of December 31, 2007, the Company had current assets of $271,831 and Fixed
and Other Assets of $12,155, resulting in total assets of $283,986. The
Company's current liabilities were $755,032. Working capital at December 31,
2007 and December 31, 2006 was $(483,201) and $(218,524) respectively. As a
development stage company, the negative swing in working capital is indicative
of the debt and vendor terms stretching that were required to fund
non-capitalizable operating expenses such as those referred to in the previous
paragraph. The business plan, of course, is that over the course of 2008 and
into early 2009, the negative swing in working capital will steadily move to
become positive as product sales ratchet up and receivables generate more and
more cash flow from operations.
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.
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)
9
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 shows 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 a maturity of three
months or less at the time of purchase to be cash equivalents. During fiscal
2007, the Company maintained cash in bank accounts which, at times, exceeded
Federal Deposit Insurance Corporation insured limits. The Company has not
experienced, nor does it anticipate, any losses on these accounts 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,
2007 and September 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.
Prepaid Expenses
Business expenses, including consulting expenses, that are paid for in advance
of services being rendered are treated as prepaid expenses. On occasion, the
Company pays for prepaid expenses with common stock. When these transactions
occur, they are identified as negative components of stockholders' equity.
10
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 Garden Guys radio call In program with Entercom, Clear Channel and
Citadel Communications. The total annual advertising expense for the contract
with Entercom, Clear Channel and Citadel Communications was $35,446 and $17,900
for the three months ended December 31, 2007 and December 31, 2006,
respectively. In addition to the radio show, the Company also participates in
several industry related trade shows and advertises its products on its own
website and numerous trade and industry publications.
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 periods presented.
Recently Issued Accounting Standards
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
11
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, it 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 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.
In February, 2007, the FASB issued SFAS No. 159, "THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES-INCLUDING AN AMENDMENT OF FASB NO.
115" ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.
12
SFAS 159 is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, providing that the
entity also elects to apply the provisions of FASB No. 157, "FAIR VALUE
MEASUREMENTS". The Company does not presently anticipate any significant impact
on its consolidated financial position, results of operations or cash flows.
Reclassifications
There were no prior years reclassifications made during the reporting periods
shown.
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
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). The issuance of share based compensation has had an immaterial impact on
the Company's financial statements. In the absence of any readily available
market value for the stock, the company used par value until 2005. There has not
been any share based compensation earned since 2005.
The Company issued common stock to two non-employees for consulting services. As
of the measurement date, there was no reliable method to value the Company's
common stock. In place of valuing the stock, the Company valued the services it
received based on the two individuals similar services provided to unrelated
entities. In the first transaction, the stock was issued after the measurement
date, but prior to the expiration of the contract. This individual subsequently
became an employee and a board member. In the second transaction, the common
stock was issued after the completion of the contract. The numbers of shares
issued were fixed in each contract and there were no unknown conditions as of
the measurement date. The Company expensed the value of the services during the
periods that the services were provided.
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.
13
Subsequent Events
The Company's Chairman of the Board and Chief Executive Officer, Samuel
Jeffries, gifted a total of 120,500 shares of his stock to numerous friends, an
Organic Sales and Marketing, Inc. employee and a member of the Board of
Directors, Michael Ernst (6,000 shares).
The Company's Vice-Chairman of the Board of Directors, Jerry Adelstein, gifted a
total of 211,500 shares of his stock to numerous friends and relatives.
After completing the transactions, both individuals continued to hold in excess
of 10% of the Company's outstanding shares of common stock. All transactions
took place in January, 2008.
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 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, logos, labels,
packaging design, product development and advertising. Also, on July 26,
14
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 including 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.
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 of prices not
exceeding $1.00 per share to accredited investors 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. As of December 31,
2007, the Company had issued 999,500 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. All
such securities were issued in reliance upon exemptions from registration under
the Securities Act of 1933, as amended.
The aggregate proceeds of $1,369,300 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
developmental stage companies 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.
15
Item 6. Exhibits
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.
16
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.
----------------------------------------
(Registrant)
February 14, 2008 /s/ SAMUEL F.H. JEFFRIES
----------------- ----------------------------------------
Date SAMUEL F.H. JEFFRIES, CEO AND CHAIRMAN
(Signature)
February 14, 2008 /s/ MARK J. McEVOY
----------------- ----------------------------------------
Date MARK J. McEVOY, CHIEF FINANCIAL OFFICER
(Signature)
17
Organic Sales and Marketing, Inc.
(A Development Stage Company)
Financial Statements for the Three Months
Ended December 31, 2007 (Unaudited) and 2006
CONTENTS
Balance Sheets................................................................ 3
Statements of Operations...................................................... 5
Statements of Stockholders' (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
December 31, September 30,
2007 2007
------------ -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 91,920 $193,341
Accounts receivable, net 10,776 30,602
Inventories 99,735 111,304
Prepaid Expense 69,400 18,893
-------- --------
Total Current Assets 271,831 354,140
-------- --------
PROPERTY AND EQUIPMENT, NET 11,955 12,752
-------- --------
OTHER ASSETS
Deposits 200 200
-------- --------
Total Other Assets 200 200
-------- --------
TOTAL ASSETS $283,986 $367,092
======== ========
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' (DEFICIT)
December 31, September 30,
2007 2007
------------ -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $237,114 $239,811
Accrued expenses 96,205 99,386
Accrued interest payable 37,687 24,441
Notes payable 157,000 157,000
Notes payable - Related Parties 227,026 52,026
---------- ----------
Total Current Liabilities 755,032 572,664
---------- ----------
Total Liabilities 755,032 572,664
========== ==========
STOCKHOLDERS' (DEFICIT)
Common stock, $0.0001 par value;
100,000,000 shares authorized,
5,388,569 and 5,388,569 shares
issued and outstanding, respectively 539 539
Additional paid-in capital 1,898,410 1,898,410
Deficit Accumulated during the
Developmental Stage (2,369,995) (2,104,521)
---------- ----------
Total Stockholders' Equity (Deficit) (471,046) (205,572)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 283,986 $ 367,092
========== ==========
The accompanying notes are an integral part of these financial statements.
4
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Operations
Accumulated from
August 23, 2003
For the Three Months (inception) through
Ended December 31, December 31,
2007 2006 2007
----------- ----------- -------------------
(Unaudited) (Unaudited)
REVENUES
Product sales, net $ 48,035 $ 4,930 $ 340,192
Services -- -- 110,433
----------- ----------- -----------
Total Revenues 48,035 4,930 450,625
COST OF SALES 33,507 2,515 221,954
----------- ----------- -----------
GROSS PROFIT 14,528 2,415 228,671
----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 266,701 154,045 2,174,403
----------- ----------- -----------
Total Operating Expenses 266,701 154,045 2,174,403
----------- ----------- -----------
LOSS FROM OPERATIONS (252,173) (151,630) (1,945,732)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 1,008 1,388 8,913
Interest expense (14,307) (2,471) (433,174)
----------- ----------- -----------
Other expense
----------- -----------
Total Other Income (Expense) (13,299) (1,083) (424,261)
----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (265,472) (152,713) (2,369,993)
INCOME TAX EXPENSE -- -- --
----------- ----------- -----------
NET LOSS $ (265,472) $ (152,713) $(2,369,993)
=========== =========== ===========
LOSS PER SHARE-
Basic and Diluted $ (0.05) $ (0.03)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING-
Basic and Diluted 5,388,569 4,823,026
----------- -----------
The accompanying notes are an integral part of these financial statements.
5
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Stockholders' (Deficit)
For the period August 23, 2003 (inception) through December 31, 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 576,993 58 576,935 -- 576,992
Amortization of Prepaid Expenses 4,166 4,166
Net loss for the year ended
September 30, 2007 -- -- -- (824,553) (824,553)
--------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2007 5,388,569 $ 539 $ 1,898,410 $(2,104,521) $ (0) $ (205,573)
========= =========== =========== =========== =========== ===========
Net loss for the three months
ended December 31, 2007 -- -- -- (265,472) (265,472)
(unaudited)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2007
(unaudited) 5,388,569 $ 539 $ 1,898,410 $(2,369,993) $ (0) $ (471,046)
========= =========== =========== =========== =========== ===========
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
Accumulated from
August 23, 2003
For the Three Months (inception) through
Ended December 31, December 31,
2007 2006 2007
----------- ----------- -------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (265,472) $ (152,713) $(2,369,993)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 796 415 4,161
Shares issued for services -- -- 15,160
Shares issued for convertible debt interest -- -- 41,582
Amortization of prepaid expense -- -- 175,000
Amortization of discount on notes payable -- -- 328,218
Write-off of receivable from officer -- -- 15,689
Change in operating assets and liabilities:
Accounts receivable-trade 19,826 (2,264) (10,776)
Inventories 11,568 (37,850) (99,736)
Deposits -- -- (200)
Prepaid Expense (50,507) 4,166 (69,400)
Due from officers -- -- (15,689)
Accounts payable (2,697) 38,290 237,114
Accrued expenses (3,181) 10,890 96,205
Accrued interest payable 13,246 1,541 37,687
----------- ----------- -----------
Net Cash Used in Operating Activities (276,421) (137,525) (1,614,978)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- (4,917) (16,117)
----------- ----------- -----------
Net Cash Used in Investing Activities -- (4,917) (16,117)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares -- 23,850 1,008,093
Cash Contribution to Capital -- 14,332 2,678
Proceeds from Line of Credit -- -- 15,000
Payments on Line of Credit -- -- (15,000)
Proceeds from Bridge Loans 175,000 175,000
Proceeds from convertible notes -- -- 157,000
payable - related party -- -- 193,218
Proceeds from convertible notes payable -- -- 135,000
Proceeds from notes payable - related party -- -- 94,987
Payments on notes payable - related party -- (3,903) (42,961)
----------- ----------- -----------
Net Cash Provided by Financing Activities 175,000 34,279 1,723,015
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (101,421) (108,163) 91,920
CASH, BEGINNING OF PERIOD 193,341 226,322 --
----------- ----------- -----------
CASH, END OF PERIOD $ 91,920 $ 118,159 $ 91,920
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,060 $ 2,471 $ 33,296
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 $ 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
December 31, 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 three months ended
December 31, 2007 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 2008.
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
Ended December 31,
-----------------------------
2007 2006
------------ -----------
Basic and Diluted (Unaudited)
Net Loss - Numerator $ (265,472) $ (152,713)
============ ===========
Weighted Average Shares - Denominator 5,388,569 4,823,026
============ ===========
Per Share Amount $ (0.05) $ (0.03)
------------ -----------
Note 3 - Inventories
Inventories consisted of the following as of:
December 31, September 30,
2007 2007
------------ ------------
(Unaudited)
Raw materials $ 74,802 $ 80,360
Finished goods 24,933 30,944
------------ -----------
Totals $ 99,735 $ 111,304
============ ===========
At December 31, 2007 and September 30, 2007, no provision for obsolete inventory
was recorded by the Company.
8
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2007 (Unaudited)
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 December 31, 2007
(unaudited) and September 30, 2007 was $ -0- and $ -0-, respectively. Accrued
Interest Payable at December 31, 2007 (unaudited) and September 30, 2007 was
$-0- and $-0-, respectively. The LOC Agreement is guaranteed by an officer of
the Company.
Note 5 - Equity Transactions
Effective January 3, 2006, the Company commenced a stock offering, whereby it
has issued an aggregate of 999,500 shares of its common stock for cash of
$999,500 as of December 31, 2007(unaudited). Included in this, is an aggregate
of 576,935 shares of its common stock for cash of $576,935 issued during the
fiscal year ended September 30, 2007.
Note 6 - Notes Payable- Related Parties
On December 1, 2007 a promissory note was issued to a member of the Company's
Board of Directors for $175,000. The promissory note carries an interest rate of
12% per annum and matures on December 1, 2008. Monthly payments are not required
and all accrued interest and principal is payable at date of maturity.
December 31, September 30,
2007 2007
------------ ------------
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 a director of
the Company, interest at 12%
per annum. No monthly payments
are required. All accrued
interest and principal is
paid at maturity, December 1, 2008 175,000 --
Note payable with a related
individual, interest at
10% per annum, no current
repayment requirements, due on
demand, unsecured. 20,000 20,000
------------ -----------
Total Notes Payable - Related
Parties 227,026 52,026
Less: Current Portion (227,026) (52,026)
------------ -----------
Long-Term Notes Payable - Related
Parties $ -- $ --
------------ -----------
9
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2007 (Unaudited)
Note 7 - 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 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 bridge loans,
convertible debt and additional private stock offerings that are in compliance
with Security and Exchange Commission integration rules and regulations
governing the same.
10