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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ORGANIC SALES AND MARKETING, INC.
(Name of Small Business Issuer in its charter)
Delaware 33-1069593
(State or other jurisdiction of (I.R.S. employer
Incorporation or formation) identification number)
SAMUEL F.H. JEFFRIES
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
114 Broadway
Raynham, MA 02767
Issuer's telephone number: (508) 823-1117
Copies to:
Paul Chernis, Esq. H. Melville Hicks, Jr., Esq.
Silverman Sclar Shin & Byrne 551 Fifth Avenue, Suite 1625
381 Park Avenue South New York, NY 10176
Suite 1601 (212) 655-5944
New York, NY 10016 (212) 867-3185 facsimile
(212) 779-8600
(212) 779-1969 facsimile
Securities to be registered under Section 12(b) of |X |the Exchange Act:
Title of each class Name of Exchange on which
to be so registered each class is to be registered
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Common Stock, $0.0001 par value Over The Counter/Bulletin Board
Securities to be registered under Section 12(g) of the Exchange Act:
None
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ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
1. FORM AND YEAR OF ORGANIZATION
Organic Sales and Marketing, Inc. (the "Company" or the "Registrant" or the
"Issuer") was incorporated in the State of Delaware as Garden Connections, Inc.
on August 23, 2003. On April 20, 2005, Garden Connections, Inc. changed its name
to Organic Sales and Marketing, Inc. Since inception, the Company has been
engaged in product development, sales and marketing of privately labeled
non-food organic products, and in obtaining initial financing. The initial
financing consisted of the sale of convertible debentures, notes and common
stock which yielded aggregate proceeds of $924,123 (See details in Note 1 to
Selected Financial Data). The Company purchased the assets of Garden Connections
LLC, a Massachusetts limited liability company in September 2003. The
acquisition of the assets of Garden Connections LLC took the form of an exchange
agreement whereby all of the outstanding common stock of the Company was
exchanged for all of the interests of the respective partners of Garden
Connections, LLC. There were several reasons for the exchange; namely that the
management of Garden Connections, LLC was desirous of adopting a name that would
better describe the business plan. Furthermore, the Company could not function
as an LLC if its securities were to be publicly held. The exchange rate whereby
the partners of the LLC received shares of the Company's common stock was
arbitrary and not at arms length. It should be noted that the officers and
directors of the Company as a group beneficially own 68.98% of the Company's
outstanding common stock and as a result, can control the operations of the
Company.
2. ANY BANKRUPTCY, RECEIVERSHIP OR SIMILAR PROCEEDING. Not Applicable
3. ANY MATERIAL RECLASSIFICATION, MERGER, CONSOLIDATION, OR PURCHASE OR
SALE OF A SIGNIFICANT AMOUNT OF ASSETS NOT IN THE ORDINARY COURSE OF BUSINESS.
Not Applicable
(b) BUSINESS OF ISSUER
The Company is a sales and marketing company that specializes in private
labeling of non-food organic products developed and manufactured by other
companies who do not have the marketing skills or means to market and sell their
products. We believe that we are able to bring their products to multiple
markets through the internet, radio and our established distribution network
consisting of independent representatives and distributors. Through our two hour
weekly radio garden talk show and affiliation with recognized national
communication networks, including Clear Channel, Citadel, and Entercom, we
believe that we can generate market interest and sales in organic and natural
product alternatives, interest in and knowledge of the importance of organics,
and information regarding where to purchase these related products.
The Company uses the services of well established and experienced sales
organizations to introduce, promote, and sell its newly designed non-food
organic-based product lines on a commission basis. Initial sales of our
organic-based cleaners have recently begun. The Company recently launched its
organic-based jewelry shiner ("Glitz") through a major nationwide distributor.
The Company expects to enter into a licensing agreement with Nevr-Dull within
the six months following the date of this Registration Statement in order to
provide our organic-based cleaners for their worldwide clientele. This
expectation is based on the advanced state of our negotiations with Nevr-Dull.
We have provided them with samples with a view to finalizing an agreement.
Moreover, there is a written draft agreement that is currently being fine-tuned
by Nevr-Dull. Our two companies are still negotiating our prospective royalty
arrangement. The process of finalizing our agreement has taken somewhat longer
than anticipated.
The Company also has established itself as a vendor for Fisher Scientific
for future sales of our industrial organic-based cleaners through Fisher
Scientific's internal and internet sales network. They are a major international
medical instrument distributor. The Company will now have our organic-based
cleaners added to their product selection Fisher Scientific has already listed
nine of the Company's industrial cleaners in their international catalog and is
offering them for sale in three different sizes. Initial orders have been
received from a Massachusetts governmental agency for the Company's
organic-based Odor Eliminator for use in its mass transit system. The
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Company's intention is to expand this product into additional states however,
there is no assurance that the Odor Eliminator will gain acceptance in other
jurisdictions. The Company has no binding agreement with any of these entities,
however discussions are ongoing regarding the nature and extent of any
relationship.
The Company is currently shipping its household organic-based cleaning products
to 110 Hannaford Supermarkets stores in the New England and Florida markets. In
addition, our proposals have been accepted by, and the Company has shipped
product to Shaw's Supermarkets (130 stores with a separate in-aisle display) and
Stop & Shop Supermarkets (50 stores). The Company is also a listed vendor and is
actively selling cleaning products to United Food International, the leading
organic and national distributor in the country supplying such outlets as Whole
Foods and other major grocery store chains. There is no assurance that
meaningful orders from these outlets will commence, or if they do, that they
will continue, or increase.
The Company is also planning to sell its line of organic fertilizers. We are
negotiating a formal agreement with Land O'Lakes Purina Feed Organization ("Land
O'Lakes"), a division of Land O'Lakes, Inc. and our two companies are moving
forward in furtherance of our expected arrangement The Company hopes to private
label a line of organic fertilizers produced, manufactured, and shipped by Land
O'Lakes. We have designed labels and bags for these products based on our
discussions with Land O'Lakes. We are also preparing prototype bags which will
bear the LOL labels and which will contain bilingual instructions. We have also
met with representatives of a national home improvement chain and received a
very favorable reception. LOL has told us that they are planning to test-market
our fertilizer products in the spring of 2008.
These products would be ready to market in the next six months in order to be
ready for sales in the first half of calendar 2008. The Company will also seek
to market these fertilizers to grocery stores and major lawn and garden outlets.
The intrigue and attraction of these items is that they are plant based
fertilizers rather than animal waste.
A new rubberized mulch product, from recycled tires has been laboratory
tested and shown to have multiple and favorable applications in various
industries, such as pre-school playgrounds, green buildings, commercial and
residential landscapes. The Company hopes to market this new product starting
sometime in late 2007. There is no assurance however, that significant orders
from retail outlets will commence. It will ultimately depend on customer demand.
The above discussion of possible marketing arrangements with Land O'Lakes
reflects strategies that, so far have been talked about and to some extent are
the subject of correspondence between both companies. To date, however, the
terms of such a business relationship have not been agreed to by the parties.
The private label concept referred to above has been limited to verbal
discussions.
The Company plans to concentrate its marketing efforts solely in the rapidly
growing non-food organic field. The Company believes that consumers are being
drawn to organic products by a growing desire for fewer chemicals and additives
in their everyday lives. However, there can be no assurance that this trend will
translate into sales and profits for the Company.
The Company believes that the organic industry, consisting of food and non-food
products, is one of the fastest growing segments of our economy. The 2006
Manufacturer Survey prepared by Nutrition Business Journal on behalf of the
Organic Trade Association showed that in 2005 $13 billion was spent on food and
non-food organic products, an increase of 16.2% over the previous year. Based on
reported consumer usage patterns, future shopping and other trended data, the
survey projects that industry sales could reach $20 billion by 2009. Organic
non-foods had consumer sales of $744 million in 2005, a growth of 32.5% for that
year. Compared to organic foods, which had a penetration rate of 2.5% in 2005,
organic non-food products are still emerging as a category and accounted for
only 0.22% of total sales in this sector in 2005 according to Organic Trade
Association Forecasting Survey 2005. Wal-Mart's recent decision to vigorously
enter the organic marketplace along with other major companies who likewise
decide to become "greener" could cause industry sales to rise even more
dramatically than anticipated.
The Company believes non-food organic products will participate in the
anticipated industry growth. The Company specializes in the more rapidly growing
non-food organic areas, such as private label premium fertilizers and consumer
and industrial cleaners where profit margins are substantially greater. There
can be no assurance that this trend will continue or that our products will
continue to follow the overall organic upward trend. The Company has
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established important outsourcing manufacturing and marketing relationships with
Land O'Lakes and North Eastern Sales Solutions, a major independent sales
representative organization in the New England area. The Company also currently
has a verbal working agreement with Land O'Lakes Purina Feed Organization as
described above. The Company anticipates that a formal contract will be
forthcoming within the six months following the date of this Registration
Statement but there can be no assurances to that effect. At this point, the
essential terms are still under discussion.
In the case of North Eastern Sales Solutions we have a five year agreement plus
automatic year to year extensions unless terminated by either party. The
commission rate for products sold is 5% percent in the New England area and
three 3% percent if sold outside that area. There is also a provision to
mutually agree upon granting stock options to North Eastern Sales Solution based
on volume sold.
The Company also has a five year agreement with automatic year to year
extensions with North East Garden Group LLC covering sales of Garden Guys
Products including plants, fertilizers, cleaning products and other products
mutually agreed upon in the New England area. The commission rate is five 5%
percent plus a provision to mutually agree to stock option grants based on the
volume of sales.
The Company's successful weekly radio show the "Garden Guys" broadcasts over
three stations (WHJJ, WXLM, and WBSM). The Company's President and host of the
"Garden Guys" show is now heard weekly on WRKO, the largest and most popular
station in Boston, MA, covering a large radio audience throughout New England.
The Company has plans to expand the two-hour weekly radio show into other
markets. Through its current relationships with Clear Channel, Citadel, and
Entercom networks the Company hopes to expand the show to additional stations.
The timing and locating of these stations will depend on whether the defined
territories are or will become available and at what cost to the Company. There
are no assurances that additional stations can or will be secured. At present
there are no binding agreements providing for such expansion.
The Company's optimism regarding its relationships with the networks listed
above is based on several factors:
o The "Garden Guys" show has received positive feedback and its format is easily
replicated in other regions.
o As a brokered program, we pay for our air time which would likely make the
networks receptive to our expansion.
o We maintain creative control so that the show continues to be informative,
educational and fun.
o We have existing working relationships with Clear Channel, Citadel and
Entercom, and Sam Jeffries, in particular, is well respected and known to many
decision makers in the radio community. The "Garden Guys" ratings continue to
increase and radio stations tend to air a winner.
The timing and location of future stations will depend on whether the defined
territories are or will become available and at what cost to the Company. There
are no assurances that additional stations can or will be secured. At present
there are no binding agreements providing for such expansion.
The Company generates brand awareness and consumer loyalty, for a growing array
of selective non-food organic products by educating the consumer, and acts as a
distributor and marketer for the retailers that carry our products. The Company
intends to capitalize on the growing interest in organics in several different
markets with the intention of using the radio to increase awareness as to why
organic products offer healthy alternatives without sacrificing expected
results.
The Company's business purpose is to establish an extensive portfolio of quality
non-food organic and natural products developed and made by manufacturers,
having multiple applications in many industries, by developing strategic
marketing relationships with manufacturers without the financial strength or
marketing acumen to sell and take advantage of their own products. This type of
marketing relationship begins with making the public aware of the product and/or
the brand through the radio or other media such as the internet on our websites
and then arranging with independent distributors or representatives to promote
the product with their retail customer outlets.
The Company has indications of interest for the financial backing and marketing
program it needs in order to establish itself as a factor in the non-food
organic products arena. There is being discussed a placement agent agreement
from the investment banking firm of Andrew Garrett, Inc. providing for a raise
of up to $6 million. The absence of an internal sales staff in favor of
utilization of outside independent sales professionals, coupled with no need for
a conventional manufacturing facility, will enable the Company to keep its
operating expenses limited.
It must be emphasized that although the Company is very excited about its
product lines and its prospects for entry into a rapidly growing industry, it
must be considered to be in a development stage. The purchase of the Company's
securities carries a significant risk. The Company has not had substantial
revenues from operations and has not yet been profitable. While it has built
important relationships with such companies as Fisher Scientific and Land
O'Lakes that could prove valuable, the outlook remains uncertain in the absence
of binding written agreements. Although the Company believes its overhead to be
low based on its business plan, there can be no assurance that it will continue
to find sources of working capital until it attains a breakeven level. It should
also be noted that the Company's auditors have included a "going concern"
qualification in their opinion (see "Financial Statements").
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1. PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKETS
Currently the major non-food organic products that the Company is selling are
organic-based cleaners, which include stain remover, odor control, glass
cleaner, floor cleaner, degreaser, concrete cleaner, eyeglass cleaner, jewelry
cleaner, surface prep and glue cleaner, rubber mulch, solely utilizing outside
independent sales professionals, as well as organic insecticide-fungicide,
organic soy candles and fertilizers. Since the Company sells only non-food
organic products, the shelf-life of its products can be in excess of one year or
more, depending upon storage and climatic conditions. The Company uses a
proprietary blend of organic compounds in its organic products which are
non-toxic, biodegradable and safe for use around children and pets.
The Company receives revenues through different methods: (1) it currently
receives a percentage (ranging from 5%-20%) of the gross sales of a
manufacturer's product by acting as a distributor, (2) it receives marketing
dollars through our endorsement program of plants from select growers, that are
sold in garden centers by independent sales groups, (3) sales of product from
our www.garden-guys.com website, (4) products sold directly by the Company or by
independent reps who work with us to sell to other distributors who then sell to
retail stores or co-ops, (5) products sold to retail stores directly by us or by
independent reps who are contracted by us, (6) re-selling our organic products
to other companies and industries who wish to private label or license our
products, and (8) lectures to garden clubs, civic organizations and other
associations.
Organic Fertilizer Market:
The Company is focusing marketing efforts on organic fertilizers, a rapidly
growing segment of the fertilizer industry. In our opinion, industry-wide
organic fertilizer sales have risen so rapidly in the last three years that they
have commanded a premium price in the marketplace. Accordingly, we foresee some
of our greatest growth over the next 3-5 years to potentially be in this arena.
By letter dated November 14, 2006 we were notified that we have been selected by
Land O'Lakes Purina Feed Organization to act as their private label, Bradfield
Organics, fertilizer marketer, starting in the Spring of 2007. A strong
marketing focus will be on the major home and garden retail chains such as Home
Depot, Lowe's and Agway, which Land O'Lakes Purina Feed Organization does not
presently supply internally. The Company will be receiving from Land O'Lakes
Purina Feed Organization a complete line of fertilizers, as jointly formulated,
designed and marketed by us under our newly applied for Mother Natures Cuisine
trademark and existing trademark and Garden Guys brands. Under the arrangement,
Land O'Lakes Purina Feed Organization will also assist in product registration
for each state, manufacturing, logistics, and distribution. They will also
provide sales and marketing expertise for the Company, when needed. Under the
Company's' trademarks, the organic fertilizers will be sold retail, with the
estimated sales price range of eighteen to twenty-five dollars for a 40lb bag.
Other size bags will also be available. The Company believes this will
potentially lead to major sales, as it is to be introduced into the 35 billion
dollar lawn and garden market reported by the National Gardening Association in
its Garden Market Research newsletter. There is no assurance however, that
actual orders will commence. It will depend entirely on customer demand which
has yet to be tested.
Plans under discussion call for Land O'Lakes Purina Feed Organization to become
a prime advertiser on our weekly radio show, as well as on the anticipated new
stations we hope to add. A planned radio campaign began in the spring of 2007
and has been ongoing, with Land O'Lakes Purina Feed Organization as one of the
advertisers. In addition to our Dragonfly Organix brand, Land O'Lakes Purina
Feed Organization will also advertise their own brand of Bradfield Organics
fertilizers, whose market is strictly geared to their existing independent
channel and does not compete in the markets we will be pursuing. There is no
written commitment for Land O'Lakes to buy time on our radio show. It has been
the subject of discussions and may not actually come to pass.
Organic Based Household Cleaner Market:
Another area, which the Company believes holds considerable promise, is the
consumer cleaner market. As with the rise in organic food sales, due primarily
to the growing education of how toxic chemicals, regardless of age or gender,
can have either a direct or indirect impact on human health; we believe that
that momentum will continue to grow with that of non-food organic products,
which may pose similar health hazards and risks. Our weekly radio
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show allows us the opportunity to educate consumers about these potential hidden
risks and the branded products (including our own), that offer healthy
alternatives to chemical cleaners, and then integrate those stores who share the
same philosophy. While currently at 19 million dollars annually, according to
the Organic Trade Association this category grew by 29% in 2005.
Jewelry, Modeling, and Bead Markets
We are currently supplying two of the major distributors, Paul Gesswein &
Company, Inc. in Connecticut and Fire Mountain Gems & Beads, Inc., in Grant
Pass, Oregon, in these trade areas, each of which does over 100 million dollars
in sales annually. Their customers are some of the major retail jewelry and bead
shops, including Zales and other distributors within the trade. The Company
anticipates that a constant advertising presence in industry-related magazines
will help to create brand awareness, which could translate into sales growth for
our Glitz Jewelry Shiner and ODX Surface Cleaner products, in these markets.
There is no assurance, however, that these markets will develop for our
products.
Funeral Industry & Medical Examiners Market:
The Company is currently supplying its Funeral Organix product line to the
Boston Medical Examiners office and to some independent funeral homes. This
class of trade has an upside potential because there is a need for cleaners and
deodorizers due to the large amounts of chemicals used by this profession on a
daily basis. The Company has contracted with a sales organization that
specializes in this industry, for the sale of our Funeral Organix, "From the
Earth, To the Earth" brand, which the Company has developed. Preliminary data
indicates a strong willingness by the industry to replace their chemical
products with ones that are organic and environmentally friendly. Marketing
plans call for a full product roll-out in the spring of 2007. There is no
assurance that these markets will develop significantly for our products. This
depends entirely upon product and acceptance.
According to the latest Funeral Directors Association (FDA) statistics, there
are 21,528 funeral homes nationwide, and 51% of new funeral directors entering
the profession today are women. An adjunct industry to this one would be the
ambulance industry, which has similar issues and problems with the use of
chemicals.
Municipalities & Waste Disposal Markets:
We have discovered through outside testing that the Company's Odor Eliminator
product has a desired effect for both industries, due to the various odor
problems they encounter on a daily basis. Testing is on-going, however, the
Massachusetts Bay Transit Authority ("MBTA") has made small purchases of our
product and has had success in treating the odor problem in the transit system.
Indications of interest to purchase the product in larger quantities has been
given, once provisions for purchases are adopted in its budget for the new
fiscal year which starts in July, 2007. We see this and other related industrial
products in our existing and growing portfolio of products, to have numerous
applications in industries, such as nursing homes waste management, fishing
industry, industrial kitchens, daycare-Montessori, hospice-home care, kennels.
There is no assurance that these markets, as defined by the Company, will
develop for our products. This will depend upon product and acceptance.
The Company is capitalizing on the growing interest and desire among consumers
for environment-friendly products. To do this, we have developed strategic
marketing relationships with manufacturers that offer "green" alternatives to
some of the traditional, chemical-intensive products that are currently being
used, in various industries. The Company hopes to be the dominant leader in the
non-food organic industry, so we are aggressively working with several
manufacturing companies to further develop and perfect our growing line of
non-food organic product offerings. With the assistance of another company we
are developing a rubber tire mulch product which has definite ecological
benefits. Through the assistance of a separate company we are also developing an
industrial degreaser product which has been successfully tested and has the
ability to separate oil from water. We believe this product will be beneficial
in industrial waste remedial projects.
The last three years have been spent establishing what the Company believes to
be a strong, solid foundation needed to support the next phase in the Company's
business plan. Non-food organic products are growing in demand. The Company's'
products are targeted to sophisticated, environmentally aware companies and
consumers in various markets. The Company believes that strategic affiliations
which have been developed with well-established
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manufacturers and sales and marketing companies, including the marketing,
expertise and reach of Land O'Lakes Purina Feed Organization; could possibly
pave the way for our non-food organic products to eventually become available in
many retail outlets throughout the country.
These strategic marketing affiliations have resulted in contracts with North
Eastern Sales Solutions and Northeast Garden Group LLC. They have led to
contract negotiations with Land O'Lakes Purina Feed Organization and licensing
agreement negotiations with George Basch Co., a manufacturer and worldwide
distributor Nevr-Dull Metal Polish. In addition nine of our industrial cleaning
products are now listed in the Fisher Scientific international catalog through
which orders can be placed directly by customers of Fisher Scientific. There are
no guarantees that this will continue or that it will result in meaningful
sales.
2. DISTRIBUTION
Our sales, marketing and promotional efforts are accomplished through the
following
o Radio
o E-Commerce Website
o Interactive Website with on-line forum room for gardeners
o Industry-related Magazines and Newspapers
o Face-to-face Client and Prospect Meetings
o Sales Brochures and Product Samples
o Point-of-Sale and End Cap Displays
o Trade Shows
o Membership in Trade Organizations
o Garden Clubs
o E-mail and Direct Mailings
o Telemarketing
o Strategic Marketing Alliances
o Cooperative Advertising
We are now able to bring our products from manufacturer to consumer, with very
limited financial exposure. We have the added advantage of being able to market
our products not only through our independent marketing associates, but through
our own radio programs, with a recognized growing interest in organics. The
Garden Guys(R) ensure that brand awareness reaches the consumer through the
radio. This creates a multi-faceted, multi-revenue channel model for the
company. Moreover, we hope to add new strategically selected radio stations to
our radio family over the next several years with a reach that goes beyond the
New England area. Because of the knowledge we have obtained of how the
communications industry works, as a result of the Garden Guys radio talk show,
we believe that this is a very attainable goal. Currently, we are on three
stations, one of which is a Clear Channel station, the largest network in the
country with over 1000 stations nationwide. What with the addition of WRKO the
number of stations in which the Company has on-air presence is four. We intend
to try to open additional stations as geographic areas open up to our products.
There is no set schedule at this time. Although there can be no assurance, we
believe we will be able to establish such additional stations by reason of our
present relationship with Clear Channel and Citadel.
We have executed and delivered major distribution contracts with North Eastern
Sales Solutions, a major independent sales and marketing organization to
represent our organic products to retail pharmaceutical and supermarket chains
such as CVS, Rite-Aid, Shaw's Supermarkets, Hannaford Supermarkets, Stop & Shop
and others in the northeast and North East Garden Group, another major
independent sales and marketing company to
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represent our organic products to retail outlets like Agway and other
independent garden centers also in the northeast. In addition, we are currently
negotiating several other distribution contracts with manufacturers,
distributors and retailers in the horticulture industry, jewelry industry and a
licensing agreement for an organic line of industrial metal polish.
The initial radio one year contract with WHJJ (Rhode Island) began on August 28,
2005 for one year and was automatically renewed in 2006 for one year. In
addition three other radio stations have contracted to simultaneously broadcast
the radio show weekly on Sunday mornings from 8:00 a.m. to 10:00 a.m. These
stations are WXLM (Southeastern Connecticut), WBSM (Southeastern Massachusetts)
and WRKO (Boston, Massachusetts). All these contracts are automatically
renewable and the respective stations have agreed to promote the program with
promotional announcements, print ads and on their respective websites.
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCTS OR SERVICES
Currently the Company has a portfolio of approximately twenty-five items, all of
which are Private Label Products and six License Name Brands which are presently
available or will be available in 2007 from the manufacturers. The Company will
be able to market its products not only through its distributors and independent
sales organizations but through the Garden Guys(R) radio show which provides a
viable channel through the creation of brand awareness on the part of the
consumer and a growing interest in organics. Management believes these non-food
organic products will attract women buyers looking to avoid the health risks and
implications that have been found in non-organic or synthetic compounds.
Management believes this is a promising trend.
All these products are manufactured for the Company under its own
specifications. Products are manufactured to our specifications without any
research and development costs due to the fact that the manufacturers with whom
we have existing relationships have already done the R&D. We achieve the
benefits of their research by finding niche markets for these products, creating
our own labels, and implementing a sales program by which to bring these
products to market. The foregoing arrangement limits the Company's financial
exposure:
o No research and development costs
o No manufacturing facilities and related costs
o Reduced inventory costs and facilities
o Limited employee and staff
4. COMPETITION
According to the Organic Trade Association, a leading organic association
publication, the non-food organic market was estimated to be $ 750 million and
growing at an annual rate of 32%. The Company believes its' largest competitor
is privately-owned Seventh Generation, located in New Hampshire. Seventh
Generation, we believe, compete with us on a very limited basis in the retail
grocery store market due to the high cost of entry (slotting fees) and the high
cost of advertising, which, as stated above, is one of the Company's significant
strengths.
Because the organic cleaner market is relatively small in comparison to the
total organic market, it is a fragmented market, ready for development. Seventh
Generation, Inc. located in New Hampshire is about the only known competition we
have, although they are not heavily involved in the primary markets that we look
to serve. In the absence of a leader, one will emerge, and the Company has
strategically positioned itself to take advantage of that opportunity.
Management believes, and early indications support, that the Company's products
will be accepted into the marketplace due to their unique qualities and eye
catching packaging and radio support.
Competition in lawn and garden organic product sales in New England and the East
Coast, however, is much greater. These markets are large and can support many
companies offering these and similar organic products. We are unique in that we
offer a service (the radio program) in addition to a product. We do not know of
another company that does this. In addition, many companies that make up the
Company's competition in this market are better financed, have more recognizable
or established brand names, have better control over their manufacturing and
distribution process, have a longer history of servicing the retail industry and
may be better positioned to control sales to large retail outlets.
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The market for cleaning and garden products is highly competitive. Although our
products are organic and therefore distinguishable from most other more
established brands, which contain chemicals, it is possible that consumers
neither care about that fact nor understand its significance. There are a number
of other established providers that have greater resources, including more
extensive research and development, marketing and capital than we do and also
have greater name recognition and market presence. These competitors could
reduce their prices and thereby decrease the demand for our products and
technologies. These competitors may lower their prices to compete with us. We
expect competition to intensify in the future, which could also result in price
reductions, fewer customer and lower gross margins.
Access to retail outlets may be restricted due to pre-existing agreements that
prohibit retailers from selling our products or retailers may require
substantial payments for shelf space which is beyond the Company's financial
capabilities. Such payments are common in the retail industry, and historically,
it has been the Company's policy not to pay for shelf space due to the
uniqueness of our products. In the future our existing retailers may require
such payments in order for us to continue to sell through them and new retail
outlets may require payments to sell our product.
5. THE SOURCES AND AVAILABILITY OF RAW MATERIALS.
The Company is not dependent on any raw materials. All products which are sold
and marketed by the Company are manufactured by the Company's manufacturing
clients. Although we believe we can secure other suppliers, we expect that the
deterioration or cessation of any relationship would have a material adverse
effect, at least temporarily, until the new relationships are satisfactorily in
place.
We also run the risk of manufacturer price increases and component shortages.
Competition for products or materials in short supply can be intense, and we may
not be able to compete effectively against other purchasers who have higher
volume requirements or more established relationships. Even if manufacturers
have adequate supplies of components, they may be unreliable in meeting delivery
schedules, experience their own financial difficulties, provide components of
inadequate quality or provide them at prices which reduce our profit. Any
problems with our third-party suppliers can be expected to have a material
adverse effect on our financial condition, business, results of operations and
continued growth prospects. Our principal suppliers are:
Abott-Action, Inc. Shipping Materials
Enzyme Solutions, Inc. Organic Liquid Concentrates
Key Container, Corp. Shipping Materials
Lightning Labels Inc. Bottle Labels
Macaran Printed Products, Inc. Bottle Labels
Organica Biotech, Inc. Organic Liquid Concentrates
Webco Chemical Corp. Liquid Fulfillment
Zuckerman-Honickman, Inc. Bottles and Sprayers
6. DEPENDENCE ON A SINGLE OR FEW CUSTOMERS.
The Company currently has several customers. It has developed and is currently
developing multiple strategic alliances with several distributors and
independent sales organizations. The Company does not anticipate that it will be
dependent on a single customer or small group of customers.
7. THE IMPORTANCE OF PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND
CONCESSIONS HELD.
To protect its rights to its intellectual property, the Company relies on a
combination of trademark and copyright law, patent, trade secret protection,
confidentiality agreements, and other contractual arrangements with its
employees, affiliates, clients, strategic partners, and others. The protective
steps it has taken may be inadequate to deter misappropriation of the Company's
proprietary information. The Company may be unable to detect the
-9-
unauthorized use of, or take appropriate steps to enforce its intellectual
property rights. The Company has registered certain of its trademarks in the
United States and has pending U.S. applications for other trademarks and
patents. Effective trademark, copyright, patent, and trade secret protection may
not be available in every country in which it offers or intends to offer its
products or services. In addition, although The Company believes that its
proprietary rights do not infringe on the intellectual property rights of
others, other parties may assert infringement claims against the Company or
claims that it has violated a patent or infringed a copyright, trademark, or
other proprietary right belonging to them. These claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources on its part which could materially adversely affect the
Company's business, results of operations, and financial condition. The Company
incorporates certain licensed third-party technology in some if its services. In
these license agreements, the licensors have generally agreed to defend,
indemnify, and hold the Company harmless with respect to any claim by a third
party that the licensed software infringes any patent or other proprietary
right. The Company cannot assure that these provisions will be adequate to
protect from infringement claims. The loss or inability to obtain or maintain
any of these technology licenses could result in delays in introduction of new
services.
The Company has trade mark protection for its "Garden Guys Down to Earth Up to
Date"(TM) trademark. In addition, the Company has applied to the US Patent and
Trademark Office for trade mark protection for its' "Dragonfly Organix from the
Earth to the World"TM brand-name trade mark, "Mother Natures Cuisine(TM) feed
your land from Mother Nature" brand name trade mark, and the picture of the
"Plate with Garden Hand Fork and Hand Trowel with Gingham Placemat" trade dress.
Final action on these applications is pending subject to publication in the
Official Gazette.
8. GOVERNMENT APPROVAL.
Government approval is required for some of the Company's current products. The
initial approval process is generally obtained by the manufacturer.
9. EFFECT OF ANY EXISTING OR PROPOSED GOVERNMENT REGULATIONS.
Other than normal government regulations that any business encounters, the
Company's business is not affected by any government regulations.
10. RESEARCH AND DEVELOPMENT COSTS.
The cost and expense of Research and Development is borne by the manufacturer.
Since the Company began operations in August 2003 it has spent over one million
dollars on market research and development of its markets. The revenues the
Company achieves will be primarily from strategic alliances. Revenues generated,
while paying directly for research and technology costs accrued to date, will
fund the operations of the Company, which includes funding any on-going research
and development.
11. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND
REGULATIONS.
The Company is not involved in a business which involves the use of materials in
a manufacturing stage where such materials are likely to result in the violation
of any existing environmental rules and/or regulations. Further, the Company
does not own any real property which would lead to liability as a land owner.
Therefore, the Company does not anticipate that there will be any costs
associated with the compliance of environmental laws and regulations.
12. EMPLOYEES.
As of the date hereof, the Company employs 3 full-time employees and 2 part-time
employees. The Company hires independent contractors on an "as needed" basis
only. The Company has no collective bargaining agreements with its employees.
The Company believes that its employee relationships are satisfactory. In the
long term, the Company
-10-
will attempt to hire additional employees as needed based on its growth rate.
We will be dependent on our current management team for the foreseeable future.
The loss of the services of any member of this management group would have a
material adverse effect on our operations and prospects. Our success will be
dependent to a substantial degree on Sam Jeffries and other key management
personnel. Sam Jeffries continued involvement is particularly critical. In the
event Sam Jeffries were unavailable, it would have a material adverse effect on
operations. At this time, we have no employment agreement nor have we obtained
"key man" insurance policies on Sam Jeffries. The expansion of our business will
be largely contingent on our ability to attract and retain additional personnel
for the management team. There is no assurance that we can find suitable
management personnel or will have the financial resources to attract or retain
such people, if found.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 and have been prepared in accordance with generally accepted
accounting principles in the USA. The discussion should be read in conjunction
with our financial statements and notes thereto, appearing in this Registration
Statement.
The preparation of these financial statements requires us to make estimates and
judgments that may affect the reported amount of assets and liabilities,
revenues and expenses, and the related disclosure of such contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions and conditions.
This Registration Statement 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 Registration Statement
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
investor's revisions to these forward-looking statements to reflect events or
circumstances after the date of the Plan of Operations, the occurrence of
unanticipated events or other matters that may occur.
A. PLAN OF OPERATIONS
Since its inception in August 2003, the Company has been involved in the
development and acquisition of a wide variety of organic-based products to be
initially sold to retail 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,
-11-
footwear, automotive, and boating.
The Company searches out small companies that have excellent organic products,
and through our own private label, seeks to bring them to market at the retail,
wholesale or internet level.
The Company has a limited operating history on which to evaluate its prospects.
The risks, expenses and difficulties encountered by a startup company must be
considered when evaluating the Company's prospects. The Company's plan of
operating for the next twelve months is to further develop its product line
while seeking alliances with manufacturers, retail outlets, sales
representatives and distributors. Management believes that its existing funds in
combination with funds raised in a contemplated 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 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 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 six to twelve months under its
Mother Natures Cuisine(TM) and/or Garden Guys private label. While the Company
believes that it will meet this schedule, if it cannot raise additional working
capital, the probability of the Company meeting the schedule will be adversely
affected.
The Company is in the process of rolling out its product line to an expanding
customer base. Over the course of 2007 and 2008, sales may be expected to
ratchet themselves up as new customers come on board and reorders start to come
in. The Company projects a net loss of ($764,000) in calendar 2007. In calendar
2007, cash flow from operations is projected to be ($724,000).
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.
To cover any 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 commence 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 year 2007 consists of
the following: (000's omitted)
-12-
Year 2007
---------
Revenues $1,619
Margin 537
Selling, General and Administrative Expense 950
Other (Income)/Expense 351
Net Profit/(Loss) Before Taxes $ (764)(1)
----------
(1) Not including revenues from sales to as yet unidentified customers.
-13-
1. Revenue Projections
Other than purchase orders that we have received since the beginning of 2007
totaling $117,000 through June, 2007, there are no firm commitments as to future
revenues. In some cases, grocery store slotting fees have been paid which
guarantees us space on their shelves for a year; however, there is still no
guarantee that the product will sell. That is why we have made a heavy
commitment to advertising and promotion to enhance product recognition and
encourage reorders.
Our 2007 projections were made on an industry-by-industry basis with two thirds
of our projected revenues coming from a combination of Grocery, Convenience and
College Book Stores. In preparing our projections we identified customers that
we are currently shipping and those who have indicated a desire to carry our
products.
For each of these groupings we believe we conservatively estimated when we would
begin doing business, how many stores we would be shipping to, how many cases of
our product each store would buy and how often in each year they would purchase
the product.
Based upon this formula, we were able to determine how many cases would be sold
each month and how much the projected dollar revenue would represent on a
monthly, quarterly and annual basis.
2. Expense Projections
Costs of sales were projected based upon the amount of product being sold and
the extensive by product costs we had developed.
General and Administrative costs (on an annualized basis) were maintained at no
more than 8% of sales to keep our overhead costs at a bare minimum. These costs
also included legal, accounting and consulting fees of $140,000 in 2007.
Marketing and Selling expenses were projected at 15% of revenues. If revenues
are higher than projected, more of the additional revenues will be reinvested in
further marketing and selling activities. If revenues come in lower than
projected, analysis will be done to determine why and , if appropriate,
marketing and selling expenses will be reduced or redirected. These expenses
include, but are not limited to, radio show costs, website maintenance and
development, advertising allowances, display cases, trade show participation and
print media advertising.
We believe that we have developed a careful, well-thought out business plan
based upon educated assumptions using the most current data available to us.
Because we are still in the early stages of our growth, there is, of course, no
guarantee as to how much or how often existing or new customers will buy from
us. Barring a significant miss (>50%) in our projections, however, we believe
that our business plan contains enough flexibility to weather unforeseen delays
in the generation of revenues by being able to modify expenses and other
spending, as required.
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.
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 in order to achieve the objectives. To this end the Company
has received and filled orders and re-orders during the current fiscal year (ie.
October 2006 through June, 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.
-14-
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 the Company has utilized on an order by order basis a
fulfillment company, Webco Chemical Co., located in Dudley, Massachusetts which
it believes has the capacity and ability to handle its 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.
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 may be
more heavily financed than are the Company.
o Risks in short and long term and the actions you 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 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
Companies financial commitment with WRKO to assist in promotion of
any or all of the Company's products each week on his 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 registration statement. The following table
sets forth, for the periods indicated, certain key information about the
Company.
-15-
The Company financed its expenditures since its inception primarily through
private placements for cash of 6% convertible debentures and convertible
promissory notes totaling $328,215 and a $1,000,000 common 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 other accredited investors at $1.00 per share.
As of the date of this Registration Statement, the private placement commenced
on January 3, 2006 is complete and an aggregate of $999,500 has been received
from investors.
(A Development Stage Company)
Selected Financial Data
For the Years Ended September 30, 2006 and 2005
and for the Six Months Ended March 31, 2007 (Unaudited)
Statement of Operations
Six Months Twelve Months Twelve Months
Ended Ended Ended
March 31, 2007 September 30, 2006 September 30, 2005
-------------- ------------------ ------------------
(Unaudited)
Revenues $ 30,104 $ 50,111 $ 78,946
Margin 10,004 8,151 45,471
Compensation Costs 4,166 16,667 47,849
Selling, General and Administrative Expense 423,138 292,361 174,130
Other Income/(Expense) (3,431) (263,130) (82,912)
----------- ----------- -----------
Profit/(Loss) Before Taxes $ (420,731) $ (564,007) $ (259,420)
=========== =========== ===========
Loss per share-Basic and Diluted $ (0.09) $ (0.15) $ (.07)
=========== =========== ===========
Weighted Average Number of Shares
Outstanding-Basic and Diluted 4,886,751 3,784,827 3,500,000
=========== =========== ===========
Balance Sheets
Six Months Twelve Months Twelve Months
Ended Ended Ended
March 31, 2007 September 30, 2006 September 30, 2005
-------------- ------------------ ------------------
(Unaudited)
ASSETS
Cash $124,411 $226,322 $ 3,953
Accounts Receivable 6,345 6,081 2,775
Inventories 72,554 29,174 9,714
Fixed Assets 11,721 2,711 338
Other Assets 200 200 200
Prepaid Insurance Expense 16,662 -0- -0-
-------- -------- --------
TOTAL ASSETS $231,893 $264,488 $ 16,980
======== ======== ========
LIABILITIES
Accounts Payable $174,447 $ 83,953 $ 81,159
Accrued Expenses 167,051 68,335 49,255
Notes Payable-Current 102,501 67,319 143,327
Note Payable-Long Term 1,786 7,058 8,476
-------- -------- --------
TOTAL LIABILITIES $445,785 $226,665 $282,217
-16-
STOCKHOLDERS EQUITY/(DEFICIT)
Common Stock (Note 1) $ 498 $ 481 $ 350
Additional Paid in Capital 1,486,308 1,321,475 471,206
Prepaid Expenses -0- (4,166) 20,833
Accumulated (Deficit) (1,700,698) (1,279,967) (715,960)
----------- ----------- -----------
TOTAL STOCKHOLDERS EQUITY/(DEFICIT) $ (213,892) $ 41,990 $ (265,237)
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY/(DEFICIT) $ 231,893 $ 264,488 $ 16,980
=========== =========== ===========
Note 1:
Common Stock, $.0001 par value, 100,000,000 shares authorized, 4,976,426;
4,811,576 and 3,500,000 shares issued and outstanding respectively
The Company is a development stage company and did not generate any significant
operating revenues from its inception on August 23, 2003 to September 30, 2006.
The Company is currently focusing its efforts on developing and acquiring
quality organic products and establishing a large viable distribution network
for these products. While there is no assurance, the Company anticipates that by
developing quality products and establishing a broad distribution network, it
will be in a position to receive revenues in the future.
From its inception, the Company has incurred costs associated with the
development and launching of its products, probable markets and business. The
Company has established brand names, consumer recognition and interest in
organics through private labels, the internet and radio and established a
distribution network which 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 first quarter of
2007.
The Company financed its expenditures through sales pursuant to private
placements of its securities. It raised $125,000 between August and December of
2003 from the private placement of its 6% Convertible Debentures. There also
were 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 bearing
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 later 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 March, 2007, the Company issued 4,976,426
shares of common stock. It raised an aggregate of $924,123 pursuant to certain
subscriptions it received from the stock offering in 2006 to March 2007 for cash
at $1.00 per share and through the conversion of the 6% convertible debenture,
and convertible promissory notes issued. 671,890 of these shares were issued as
free-trading shares under Rule 504 of Regulation D of the Securities Act of
1933, as amended. A total of 4,304,536 of the Company's outstanding common
shares were restricted as of March 31, 2007.
From inception through December 31, 2006 the Company's selling, general and
administrative expenses were $1,232,436. These expenses are partially offset by
income from radio ads, website, garden and cleaning products sales in the amount
of $217,197.
As of March 31, 2007, the Company had current assets of $203,310 and $28,583 in
furniture, equipment and other assets, resulting in total assets of $231,893.
The Company's current liabilities were $263,347.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below.
Principles of Accounting
The Company employs the accrual method of accounting for both financial
statements and tax purposes. Using the accrual method, revenues and related
assets are recognized when earned, and expenses and the related obligations
-17-
are recognized when incurred. The Company has elected a September 30 year end.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements" ("SAB 104"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We earn our revenues from the distribution of garden and
cleaning products to retailers and directly to consumers via our internet site
and from advertising contracts. Four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
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 March 31,
2007, September 30, 2006 and 2005 is collectable and therefore no allowance has
been taken.
-18-
Inventory
The inventory is stated at the lower of cost (first-in-first-out method) or
market. Inventory items consist of raw material and finished goods. Raw
materials consist of labels, bottles, sprayers and shipping materials. Finished
goods consist of fertilizer bags and bottles of organic cleaning products ready
for shipment. The inventory consists of newly purchased items; therefore, there
is currently no allowance for excess or obsolete inventory.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for
minor replacements, maintenance and repairs which do not increase the useful
lives of the property and equipment are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of five to
seven years.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense primarily consists of the Company's two hour
weekly radio Garden Call In program with Clear Channel Communications and
Citadel Communications Company. The total annual advertising expense for the
contract with Clear Channel and Citadel Communications is $41,700 and $30,030
for the years ended September 30, 2006 and 2005, respectively. The Company also
advertises its products throughout area garden clubs and its own website.
Income Taxes
The Company is a C Corporation registered in the state of Delaware. Income taxes
are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due. Income taxes are accounted for in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS No. 109 income taxes are recognized for the following: i) amount of taxes
payable for the current year, and ii) deferred tax assets and liabilities for
the future tax consequences of events that have been recognized differently in
the financial statements than for tax purposes. Deferred tax assets and
liabilities are established using statutory tax rates and are adjusted for tax
rate changes. SFAS 109 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
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
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material (spoilage) should be recognized as current period charges, and that
fixed production overheads should be allocated to inventory based on normal
capacity of production facilities. This statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The adoption
of SFAS 151 is not expected to have a material impact on the Company's financial
statements.
In June 2005, the FASB issued Statement of Financial Accounting Standard No.
154, Accounting Changes and Error Corrections, ("SFAS 154"). SFAS 154 replaces
Accounting Principle Bulletin No. 20 ("APB 20"), and Statement of Financial
Accounting Standard No. 3, Reporting Accounting Changes in Interim Financial
Statements ("SFAS 3"), and applies to all voluntary changes in accounting
principle, and changes the requirements for accounting for and reporting of a
change in accounting principle. APB 20 previously required that most voluntary
changes in accounting principle be recognized by including in net income of the
period of change a cumulative effect of changing to the new accounting
principle, whereas SFAS 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. SFAS 154 enhances the consistency of financial information
between periods. SFAS 154 is effective for fiscal years beginning after December
15, 2005. Our adoption of SFAS 154 is not expected to have a material impact on
our results of operations or financial position.
In February 2006, the FASB issued SFAS Statement No. 155, "ACCOUNTING FOR
CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133
AND 140" ("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, "APPLICATION OF STATEMENT 133 TO BENEFICIAL INTERESTS IN SECURITIZED
FINANCIAL ASSETS." This Statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement 133,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS 155 is effective for all financial instruments
acquired or issued for the Company for fiscal year begins after September 15,
2006. The adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
In July 2006, the FASB issued FASB Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in the financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken in a tax return. The adoption of this standard is not
expected to have a material effect on the Company's results of operations or
financial position.
In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS"
("SFAS 157"). While SFAS 157 formally defines fair value, 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
-20-
but are not recognized as a component of net periodic benefit cost in accordance
with existing accounting principles.
Amounts required to be recognized in accumulated other comprehensive income,
including gains and losses and prior service costs or credits are adjusted as
they are subsequently recognized as components of net periodic benefit cost
pursuant to the recognition and amortization provisions of existing accounting
principles. In addition, SFAS 158 requires plan assets and obligations to be
measured as of the date of the employer's year-end statement of financial
position as well as the disclosure of additional information about certain
effects on net periodic benefit cost for the next fiscal year from the delayed
recognition of the gains or losses and prior service costs or credits.
The Company is required to adopt those provisions of SFAS 158 attributable to
the initial recognition of the funded status of the benefit plans and disclosure
provisions as of December 31, 2006. Those provisions of SFAS 158 applicable to
the amortization of gains or losses and prior service costs or credits from
accumulated other comprehensive income to the net periodic benefit cost are
required to be applied on a prospective basis effective January 1, 2007. The
Company does not anticipate that the adoption of SFAS 158 will have any impact
on its financial statements.
Reclassifications
Certain immaterial amounts from prior years have been reclassified to conform to
the 2006 presentation.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term maturity of these
instruments. The 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.
ITEM 3. DESCRIPTION OF PROPERTY
The Company is in a "tenant at will" agreement with Leo S. Arcand (Lessor) of
114 Broadway, Raynham, MA. The premises encompass the North side of a one story,
commercial, wood building with approximately 500 square feet of office space.
The monthly lease payment is $600.00 per month. It is located in an area that
has easy access to major highways. Products are received and shipped by contract
carriers.
-21-
The Company also leases storage space at two locations. The cleaning bottle
inventory including concentrate, bottles, sprayers, labels and cartons is stored
at our fulfillment house, Webco Chemical in Dudley, Massachusetts. The storage
and picking is performed as a function of bottling and the Company is not
separately charged for storage. We utilize about 7,500 sq. ft. of space. We do
not have a warehouse agreement with Webco.
The Company's dry gardening products, including organic fertilizers are stored
at a facility in North Smithfield, Rhode Island. It is owned by Banneker
Industries and we utilize about 600 sq. ft. for which we pay $.80 per square
foot with a minimum charge of $500 per month. The arrangement runs to January
31, 2008. Banneker charges us separately for picking.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 5, 2007 certain information with
respect to the beneficial ownership of the common stock by (1) each person known
by us to beneficially own more than 5% of our outstanding shares, (2) each of
our directors, (3) each named executive officer and (4) all of our executive
officers and directors as a group. Except as otherwise indicated, each person
listed below has sole voting and investment power with respect to the shares of
common stock set forth opposite such person's name.
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF (1)BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP (3) SHARES
-------------------- ------------- -----------
Samuel F.H. Jeffries 1,500,000 30.53%
Stephen B. Jeffries 25,000 0.51%
Leonard B. Colt, Jr. 150,000 3.05%
Jerry Adelstein 1,338,065 27.24%
Joanne L.H.Anderson 256,940 5.23%
Laurie Basch-Levy 75,000 1.53%
Michael Ernst 43,877 0.89%
All Executive Officers and Directors as a Group (7 persons) 3,388,882 68.98%
Bruno Kordish 500,000(2) 10.18%
----------
(1) Beneficial ownership so determined in accordance with the rules of the
Securities and Exchange Commission. Unless otherwise indicated, this
column reflects amounts as to which the beneficial owner has sole voting
power and sole investment power.
(2) Bruno Kordish disclaims beneficial ownership to 150,000 shares
beneficially owned by his former wife Maryanne Kordish.
(3) Includes shares that may be acquired within the next 60 days.
Applicable percentage of ownership is based on 4,912,533 shares of our common
stock outstanding on March 20, 2007.
The address of each of the executive officers and directors is care of Organic
Sales and Marketing, Inc. 114 Broadway, Raynham, MA 02767.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MANAGEMENT
The following table sets forth our current directors, officers, and significant
employees, their ages, and all offices and positions with our company:
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NAME AGE POSITION
---- --- --------
Samuel F.H. Jeffries 45 President, Chief Executive Officer and
Chairman of the Board of Directors
Stephen B. Jeffries 46 Director
Leonard B. Colt, Jr. 70 Director, Secretary
Jerry Adelstein 74 Director
Joanne L.H. Anderson 49 Director, Vice President
Laurie Basch-Levy 53 Director and Member of Audit Committee
Michael Ernst 55 Director
Mark J. McEvoy 54 Treasurer and Chief Financial Officer
The following is a biographical summary of our directors and officers:
Samuel F.H. Jeffries has been president, Chief Executive Officer, and Chairman
of the Board of Directors since inception. He is also a member of the Executive
Committee. Prior to such time, he was president and co-managing member of Garden
Connections, LLC, from its inception in 2002. From 1999 to 2001, Mr. Jeffries
was Eastern Regional Sales Manager and area manager for Etera Corporation, a
wholesale garden products distributor based in Mount Vernon, Washington. His
responsibilities included sales, management, forecasts, hiring, computer
training, new accounts, budgeting, advertising and promotions. From 1992 to
2000, Mr. Jeffries owned and operated Jeffries Horticultural Sales and Jeffries
Landscape and Design, based in Franklin, Massachusetts. In 1984, Mr. Jeffries
received his Bachelor of Science degree in environmental design from the
University of Massachusetts at Amherst. He minored in arboriculture. He was also
a certified Occupational Education instructor at the Norfolk County Agricultural
High School, Walpole, MA. He is the first cousin of Stephen B. Jeffries, a
director.
Joanne L.H. Anderson, Director, Vice President and member of the Executive
Committee Designer, Artist and Art Director of North American Carrousel Company
since 1980 has been a director since May, 2005 and is utilizing her artistic
designing talents in creating our logos, labels, packaging and our websites. She
also oversees the Company's advertising and marketing. Since 1980, Joanne has
been employed as an artist, designer, and head of the art department of North
American Carrousel Company located in Minneapolis, Minnesota. She is experienced
in website design and graphic and commercial art. She is trained as an artistic
painter, sculptor and art conservationist. She apprenticed for four years with
leading portrait artist Jerome Ryan. She majored in art at Hamline University in
Saint Paul, Minnesota and has restored paintings and ceilings in the Minnesota
State Capital and St. Paul Courthouse
Len Colt, has been our director since the inception. Since 1993.He has been
owner of Pegasus Marketing & Sales based in Little Compton, Rhode Island.
Pegasus is in the packaging consultancy firm and sales representative for
various packaging manufacturers. In 1958, Mr. Colt received his bachelor of arts
degree in history from Middlebury College located in Middlebury, Vermont.
Jerry Adelstein, has been a director since the inception and is a member of the
Audit Committee and is a member of the Executive Committee. Since 1968, he has
been the president of H&J Associates, a textile sales company, based in Long
Island, New York. In 1953, he received a bachelor of science in economics from
Alfred University, in New York State. In 1957, he received a Masters in business
administration in economics from New York University.
Stephen B. Jeffries, has been a director since the inception. He has been the
owner of S.B. Jeffries Consultants since 1990. S.B. Jeffries Consultants is
based in Boston, Massachusetts, and is in the business of equity analysis and
financial portfolio and estate management. In 1983, he received a bachelor of
arts in economics from the University of Chicago. He has completed C.F.A. Level
1 Examination and C.F.P. Level 1 Examination.
Laurie Basch-Levy, Director and is a member of the Audit Committee Foremost
textile designer, creating designs widely used by major fashion designers in New
York City until 1982 when she became treasurer of The George Basch Co. In
January 2001 she became President and CEO of The George Basch Co., a privately
owned manufacturer and global distributor of the product Nevr-Dull Metal Polish,
which was formed in and has operated since 1929. This may give rise to a
potential conflict inasmuch as the Company has a business relationship with
Nevr-Dull and is negotiating a licensing agreement with them (see "Business of
the Company", above). Ms. Basch-Levy and the Company will endeavor to avoid any
such conflict by excluding her from any decision making or Board votes referable
to Nevr-Dull. She received her degree from the Fashion Institute of Technology
in New York
-23-
City.
Michael Ernst, Director, since the inception; Senior Energy Consultant, Tetra
Tech Ec Inc. since 2006 an engineering and consulting firm; Vice President of
Permitting and Siting for TransEnergie U.S. Ltd. 2001-2006 specializing in
environmental engineering; Associate Attorney, Rubin & Rudman, Boston,
specializing in environmental law; General Counsel and Legislative Director of
the Massachusetts Department of Telecommunications and Energy, 1992-2001;
Hearing Officer for the Massachusetts Energy Facilities Siting Board, 1990-1992;
Counsel to the Joint Committee on Energy of the Massachusetts Legislature,
1984-1990; Safe Energy Advocate, MASSPIRG, 1981-1983. He received his degrees
from Northeastern University School of Law, J.D., and Davidson College, B.S.
Mark J. McEvoy, was elected Treasurer and Chief Financial Officer on November
15, 2006. He has practiced in the accounting profession for 32 years, during
which period he owned and operated an Accounting and Tax practice from 1986 to
1996. He graduated from Bentley College in 1977 with a Bachelor's degree in
Accounting. Immediately prior to joining the Company he served 5 years as the
CFO of WareRite Distributors, Inc. a fabricator of and distributor of laminate
countertop products.
B. Significant Employees.
We intend to enter into employment agreements with our officers and significant
employees, but we have not yet done so.
We have not compensated our directors for serving in such capacity, and we have
not adopted a policy for compensating them.
C. Family Relationships. Samuel F.H. Jeffries and Stephen B. Jeffries are first
cousins.
D. Involvement in Certain Legal Proceedings. None
E. The Executive Committee and the Audit Committee of the Board are separate
committees. Stephen Jeffries is a qualified financial expert.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the aggregated compensation awarded to, earned by
or paid to our Chief Executive Officer and our other executive officers as a
group or directors for all services rendered in all capacities.
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus Stock Option Non-Equity Change in All Other Total
Principal ($) ($) Awards Awards Incentive Pension Compensation ($)
Position ($) ($) plan Value and ($)
Compensation Nonqualified
($) Deferred
Compensation
Earnings
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
----------------------------------------------------------------------------------------------------------------------
PEO 2006 21,154 -0- -0- -0- -0- -0- 6,000 27,154
Sam Jeffries 2005 -0- -0- -0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------
All officers and directors as a group were paid aggregate salaries of $49,866.00
for the fiscal year ended September 30, 2006.
-24-
The Company has not granted any of the following during or after its fiscal year
ended September 30, 2006:
Grants of Plan-Based Awards
Equity Awards
Pension Benefits
Nonqualified Deferred Compensation
Director Compensation
No Executive Officer or Director held stock options during the 2006 fiscal year
or to date during the current fiscal year.
The company anticipates electing a compensation committee which can develop and
establish clear compensation policies and compensation committee procedures for
disclosing these policies.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We pay $1,000 per year to Jeffries Landscape & Design (a company owned by,
Samuel F.H. Jeffries) for the storage of certain products we sell.
We have a contract with Pegasus Marketing & Sales, owned by Leonard B. Colt, Jr.
The contract provides for a payment of $1,250 per month to Pegasus and
reimbursement of expenses incurred at trade shows, and other expenses agreed to
by the parties. The contract provides that Pegasus will provide us with
consulting services for all aspects of our business including, but not limited
to, administrative, sales and marketing. The agreement can be terminated on one
month's notice by either party. As of December 31, 2006, we owed Pegasus
Marketing $25,544.
We owe three notes payable to Samuel F.H. Jeffries and his wife Yvonne M.
Jeffries in an aggregate amount of $45,000 ($20,000, $20,000 and $5,000) plus
interest at the rate of 10% per annum which are being amortized in monthly
payments aggregating $635.55 per month. The first $20,000 note matures December
20, 2011, the second $20,000 note matures January 16, 2012, and the third $5,000
note matures March 25, 2012.
There was a consulting agreement between us and Joanne L.H. Anderson which
provides for her services in connection with the operation of our internet sales
business, which services included among other things the building and designing
of our website, implementation of our e-commerce capabilities, product logo
designs, designing our company logo and designing our "Garden Guys" trademark
logo. The agreement commenced February 1, 2003 and terminated February 28, 2005.
Ms. Anderson received on August 27, 2003, 250,000 shares of restricted common
stock for these services pursuant to our agreement. The Company valued the
issuance of stock at $25,000 and expensed that amount for the fiscal years 2003,
2004 and 2005. Based on an estimate of the value of the services provided, the
value of the stock was set at $.10 per share, as there was no readily
ascertainable market value for the stock at the time it was earned. In lieu of
valuing the stock, the Company valued the services it received based upon
similar services provided by unrelated parties.
Jerry Adelstein also had a consulting agreement with us which commenced
September 1, 2002 and terminated August 30, 2005 pursuant to which he performed
consulting services in connection with our business, including but not limited
to: financial planning on an on-going strategic basis, long term investment
policies and product development, promotion and sales. Mr. Adelstein on or about
August 27, 2003 received 850,000 shares of restricted common stock for his
services pursuant to our agreement and in payment of $9,178 cash loan we owed to
him. In addition, Mr. Adelstein received on or about January 1, 2007, 200,117
shares of restricted common stock in payment of a $74,418 promissory Convertible
Note with accrued interest of $9,629 or an aggregate of $84,047 at a conversion
price of $.42 per share. Also on the same date he received 287,948 shares of
restricted common stock in payment of another Convertible Note in the amount of
$113,800.00 plus accrued interest of $7,138.00 or an aggregate of $120,938 at
the same conversion exercise price.
Stephen B. Jeffries holds a demand note dated February 4, 2002, payable by the
Company in the amount of $20,000 with interest at the rate of 12% per annum. Any
interest not paid according to its terms shall accrue interest and be added to
the principal. As of December 31, 2006 the balance owed on the Note is $35,968
including accrued and unpaid interest.
Bruno Kordich, an affiliated shareholder, received on September 30, 2004,
150,000 restricted shares of common
-25-
stock valued at $.0001 par value in a non-cash transaction for financial
advisory and consulting services rendered from April, 2004 to September 2004 on
our behalf in connection with the valuation and acquisition of new organic-based
products for development and marketing as well as acquiring ownership interests
therein. In addition, Mr. Kordich has received, as of January 1, 2007, an
additional 500,000 restricted shares for additional services rendered since
September, 2004, of which 150,000 shares were issued to MaryAnn Kordich and to
which shares Mr. Kordich disclaims any beneficial interest. The Company valued
the first issuance of stock at $15.in the aggregate and expensed the amount in
fiscal year 2003. The value of the stock was set at par and is considered
founders stock. The Company valued the second issuance of stock at $50,000 and
expensed that amount for the fiscal years 2004 and 2005. Based on an estimate of
the value of the services provided, the value of the stock was set at $.10 per
share, as there was no readily ascertainable market value for the stock at the
time it was earned. In lieu of valuing the stock, the Company valued the
services it received based upon similar services provided by unrelated parties.
The Company's management believes that the transactions and agreements
with related parties as described above including arrangements with consultants
were on terms more favorable to the Company than might have been obtained from
unaffiliated third parties.
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
(a) Common Stock.
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 100,000,000 shares of capital stock, of which 100,000,000 are
shares of Common Stock, par value $.0001 per share (the "Common Stock").
The following is a summary description of our capital stock and certain
provisions of our certificate of incorporation and by-laws, copies of which have
been incorporated by reference as exhibits to the registration statement of
which this prospectus forms a part. The following discussion is qualified in its
entirety by reference to such exhibits.
All common shares are equal to each other with respect to voting and dividend
rights and are equal to each other with respect to liquidation rights. Special
meetings may be called by the Board of Directors or by any officer instructed by
the directors to call the meeting. The shareholders have no right to call
special meetings. Holders of common shares are entitled to one vote at any
meeting of the shareholders for each common share they own as of the record date
fixed by the Board of Directors. At any meeting of shareholders, a majority of
the outstanding common shares entitled to vote, represented in person or by
proxy, constitutes a quorum. A vote of the majority of the common shares
represented at the meeting will govern, even if this is substantially less than
a majority of the common shares outstanding. Directors are elected by a
plurality of votes. Holders of shares are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefore, and on liquidation are entitled to participate pro rata in a
distribution of assets available for such a distribution to shareholders. There
are no conversion, pre-emptive or other subscription rights or privileges with
respect to any share, except outstanding options. The shares do not have
cumulative voting rights, which means that the holders of more than fifty
percent of the common shares voting for election of directors may elect all the
directors, if they choose to do so. In such event, the holders of the remaining
shares aggregating less than fifty will not be able to elect directors.
This description of certain matters relating to the securities of the Company is
a summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to this Form 10-SB.
(b) Debt Securities. None
(c) Other Securities To Be Registered. None
-26-
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information. The Company's common stock is not traded on any
stock exchange or on the over-the-counter market. The Company is not aware of
any market activity in its stock since its inception through the date of this
filing.
(b) Holders. As of March 20, 2007, there are 109 record holders of
4,412,533 shares of the Company's common stock.
(c) Dividends. The Registrant has not paid any cash dividends to date and
does not anticipate or contemplate paying dividends in the foreseeable future.
It is the present intention of management to utilize all available funds for the
development of the Registrant's business.
ITEM 2. LEGAL PROCEEDINGS.
There are not presently any material pending legal proceedings to which the
Registrant is a party or as to which any of its property is subject, and no such
proceedings are known to the Registrant to be threatened or contemplated against
it.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are not and have not been any disagreements between the Registrant and its
accountants on any matter of accounting principles, practices or financial
statement disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On 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 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 December 21, 2006 we issued 14,003 shares of common stock to Robert
Adelstein, an accredited investor, upon his conversion of our $5,000 Convertible
Promissory Note dated June 24, 2004 issued for a cash loan at the exercise price
of $.42 per share in payment of the principal balance and accrued interest
thereon.
On December 21, 2006 we issued 27,896 shares of common stock to Vincent Innone,
an accredited investor, upon his conversion of our $10,000 6% Convertible Note
dated March 25, 2004 issued for a cash loan at the exercise price of $.42 per
share in payment of the principal balance and accrued interest thereon.
In each of the above issuances, our shares were issued in reliance on the
exemption from registration provided by
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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 conducted an offering of 1,258,244
shares of its common stock up to the aggregate limit of $1,000,000 at 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 December
31, 2006 the Company had issued 431,100 shares of its common stock for cash at
$1.00 per share to accredited investors and had issued 880,476 shares to convert
a total of $328,218 of debt and $41,582 of related interest on the debt. As of
the date of this Registration Statement, the Rule 504 offering is complete and
the Company has sold 999,500 shares of its common stock for cash proceeds of
$999,500.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify directors and officers as well as other employees and individuals
against expenses including attorneys' fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys' fees
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's certificate of incorporation, bylaws, agreement, a
vote of stockholders or disinterested directors or otherwise.
The Company's Amended and Restated Bylaws provides that it will indemnify and
hold harmless, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
section grants us the power to indemnify.
The Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation or bylaws that a director of the corporation shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for:
o any breach of the director's duty of loyalty to the corporation or
its stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o payments of unlawful dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper personal
benefit.
-28-
The Company's Amended and Restated Bylaws provides that, to the fullest extent
permitted by applicable law, none of our directors will be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this provision will be prospective only
and will not adversely affect any limitation, right or protection of a director
of our company existing at the time of such repeal or modification.
SEC POSITION ON INDEMNIFICATION FROM SECURITIES ACT LIBILITY
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to our directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that it is the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment of expenses
incurred or paid by any of our directors, officers or controlling persons in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, we will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
-29-
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 27, 2007
ORGANIC SALES AND MARKETING, INC.
Registrant
By: /s/ SAMUEL F.H. JEFFRIES
------------------------
Samuel F.H. Jeffries
Chairman, President and Chief Executive Officer
-30-
Organic Sales and Marketing, Inc.
(A Development Stage Company)
Financial Statements for the Six Months
Ended March 31, 2007 and 2006 (Unaudited)
and the Years Ended September 30, 2006 and 2005
and Report of Independent Registered
Public Accounting Firm
CONTENTS
Report of Independent Registered Public Accounting Firm....................... 3
Balance Sheets................................................................ 4
Statements of Operations...................................................... 6
Statements of Stockholders' Equity (Deficit)...................................7
Statements of Cash Flows...................................................... 8
Notes to the Financial Statements............................................. 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Audit Committee
Organic Sales and Marketing, Inc.
Raynham, MA
We have audited the accompanying balance sheets of Organic Sales and Marketing,
Inc. (a Development Stage Company) as of September 30, 2006 and 2005, and the
related statements of operations, stockholders' deficit, and cash flows for the
years then ended and for the period August 23, 2003 (inception) through
September 30, 2006. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the PCAOB (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Organic Sales and Marketing,
Inc. as of September 30, 2006 and 2005, and the results of its operations and
its cash flows for the years then ended and for the period August 23, 2003
(inception) through September 30, 2006 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has incurred substantial losses from
operations and has limited sales of its products which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 12. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 13 to the financial statements, management discovered
errors in the reporting of the Company's accounting for the Company's equity
transactions as of September 30, 2006 as well as the accounting for the
beneficial conversion feature related to convertible debt. Accordingly, the
financial statements as of and for the year ended September 30, 2006 have been
restated to correct the errors.
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah
January 19, 2007 except for Notes 2, 5, 6, 11 and 13 dated July 5, 2007.
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
For the Years Ended
March 31, September 30,
----------- -------------------------
2007 2006 2005
----------- ---------- ----------
(Unaudited) (Restated) (Restated)
CURRENT ASSETS
Cash and cash equivalents $124,411 $226,322 $ 3,953
Accounts receivable, net 6,345 6,081 2,775
Inventories 72,554 29,174 9,714
-------- -------- --------
Total Current Assets 203,310 261,577 16,442
-------- -------- --------
PROPERTY AND EQUIPMENT, NET 11,721 2,711 338
-------- -------- --------
OTHER ASSETS
Prepaid Expense 16,662 -- --
Deposits 200 200 200
-------- -------- --------
Total Other Assets 16,862 200 200
-------- -------- --------
TOTAL ASSETS $231,893 $264,488 $ 16,980
======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended
September 30,
March 31, -------------------------------
2007 2006 2005
----------- ----------- -----------
(Unaudited) (Restated) (Restated)
CURRENT LIABILITIES
Accounts payable $ 174,447 $ 83,953 $ 81,159
Accrued expenses 146,520 50,990 15,219
Accrued interest payable 20,531 17,345 34,036
Line of credit 51,348 15,000 --
Current portion of convertible notes payable,
net of conversion discount - related parties -- -- 16,291
Current portion of convertible notes payable,
net of conversion discount -- -- 82,506
Current portion of notes payable - related parties 51,153 52,319 44,530
----------- ----------- -----------
Total Current Liabilities 443,999 219,607 273,741
----------- ----------- -----------
LONG-TERM LIABILITIES
Notes payable - related parties 1,786 7,058 8,476
----------- ----------- -----------
Total Long-Term Liabilities 1,786 7,058 8,476
----------- ----------- -----------
Total Liabilities 445,785 226,665 282,217
----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 4,976,426, 4,811,576 and 3,500,000 shares
issued and outstanding, respectively 498 481 350
Additional paid-in capital 1,486,308 1,321,475 471,206
Prepaid Expenses -- (4,166) (20,833)
Deficit Accumulated during the Developmental Stage (1,700,698) (1,279,967) (715,960)
----------- ----------- -----------
Total Stockholders' Equity (Deficit) (213,892) 37,823 (265,237)
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 231,893 $ 264,488 $ 16,980
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Operations
Accumulated from
August 23, 2003
(inception)
For the Six Months For the Years Ended through
Ended March 31, September 30, March 31,
---------------------------- ----------------------------- ----------------
2007 2006 2006 2005 2007
----------- ------------ ------------ ------------ ----------------
(Unaudited) (Unaudited) (Restated) (Restated)
REVENUES
Product sales, net $ 30,104 $ 16,409 $ 25,000 $ 32,806 $ 132,185
Services -- 2,527 25,111 46,140 110,433
----------- ----------- ----------- ----------- -----------
Total Revenues 30,104 18,936 50,111 78,946 242,618
COST OF SALES 20,100 11,843 41,960 33,475 114,588
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 10,004 7,093 8,151 45,471 128,030
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Compensation Costs 4,166 8,334 16,667 47,849 190,000
Selling, general and administrative 423,138 105,516 292,361 174,130 1,232,436
----------- ----------- ----------- ----------- -----------
Total Operating Expenses 427,304 113,850 309,028 221,979 1,422,436
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (417,300) (106,757) (300,877) (176,508) (1,294,406)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 2,228 -- 2,934 -- 5,292
Interest expense (5,659) (47,303) (266,064) (82,912) (411,584)
----------- ----------- ----------- ----------- -----------
Total Other Income (Expense) (3,431) (47,303) (263,130) (82,912) (406,292)
----------- ----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (420,731) (154,060) (564,007) (259,420) (1,700,698)
INCOME TAX EXPENSE -- -- -- -- --
----------- ----------- ----------- ----------- -----------
NET LOSS $ (420,731) $ (154,060) $ (564,007) $ (259,420) $(1,700,698)
=========== =========== =========== =========== ===========
LOSS PER SHARE-
Basic and Diluted $ (0.09) $ (0.04) $ (0.15) $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING-
Basic and Diluted 4,886,751 3,500,000 3,784,827 3,500,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
6
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
For the period August 23, 2003 (inception) through March 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 (restated) 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 (restated) 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 (restated) 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
(restated) 4,811,576 $ 481 $ 1,321,475 $(1,279,967) $ (4,166) $ 37,823
--------- ----------- ----------- ----------- ----------- -----------
Shares issued for cash at $1.00/share 164,850 16 164,833 -- 164,849
Amortization of Prepaid Expenses 4,166 4,166
Net loss for the six months ended
March 31, 2007 (unaudited) -- -- -- (420,731) (420,731)
--------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2007 (unaudited) 4,976,426 $ 497 $ 1,486,308 $(1,700,698) $ -- $ (213,893)
========= =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
7
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from
August 23, 2003
(inception)
For the Six Months For the Years Ended through
Ended March 31, September 30, March 31,
2007 2006 2006 2005 2007
----------- ----------- ---------- ---------- ---------------
(Unaudited) (Unaudited) (Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (420,731) $ (154,059) $ (564,007) $ (259,420) $(1,700,698)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 1,060 170 330 168 1,727
Shares issued for services -- -- -- -- 15,160
Shares issued for convertible debt interest -- -- -- -- 41,582
Amortization of prepaid expense 4,166 8,334 16,667 47,849 175,000
Amortization of discount on notes payable -- 33,119 230,944 54,021 328,218
Write-off of receivable from officer -- -- -- 15,689 15,689
Change in operating assets and liabilities:
Accounts receivable-trade (264) (5,291) (3,305) (186) (6,345)
Inventories (43,380) 1,443 (19,460) 2,445 (72,554)
Deposits -- -- -- (200) (200)
Prepaid expense (16,662) (3,185) -- -- (16,662)
Due from officers -- -- -- -- (15,689)
Accounts payable 90,495 18,723 2,794 29,179 174,448
Accrued expenses 95,529 26,210 35,774 12,740 146,520
Accrued interest payable 3,186 11,158 23,391 17,974 20,531
----------- ----------- ----------- ----------- -----------
Net Cash Used in Operating Activities (286,601) (63,378) (276,872) (79,741) (893,273)
----------- ----------- ----------- ----------- -----------
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 164,850 256,400 431,100 -- 595,950
Cash Contribution to Capital -- -- -- -- 2,678
Proceeds from Line of Credit 39,500 -- 15,000 -- 54,500
Payments on Line of Credit (3,153) -- -- -- (3,153)
Proceeds from convertible notes
payable - related party -- 80,000 49,500 85,826 193,218
Proceeds from convertible notes payable -- -- -- -- 135,000
Proceeds from notes payable - related party -- -- 32,000 -- 94,987
Payments on notes payable - related party (6,438) (17,376) (25,655) (5,588) (42,048)
----------- ----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities 194,759 319,024 501,945 80,238 1,031,132
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (101,912) 255,646 222,370 497 124,411
CASH, BEGINNING OF PERIOD 226,323 3,953 3,953 3,456 --
----------- ----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 124,411 $ 259,599 $ 226,323 $ 3,953 $ 124,411
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 2,322 $ 3,025 $ 9,938 $ 10,916 $ 27,171
Cash paid for income taxes $ -- $ -- $ -- $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares issued for conversion of notes payable
and accrued interest $ -- $ -- $ 369,800 $ -- $ 369,800
Shares issued for services $ -- $ -- $ -- $ -- $ 15,160
Shares issued for prepaid services $ 4,166 $ 8,334 $ 16,667 $ 47,849 $ 175,000
The accompanying notes are an integral part of these financial statements.
8
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 1 - Organization and Principle Activities of the Company
Business Description
Organic Sales and Marketing, Inc. was incorporated in the state of Delaware on
August 23, 2003. On September 8, 2003, a security exchange agreement was entered
into with Garden Connections, LLC. Garden Connections, LLC partners received all
of the issued and outstanding common stock of Organic Sales and Marketing, Inc.
in exchange for their interests in Garden Connections, LLC.
The Company is located in Raynham, Massachusetts and is engaged in the sale and
marketing of a wide variety of organic products primarily for lawn and garden
application, for distribution and sale in the New England Area to garden centers
and health food stores. The Company is expanding their markets by acquiring
other types of consumer products that have organic origins and can be private
labeled. The Company currently has private label organic products that have been
modified to meet applications in other industries. These new markets include
costume jewelry, sporting goods, grocery, optical, health and beauty, footwear,
museum stores, historical preservation groups, and boating.
Note 2 - Summary of Significant Accounting Policies (Restated)
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and incorporate the following
significant accounting policies:
Principles of Accounting
The Company employs the accrual method of accounting for both financial
statements and tax purposes. Using the accrual method, revenues and related
assets are recognized when earned, and expenses and the related obligations are
recognized when incurred. The Company has elected a September 30 year end.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements" ("SAB 104"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We earn our revenues from the distribution of garden and
cleaning products to retailers and directly to consumers via our internet site
and from advertising contracts. Four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
9
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Revenue Recognition (continued)
Revenue from garden and cleaning products is recognized upon shipment of the
product. The distribution of products is governed by purchase orders or direct
sale agreements which fix the price and delivery date. The Company records a
provision for product returns and price markdowns as a reduction of gross sales
at the time the product passes to these retailers or consumers. The provision
for anticipated product returns and price markdowns is primarily based upon the
Company's analysis of historical product return and price markdown results.
Should product sell-through results at retail store locations fall significantly
below anticipated levels this allowance may be insufficient. The Company will
review the adequacy of its allowance for product returns and price markdowns and
if necessary will make adjustments to this allowance on a quarterly basis. In
compliance with Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," distribution costs charged to customers
are recognized as revenue when the related product is shipped. Advance payments
are recorded on the Balance Sheet as deferred revenue until the revenue
recognition criteria is met.
Revenue from radio advertising is derived from two sources, the sale of
commercial spots on the Garden Guys radio talk show and hosting a live
broadcast. Revenue from radio advertising is recognized after the commercial has
been aired and/or a remote broadcast has taken place. Customers will prepay for
radio spots or remote broadcasts at the time they contract with the Company to
air their commercials or host a remote broadcast. The Company will carry this
prepayment as liability, until such time as economic performance takes place.
Money received is refundable prior to the airing of commercials or the airing of
the remote broadcast, adjusted by any production or other direct costs incurred
up to that point in time.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity dates
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 September 30,
2006 and 2005 is collectable; however, a reasonable allowance has been made as
of March 31, 2007 for receivables over 120 days old.
Inventory
The inventory is stated at the lower of cost (first-in-first-out method) or
market. Inventory items consist of raw material and finished goods. Raw
materials consist of labels, bottles, sprayers and shipping materials. Finished
goods consist of fertilizer bags and bottles of organic cleaning products ready
for shipment. The inventory consists of newly purchased items; therefore, there
is currently no allowance for excess or obsolete inventory.
10
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Prepaid Expense
Business expenses, including consulting expense, that is paid for in advance of
services being rendered are treated as prepaid. The Company occasionally pays
these expenses with the common stock of the Company. When this occurs the offset
is shown as a negative component of stockholders' equity.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for
minor replacements, maintenance and repairs which do not increase the useful
lives of the property and equipment are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of five to
seven years.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense primarily consists of the Company's two hour
weekly radio Garden Call In program with Clear Channel Communications and
Citadel Communications Company. The total annual advertising expense for the
contract with Clear Channel and Citadel Communications is $41,700 and $30,030
for the years ended September 30, 2006 and 2005, respectively. The Company also
advertises its products throughout area garden clubs and its own website.
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 Six Months For the Years Ended
Ended March 31, September 30,
-------------------------------- ------------------------------
2007 2006 2006 2005
------------ ------------ ------------ -----------
Basic and Diluted (Unaudited) (Unaudited) (Restated) (Restated)
Net Loss - Numerator $ (420,731) $ (154,060) $ (564,007) $ (259,420)
============ ============ ============ ===========
Weighted Average Shares - Denominator 4,886,751 3,500,000 3,784,827 3,500,000
============ ============ ============ ===========
Per Share Amount $ (0.09) $ (0.04) $ (0.15) $ (0.07)
============ ============ ============ ===========
11
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
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.
Recently Issued Accounting Standards
In June 2005, the FASB issued Statement of Financial Accounting Standard No.
154, Accounting Changes and Error Corrections, ("SFAS 154"). SFAS 154 replaces
Accounting Principle Bulletin No. 20 ("APB 20"), and Statement of Financial
Accounting Standard No. 3, Reporting Accounting Changes in Interim Financial
Statements ("SFAS 3"), and applies to all voluntary changes in accounting
principle, and changes the requirements for accounting for and reporting of a
change in accounting principle. APB 20 previously required that most voluntary
changes in accounting principle be recognized by including in net income of the
period of change a cumulative effect of changing to the new accounting
principle, whereas SFAS 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. SFAS 154 enhances the consistency of financial information
between periods. SFAS 154 is effective for fiscal years beginning after December
15, 2005. Our adoption of SFAS 154 is not expected to have a material impact on
our results of operations or financial position.
In December 2004, the FASB issued SFAS No. 152, "ACCOUNTING FOR REAL ESTATE
TIME-SHARING TRANSACTIONS AN AMENDMENT OF FASB STATEMENTS NO. 66 AND 67", to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, "Accounting for Real Estate Time-Sharing Transactions". This Statement
also amends FASB Statement No. 67, "ACCOUNTING FOR COSTS AND INITIAL RENTAL
OPERATIONS OF REAL ESTATE PROJECTS", to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in SOP 04-2. This statement is
effective during fiscal years beginning after June 15, 2005. The adoption of
SFAS 152 is not expected to have a material impact on the Company's financial
statements. In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS",
an amendment of ARB No. 43, Chapter 4 (SFAS 151), to clarify that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as current period charges, and that fixed
production overheads should be allocated to inventory based on normal capacity
of production facilities. This statement is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS
151 is not expected to have a material impact on the Company's financial
statements.
12
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards (Continued)
In December 2004, the FASB issued SFAS No. 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). 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.
13
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards (Continued)
In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 154 ("SFAS No. 154"), "ACCOUNTING CHANGES AND
ERROR CORRECTIONS." This statement requires entities that voluntarily make a
change in accounting principle to apply that change retrospectively to prior
periods' financial statements, unless this would be impracticable. SFAS No. 154
supersedes APB Opinion No. 20, "ACCOUNTING CHANGES," which previously required
that most voluntary changes in accounting principle be recognized by including
in the current period's net income the cumulative effect of changing to the new
accounting principle. SFAS No. 154 also makes a distinction between
"retrospective
application" of an accounting principle and the "restatement" of financial
statements to reflect the correction of an error. SFAS No. 154 applies to
accounting changes and error corrections that are made in fiscal years beginning
after December 15, 2005. Management has adopted these provisions.
In February 2006, the FASB issued SFAS Statement No. 155, "ACCOUNTING FOR
CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133
AND 140" ("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, "APPLICATION OF STATEMENT 133 TO BENEFICIAL INTERESTS IN SECURITIZED
FINANCIAL ASSETS." This Statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement 133,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS 155 is effective for all financial instruments
acquired or issued for the Company for fiscal year begins after September 15,
2006. The adoption of this standard is not expected to have a material effect on
the Company's results of operations or financial position.
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.
14
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Standards (Continued)
In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS"
("SFAS 157"). While SFAS 157 formally defines fair value, establishes a
framework for measuring fair value and expands disclosure about fair value
measurements, it does not require any new fair value measurements. SFAS 157
applies under other accounting pronouncements that require or permit fair value
measurements. SFAS 157 is required to be adopted effective January 1, 2008 and
the Company does not presently anticipate any significant impact on its
consolidated financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158, "EMPLOYERS' ACCOUNTING FOR
DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88, 106 AND 132(R)" ("SFAS 158"). SFAS 158 requires an
employer to recognize the funded status of its defined benefit pension and other
postretirement plans as an asset or liability in its statement of financial
position and to recognize changes in the funded status in the year in which the
changes occur through other comprehensive income. The funded status of a plan is
measured as the difference between plan assets at fair value and the benefit
obligation, which is represented by the projected benefit obligation for pension
plans and the accumulated postretirement benefit obligation for other
postretirement plans. SFAS 158 requires the recognition, as a component of other
comprehensive income, net of tax, of the gains or losses and prior service costs
or credits that arise during the period but are not recognized as a component of
net periodic benefit cost in accordance with existing accounting principles.
Amounts required to be recognized in accumulated other comprehensive income,
including gains and losses and prior service costs or credits are adjusted as
they are subsequently recognized as components of net periodic benefit cost
pursuant to the recognition and amortization provisions of existing accounting
principles. In addition, SFAS 158 requires plan assets and obligations to be
measured as of the date of the employer's year-end statement of financial
position as well as the disclosure of additional information about certain
effects on net periodic benefit cost for the next fiscal year from the delayed
recognition of the gains or losses and prior service costs or credits.
The Company is required to adopt those provisions of SFAS 158 attributable to
the initial recognition of the funded status of the benefit plans and disclosure
provisions as of December 31, 2006. Those provisions of SFAS 158 applicable to
the amortization of gains or losses and prior service costs or credits from
accumulated other comprehensive income to the net periodic benefit cost are
required to be applied on a prospective basis effective January 1, 2007. The
Company does not anticipate that the adoption of SFAS 158 will have any impact
on its financial statements.
Reclassifications
Certain immaterial amounts from prior years have been reclassified to conform to
the 2006 presentation.
15
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 2 - Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term maturity of these
instruments. The carrying value of notes payable approximates fair value because
negotiated terms and conditions are consistent with current market rates.
Note 3 - Inventories
Inventories consisted of the following as of:
For the Six For the Years Ended
Months Ended September 30,
March 31, -----------------------
2007 2006 2005
----------- ------- -------
(Unaudited)
Raw materials $63,110 $25,684 $ 8,552
Finished goods 9,444 3,490 1,162
------- ------- -------
Totals $72,554 $29,174 $ 9,714
======= ======= =======
At March 31, 2007, September 30, 2006 and 2005, no provision for obsolete
inventory was recorded by the Company.
Note 4 - Property and Equipment
Property and equipment consisted of the following as of:
For the Six For the Years Ended
Months Ended September 30,
March 31, ----------------------
2007 2006 2005
----------- ------- --------
(Unaudited)
Property and equipment $ 13,448 $ 3,378 $ 675
Less: accumulated depreciation (1,727) (667) (337)
-------- -------- --------
Property and equipment, net $ 11,721 $ 2,711 $ 338
======== ======== ========
Depreciation expense on property and equipment was $1,060 and $170 for the six
months ended March 31, 2007 and 2006 (unaudited), respectively, and $330 and
$168 for the years ended September 30, 2006 and 2005, respectively.
16
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 5 - Income Taxes (Restated)
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expense. Net operating losses would create possible tax assets in
future years. Due to the uncertainty as to the utilization of net operating loss
carry forwards an evaluation allowance has been made to the extent of any tax
benefit that net operating losses may generate. No provision for income taxes
has been recorded due to the net operating loss carry-forward of $1,372,480 and
$950,499 as of March 31, 2007 (unaudited) and September 30, 2006, respectively,
which may be offset against future taxable income through 2026. No tax benefit
has been reported in the financial statements.
Deferred tax assets and the valuation account are as follows:
For the Six
Months Ended For the Years Ended
March 31, September 30,
2007 2006 2005
----------- ---------- ----------
(Unaudited) (Restated) (Restated)
Deferred tax asset:
Net operating loss carryforward $ 530,880 $ 366,795 $ 236,900
Valuation allowance (530,880) (366,795) (236,900)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
The components of income tax expense are as follows:
For the Six Months For the Years Ended
Ended March 31, September 30,
-------------------------------- --------------------------------
2007 2006 2006 2005
----------- ----------- ---------- ----------
(Unaudited) (Unaudited) (Restated) (Restated)
Current Federal tax $ -- $ -- $ -- $ --
Current State tax -- -- -- --
Change in NOL benefit 164,085 60,083 129,895 80,106
Change in valuation allowance (164,085) (60,083) (129,895) (80,106)
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
17
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 6 - Convertible Notes Payable (Restated)
Between February 2002 and March 2006, the Company issued a number of interest
bearing and non-interest bearing notes that were convertible into the Company's
common stock at the option of the holder at an exercise price of $0.42 per
common share. One group of 6% interest bearing notes of identical terms were
issued to ten individual investors between August 30, 2003 and December 4, 2003
totaling $120,000 (the "$120,000 Notes") all of which matured (including
extensions) on September 30, 2006. Two additional interest bearing notes were
issued to related parties in December 2003 (both are board members, the "Board
Notes") totaling $5,000 under the same terms as the $120,000 Notes. Two other
parties were issued 6% interest bearing notes totaling $15,000 (the "$15,000
Notes"), maturing nine years after issuance under the same terms as the $120,000
notes. The $15,000 Notes were broken out as follows: $5,000 to a related
individual and $10,000 to an un-related individual. A series of non-interest
bearing convertible notes were issued to another related party, Jerry Adelstein,
for a total of $188,218 (the "Adelstein Notes") between the period of March 2004
and March 2006, all of which matured nine years after their issuance. All notes
were issued in return for cash or cash disbursements and not for services
rendered. On July 26, 2006, each of these convertible notes was converted into a
total of 781,471 shares of the Company's common stock and the related accrued
but unpaid interest on these convertible notes was also converted into 99,005
shares of common stock (see Note 11). As a result of the conversions into common
stock, the balance due on these convertible notes at March 31, 2007 and
September 30, 2006 was $-0-.
The Company has accounted for the above convertible notes under the provisions
of EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features (BCF) or Contingently Adjustable Conversion Ratios" and EITF 00-27
"Application of Issue No. 98-5 to Certain Convertible Instruments". EITF 98-5
provides that an instrument, with an embedded beneficial conversion feature
present, must value the conversion feature. The Company has valued the
conversion feature of all the notes and determined it to be greater than the
proceeds received; therefore the BCF is limited to the proceeds received. The
BCF was accreted on a straight-line basis over the period from issuance until
maturity of the notes. In accordance with EITF 00-27, paragraph 21, any
unamortized discount that remained on notes that were converted prior to their
maturity date were immediately charged to interest expense on the Company's
statements of operations.
18
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 7 - Notes Payable - Related Parties
Notes payable - related parties consisted of the following at:
For the Six For the Years Ended
Months Ended September 30,
March 31, ---------------------------
2007 2006 2005
----------- --------- --------
(Unaudited)
Note payable with a director of the Company, interest
at 6% per annum, payments of $1,000 due monthly
beginning April 1, 2007, matures March 2010, unsecured. $ 32,026 $ 32,026 $ --
Note payable with the President of the Company, interest
at 10% per annum, payments of $636 due monthly,
accelerated payments are permitted, matures
October 2007, unsecured. 914 7,351 33,006
Note payable with a related individual, interest
at 10% per annum, no curren repayment
requirements, due on demand, unsecured. 20,000 20,000 20,000
-------- -------- --------
Total Notes Payable - Related Parties 52,940 59,377 53,006
Less: Current Portion (51,153) (52,319) (44,530)
-------- -------- --------
Long-Term Notes Payable - Related Parties $ 1,787 $ 7,058 $ 8,476
======== ======== ========
Annual maturities of notes payable - related parties are as follows:
Years Ending September 30, Amount
-------------------------- ------
2007 $32,319
2008 10,810
2009 11,333
2010 4,915
2011 --
Thereafter --
-------
$59,377
=======
19
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 8 - Commitments and Contingencies
The Company leases facilities for its corporate offices that expire in fiscal
2007. Rental expense for fiscal 2006 and 2005 was $7,800 and $6,600,
respectively. In addition, the Company has various equipment leases and radio
station syndication agreements with commitments accounted for as operating
leases. The radio station agreements are generally for a short period (90 days)
and the Company intends to renew them at the end of each term. The company also
has a one year consulting agreement with one of its sales representatives. The
future minimum annual lease commitments as of September 30, 2006 are as follows:
Years Ending September 30, Amount
-------------------------- ------
2007 $79,739
2008 3,125
2009 3,125
2010 --
2011 --
Thereafter --
-------
$85,989
=======
Note 9 - Related Party
The Company had a monthly consulting agreement, effective January, 2004 with
Leonard Colt, a shareholder, Corporate Secretary and member of the Board of
Directors. Leonard Colt is the sole owner of Pegasus Marketing, which provided
consulting services to the Company for $1,250 per month plus out-of-pocket
travel expenses. The contract was for a one year period and renewable upon an
annual review by the directors of the Company. As of January 1, 2006, the
contract had not been renewed. The amount due Pegasus Marketing on September 30,
2006 was $25,545. The amount paid to Pegasus Marketing during the years ended
September 30, 2006 and 2005 $-0- and $2,935, respectively.
Note 10 - Line of Credit
In August 2006, the Company entered into a Line of Credit / Overdraft Protection
Agreement ("LOC Agreement") with a financial institution. The LOC Agreement
allows the Company to borrow up to a maximum of $75,000. Interest accrues at the
Wall Street Journal Prime Rate ("WSJ Prime Rate") less 1% for the first six
months and at the WSJ Prime Rate thereafter. All amounts due on the line of
credit are due on demand. The balance outstanding at March 31, 2007 (unaudited),
September 30, 2006 and 2005 was $51,348, $15,000 and $-0-, respectively. Accrued
Interest Payable at March 31, 2007 (unaudited), September 30, 2006 and 2005 was
$470, $74 and $-0, respectively. The LOC Agreement is also guaranteed by an
officer of the Company.
20
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 11 - Equity Transactions (Restated)
Effective January 3, 2006, the Company commenced a stock offering whereby they
issued 595,950 shares of its common stock for cash of $595,950 as of March 31,
2007 (unaudited). In addition, the Company issued 880,476 shares of its common
stock to convert $328,218 of debt and $41,582 of related interest on the debt
(see also Note 6 - Convertible Notes Payable).
During the year ended September 30, 2003 the Company issued an aggregate
1,600,000 shares of common stock at $.0001 per share to founders of the Company,
for services rendered in behalf of the Company. Accordingly, this amount has
been charged to the statements of operations and common stock.
During the year ended September 30, 2003, the Company issued 850,000, 150,000
and 250,000 shares of common stock valued at $.10 per share to Jerry Adelstein,
Leonard Colt and Joanne Anderson, respectively. These shares were issued
pursuant to Consulting Service agreements with Organic Sales and Marketing, Inc.
The shares were issued prior to the complete fulfillment of the consulting
agreements, therefore, the amounts were initially debited to prepaid expenses,
shown as a negative component of stockholders' equity and have been amortized on
a straight-line basis. In accordance with SFAS No. 123(R), the cost of services
have been charged to the statements of operations. All amounts had been
amortized as of September 30, 2005.
During the year ended September 30, 2004, 650,000 shares of common stock valued
at $.10 per share were issued to Bruno Kordich pursuant to a Consulting Service
agreement with Organic Sales and Marketing, Inc. Per the consulting agreement
150,000 or $15,000, were issued upon signing the agreement and the remaining
500,000 or $50,000 were recorded as a prepaid expense, shown as a negative
component of stockholders' equity. The $50,000 has been amortized on a
straight-line basis over the life of the consulting agreement. In accordance
with SFAS No. 123(R), the costs of services have been charged to the appropriate
statements of operations. Amounts remaining to be amortized at March 31, 2007
(unaudited), September 30, 2006 and September 30, 2005 are $0, $4,166 and
$20,833, respectively
21
ORGANIC SALES AND MARKETING, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2007 (Unaudited), September 30, 2006 and 2005
Note 12 - Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is poorly capitalized and
has had recurring operating losses for the past several years and is dependent
upon financing to continue operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. It is
management's plan to continue to implement their strategy to commence sales. As
the Company's revenues are established, management expects to report net income
possibly within one year. With the commencement of sales, management believes
that the Company will eventually, possibly within one year, generate sufficient
funds to support operations. In the interim, management believes that shortfalls
in cash flow will be satisfied with funds raised on the open Rule 504 offering
and by Officers and Directors as necessary.
Note 13- Restatement and Reclassification
We have restated our financial statements for the years ended September 30, 2006
and 2005 and the Statements of Operations and Cash Flow for the period of
Inception to March 31, 2007 to reflect issues identified during a regulatory
review of our financial statements associated with a registration statement
filing of Form 10SB that is pending effectiveness as of the date of this 10SB/A
filing. Management concluded that these restatements were necessary to properly
account for the changes as reflected below.
22
ORGANIC SALES AND MARKETING
(A Development Stage Company
Balance Sheets
September 30, 2006
ASSETS
As
Originally As
Reported Restated Change
-------- -------- --------
CURRENT ASSETS
Cash and cash equivalents $226,322 $226,322 $ --
Accounts receivable, net 6,081 6,081 --
Inventories 29,174 29,174 --
-------- -------- --------
Total Current Assets 261,577 261,577 --
-------- -------- --------
PROPERTY AND EQUIPMENT, NET 2,711 2,711 --
-------- -------- --------
OTHER ASSETS
Prepaid Consulting Expense 4,167 -- (4,167)(a)
Deposits 200 200 --
-------- -------- --------
Total Other Assets 4,367 200 (4,167)
-------- -------- --------
TOTAL ASSETS $268,655 $264,488 $ (4,167)
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
As
Originally As
Reported Restated Change
-------- -------- --------
CURRENT LIABILITIES
Accounts payable $ 83,953 $ 83,953 $ --
Accrued expenses 50,990 50,990 --
Accrued interest payable 17,345 17,345 --
Line of credit 15,000 15,000 --
Current portion of convertible notes payable,
net of conversion discount - related parties -- -- --
Current portion of convertible notes payable,
net of conversion discount -- -- --
Current portion of notes payable - related parties 32,319 52,319 20,000 (b)
-------- -------- --------
Total Current Liabilities 199,607 219,607 20,000
-------- -------- --------
LONG-TERM LIABILITIES
Notes payable - related parties 27,058 7,058 (20,000)(b)
Convertible notes payable - related parties -- -- --
Convertible notes payable -- -- --
-------- -------- --------
Total Long-Term Liabilities 27,058 7,058 (20,000)
-------- -------- --------
Total Liabilities 226,665 226,665 --
-------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 4,976,425, 4,811,576 and 3,500,000
shares issued and outstanding, respectively 481 481 --
Additional paid-in capital 1,026,247 1,321,475 295,228 (c)
Prepaid Expenses -- (5,416) (5,416)(d)
(Deficit) Accumulated during the Developmental Stage (984,738) (1,278,717) (293,979)(e)
-------- -------- --------
Total Stockholders' Equity (Deficit) 41,990 37,823 (4,167)
-------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $268,655 $264,488 $ (4,167)
======== ======== ========
(a) To reclassify the unearned portion of the share-based calculation of the
B. Kordich Consulting Agreement (500,000 shares at $.10 per share) to
Stockholders Equity.
(b) To reclassify a $20,000 related party demand note incorrectly identified
as Long Term to Short Term
(c) To reclassify the remaining portion of BCF on convertible debt, per EITF
00-27, to interest expense. Due to a misinterpretation of the governing
EITF, an amount of $180,228 was originally debited to APIC.
Also, to record the share-based value of Consulting Agreements for J. Adelstein
($85,000), L. Colt ($15,000) and B. Kordich ($15,000) or a total value of
$115,000.
(d) This is the remaining unearned portion of the share-based calculation of
the two B. Kordich Consulting Agreements. (650,000 shares at $.10 per
share) (Jan. 2004-Dec.2006)
(e) This reflects the additonal interest expense of $180,228 cited in (b); the
Consulting Expense of $115,000 cited also cited in (b) less the unearned
portion of the B. Kordich Agreement of $1,249 (Jan. 2004-Dec.
2006)($15,000/36 mos X 3 mos=$1,249)
23
ORGANIC SALES AND MARKETING
(A Development Stage Company
Balance Sheets
September 30, 2006
ASSETS
As
Originally As
Reported Restated Change
-------- -------- --------
CURRENT ASSETS
Cash and cash equivalents $ 3,953 $ 3,953 $ --
Accounts receivable, net 2,775 2,775 --
Inventories 9,714 9,714 --
-------- -------- --------
Total Current Assets 16,442 16,442 --
-------- -------- --------
PROPERTY AND EQUIPMENT, NET 338 338 --
-------- -------- --------
OTHER ASSETS
Prepaid Consulting Expense 20,833 -- (20,833(a)
Deposits 200 200 --
-------- -------- --------
Total Other Assets 21,033 200 (20,833
-------- -------- --------
TOTAL ASSETS $ 37,813 $ 16,980 $(20,833
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
As
Originally As
Reported Restated Change
-------- -------- --------
CURRENT LIABILITIES
Accounts payable $ 81,159 $ 81,159 $ --
Accrued expenses 15,219 15,219 --
Accrued interest payable 34,036 34,036 --
Line of credit -- -- --
Current portion of convertible notes payable,
net of conversion discount - related parties 3,255 16,291 13,036 (b)
Current portion of convertible notes payable,
net of conversion discount 81,024 82,506 1,482 (c)
Current portion of notes payable - related parties 24,530 44,530 20,000 (d)
-------- -------- --------
Total Current Liabilities 239,223 273,741 34,518
-------- -------- --------
LONG-TERM LIABILITIES
Notes payable - related parties 28,476 8,476 (20,000)(d)
Convertible notes payable - related parties 12,809 -- (12,809)(b)
Convertible notes payable 1,482 -- (1,482)(c)
-------- -------- --------
Total Long-Term Liabilities 42,767 8,476 (34,291)
-------- -------- --------
Total Liabilities 281,990 282,217 227
-------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 4,976,425, 4,811,576 and 3,500,000 shares
issued and outstanding, respectively 350 350 --
Additional paid-in capital 356,206 471,206 115,000 (e)
Prepaid Expenses -- (20,833) (20,833)(a)
(Deficit) Accumulated during the Developmental Stage (600,733) (715,960) (115,227)(e)
-------- -------- --------
Total Stockholders' Equity (Deficit) (244,177) (265,237) (21,060)
-------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 37,813 $ 16,980 $(20,833)
======== ======== ========
(a) Reclass share-based prepaid consulting expense to Equity to offset the
share-based value of Consulting Agreements for B. Kordich
(1/1/04-12/31/06)($50,000/36 mos=$1,388.89)($1,388.89 X 15 mos=$20,833.)
(b) Reclass $12,809 from long-term convertible notes payable-related parties
to short-term convertible notes payable-related parties to correctly
reflect the "on demand" appearance of this debt as of September 30, 2005
and adjust discount on notes payable for $227 due to a misinterpretation
of the governing EITF 00-27.
(c) Reclass $1,482 from long term convertible notes payable to short-term
convertible notes payable to correctly reflect the "on demand" appearance
of this debt as of September 30,. 2005.
(d) Reclass notes payable-related party to correctly reflect the "on demand"
appearance of this debt as of September 30, 2005. (e) Adjust APIC and
Accumulated (Deficit) to reflect the share-based value of the J. Adelstein
Consulting agreement ($85,000); B. Kordich ($15,000) and L. Colt
($15,000), as well as the interest accretion adjustment referenced in (b)
above.
24
ORGANIC SALES AND MARKETING
(A Development Stage Company
Balance Sheets
September 30, 2006
As
Originally As
Reported Restated Change
-------- -------- --------
REVENUES
Product sales, net $ 25,000 $ 25,000 $ --
Services 25,111 25,111 --
--------- --------- ---------
Total Revenues 50,111 50,111 --
COST OF SALES 41,960 41,960 --
--------- --------- ---------
GROSS PROFIT 8,151 8,151 --
--------- --------- ---------
OPERATING EXPENSES
Compensation Costs 16,667 16,667 --
Selling, general and administrative 292,361 292,361 --
--------- --------- ---------
Total Operating Expenses 292,361 292,361 --
--------- --------- ---------
LOSS FROM OPERATIONS (284,210) (284,210) --
--------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income 2,934 2,934 --
Interest expense (86,062) (266,064) (180,002)(a)
--------- --------- ---------
Total Other Income (Expense) (83,128) (263,130) (180,002)
--------- --------- ---------
NET LOSS BEFORE INCOME TAXES (367,338) (547,340) (180,002)
INCOME TAX EXPENSE -- -- --
--------- --------- ---------
NET LOSS $(367,338) $(547,340) $(180,002)
========= ========= =========
LOSS PER SHARE-
Basic and Diluted $ (0.10) $ (0.14) $ (0.05)
========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING-
Basic and Diluted 3,784,827 3,784,827 --
========= ========= =========
(a) To reclassify $175,747, the updated remaining portion of BCF on
convertible debt per EITF 00-27 to interest expense from APIC due to a
misinterpretation of the governing EITF, in addition to updated interest
acretion of $4,255 due to the same ETF misinterpretation
25
ORGANIC SALES AND MARKETING
(A Development Stage Company
Balance Sheets
September 30, 2006
As
Originally As
Reported Restated Change
----------- ---------- -------
REVENUES
Product sales, net $ 32,806 $ 32,806 $ --
Services 46,140 46,140 --
---------- ---------- -------
Total Revenues 78,946 78,946 --
COST OF SALES 33,475 33,475 --
---------- ---------- -------
GROSS PROFIT 45,471 45,471 --
---------- ---------- -------
OPERATING EXPENSES
Compensation Costs 21,877 47,849 (25,972)(a)
Selling, general and administrative 174,130 174,130 --
---------- ---------- -------
Total Operating Expenses 174,130 174,130 --
---------- ---------- -------
LOSS FROM OPERATIONS (128,659) (128,659) --
---------- ---------- -------
OTHER INCOME (EXPENSE)
Interest income -- -- --
Interest expense (80,914) (82,912) (1,998)(b)
---------- ---------- -------
Total Other Income (Expense) (80,914) (82,912) (1,998)
---------- ---------- -------
NET LOSS BEFORE INCOME TAXES (209,573) (211,571) (1,998)
INCOME TAX EXPENSE -- -- -
---------- ---------- -------
NET LOSS (209,573) $ (211,571) $(1,998)
========== ========== =======
LOSS PER SHARE-
Basic and Diluted $ (0.06) $ (0.06) $ (0.00)
========== ========== =======
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING-
Basic and Diluted 3,500,000 3,500,000 --
========== ========== =======
(a) Record the final 11 months of consulting expense on J. Adelstein
Consulting Consulting Agreement. (9/1/02-8/30/05)($85,000/36
mos=$2,361.11)($2,361.11 X 11 mos=$25,972.21)
(b) Accrete additional interest expense due to a misinterpretation of the
governing EITF 00-27.
26
ORGANIC SALES AND MARKETING
(A Development Stage Company
Balance Sheets
September 30, 2006
As
Originally As
Reported Restated Change
----------- ---------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(384,005) $(564,007) $(180,002)(a)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 330 330 --
Amortization of Prepaid Expense (share-based) -- 16,667 16,667 (b)
Amortization of convertible notes payable
discounts related to beneficial conversions 50,942 230,944 180,002 (a)
Write-off of receivable from officer -- -- --
Change in operating assets and liabilities:
Accounts Receivable-Trade (3,305) (3,305) --
Inventories (19,460) (19,460) --
Deposits -- -- --
Prepaid Consulting Expense 16,667 -- (16,667)(b)
Due from Officers -- -- --
Accounts payable 2,794 2,794 --
Accrued expenses 35,774 35,774 --
Accrued interest payable 23,391 23,391 --
--------- --------- ---------
Net Cash Used in Operating Activities (276,872) (276,872) --
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,703) (2,703) --
--------- --------- ---------
Net Cash Used in Investing Activities (2,703) (2,703) --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 431,100 431,100 --
Net change in line of credit 15,000 15,000 --
Proceeds from convertible notes --
payable - related parties 49,500 49,500 --
Proceeds from notes payable - related 32,000 32,000 --
Payments on notes payable - related (25,655) (25,655) --
--------- --------- ---------
Net Cash Provided by Financing Activities 501,945 501,945 --
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 222,370 222,370 --
CASH, BEGINNING OF PERIOD 3,953 3,953 --
--------- --------- ---------
CASH, END OF PERIOD $ 226,323 $ 226,323 --
========= ========= =========
(a) See 9/30/2006 Statement of Operations comparative for details.
(b) To reclassify Prepaid Consulting Expense for B. Kordich ($500,000 X .3333)
to the Equity section to offset the share-based value of the Consulting
Agreement.
27
ORGANIC SALES AND MARKETING
(A Development Stage Company
Balance Sheets
September 30, 2006
As
Originally As
Reported Restated Change
----------- ---------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(231,450) $(259,420) $(27,970)(a)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 168 168 --
Amortization of Prepaid Expense (share-based) -- 47,849 47,849 (b)
Amortization of convertible notes payable
discounts related to beneficial conversions 52,023 54,021 1,998 (c)
Write-off of receivable from officer 15,689 15,689 --
Change in operating assets and liabilities:
Accounts Receivable-Trade (186) (186) --
Inventories 2,445 2,445 --
Deposits (200) (200) --
Prepaid Consulting Expense 21,877 -- (21,877)(d)
Due from Officers -- -- --
Accounts payable 29,179 29,179 --
Accrued expenses 12,740 12,740 --
Accrued interest payable 17,974 17,974 --
--------- --------- ---------
Net Cash Used in Operating Activities (79,741) (79,741) --
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- -- --
--------- --------- ---------
Net Cash Used in Investing Activities -- -- --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares -- -- --
Net change in line of credit -- -- --
Proceeds from convertible notes --
payable - related parties 85,826 85,826 --
Proceeds from notes payable - related -- -- --
Payments on notes payable - related (5,588) (5,588) --
--------- --------- ---------
Net Cash Provided by Financing Activities 80,238 80,238 --
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 497 497 --
CASH, BEGINNING OF PERIOD 3,456 3,456 --
--------- --------- ---------
CASH, END OF PERIOD $ 3,953 $ 3,953 --
======== ======== =========
(a) See 9/30/2005 Statement of Operations comparative for details.
(b) Adjust Cash Flow from Operations for the non-cash effect of share-based
consulting agreements for J. Adelstein (11 mos)($25,971); B. Kordich (12
mos)($16,668) and J. Anderson (5 mos)($5,210)
(c) Accrete additional interest expense due to a misinterpretation of the
governing EITF 00-27. (d) Reclass "prepaid consulting expenses' to
"amortization of prepaid expense" to properly reflect the non- cash effect
of share-based consulting agreements for B. Kordich ($16,668) and J.
Anderson ($5,210).
28
PART III
INDEX TO EXHIBITS
The following is a list of Exhibits which comprise a part of the Regulation
Statement.
Exhibit
No. Description of Exhibit
------- ----------------------
Charter and By-Laws
1.1 Certificate of Incorporation of Garden Connections, Inc.
2.2 Amendment of Certificate of Incorporation Changing name from Garden
Connections, Inc. to Organic Sales and Marketing, Inc.
2.3 Amended and Restated By-Laws
3.1 Form of Certificate evidencing Shares of Common Stock Material
Contracts
10.1 WHJJ Radio (Rhode Island) Contract
10.2 WXLM Radio (Southeastern Connecticut) Contract
10.3 WBSM Radio (Southeastern Massachusetts) Contract
10.4 WRKO Radio (Boston, Massachusetts) Contract
10.5 Consulting Agreement dated February 1, 2003 with Joanne L. H. Anderson
10.6 Consulting Agreement dated September 1, 2002 with Jerry Adelstein
10.7 Consulting Agreement dated January 1, 2004 with Leonard Colt DBA
Pegasus Marketing & Sales
10.8 Office Lease
10.9 Agreement with Andrew Garrett, Inc. (Private Placement Agent)
10.10 Letter from Land O'Lakes Purina Feed Organization dated November 14,
2006
10.11 Consulting Agreement with Bruno Kordich
10.12 Representation Agreement with North Eastern Sales Solutions
10.13 Representation Agreement with North East Garden Group, LLC
Additional Exhibits
99.1 State of New Jersey Notice of Effective Securities Registration
99.2 State of New York Notice of Effective Registration
99.3 Land O'Lakes News Release dated February 15, 2007 Report of
fourth-quarter / year-end Results
99.4 National Gardening Association publication on Garden Market Research
newsletter 2007
99.5 OTA's 2006 Manufacturer Survey
99.6 Thermo Fisher Scientific Website with Catalog attached
99.7 Funeral Service Trends
-31-