UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended December 31, 2009
o
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
For the
Transition Period from _______ to _______
Commission file
number 0-3338
ORGANIC SALES AND MARKETING,
INC.
(Exact
Name of small business issuer as specified in its Charter)
Delaware
|
33-1069593
|
(State
or other Jurisdiction of Incorporation or
Organization)
|
(IRS
Employer Identification No.)
|
114 Broadway,
Raynham, MA 02767
(Address
of Principal Executive Office)
(508)
823-1117
(Registrant’s
telephone number including area code)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller public
company.
x
Smaller
Reporting Company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
The
number of shares of outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date was 10,290,072 shares of common stock,
par value $.0001, issued and outstanding as of February 10, 2010.
Organic
Sales and Marketing, Inc.
Form
10-Q
TABLE OF
CONTENTS
|
PAGE
|
PART
I-FINANCIAL INFORMATION
|
|
|
|
Item
1. Financial Statements
|
3
|
|
|
Item
2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
|
4
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
19
|
|
|
Item
4. Controls and Procedures
|
19
|
|
|
PART II-
OTHER INFORMATION
|
|
|
|
Item
1A. Risk Factors
|
20
|
|
|
Item
6. Exhibits
|
21
|
|
|
SIGNATURES
|
22
|
PART
1. FINANCIAL INFORMATION
Item
1.
Financial
Statements.
The accompanying financial statements
are unaudited for the interim periods, but include all adjustments (consisting
only of normal recurring adjustments), which we consider necessary for the fair
presentation of results for the three months ended December 31, 2009 and
December 31, 2008.
Moreover, these financial statements do
not purport to contain complete disclosure in conformity with the U.S. generally
accepted accounting principles and should be read in conjunction with our
audited financial statements at, and for the fiscal year ended September 30,
2009 as contained in Registrant’s Form 10-K filing.
Organic
Sales and Marketing, Inc.
Financial
Statements for the Three Months Ended
December
31, 2009 (unaudited) and 2008 (unaudited)
CONTENTS
Balance
Sheets
|
3
|
|
|
Statements
of Operations
|
5
|
|
|
Statements
of Stockholders’ (Deficit)
|
6
|
|
|
Statements
of Cash Flows
|
7
|
|
|
Notes
to the Financial Statements
|
8
|
ORGANIC
SALES AND MARKETING, INC.
|
Balance
Sheets
|
ASSETS
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
27,318
|
|
|
$
|
24,547
|
|
Accounts
receivable, net
|
|
|
17,645
|
|
|
|
8,090
|
|
Inventories
|
|
|
90,489
|
|
|
|
109,581
|
|
Prepaid
Expense
|
|
|
20,946
|
|
|
|
7,479
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
156,398
|
|
|
|
149,697
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
8,157
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
164,755
|
|
|
$
|
159,280
|
|
The
accompanying notes are an integral part of these financial
statements.
ORGANIC
SALES AND MARKETING, INC.
|
Balance
Sheets (Continued)
|
LIABILITIES AND
STOCKHOLDERS' (DEFICIT)
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable-trade
|
|
$
|
544,963
|
|
|
$
|
581,215
|
|
Accounts
payable-related party
|
|
|
13,858
|
|
|
|
3,986
|
|
Cash
Overdraft
|
|
|
31,929
|
|
|
|
-
|
|
Accrued
expenses
|
|
|
34,125
|
|
|
|
33,807
|
|
Accrued
interest payable
|
|
|
74,511
|
|
|
|
61,620
|
|
Line
of Credit
|
|
|
68,374
|
|
|
|
72,054
|
|
Notes
payable - related parties
|
|
|
605,736
|
|
|
|
495,736
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
1,373,496
|
|
|
|
1,248,418
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,373,496
|
|
|
|
1,248,418
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value; 100,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
10,288,794 and 10,088,794 shares issued and
|
|
|
|
|
|
|
|
|
outstanding,
respectively
|
|
|
1,029
|
|
|
|
1,009
|
|
Additional
paid-in capital
|
|
|
5,755,832
|
|
|
|
5,669,969
|
|
Accumulated
(Deficit)
|
|
|
(6,965,602
|
)
|
|
|
(6,760,116
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' (Deficit)
|
|
|
(1,208,741
|
)
|
|
|
(1,089,138
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
(DEFICIT)
|
|
$
|
164,755
|
|
|
$
|
159,280
|
|
The
accompanying notes are an integral part of these financial
statements.
ORGANIC
SALES AND MARKETING, INC.
|
Statements
of Operations
|
(Unaudited)
|
|
|
For
the Three Months
|
|
|
|
Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales, net
|
|
$
|
42,974
|
|
|
$
|
44,632
|
|
Radio
Advertising
|
|
|
4,845
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
47,819
|
|
|
|
44,632
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
39,257
|
|
|
|
33,474
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
8,562
|
|
|
|
11,158
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
Expense
|
|
|
19,190
|
|
|
|
101,956
|
|
Payroll
and Compensation Expense
|
|
|
59,589
|
|
|
|
109,484
|
|
Selling
Expense
|
|
|
21,161
|
|
|
|
40,552
|
|
General
and Administrative
|
|
|
43,390
|
|
|
|
65,878
|
|
Legal
and Accounting
|
|
|
53,962
|
|
|
|
66,904
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
197,292
|
|
|
|
384,774
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(188,730
|
)
|
|
|
(373,616
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
277
|
|
|
|
475
|
|
Interest
expense
|
|
|
(17,033
|
)
|
|
|
(11,521
|
)
|
Valuation
of Warrants granted for Financing Costs
|
|
|
-
|
|
|
|
(593,484
|
)
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(16,756
|
)
|
|
|
(604,530
|
)
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE INCOME TAXES
|
|
|
(205,486
|
)
|
|
|
(978,146
|
)
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(205,486
|
)
|
|
$
|
(978,146
|
)
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE-
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
OF
SHARES OUTSTANDING-
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
10,117,055
|
|
|
|
7,776,450
|
|
The
accompanying notes are an integral part of these financial
statements.
ORGANIC
SALES AND MARKETING, INC.
|
Statements
of Stockholders' (Deficit)
|
For
the period October 1, 2007 through December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Stockholders'
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
(Deficit)
|
|
Balance,
October 1, 2007
|
|
|
5,388,569
|
|
|
$
|
539
|
|
|
$
|
1,898,410
|
|
|
$
|
(2,104,520
|
)
|
|
$
|
(205,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $.50/share
|
|
|
870,000
|
|
|
|
87
|
|
|
|
434,913
|
|
|
|
-
|
|
|
|
435,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $1.00/share
|
|
|
33,123
|
|
|
|
3
|
|
|
|
33,120
|
|
|
|
|
|
|
|
33,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for debt and payables at $1.00/share
|
|
|
139,562
|
|
|
|
14
|
|
|
|
139,548
|
|
|
|
|
|
|
|
139,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for conversion of debt at $.50/share
|
|
|
368,240
|
|
|
|
37
|
|
|
|
184,083
|
|
|
|
|
|
|
|
184,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Settlement Expense related to issuance of stock
at
a discount
|
|
|
|
|
|
|
|
|
|
|
685,420
|
|
|
|
|
|
|
|
685,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
of Options and Warrants Granted
|
|
|
|
|
|
|
|
|
|
|
363,465
|
|
|
|
|
|
|
|
363,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,248,268
|
)
|
|
|
(2,248,268
|
)
|
Balance,
September 30, 2008
|
|
|
6,799,494
|
|
|
$
|
680
|
|
|
$
|
3,738,959
|
|
|
$
|
(4,352,789
|
)
|
|
$
|
(613,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $.25/share
|
|
|
1,440,000
|
|
|
|
144
|
|
|
|
359,856
|
|
|
|
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $.15/share
|
|
|
1,296,800
|
|
|
|
130
|
|
|
|
194,390
|
|
|
|
|
|
|
|
194,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services rendered at $.40/share
|
|
|
450,000
|
|
|
|
45
|
|
|
|
179,955
|
|
|
|
|
|
|
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services rendered at $.10/share
|
|
|
50,000
|
|
|
|
5
|
|
|
|
4,995
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services rendered at $.18/share
|
|
|
50,000
|
|
|
|
5
|
|
|
|
8,995
|
|
|
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services rendered at $.14/share
|
|
|
2,500
|
|
|
|
-
|
|
|
|
350
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
of Options and Warrants Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
1,182,470
|
|
|
|
|
|
|
|
1,182,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended September 30, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,407,327
|
)
|
|
|
(2,407,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2009
|
|
|
10,088,794
|
|
|
$
|
1,009
|
|
|
$
|
5,669,969
|
|
|
$
|
(6,760,116
|
)
|
|
$
|
(1,089,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $.15/share
|
|
|
200,000
|
|
|
|
20
|
|
|
|
29,980
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
of Options and Warrants Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
55,883
|
|
|
|
|
|
|
|
55,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the three months ended December 31, 2009
(Unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(205,486
|
)
|
|
|
(205,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009 (Unaudited)
|
|
|
10,288,794
|
|
|
$
|
1,029
|
|
|
$
|
5,755,832
|
|
|
$
|
(6,965,602
|
)
|
|
$
|
(1,208,741
|
)
|
The
accompanying notes are an integral part of these financial
statements.
ORGANIC
SALES AND MARKETING, INC.
|
Statements
of Cash Flows
|
(Unaudited)
|
|
|
For
the Three Months
|
|
|
|
Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(205,486
|
)
|
|
$
|
(978,146
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
1,225
|
|
|
|
1,225
|
|
Valuation
of options and warrants granted
|
|
|
55,883
|
|
|
|
650,195
|
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable-trade
|
|
|
(9,555
|
)
|
|
|
20,199
|
|
Inventories
|
|
|
19,092
|
|
|
|
(30,755
|
)
|
Prepaid
Expense
|
|
|
(13,467
|
)
|
|
|
(7,310
|
)
|
Accounts
payable-trade
|
|
|
(36,252
|
)
|
|
|
8,044
|
|
Accounts
payable-related party
|
|
|
9,872
|
|
|
|
-
|
|
Cash
Overdraft
|
|
|
31,929
|
|
|
|
-
|
|
Accrued
expenses
|
|
|
318
|
|
|
|
10,998
|
|
Accrued
interest payable
|
|
|
12,891
|
|
|
|
7,431
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
$
|
(133,549
|
)
|
|
$
|
(318,119
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
30,000
|
|
|
|
360,000
|
|
Proceeds
from Line of Credit
|
|
|
-
|
|
|
|
1,000
|
|
Payments
on Line of Credit
|
|
|
(3,680
|
)
|
|
|
(7,110
|
)
|
Proceeds
from notes payable - related party
|
|
|
110,000
|
|
|
|
27,499
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
$
|
136,320
|
|
|
$
|
381,389
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
$
|
2,771
|
|
|
$
|
63,270
|
|
|
|
|
|
|
|
|
|
|
CASH,
BEGINNING OF PERIOD
|
|
$
|
24,547
|
|
|
$
|
27,838
|
|
|
|
|
|
|
|
|
|
|
CASH,
END OF PERIOD
|
|
$
|
27,318
|
|
|
$
|
91,108
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
4,142
|
|
|
$
|
3,201
|
|
Cash
paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
of Options and Warrants Granted
|
|
$
|
55,883
|
|
|
$
|
650,195
|
|
The
accompanying notes are an integral part of these financial
statements.
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 1 – Basis of Financial
Statement Presentation
The
accompanying unaudited financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in accordance with such rules and regulations.
The information furnished in the interim financial statements include normal
recurring adjustments and reflects all adjustments, which in the opinion of
management, are necessary for a fair presentation of such financial statements.
Although management believes the disclosures and information presented are
adequate to make the information not misleading, it is suggested that these
interim financial statements be read in conjunction with the Company’s audited
financial statements and notes thereto included in its September 30, 2009 Form
10-K filing on January 14, 2010. Operating results for the three months ended
December 31, 2009 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 2010.
Note 2 – Net Income/(Loss)
per Share
Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and dilutive potential
common shares, which includes the dilutive effect of stock options and warrants
granted. Dilutive potential common shares for all periods presented are computed
utilizing the treasury stock method. Common stock options of 1,140,145 were
considered but were not included in the computation of loss per share because
their effect is anti-dilutive. Common stock warrants of 2,920,920 were
considered, but not included in the computation of loss per share because their
effect is anti-dilutive.
|
|
For
the Three Months
|
|
|
|
Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss - Numerator
|
|
$
|
(205,486
|
)
|
|
$
|
(978,146
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares - Denominator
|
|
|
10,117,055
|
|
|
|
7,776,450
|
|
|
|
|
|
|
|
|
|
|
Per
Share Amount
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
Note
3
–
Inventories
Inventories
consisted of the following as of:
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
71,487
|
|
|
$
|
105,107
|
|
Finished
goods
|
|
|
19,002
|
|
|
|
44,279
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
90,489
|
|
|
$
|
149,386
|
|
At
December 31, 2009 and September 30, 2009, no provision for obsolete inventory
was recorded by the Company.
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 4 – Stock
Options
On
February 28, 2008, our Board of Directors approved the 2008 Stock Option and
Purchase Plan. Under the terms of this plan, options may be granted to officers,
directors, employees, consultants and independent contractors to purchase up to
an aggregate of 1,350,000 shares of common stock at an exercise price of $1.00
per share. Options are exercisable and vest over a four year period at a rate of
25% per year.
As of
December 31, 2009, there were 1,140,145 options outstanding under this plan at
the exercise price of $1.00 per share. The issuance of these options was
approved by holders of the majority of the Company’s outstanding common stock.
The total amount of option expense recorded for the three months ended December
31, 2009 was $55,884, of which, $23,465 was recorded as payroll and compensation
expense and $32,419 was recorded as legal and accounting expense. The amount of
option expense to be charged over the remainder of the exercise period is
$493,817.
The
Company has determined the estimated value of the stock options granted by using
the Black-Scholes pricing model using the following assumptions: expected life
of 10 years, a risk free interest rate of 1.66-3.71%, a dividend yield of 0% and
volatility ranging from 75% in 2008 to 192% in 2009.
Outstanding
common stock options as of December 31, 2009 are summarized below:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Stock
Options Outstanding, October 1, 2007
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Options
Granted
|
|
|
1,126,250
|
|
|
$
|
1.00
|
|
Options
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Options
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Outstanding, September 30, 2008
|
|
|
1,126,250
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Exercisable, September 30, 2008
|
|
|
148,619
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Options
Granted
|
|
|
29,000
|
|
|
$
|
1.00
|
|
Options
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Options
Canceled
|
|
|
(15,105
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Outstanding, September 30, 2009
|
|
|
1,140,145
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Exercisable, September 30, 2009
|
|
|
438,057
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Options
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Options
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Options
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Outstanding, December 31, 2009 (unaudited)
|
|
|
1,140,145
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Exercisable, December 31, 2009 (unaudited)
|
|
|
509,317
|
|
|
$
|
1.00
|
|
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 4 – Stock Options
(Continued)
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock options issued to both
employees and non-employees of the Company.
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
Exercise
|
|
|
Shares
|
|
|
Contractual
|
|
|
Number
|
|
|
Average
|
|
Year
|
|
Price
|
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
February
2008
|
|
$
|
1.00
|
|
|
|
861,145
|
|
|
|
8.17
|
|
|
|
400,670
|
|
|
$
|
1.00
|
|
May
2008
|
|
$
|
1.00
|
|
|
|
250,000
|
|
|
|
8.42
|
|
|
|
104,167
|
|
|
$
|
1.00
|
|
January
2009
|
|
$
|
1.00
|
|
|
|
5,000
|
|
|
|
10.00
|
|
|
|
1,251
|
|
|
$
|
1.00
|
|
April
2009
|
|
$
|
1.00
|
|
|
|
10,000
|
|
|
|
8.17
|
|
|
|
1,771
|
|
|
$
|
1.00
|
|
August
2009
|
|
$
|
1.00
|
|
|
|
14,000
|
|
|
|
9.58
|
|
|
|
1,458
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,140,145
|
|
|
|
|
|
|
|
509,317
|
|
|
|
|
|
Note 5 – Common Stock
Purchase Warrants
On
October 3, 2008, the Company commenced a private stock offering, whereby it
authorized the issuance of 1,440,000 units consisting of one share of its common
stock and one common stock purchase warrant for a total raise of $360,000. The
common stock purchase warrants are exercisable at $1.00 per share and carrying a
five year exercise period. The offering was closed as of November 30, 2008. All
1,440,000 units were issued and $360,000 in cash was received.
Warrant
expense related to this offering for the three months ending December 31, 2008
was $593,484.
Total
warrant expense charged as financing costs for the three months ended December
31, 2009 and 2008 was $-0- and $593,484, respectively.
.
The
Company has determined the estimated value of warrants granted during the three
months ended December 31, 2008 using the Black-Scholes pricing model with the
following assumptions: expected life of 5 years; a risk free interest
rate of 1.66%-2.71%; a dividend yield of 0% and volatility of
149.62%-172.61%.
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 5 – Common Stock
Purchase Warrants (Continued)
Outstanding
common stock purchase warrants as of December 31, 2009 are summarized
below:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Warrants
Outstanding, October 1, 2007
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants
Granted
|
|
|
184,120
|
|
|
$
|
2.00
|
|
Warrants
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Warrants
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding and Exercisable, September 30, 2008
|
|
|
184,120
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
Warrants
Granted
|
|
|
2,736,800
|
|
|
$
|
1.00
|
|
Warrants
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Warrants
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding and Exercisable, September 30, 2009
|
|
|
2,920,920
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Warrants
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Warrants
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Warrants
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding and Exercisable, December 31, 2009 (unaudited)
|
|
|
2,920,920
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company’s common stock issued to the note holders
referenced above.
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
Exercise
|
|
|
Shares
|
|
|
Contractual
|
|
|
Number
|
|
|
Average
|
|
Year
|
|
Price
|
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
June
2008
|
|
$
|
2.00
|
|
|
|
184,120
|
|
|
|
0.50
|
|
|
|
184,120
|
|
|
$
|
2.00
|
|
October
2008
|
|
$
|
1.00
|
|
|
|
40,000
|
|
|
|
3.75
|
|
|
|
40,000
|
|
|
$
|
1.00
|
|
November
2008
|
|
$
|
1.00
|
|
|
|
1,400,000
|
|
|
|
3.83
|
|
|
|
1,400,000
|
|
|
$
|
1.00
|
|
February
2009
|
|
$
|
1.00
|
|
|
|
666,667
|
|
|
|
4.08
|
|
|
|
666,667
|
|
|
$
|
1.00
|
|
March
2009
|
|
$
|
1.00
|
|
|
|
630,133
|
|
|
|
4.17
|
|
|
|
630,133
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
2,920,920
|
|
|
|
|
|
|
|
2,920,920
|
|
|
|
|
|
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 7 – Equity
Transactions
On
December 16, 2009, the Company commenced a private stock offering, whereby it
authorized the issuance of 3,333,334 shares of its common stock for a total
raise of $500,000. The offering is expected to be completed by March
31, 2010 and the company expects that all shares will be sold. There can be no
assurance, however, that this will happen. As of December 31, 2009, $30,000 of
the $500,000 has been raised and 200,000 shares have been issued.
Note 8 – Notes Payable-
Related Parties
Through
September 30, 2007, a director of the company loaned the Company a total of
$32,026 at a interest rate of 6%. During the fiscal year ended
September 30, 2008 the Company issued 30,779 shares of common stock in relief of
$30,779 in debt. This director advanced $75,000 during fiscal year
2008. During the fiscal year ended September 30, 2009 the director
advance the Company an additional $27,499 bringing the total principal balance
due as of September 30, 2009 to $103,747. This note is payable monthly by the
Company in the amount of $1,000 with interest. During the three months ending
December 31, 2009, no scheduled payments were made and the note was considered
in default. As of December 31, 2009, accrued interest owed on the Note was
$12,069.
Through
September 30, 2008, a director of the company advanced a total of $12,772 in the
form of a demand note dated March 15, 2008. During the 2008 fiscal
year end 1,917 shares of common stock were issued in satisfaction of $1,917 in
debt, resulting in a principal balance due as of September 30, 2009 and 2008, of
$10,855. This note is payable monthly by the Company in the amount of $1,020
with interest at the rate of 6% per annum. During the three months ending
December 31, 2009, no scheduled payments were made and the note was considered
in default. As of December 31, 2009, accrued interest owed on the Note was
$1,138.
Through
September 30, 2008, a director of the company, advanced $175,000 to the Company.
Interest accrues at 12% per annum. Accrued interest and principal was due at
maturity, December 1, 2008, however, the note holder agreed to extend the
maturity date for an additional twelve months given the same terms and
conditions as the original note. Through the period ending December 31, 2009, no
payments had been made and the note was considered in default. As of December
31, 2009 accrued interest owed on the note was $54,366..
Through
September 30, 2007, the CEO and Chairman of the Board of Directors of the
company advanced the Company $20,000. During the fiscal year ended
September 30, 2008 the Company issued a total of 20,000 shares of common stock
in satisfaction of $20,000 in debt. As of December 31, 2009 this
individual has advanced an aggregate of $316,134. Monthly payments are not
required and interest accrues at 6% per annum. The note matures on January 30,
2010, but the possibility exists that it could be extended. As of December 31,
2009, accrued interest owed on the note was $6,626.
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 8 – Notes Payable-
Related Parties (Continued)
N
otes
payable-related parties consisted of the following at
:
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(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.
|
|
$
|
103,747
|
|
|
$
|
103,747
|
|
|
|
|
|
|
|
|
|
|
Note
payable with a director of the Company,
|
|
|
|
|
|
|
|
|
interest at 6% per annum,
payments of
|
|
|
|
|
|
|
|
|
$
1,020
due monthly beginning April 15, 2008,
|
|
|
|
|
|
|
|
|
matures April, 2009,
unsecured.
|
|
|
10,855
|
|
|
|
10,855
|
|
|
|
|
|
|
|
|
|
|
Note
payable with a director of the Company,
|
|
|
|
|
|
|
|
|
interest at 12% per annum. No
monthly payments
|
|
|
|
|
|
|
|
|
are required. All accrued
interest and principal is
|
|
|
|
|
|
|
|
|
paid at maturity, December 1,
2009
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
Note
payable with a director of the Company,
|
|
|
|
|
|
|
|
|
interest at 6% per annum, No
monthly payments
|
|
|
|
|
|
|
|
|
are required. All accrued
interest and principal is
|
|
|
|
|
|
|
|
|
paid at maturity, January 30,
2010.
|
|
|
316,134
|
|
|
|
206,133
|
|
|
|
|
|
|
|
|
|
|
Total
Notes Payable - Related Parties
|
|
$
|
605,736
|
|
|
$
|
495,735
|
|
Less:
Current Portion
|
|
|
(605,736
|
)
|
|
|
(495,735
|
)
|
|
|
|
|
|
|
|
|
|
Long-Term
Notes Payable - Related Parties
|
|
$
|
-
|
|
|
$
|
-
|
|
T
otal
accrued interest at December 31, 2009 and September 30, 2009 was $74,511 and
$61,298, respectively.
ORGANIC
SALES AND MARKETING, INC.
Notes
to the Financial Statements
December
31, 2009 (unaudited)
Note 9 – 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, negative cash flows from operations and recurring
negative working capital for the past several years and is dependent upon
financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. It is management's plan to continue to implement their
strategy of acquiring new customers and accepting reorders from existing
customers. As the Company's revenues become more established, management expects
to report net income. With the expansion of sales, management believes that the
Company will eventually generate positive cash flow from operations. In the
interim, management believes that shortfalls in cash flow will be satisfied with
funds raised from bridge loans, convertible debt and additional private stock
offerings that are in compliance with Securities and Exchange Commission rules
and regulations governing the same.
Note 10 – Subsequent
Events
Subsequent
to December 31, 2009 and through February 18, 2010, the Company’s CEO and
Chairman of the Board advanced an additional $80,000 to the Company as operating
capital bringing the total amount advanced to $396,131.
On
January 21, 2010, the Board of Directors voted to accept the resignation of CFO
Mark McEvoy due to continuing health issues.
On
January 21, 2010, the Board of Directors approved the issuance of 1,773,333
shares of common stock in satisfaction of $260,000 in related party notes
payable and $6,000 in accrued interest to a director of the Company. As part of
the agreement, the remaining balance of the related party note of $100,000 will
be due and payable over the next 7 years at an interest rate of 8% per
annum.
On
January 21, 2010, the Board of Directors approved the issuance of 680,000 shares
of common stock in satisfaction of $90,000 in related party notes payable and
$12,000 in accrued interest to a director of the Company. As part of the
agreement, the remaining balance of the related party note of $14,000 will be
due and payable over the next 2 years at an interest rate of 8% per
annum.
On
January 21, 2010, the Board of Directors voted to approve the grant of an
aggregate of 1,135,000 Stock Options, at an exercise price of $.15 per share
with full vesting in 2011 and expiring in 2020 to employees and independent
consultants who performed at high levels over the course of 2009. The options
will be valued using the Black-Scholes option pricing model and expensed
accordingly.
Organic
Sales and Marketing, Inc. has evaluated subsequent events for the period
September 30, 2009 through February 18, 2010, the date its financial statements
were issued, and concluded there were no other events or transactions occurring
during this period that required recognition or disclosure in its financial
statements.
Item
2.
Management’s
Discussion and Analysis or Plan of Operation.
Forward
Looking Statements
The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of our results of operations and
financial condition, which are based upon our financial statements. The
discussion should be read in conjunction with our financial statements and notes
thereto, appearing in this Report.
The
preparation of these financial statements requires us to make estimates and
judgments that may affect the reported amount of assets and liabilities,
revenues and expenses, and the related disclosure of such contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions and conditions.
This
Report also contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:
|
·
|
Expansion
of our manufacturing capabilities
|
|
·
|
Plans
for entering into collaborative
agreements
|
|
·
|
Anticipated
sources of funds to finance our operations following the date of this
Report
|
|
·
|
Plans,
objectives, expectations and intentions contained in this prospectus that
are not historical fact
|
The
following words and financial projections contain figures related to plans,
expectations, future results, performance, events or other matters that are
“forward-looking statements”. When used in the Plan of Operations, words such as
“estimate”, “project”, “intend”, “expect”, “anticipate”, and other similar
expressions are intended to identify forward-looking statements. Such statements
involve numerous risks and uncertainties, including, but not limited to, the
science of organics, the development of the Company’s products, markets for
those products, timing and level of customer orders, competitive products and
pricing, changes in economic conditions and other risks and uncertainties.
Actual results, performance and events are likely to differ and may differ
materially and adversely. Investors are cautioned not to place undue reliance on
these forward looking statements which speak only as of the date of the Plan of
Operations. The Company undertakes no obligation to release or deliver to
investors revisions to these forward-looking statements to reflect events or
circumstances after the date of the Plan of Operations, the occurrence of
unanticipated events or other matters that may occur.
A.
PLAN OF OPERATIONS
Since
inception in August, 2003, the Company has principally financed its operations
through private placement offerings as noted in PART II, Item 5(d) of the Form
10-K, dated September 30, 2009 and has been involved in the development and
acquisition of a wide variety of non-food organic and naturally based products
to be initially sold to retail supermarkets, convenience stores, colleges,
universities and laboratories, local, regional and national government agencies,
lawn and garden centers and the funeral industry. In addition, new markets
continue to be pursued that include costume jewelry, sporting goods, sports
teams, hobby and craft, health, beauty and wellness, footwear, automotive, cigar
catalog houses, wine industry, international cocoa industry and multi-level
marketing.
The
Company recently began fulfilling orders under its own private label offering
program for a multi-level marketing company located in the
Midwest. Based on recent discussions the Company believes that
incremental sales will be forthcoming based on their continued
interest in OSM proprietary blends and capabilities, its current speed to market
and their continued development of a distribution network. The
Company recently contracted with, sold and shipped a well-known national catalog
company its USDA BioPreferred certified hand sanitizer through a private label
deal. Headquartered in Freeport, ME., this customer generates
1.5 billion in annual sales and is duly recognized for more than 95 years as a
trusted source for quality apparel, accessories, and reliable outdoor
equipment. This customer also has several brick mortar retail
locations. Essentially, OSM, Inc. has become a sales and marketing company of
branded organic and natural products which markets to many different industries
throughout the world.
The
Company has a licensing agreement with a British based company and has the
rights to several proprietary formulas used in its extensive line of cleaning
products. Through its own brands, these excellent non-food organic and/or
natural products are then marketed at retail, wholesale or through the
internet.
The
Company continues to develop its operating history on which to evaluate its
prospects. The risks, expenses and difficulties encountered by an expanding
company must be considered when evaluating the Company’s prospects. Management
believes that existing funds, in conjunction with minimum funds sought to be
raised during 2009-2010 and projected revenues from operations will be
sufficient to reach self-sufficiency by the end of 2010 or early 2011. Expansion
of the business into 2010 and beyond will likely require additional investment
through private placement offers or the ability of the Company to secure funding
elsewhere. There can be no guarantee, however, that the Company will be able to
raise either the minimum capital it needs to sustain its 2010 operations or the
larger amount of capital it will need to expand and grow the business well into
2010 and beyond. Failure to do so would likely have an adverse effect on the
Company’s ability to continue its operations. Most recently, the Company has
been loaned money by its President & CEO, Sam
Jeffries.
The
Company believes it is equipped with the necessary products to go to market and
has developed strategic alliances with several distributors in various
industries, however given the economic climate, and lack of sales to date,
operating expenses cannot be predicted with any real degree of certainty. They
will depend on several factors, including, but not limited to, marketing
expenses, continued acceptance of the Company’s products, competition for such
products and the current economic environment.
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 strategic relationships the Company has forged which it believes will
ultimately translate into operating revenues. It is important to stress,
however, that these assumptions are not at all based on firm commitments from
customers or on other tangible evidence.
The
Company currently has in excess of 100 SKU’s in its product line offering and it
continues to develop and introduce new and better non-food organic and/or
natural products as they present themselves. For instance, its’ Dragonfly
Organix
TM
cleaner product
line is currently sold in such large chains as Stop & Shop and many other
smaller independent supermarkets.
The
Company continues to maintain strong, strategic relationships with United
Natural Foods (UNFI), a leading natural food distributor based in Chesterfield,
NH servicing over 17,000 customers nationwide and Kehe Foods, another leading
natural food distributor based in Romeoville, IL which services over 9,000
customers nationwide.
The
Company launched its organic fertilizer products in the spring of 2008 under its
Mother Natures Cuisine
TM
with Shaw’s Supermarkets and many Agway Stores. The current economic
pressures in addition to an extremely wet and cool weather season in the
northeast in 2009 had adverse effects on the overall sales. Commitments to carry
the fertilizer products still remain from Shaw’s, Whole Foods, Hardware, Rocky’s
Ace Hardware, Aubuchon Hardware, Agway, Kehe Foods and many independent garden
centers. In addition, the Company contracted with Arett Sales, a $150 million
lawn, garden and home improvement distributor of 54 years based in Cherry Hill,
NJ, servicing 20 states and Washington, D.C. to sell its products. The Company’s
organically certified insecticide/fungicide product, Garden Guys Garden NEEM,
which was first introduced in the spring of 2007, is continually shipping to
many of the above named customers in conjunction with the fertilizer products.
Sales of Garden Guys Garden NEEM in 2010 should continue to grow with the
additional distribution outlets, increased exposure due to advertising and brand
recognition and on-going discussions with government entities through the
Company’s affiliation with the USDA BioPreferred program.
The
Company’s President, Sam Jeffries has been recently asked by the folks at USDA
BioPreferred to act as a spokesperson on behalf of small businesses on how to do
business with the Federal government through participation in the USDA
BioPreferred program. He will be lecturing in Riverside, CA at the
end of February 2010 and later this year in Ames, IA and on the east coast at a
yet to be disclosed location. All of these programs are being hosted
by the USDA BioPreferred management team. The Company believes this
will further enhance its relationships in various other sectors of the Federal
government and open additional opportunities for its products either through
current distribution channels or on a direct sales basis.
To date,
Kehe Distributors, Inc., has only sold the Company’s Dragonfly Organix line of
cleaning products, yet has added the Company’s entire line of branded Mother
Nature’s Cuisine line of products which includes, All-Purpose, Flower, and
Veggie & Herb five pound bagged granular fertilizers, Oh No Deer repellant,
Fish & Seaweed liquid concentrate fertilizer, four varieties of suet cakes,
& Garden Guys Garden NEEM. Kehe Distributors, Inc., recently reached an
agreement to purchase Tree of Life, Inc (exhibit 10.23 of the September 30, 2009
Form 10K). Tree of Life, Inc. is a distributor, which may have an impact on the
Company’s future sales in markets that some of the above mentioned products are
not currently being sold.
In the
Company structured deal between Northeast Garden Group, Agway, and Land
O’Lakes/Purina Feeds with the Company is acting as a representative for all
sales of Agway’s newly launched All-Natural 4-Stage lawn fertilizer, the Company
received a total compensation of $5,000 thousand dollars. This is the first time
that Agway has ever launched a 4-Stage natural lawn fertilizer offering. This
could also have long term positive implications given that Agway continues to
participate in the Company’s media component, the Garden Guys radio
show.
The
Company is in an agreement with Land O’Lakes/Purina Feeds to act as a
distributor of its Bradfield Organics brand of fertilizers to some of the
Company’s customers. This will enable the Company to immediately sell
larger bag sizes, quantities and formulations without having to fulfill its own
regulatory obligations under its Mother Nature’s Cuisine brand. This
will enable the Company the additional flexibility in speed to market in
addition to maximizing the manufacturing and distribution capabilities of Land
O’Lakes Purina. Discussions are on-going to further the existing
relationship.
The
Company has started to generate initial sales of its Nev’r Dull commercial brand
of cleaning products and anticipates more significant sales to follow in the
boating, automotive and janitorial industries through 2010 and beyond. The
Company continues to receive orders from J. Racenstein Company, a well known
national distributor of window cleaning supplies and is currently in discussions
with other distributors.
The
Company continues to develop relationships where there is an increasing demand
for consistent performance and safe environmental acceptability of eco-products.
Should the present “green movement” continue, the Company may be well positioned
to capitalize on these sales. Together, and in conjunction with receiving
its recent USDA BioPreferred status, the Company believes that it could provide
simple, safe solutions for the replacement of harmful chemicals increasingly
being found in the various work places encountered daily by such entities as
Grainger, Fisher Scientific and others.
The
Company recently updated its OSM corporate website to include a “Government and
Commercial Purchasers” section hi-lighting USDA BioPreferred. This
includes but not limited to information about the USDA BioPreferred program,
product brochures and bulletins, MSDS sheets, a Q&A product section and hand
sanitizer studies. The Company continues to maintain its’ e-commerce
internet presence by hosting five different web sites,
www.garden-guys.com
,
www.mothernaturescuisine.com
,
www.osm-inc.com
,
www.naturalnevrdull.com
, and
www.dragonflyorganix.com
. The latter is also under the direction of Eye Level Solutions, a division of
Kehe Distributors, Inc., which offers the Dragonfly Organix products for sale in
over 12,000 e-commerce capable grocery stores nationwide. Acting as a
distributor, Kehe continues to process and fulfill orders placed. This enables
the Company’s products to gain shelf presence, without slotting fees, within
stores which otherwise may not currently stock these items.
The
Company will continue its active participation in various related trade
publications and trade shows. Most recent completed shows were; the
Massachusetts Conference for Women, Natural Products Expo, Kehe Holiday Trade
Show, Insalon 2009 Salon & Spa Trade Show, Arett Seasonal Showcase, Fisher
Scientific regional show at University of Iowa, Agway retail buyers show, New
Hampshire Hospitality, the Fisher Science Education show the New England Grows
Lawn & Garden Show, and the Fisher Scientific National Sales
Meeting The Company is already committed to the Natural
Products Expo later this season and anticipates that it will participate in
other regional shows throughout the year. Each of these markets are either
currently carrying the Company’s products or have expressed interest in
them.
Since its
participation in the USDA BioPreferred show in June of 2009, the Company has
attained USDA BioPreferred status for many of its commercial cleaning and hand
sanitizer products. (exhibit 10.24 of the September 30, 2009
Form
10K) This distinction
continues to open doors for those distributors who sell the national government
through GSA (General Services Administration), or state and local contracts and
other contracts where there may be an increased interest for USDA BioPreferred
approved products. The Company has shipped orders to the CDC (Center for Disease
Control) and Homeland Security. The Company is in further discussions with other
entities within the United States government through some of its distributors
currently holding GSA contracts.
The
Company continues to receive orders from Fisher Scientific, its National
Laboratory Distributor that sells into the colleges and universities, Hospital
and Healthcare Laboratory industries, Educational K-12 and Government services,
the Company’s OSM branded line of all natural products to their customer base.
The Company recently added its products to the Fisher Scientific Safety
division, which focuses heavily on municipal and government sales. The Company
and Fisher are also finalizing the additions of its fertilizer and other garden
related items.
The
Company is currently in preliminary discussions with a recognized, top-quality,
75 year safety manufacturer to potentially private label some of the
Company’s USDA BioPreferred certified products. The opportunity exists to
potentially position these private label items in their line of personal
protective equipment sold throughout the world.
In 2010,
the Company projects a loss, however, if sales come in stronger than
anticipated, a small profit and positive cash flow from operations are a real
possibility. If, however, the Company is unsuccessful in raising additional
capital by the late spring of 2010, the probability of hitting its short term
financial goals will be seriously impacted.
The
Company will continue to use the radio as the primary source for marketing and
creating brand awareness of our non-food, and natural product offerings. Sam
Jeffries, the Company’s President, hosts a live, weekly three hour Sunday
morning garden talk radio show which is currently heard on two radio stations in
the Northeast and also available on the internet via streaming or Podcasts. The
radio show allows us to keep listeners informed about why it is important
to consider using natural, organic, chemical-free alternatives,
how they should use these products and where they can buy them. Relationships
are also forged with key people in various scopes of business, politics and the
general public. Since the Company pays for the air time, it also receives an
inventory of commercials which are used as a follow up during the work week to
educate consumers about its organic and natural products, hand sanitizers, etc.
and where they can purchase these products. This also creates a vehicle for the
Company to help offset some of its radio and related expenses by selling the air
time to potential sponsors and or advertisers of the radio show. Essentially,
the Company has created its own media network, The Garden Guys, within the New
England region. Owned by Greater Media, WTKK 96.9 FM is the flagship station for
the radio show. Based in Boston, MA, it is part of one of the largest markets in
the country. Through discussions with 96.9 FM WTKK, the Company is
currently producing its own “Garden Guys Garden Minute” which will air ten (10)
times during the week at no cost to the Company. Each week will offer
a different tip whereby sponsors will be able to tag their store, product or
event. The Company believes it has sponsors that will pay to
participate in this weekly opportunity. This further develops brand
recognition for the station and Garden Guys in addition to generating ad
revenues to offset existing radio expenditures.
As
previously noted, the Company has strategic relationships established with key
sales representative and distributor organizations in the markets that it
services and has developed very strong relationships with several vendors for
the fulfillment of its organic liquid and fertilizer product lines. The Company
plans to vigorously pursue all strategic relationships that enhance its ability
to deliver quality non-food, all natural products at reasonable
prices. Through an agreement with management at 96.9 FM WTKK, the
Company is running a brief ad campaign searching for additional independent
representatives willing to sell the Company’s products in to various
markets. The Company has thus far been the recipient of numerous
resumes’ and will review these respondents as potential independent
representatives.
The
Company’s projected Plan of Operations for CALENDAR YEAR 2010 is as follows:
(000’s omitted)
|
|
CALENDAR
2010
|
|
Revenues
|
|
$
|
3,000
|
|
|
|
|
|
|
Margin
|
|
|
600
|
|
|
|
|
|
|
Selling,
General and Administrative Expense
|
|
|
700
|
|
|
|
|
|
|
Net
Profit/(Loss) from Operations
|
|
$
|
(100
|
)
|
In 2010,
the Company will likely continue to rely on invested capital and short-term debt
to fund operations. The Company continues to seek additional minimum financing
of $500,000 to maintain and grow operations in 2010. If operating revenues
increase as expected and we attain close to break even in 2010, operations could
be self-sustaining in 2011; however, additional investor funds would still be
needed to continue to expand in 2010 and beyond. If we are unable to raise the
minimum financing needed in 2010, the Company would likely exhaust its resources
in mid-2010.
Revenue
Projections
Despite
its heavy financial commitment to continually advertise and promote its products
to enhance brand awareness, foster customer loyalty and encourage reorders,
there can be no guarantee that the products will sell as the Company believes
they will, or that the consumer will reorder the products once they have used
them.
Given the
most recent unprecedented economic market, the Company did not reach and fell
well short of its 2009 projections. Although the Company has been able to
strategically align itself with a multitude of distributors in various retail,
wholesale and commercial sectors, it did not anticipate the length of time to go
to market. The 2010 projections have been made on an industry-by-industry basis
with 25% of projected revenues coming from a combination of Grocery, Convenience
and College Book Stores; 65% from commercial sales including our National
Laboratory Distributor, Fisher Scientific and the remaining 10% from a
combination of website, radio ad sales and private label sales. In preparing
these projections customers were identified as those currently being shipped,
those to whom are about to start shipping and those who have indicated a desire
to carry the products at some point during 2010. To date the Company
has added ten (10) new distributors in the New England region willing to carry
many of its products. These companies primarily specialize in
industrial, municipal and governmental sales.
Sales for
the first quarter of the current fiscal year, October-December, 2009, while
below the Company’s forecasted amount, were up 7% from the same three month
period of the prior fiscal year. The two primary reasons
for this were due to the launch of OSM branded alcohol-free hand sanitizer in an
H1N1 environment, further differentiated by having USDA BioPreferred
certification status. With ten (10) additional distributors and/or
distributor channels most recently added, and many more in the pipeline, the
Company anticipates it will meet its year-end goals however, it can not be
certain that these additional markets will sustain or accept new product entries
as compared to existing similar type products and pricing.
Sales to
date for the second quarter of the current fiscal year, while still below
initial projections set forth in the September 30, 2009 10K, have the potential
to be 10%-15% higher than sales for the same time frame in the previous fiscal
year due to an influx of new customer sales and verbal commitments that have
been received by the Company.
Expense
Projections
Costs of
sales were projected based upon the amount of product being sold using the
extensive by product costs we had developed for each of our products. As volume
increases it is expected that costs will go down as a function of better
quantity purchases. Our projections do not, however, take these cost reductions
into consideration.
General
and Administrative costs were projected at 5% of revenues, in line with our
corporate objective of keeping G&A expenses level as sales
increase.
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, display cases, trade shows, commissions,
samples, payroll and print media advertising.
The
Company believes that it has developed a careful, well-thought out business plan
based upon educated assumptions using the most current data available. There is,
of course, no guarantee as to how much or how often new or existing customers
will buy. The Company also believes that its 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, assuming minimum
financing is obtained by mid-2010.
There can
be no assurance that the Company’s actual operations will reflect the above
projections. Market conditions, competition, supplier delays, the ability to
raise capital and all other risks associated with the operation of a business
could adversely impact the Company’s ability to reach the above
projections.
The
Company anticipates that in order to fulfill its plan of operations, it will
need to attract additional key markets to sell its natural cleaning and
gardening products, and continue to leverage its other business relationships.
The Company continues to receive orders and re-orders from the various outlets
in which it is positioned. In addition, the recent H1N1 concern across the
country has created additional sales opportunities for the Company’s
products.
To
fulfill orders in a timely fashion, the Company must have the capability of
producing and delivering its cleaning and gardening products in sufficient
volume and quantity to achieve its projections. To satisfy this requirement, for
the past two plus years the Company has outsourced its fulfillment operation to
Webco Chemical Co., located in Dudley, Massachusetts. It believes that Webco has
the capacity and ability to handle any and all requirements that the Company may
have and more, over the next five years. As a backup, the Company also has made
arrangements with JNJ Industries, located in Franklin, MA. The Company is also
continuing its discussions with LOL/Purina to potentially satisfy all of its
registration, distribution and manufacturing needs for potential orders that may
require larger sizes and quantity of product in the US and overseas
markets. While the Company is under a verbal agreement to act as a
distributor of its Bradfield Organics brand fertilizers, discussions are
on-going as to how both companies may work together in order to maximize bottom
line profits.
In
addition to the minimum financing needed by mid-2010, the Company will need to
continue to seek financing from outside sources to expand the business in 2010
and beyond. In order to provide this necessary additional financing, the Company
intends to offer additional private placement opportunities to investors in an
as yet undetermined amount. The Company is currently participating in a private
offering to raise $500,000 dollars. The Company has no basis, however, for
predicting the success of such an offering.
B.
SELECTED FINANCIAL DATA
Detailed
information regarding the Company’s operations is contained in the Financial
Statements section of this Report. The following table sets forth, for the
periods indicated, certain key information about the Company.
Selected
Financial Data
Organic
Sales and Marketing, Inc.
For
the Three Months Ended December 31, 2009 and 2008
Statements of
Operations
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 30, 2009
|
|
|
December 30, 2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Revenues
(Net)
|
|
$
|
47,819
|
|
|
$
|
44,632
|
|
Margin
|
|
|
8,562
|
|
|
|
11,158
|
|
Selling,
General and Administrative Expenses (Note 1)
|
|
|
197,292
|
|
|
|
384,774
|
|
Interest
Income/(Expense)
|
|
|
(
16,756
|
)
|
|
|
(11,046
|
)
|
|
|
|
|
|
|
|
|
|
(Loss)
from Operations
|
|
$
|
(
205,486
|
)
|
|
$
|
(384,662
|
)
|
|
|
|
|
|
|
|
|
|
Other Income/(Expense):
|
|
|
|
|
|
|
|
|
Valuation
of Warrants granted for Financing costs (Note 2)
|
|
|
-0-
|
|
|
|
(593,484
|
)
|
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
$
|
(
205,486
|
)
|
|
$
|
(978,146
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per share-Basic and Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares
|
|
|
10,117,055
|
|
|
|
7,776,450
|
|
Balance
Sheets
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 30, 2009
|
|
|
December 30, 2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
27,318
|
|
|
$
|
91,107
|
|
Accounts
Receivable, net
|
|
|
17,645
|
|
|
|
6,511
|
|
Inventories
|
|
|
90,489
|
|
|
|
180,141
|
|
Fixed
Assets
|
|
|
8,157
|
|
|
|
13,059
|
|
Other
Assets
|
|
|
200
|
|
|
|
200
|
|
Prepaid
Expense
|
|
|
20,946
|
|
|
|
61,242
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
164,755
|
|
|
$
|
352,260
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
Payable-Trade
|
|
$
|
544,963
|
|
|
$
|
488,527
|
|
Accounts
Payable-Related Party
|
|
|
13,858
|
|
|
|
-0-
|
|
Accrued
Expenses
|
|
|
140,565
|
|
|
|
86,537
|
|
Notes
Payable-Current
|
|
|
674,110
|
|
|
|
358,298
|
|
Note
Payable-Long Term
|
|
|
-0-
|
|
|
|
-0-
|
|
TOTAL
LIABILITIES
|
|
$
|
1,373,496
|
|
|
$
|
933,362
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
(DEFICIT)
|
|
|
|
|
|
|
|
|
Common
Stock (Note 3)
|
|
$
|
1,029
|
|
|
$
|
824
|
|
Additional
Paid in Capital
|
|
|
5,755,832
|
|
|
|
4,749,009
|
|
Accumulated
(Deficit)
|
|
|
(6,965,602
|
)
|
|
|
(5,330,935
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS (DEFICIT)
|
|
$
|
(1,208,741
|
)
|
|
$
|
(581,102
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS (DEFICIT)
|
|
$
|
164,755
|
|
|
$
|
352,260
|
|
Note
1:
Selling,
General and Administrative expense includes $55,884 and $56,710 of Stock Option
Expense for the three months ending December 31, 2009 and December 31, 2008,
respectively.
Stock
Option Expense is a non-cash accounting entry made for disclosure purposes. The
offset to this entry is an increase in Additional Paid-In Capital.
Note
2:
On
October 3, 2008, the Company commenced a private stock offering, whereby it
authorized the issuance of 1,440,000 units consisting of one share of its common
stock and one common stock purchase warrant for a total raise of $360,000. The
common stock purchase warrants are exercisable at $1.00 per share and carrying a
five year exercise period. The offering was closed as of November 30, 2008. All
1,440,000 units were issued and $360,000 in cash was received. Warrant expense
related to this offering for the three months ending December 31, 2008 was
$593,484.
Warrant
Expense is a non-cash accounting entry made for disclosure purposes. The offset
to this entry is an increase in Additional Paid-In Capital.
Note
3:
Common
Stock, $.0001 par value, 100,000,000 shares authorized 10,288,794; 8,239,494
shares issued and outstanding respectively.
The
Company has incurred costs associated with the establishment of its business and
the development and launching of its products line. It has established brand
names, consumer recognition and interest in organics through private labels, the
internet, the radio show and an established regional distribution network
and started generating revenues during the second half of calendar
2007.
Significant
resources have been allocated to growing and expanding the Company from October
1, 2007 through December 31, 2009. These costs include, but are not limited to
$185,817 for Legal and Accounting Fees, $598,152 for Payroll and payroll taxes,
$231,902 for Advertising, $508,737 for brokered time purchased for our radio
shows and $124,555 for Interest Expense. To help absorb these costs, the Company
financed its operations during this period primarily through convertible
promissory notes of $184,120, common stock issued in lieu of debt and payables
for $333,912, notes payable from related parties of $573,710 and private
placement stock offerings totaling $1,052,643.
The
Company will continue to focus its efforts on improving and expanding its all
natural cleaning, gardening and hand sanitizer product lines and establishing a
large viable national distribution network for the distribution of these
products. While there can be no assurances, the Company anticipates that these
efforts will position itself to receive meaningful revenues in the
not-too-distant future.
The
Company has issued shares directly to accredited investors and through the
conversion of the 6% convertible debentures and convertible promissory notes
previously issued. All such shares have been issued in reliance upon exemptions
from registration with the Securities and Exchange Commission. An approximate
total of 69% of the Company’s outstanding common shares were restricted as of
December 31, 2009.
For a
more complete list of sales of unregistered securities by the Company, please
refer to Part II, Item 5 of Form 10K for the year ended September 30, 2009,
which is incorporated by reference herein.
Results
of Operations
Three
Months Ended December 31, 2009 Compared to the Three Months Ended December 31,
2008
Revenue
for the three months ended December 31, 2009 totaled $47,819 compared to $44,632
for the three months ended December 31, 2008. This represented a 7% increase for
the quarter and is due in large part to the newly introduced Hand Sanitizer
product line and commissions from Agway on their new 4 Step organic fertilizer
program.
Gross
profit was 18% for the three months ended December 31, 2009 compared to 25% for
the three months ended December 31, 2008. The drop in gross margin can be
attributed to temporarily decreased prices offered to introduce the Hand
Sanitizer product line to customers, the increased cost of raw materials and
increased shipping and receiving costs. All of the changes were directly related
to declining economic conditions and the need to be competitive in the
marketplace.
Operating
expenses decreased by 49% for the three months ending December 31, 2009 vs. the
three months ending December 31, 2008, due primarily to the non-renewal of
certain radio station agreements, a cutback in office personnel,
a
reduction in non-effective print media advertising and more selective trade show
participation.
Other
Income/(Expense) decreased by $587,774 for the three months ending December 31,
2009 vs. the three months ending December 31, 2008. Warrants valued at $593,484
were granted during the three months ending December 31, 2008 for financing
costs, while warrants were not granted during the three months ending December
31, 2009 resulting in a decrease of $593,484. This decrease was offset, however,
by a 48% increase in interest expense as a result of related party operational
funding received over the course of calendar 2009. See footnotes for Notes
Payable-Related Party and Subsequent Events contained in the Financials for more
detailed information.
Liquidity
and Capital Resources
Cash was
$27,318 at December 31, 2009 compared to $91,107 at December 31, 2008 or a
decrease of $63,789. Net Cash Used in Operating Activities decreased by 58% or
$184,570 for the three months ending December 31, 2009 vs. the three months
ending December 31, 2008 due to the reduced Operating Expenses noted above. The
Company’s operating loss for the three months ending December 31, 2009 was
($188,730) compared to ($373,616) for the three months ending December 31, 2008
or an improvement of $184,886. Net Cash Provided by Financing
Activities was $136,320 for the three months ended December 31, 2009 compared to
$381,389 for the three months ended December 31, 2008 or a decrease of $245,069
which was due to a decrease in cash received in private
placement raises of $330,000, offset by increases in related party notes payable
of $82,501 and decreases payments and borrowings on the Line of Credit of
$3,430.
Significant
Accounting Policies
Significant
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 and are incorporated in these
financial statements. We believe that our significant accounting policies are
limited to those described below.
Principles
of Accounting
The
Company employs the accrual method of accounting for both financial statements
and tax purposes. Using the accrual method, revenues and related assets are
recognized when earned, and expenses and the related obligations are recognized
when incurred. The Company has elected a September 30 year end.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue
Recognition
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
analysis of the Company’s historical product returns and price markdowns. 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
accordance with GAAP, "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 revenue recognition criteria is met.
Revenue
from radio advertising is derived from three sources, the sale of commercial
spots on the Garden Guys radio talk show, the sponsorship of informative show
segments 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. Radio
advertising for the three months ended December 31, 2009 and 2008 were $4,845
and $-0-, respectively.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents. During the past twelve
months the Company maintained cash in bank accounts which, at times, exceeded
Federal Deposit Insurance Corporation insured limits. The Company has not
experienced, nor does it anticipate, any losses on these accounts and believes
their risk to be minimal.
Accounts
Receivable
The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. On a periodic basis, the Company evaluates its accounts receivable and
establishes an allowance for doubtful accounts, based on a history of past
write-offs and collections and current credit conditions. The Company feels that
all of its accounts receivable as of December 31, 2009 and September 30, 2009
are collectable and therefore no allowance has been taken. The full value of
accounts receivable is held as collateral for the Company’s Line of
Credit.
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. The full value of
inventory is held as collateral for the Company’s Line of
Credit.
Prepaid
Expense
Business
expenses, including consulting expenses, that are paid for in advance of
services being rendered are treated as prepaid. The Company occasionally pays
for these expenses with its common stock. 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. The Company has elected
to capitalize and depreciate any fixed asset item costing in excess of $1,000.
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. The full value of fixed assets is
held as collateral for the Company’s Line of Credit.
Advertising
The
Company charges advertising costs to expense as incurred. Advertising expenses
primarily consist of the Company's three hour weekly Garden Talk radio call in
program with Citadel (WBSM) and Greater Media. Advertising expense for the radio
contracts was $16,500 and $89,583 for the three months ended December 31, 2009
and 2008, respectively. Total advertising, including radio contracts, for the
three months years ended December 31, 2009 and 2008 was $19,190 and $101,956,
respectively. Advertising expense also includes display rack costs, slotting
fees, samples, trade show participation and print media
advertising.
Fair
Value of Financial Instruments
On
January 1, 2008, the Company adopted FASB ASC 820-10-50, “
Fair Value Measurements.
This
guidance defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosure requirements for
fair value measures. The three levels are defined as follows:
•
Level 1 inputs to the
valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
•
Level 2 inputs to the
valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial
instrument.
•
Level 3 inputs to
valuation methodology are unobservable and significant to the fair
measurement.
The
carrying amounts reported in the balance sheets for the cash and cash
equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The carrying value of
related party notes payable approximates fair value because negotiated terms and
conditions are consistent with current market rates as of December 31, 2009 and
September 30, 2009.
Stock-Based
Compensation
In
December 2004, FASB issued FASB ASC 718 (Prior authoritative literature: SFAS
No. 123R,
“Share-Based
Payment”)
. FASB ASC 718 establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity’s equity instruments or that may be settled by the issuance of those
equity instruments. FASB ASC 718 focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. FASB ASC 718 requires that the compensation cost relating to
share-based payment transactions be recognized in the financial statements. That
cost will be measured based on the fair value of the equity or liability
instruments issued.
The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of FASB ASC
505-50 (Prior authoritative literature: EITF 96-18,
“Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”
and EITF 00-18
,“Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees”).
The measurement date for the fair value of the equity instruments issued
is determined at the earlier of (i) the date at which a commitment for
performance by the consultant or vendor is reached or (ii) the date at which the
consultant or vendor’s performance is complete. In the case of equity
instruments issued to consultants, the fair value of the equity instrument is
recognized over the term of the consulting agreement. Stock-based compensation
related to non-employees is accounted for based on the fair value of the related
stock or options or the fair value of the services, whichever is more readily
determinable in accordance with FASB ASC 718.
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 granted. Dilutive
potential common shares for all periods presented are computed utilizing the
treasury stock method. Common stock options of 1,140,145 were considered, but
not included in the computation of loss per share because their effect is
anti-dilutive. Common stock warrants of 2,920,920 were considered, but not
included in the computation of loss per share, because their effect is
anti-dilutive, as well.
Recently
Issued Accounting Standards
In June
2006, FASB issued FASB ASC 740-10 (Prior authoritative literature: FASB
Interpretation No. 48 “
Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109
”). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB No. 109, “
Accounting for Income
Taxes
”
.
FASB ASC
740-10 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FASB ASC 740-10 is effective for fiscal
years beginning after December 15, 2006. The adoption of FASB ASC 740-10 did not
have a material impact on the Company’s financial position, results of
operations, or cash flows.
In
September 2006, the FASB issued FASB ASC 820-10 (Prior authoritative literature:
FASB Statement 157, “
Fair
Value Measurements”)
. FASB ASC 820-10 defines fair value, establishes a
framework for measuring fair value under GAAP and expands disclosures about fair
value measurements. FASB ASC 820-10 applies under other accounting
pronouncements that require or permit fair value measurements. Accordingly, FASB
ASC 820-10 does not require any new fair value measurements. However, for some
entities, the application of FASB ASC 820-10 will change current practice. The
changes to current practice resulting from the application of FASB ASC 820-10
relate to the definition of fair value, the methods used to measure fair value
and the expanded disclosures about fair value measurements. The provisions of
FASB ASC 820-10 are effective as of January 1, 2008, with the cumulative effect
of the change in accounting principle recorded as an adjustment to opening
retained earnings. However, delayed application of this statement is permitted
for nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until fiscal years beginning after November 15, 2008,
and interim periods within those fiscal years. The adoption of FASB ASC 820-10
did not have a material impact on the Company’s financial position, results of
operations, or cash flows.
In
February 2007, FASB ASC 825-10 (Prior authoritative literature: Statement of
Financial Accounting Standards No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115
,”) was issued. This standard allows a company too irrevocably elect
fair value as the initial and subsequent measurement attribute for certain
financial assets and financial liabilities on a contract-by-contract basis, with
changes in fair value recognized in earnings. The provisions of this standard
were effective as of the beginning of fiscal year 2008, with early adoption
permitted. The adoption of FASB ASC 825-10 did not have a material impact on the
Company’s financial position, results of operations, or cash flows.
In March
2007, FASB ASC 715-60 (Prior authoritative literature: EITF Issue No. 06-10,
"Accounting for Collateral
Assignment Split-Dollar Life Insurance Agreements”)
. FASB ASC 715-60
provides guidance for determining a liability for the postretirement benefit
obligation as well as recognition and measurement of the associated asset on the
basis of the terms of the collateral assignment agreement. FASB ASC 715-60 is
effective for fiscal years beginning after December 15, 2007. The adoption of
FASB ASC 715-60 did not have a material impact on the Company’s financial
position, results of operations, or cash flows.
In
December, 2007, the FASB issued FASB ASC 805 (Prior authoritative literature:
SFAS No. 141(R),
“Business
Combinations”)
, which established the principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. FASB ASC 805 also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. FASB ASC 805 is effective the first annual reporting
period beginning on or after December 15, 2008 and is not expected to have any
impact on the Company’s financial statements.
In
December, 2007, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 160, “
Noncontrolling Interests in
Consolidated Financial Statements”,
an amendment of ARB No. 51). FASB ASC
810-10-65 will change the accounting and reporting for minority interests which
will be characterized as noncontrolling interests and classified as a component
of equity. This new consolidation method will significantly change the
accounting for transactions with minority interest shareholders. This standard
is effective for fiscal years and interim periods within those fiscal years
beginning on or after December 15, 2008.and is not expected to have an impact on
the Company’s financial statements.
In March
2008, the FASB issued FASB ASC 815-10 (Prior authoritative literature: SFAS No.
161, “
Disclosures about
Derivative Instruments and Hedging Activities
”), which is effective
January 1, 2009. FASB ASC 815-10 requires enhanced disclosures about derivative
instruments and hedging activities to allow for a better understanding of their
effects on an entity’s financial position, financial performance, and cash
flows. Among other things, this standard requires disclosures of the fair values
of derivative instruments and associated gains and losses in a tabular formant.
This standard is not currently applicable to the Company since we do not have
derivative instruments or engage in hedging activity.
In May
2008, the FASB issued FASB ASC 944 (Prior authoritative literature: SFAS No.
163,
"Accounting for Financial
Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60").
FASB ASC 944
interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. This standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal years. As such,
the Company is required to adopt these provisions at the beginning of the fiscal
year ended March 31, 2009. The Company does not believe this standard will have
any impact on the financial statements.
In April,
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS
No. 164,
“Not-for-Profit
Entities: Mergers and Acquisitions”)
which governs the information that a
not-for-profit entity should provide in its financial reports about a
combination with one or more other not-for-profit entities, businesses or
nonprofit activities and sets out the principles and requirements for how a
not-for-profit entity should determine whether a combination is in fact a merger
or an acquisition. This standard is effective for mergers occurring on or after
Dec. 15, 2009 and for acquisitions where the acquisition date is on or after the
beginning of the first annual reporting period, beginning on or after Dec. 15,
2009. This standard does not apply to the Company since the Company is
considered a for-profit entity
In May
2009, FASB issued FASB ASC 855-10 (Prior authoritative literature: SFAS No. 165,
"Subsequent Events").
FASB ASC 855-10 establishes principles and requirements for the reporting
of events or transactions that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. FASB ASC 855-10
is effective for financial statements issued for fiscal years and interim
periods ending after June 15, 2009. As such, the Company adopted these
provisions at the beginning of the interim period ended June 30, 2009. Adoption
of FASB ASC 855-10 did not have a material effect on our financial
statements.
In June
2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166,
“
Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140
”), which
eliminates the concept of a qualifying special-purpose entity (“QSPE”),
clarifies and amends the de-recognition criteria for a transfer to be accounted
for as a sale, amends and clarifies the unit of account eligible for sale
accounting and requires that a transferor initially measure at fair value and
recognize all assets obtained and liabilities incurred as a result of a transfer
of an entire financial asset or group of financial assets accounted for as a
sale. This standard is effective for fiscal years beginning after November 15,
2009. The Company is currently evaluating the potential impact of this standard
on its financial statements, but does not expect it to have a material
effect.
In June
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS
No. 167, “
Amendments to FASB
Interpretation No. 46(R)
”) which amends the consolidation guidance
applicable to a variable interest entity (“VIE”). This standard also amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is therefore required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis.
Previously, the standard required reconsideration of whether an enterprise was
the primary beneficiary of a VIE only when specific events had occurred. This
standard is effective for fiscal years beginning after November 15, 2009, and
for interim periods within those fiscal years. Early adoption is prohibited. The
Company is currently evaluating the potential impact of the adoption of this
standard on its financial statements, but does not expect it to have a material
effect.
In June
2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS No. 168,
"The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles -
a replacement of FASB Statement No. 162"
).FASB ASC 105-10 establishes the
FASB Accounting Standards Codification TM (Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with GAAP. FASB ASC 105-10 is effective for financial statements
issued for fiscal years and interim periods ending after September 15, 2009. As
such, the Company is required to adopt these provisions at the beginning of the
fiscal year ending September 30, 2009. Adoption of FASB ASC 105-10 did not have
a material effect on the Company’s financial statements.
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2009-13,
Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force
(“ASU 2009-13”). ASU 2009-13 changes accounting for
certain multiple deliverable arrangements. ASU 2009-13 addresses the separation
of deliverables and how to measure and allocate the arrangement consideration to
one or more units of accounting in multiple deliverable arrangements. Currently,
under the residual method of allocation, we use objective and reliable evidence
of the fair value of the undelivered elements to separate deliverables in
multiple deliverable arrangements. ASU 2009-13 eliminates the residual method
and requires that consideration from the arrangement be allocated to all
deliverables using the relative selling price method. ASU 2009-13 requires
additional disclosures related to multiple deliverable revenue arrangements upon
adoption and is effective for fiscal years beginning after June 15, 2010. In
addition, ASU 2009-13 may be early adopted. It may be implemented with either
prospective or retrospective application; however, if early adoption is chosen,
the entity must either adopt at the beginning of its fiscal year, or adopt using
retrospective application. We are currently evaluating the impact ASU 2009-13
will have on our financial position and results of operations, whether to early
adopt and which implementation method to use upon adoption if not
prescribed.
In
October 2009, the FASB issued ASU 2009-14,
Software (Topic 985): Certain
Revenue Arrangements That Include Software Elements—a consensus of the FASB
Emerging Issues Task Force
(“ASU 2009-14”). ASU 2009-14 changes the
accounting for revenue arrangements that include both tangible products and
software elements. Tangible products containing software components and
non-software components that function together to deliver the tangible product’s
essential functionality is no longer within the scope of the software revenue
guidance. Under prior guidance such arrangements were accounted for as software
if the software was determined to be more than incidental. ASU 2009-14 requires
that any hardware components of such arrangements be excluded from software
revenue guidance and that any essential software that is sold with or embedded
within the product also be excluded from software revenue guidance. This ASU is
effective for fiscal years beginning after June 15, 2010. In addition, ASU
2009-14 may be early adopted. ASU 2009-14 may be implemented with either
prospective or retrospective application; however, if early adoption is chosen,
the entity must either adopt at the beginning of its fiscal year, or adopt using
retrospective application. Further, ASU 2009-14 must be adopted in the same
period and with the same implementation method as ASU 2009-13. We are currently
evaluating the impact ASU 2009-14 will have on our financial position and
results of operations, whether to early adopt and which implementation method to
use upon adoption if not prescribed.
Income
Taxes
The
Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior
authoritative literature: Financial Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN
48)). FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with prior
literature FASB Statement No. 109, Accounting for Income Taxes. This standard
requires a company to determine whether it is more likely than not that a tax
position will be sustained will be sustained upon examination based upon the
technical merits of the position. If the more-likely-than- not threshold is met,
a company must measure the tax position to determine the amount to recognize in
the financial statements. As a result of the implementation of this standard,
the Company performed a review of its material tax positions in accordance with
recognition and measurement standards established by FASB ASC
740-10.
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
The
Company has adopted FASB ASC 740-10 to account for income taxes. The Company
currently has no issues creating timing differences that would mandate deferred
tax expense. Net operating losses would create possible tax assets in future
years. Due to the uncertainty of 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. A provision for income taxes has not
been made due to net operating loss carry-forwards of $4,189,293 and $2,964,435
as of September 30, 2009 and September 30, 2008, respectively, which may be
offset against future taxable income through 2029. No tax benefit has been
reported in the financial statements.
The
Company did not have any tax positions for which it is reasonably possible that
the total amount of unrecognized tax benefits will significantly increase or
decrease within the next 12 months.
The
Company includes interest and penalties arising from the underpayment of income
taxes in the consolidated statements of operations in the provision for income
taxes. As of September 30, 2009 and 2008, the Company had no accrued interest or
penalties related to uncertain tax positions.
The tax
years that remain subject to examination by major taxing jurisdictions are for
the years ended September 30, 2009, 2008 and 2007.
Subsequent
Events
Subsequent
to December 31, 2009 and through February 18, 2010, the Company’s CEO and
Chairman of the Board advanced an additional $80,000 to the Company as operating
capital bringing the total amount advanced to $396,131.
On
January 21, 2010, the Board of Directors voted to accept the resignation of CFO
Mark McEvoy due to continuing health issues.
On
January 21, 2010, the Board of Directors approved the issuance of 1,773,333
shares of common stock in satisfaction of $260,000 in related party notes
payable and $6,000 in accrued interest to a director of the Company. As part of
the agreement, the remaining balance of the related party note of $100,000 will
be due and payable over the next 7 years at an interest rate of 8% per
annum.
On
January 21, 2010, the Board of Directors approved the issuance of 680,000 shares
of common stock in satisfaction of $90,000 in related party notes payable and
$12,000 in accrued interest to a director of the Company. As part of the
agreement, the remaining balance of the related party note of $14,000 will be
due and payable over the next 2 years at an interest rate of 8% per
annum.
On
January 21, 2010, the Board of Directors voted to approve the grant of an
aggregate of 1,135,000 Stock Options, at an exercise price of $.15 per share
with full vesting in 2011 and expiring in 2020 to employees and independent
consultants who performed at high levels over the course of 2009. The options
will be valued using the Black-Scholes option pricing model and expensed
accordingly.
Organic
Sales and Marketing, Inc. has evaluated subsequent events for the period
September 30, 2009 through February 18, 2010, the date its financial statements
were issued, and concluded there were no other events or transactions occurring
during this period that required recognition of disclosure in its financial
statements.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
We are a
smaller reporting company, as defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, and accordingly we are not required to provide
the information required by this item.
Item
4T. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required financial disclosures. Because
of inherent limitations, our disclosure controls and procedures, no matter how
well designed and operated, can provide only reasonable, and not absolute,
assurance that the objectives of such disclosure controls and procedures are
met.
As of the
end of the period covered by this Report we conducted an evaluation, under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(b) and
15d-15(b). Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures were effective as of December 31, 2009.
Changes
in Internal Control
There was
no change in our internal control over financial reporting during the three
months ended December 31, 2009, that materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II — OTHER INFORMATION
Item
1A. Risk Factors
.
.
Risks
Related To Our Business And Operations
|
·
|
Economic or industry-wide
factors relevant to the
Company:
|
Should
consumer interest in “organic” or “natural” products diminish or discontinue;
should there be a natural disaster that adversely impacts garden center product
sales such as extreme weather conditions throughout the United States;
should there be a shortage of suppliers in the enzyme technology that is used in
some of our products or should there be a slower than anticipated roll-out of
products to customers due to such external factors, the Company’s ability
to realize a profit and yield a positive cash flow from operations as quickly as
we anticipate could be adversely impacted.
|
·
|
Material opportunities,
challenges:
|
Should
our suppliers not be able to deliver in the quantities the Company needs at any
given time in order to fulfill orders; should our contract manufacturer
not be able to deliver finished goods in a timely manner or suffer any type of
physical plant disaster, labor strike or shortage, it would adversely impact the
Company’s’ business. Difficult challenges may be incurred as more
competitors, who are more heavily financed than we are, enter into the market
and create pricing issues which could adversely impact the Company’s
operations.
|
·
|
Risks in short and long term
and the actions we are taking to address
them:
|
Undercapitalization
could impose growth restraints on the Company preventing us from entering other
markets and regions, as planned. The Company will continue to actively
pursue private placement investor funding as allowed by SEC regulations and to
satisfy debt and payables with stock, stock options and/or warrants as a means
of capitalizing the Company until operations are sufficient enough to be
self-sustaining. There can be no assurance, however, that these activities will
be successful.
If Sam
Jeffries were unable to host and produce the weekly talk show, this could have
an adverse impact on the show’s educational and promotional programming, which
is considered an essential part of our advertising and marketing plan.
The present co-hosts, Jim Zoppo and Layanee DeMerchant, could produce and
conduct the show in Sam Jeffries absence. In addition, Jim Zoppo is a well
respected, well known horticulturist and radio talk show host in his own
right.
Although
unlikely, interest in organics could diminish which would have an adverse effect
on the popularity of the radio show. To mitigate this possibility, “home
remedy”, “how to” and “natural and organic health-care alternative segments are
being added to the shows programming to expand listener interest and extend the
seasonality of the show. The Company also has plans to ultimately reach a
national audience by franchising the Garden Guys concept throughout the country
by having local talk shows discuss organics and lawn and gardening techniques
and problems indigenous to each of those regions.
|
·
|
Reliance on Investment
Funds
|
We just
recently started to receive meaningful cash flow from customer sales. We
expect that for the short term future, we will still rely on external funding
sources, primarily equity capital, to finance our operations. While we believe
that increasing cash flow from customer sales will ultimately provide
adequate funds to permit us to become self-sufficient, possibly, by the end of
2010; until then, we will continue to require additional capital from investors.
If we were unable to obtain such funding from outside sources, we would likely
be forced to reduce the level of our operations and business failure could
become a real possibility.
|
·
|
Reliance on Management
Team
|
As stated
above, the Company relies heavily upon a small team of full-time officers and
consultants. It has “key man” life insurance on the CEO, Samuel Jeffries that
would compensate us in the event of his demise. Sam Jeffries continued
involvement is deemed especially critical to our marketing efforts. The loss of
Sam Jeffries or one of several key officers or consultants could have an adverse
impact on the Company’s chances for success. At present, “key man” insurance
coverage is not being pursued on the other full-time officers due to
cost.
Risks Related to Ownership
of Our Stock
Our stock
officially began trading on Monday, May 5, 2008 on the Over The Counter
Electronic Bulletin Board under the trading symbol; OGSM. Even with our shares
being traded publicly, there is a substantial “overhang” of outstanding shares
that would be eligible for sale under Rule 144. Such sales, if they were to
occur, could tend to suppress the market value of our shares for some
time.
|
·
|
No Dividends in Foreseeable
Future
|
Our Board
of Directors determines whether to pay cash dividends on our issued and
outstanding shares. Such determination will depend upon our future earnings, our
capital requirements, our financial condition and other relevant factors. At
present, our board is not intending to declare any dividends in the foreseeable
future. Earnings, once achieved, are expected to be retained to help finance the
growth of our business and for general corporate purposes.
|
·
|
Provisions of our Certificate
of Incorporation, By-laws and Delaware
Law
|
Provisions
of our Certificate of Incorporation, By-laws and Delaware law may make it more
difficult for someone to acquire control of us or for our stockholders to remove
existing management, and might discourage a third party from offering to acquire
us, even if a change in control or in management would be beneficial to our
stockholders. For example, our Certificate of Incorporation allows us to issue
different series of shares of common stock without any vote or further action by
our stockholders and our Board of Directors has the authority to fix and
determine the relative rights and preferences of such series of common stock. As
a result, our Board of Directors could authorize the issuance of a series of
common stock that would grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before dividends are
distributed to the holders of other common stock and the right to the redemption
of the shares, together with a premium, prior to the redemption of other series
of our common stock.
Item
6.
Exhibits
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the
Company’s Chief Executive Officer.
|
31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the
Company’s Chief Financial Officer.
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the
Company’s Chief Executive Officer.
|
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the
Company’s Chief Financial Officer.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
February
19, 2010
|
/s/
|
|
Date
|
SAMUEL
F.H. JEFFRIES
|
|
|
CEO
AND CHAIRMAN
|
|
|
|
|
February
19, 2010
|
/s/
|
|
Date
|
SAMUEL
F.H. JEFFRIES,
|
|
|
INTERIM
CHIEF FINANCIAL OFFICER
|
|
Organic Sales and Market... (CE) (USOTC:OGSM)
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