Unassociated Document
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 June 30, 2011
 
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

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 13,860,722 shares of common stock, par value $.0001, issued and outstanding as of July 29, 2011.

 
 

 
 
Organic Sales and Marketing, Inc.
Form 10-Q
Table of Contents

     
Page
Part I - Financial Information
Item 1
Financial Statements
 
2
Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
9
Item 3
Quantitative and Qualitative Disclosures About Market Risk.
 
9
Item 4
Controls and Procedures
 
10
Part II - Other Information
Item 1
Legal Proceedings
 
11
Item 1A
Risk Factors
 
11
Item 6
Exhibits
 
12
 
Signatures
  13

 
1

 
 
Part 1. Financial Information

Item 1. Financial Statements.

CONTENTS
   
     
Balance Sheets
 
3
     
Statements of Operations
 
5
     
Statements of Cash Flows
 
6
     
Notes to the Financial Statements
 
7

 
2

 

ORGANIC SALES AND MARKETING, INC.
Balance Sheets
 
ASSETS

   
June 30,
 2011
   
September 30,
2010
 
   
(Unaudited)
   
 
 
CURRENT ASSETS
           
             
Cash and cash equivalents
  $ 42,608     $ 46,237  
Accounts receivable, net
    50,439       22,939  
Inventories
    116,956       90,797  
Prepaid expense
    12,740       16,160  
                 
Total Current Assets
    222,743       176,133  
                 
PROPERTY AND EQUIPMENT, NET
    2,109       4,481  
                 
OTHER ASSETS
               
Deposits
    200       200  
                 
TOTAL ASSETS
  $ 225,052     $ 180,814  

The accompanying notes are an integral part of these financial statements.

 
3

 

ORGANIC SALES AND MARKETING, INC.
Balance Sheets (Continued)

LIABILITIES AND STOCKHOLDERS' DEFICIT

   
June 30,
2011
   
September 30,
2010
 
   
(Unaudited)
   
 
 
CURRENT LIABILITIES
           
             
Accounts payable-trade
  $ 549,305     $ 523,598  
Accounts payable-related party
    21,693       19,098  
Customer deposits
    85,250       -  
Accrued expenses
    12,902       5,444  
Accrued interest payable
    121,831       85,347  
Line of credit
    58,840       67,387  
Notes payable - related parties
    477,100       439,334  
                 
Total Current Liabilities
    1,326,921       1,140,208  
                 
Total Liabilities
    1,326,921       1,140,208  
                 
COMMITMENTS
    -       -  
                 
STOCKHOLDERS' DEFICIT
               
                 
Common stock, $0.0001 par value; 100,000,000 shares  authorized, 13,839,494 and 13,709,494 shares issued and   outstanding, respectively
    1,386       1,371  
Additional paid-in capital
    6,724,459       6,493,112  
Accumulated Deficit
    (7,827,714 )     (7,453,877 )
                 
Total Stockholders' Deficit
    (1,101,869 )     (959,394 )
                 
TOTAL LIABILITIES AND
               
STOCKHOLDERS' DEFICIT
  $ 225,052     $ 180,814  

The accompanying notes are an integral part of these financial statements.

 
4

 

ORGANIC SALES AND MARKETING, INC.
Statements of Operations

   
For the Three Months Ended
June 30,
   
For the Nine Months Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
REVENUES
                       
                         
Product sales, net
  $ 152,725     $ 59,271     $ 315,204     $ 145,593  
Radio advertising
    23,350       -       32,350       27,305  
                                 
Total Revenues
    176,075       59,271       347,554       172,898  
                                 
COST OF SALES
    111,250       41,264       258,100       116,278  
                                 
GROSS PROFIT
    64,825       18,007       89,454       56,620  
                                 
OPERATING EXPENSES
                               
                                 
Advertising expense
    2,574       10,200       40,881       58,715  
Payroll and compensation expense
    53,845       14,481       171,220       125,372  
Selling expense
    18,064       7,642       39,677       53,348  
General and administrative
    31,591       32,341       101,568       132,138  
Legal and accounting
    46,331       35,119       126,321       126,452  
                                 
Total Operating Expenses
    152,405       99,783       479,667       496,025  
                                 
LOSS FROM OPERATIONS
    (87,580 )     (81,776 )     (390,213 )     (439,405 )
                                 
OTHER INCOME (EXPENSE)
                               
                                 
Interest  income
    204       (635 )     241       (78 )
Interest expense
    (14,282 )     (13,001 )     (41,991 )     (45,417 )
Other income
    22,492       -       58,582       -  
                                 
Total Other Income (Expense)
    8,414       (13,636 )     16,832       (45,495 )
                                 
NET LOSS BEFORE INCOME TAXES
    (79,166 )     (95,412 )     (373,381 )     (484,900 )
                                 
INCOME TAX EXPENSE
    -       -       (456 )     (500 )
                                 
NET LOSS
  $ (79,166 )   $ (95,412 )   $ (373,837 )   $ (485,400 )
                                 
LOSS PER SHARE-
                               
Basic and Diluted
  $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.04 )
                                 
WEIGHTED AVERAGE NUMBER
                               
OF SHARES OUTSTANDING-
                               
Basic and Diluted
    13,858,383       12,207,624       13,830,209       11,150,852  
 
The accompanying notes are an integral part of these financial statements.
 
 
5

 

ORGANIC SALES AND MARKETING, INC.
Statements of Cash Flows

   
For the Nine Months Ended
June 30,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
             
Net loss
  $ (373,837 )   $ (485,400 )
Adjustments to reconcile net loss to
               
net cash used in operating activities:
               
Depreciation expense
    2,372       3,677  
Shares issued for services rendered
    12,000       -  
Stock based compensation
    204,362       185,081  
Stock issued for accrued interest
    -       18,000  
Change in operating assets and liabilities:
               
Accounts receivable, net
    (27,500 )     (7,270 )
Inventories
    (26,159 )     20,292  
Prepaid expense
    3,420       (11,477 )
Accounts payable-trade
    25,707       (54,061 )
Accounts payable-related party
    2,595       13,262  
Customer deposits
    85,250       -  
Accrued expenses
    7,458       (21,950 )
Accrued interest payable
    36,484       14,054  
                 
Net Cash Provided (Used) by Operating Activities
    (47,848 )     (325,792 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
    -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
                 
Proceeds from issuance of common stock
    15,000       52,098  
Proceeds from line of credit
    3,000       10,000  
Payments on line of credit
    (11,547 )     (12,267 )
Proceeds from notes payable - related party
    43,406       287,800  
Payments on notes payable - related party
    (5,640 )     (5,760 )
                 
Net Cash Provided by Financing Activities
    44,219       331,871  
                 
NET INCREASE (DECREASE) IN CASH
    (3,629 )     6,079  
                 
CASH, BEGINNING OF PERIOD
    46,237       24,547  
                 
CASH, END OF PERIOD
  $ 42,608     $ 30,626  
                 
SUPPLEMENTAL DISCLOSURES:
               
                 
Cash paid for interest
  $ 5,636     $ 7,776  
Cash paid for taxes
  $ -     $ -  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
                 
Stock issued for related party notes payable
    -       368,000  

The accompanying notes are an integral part of these financial statements.

 
6

 

ORGANIC SALES AND MARKETING, INC.
Notes to the Financial Statements
June 30, 2011 (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, 2010 Form 10K filing. Operating results for the nine months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2011.

Note 2 – Significant Transactions

Collaboration agreement
On March 10, 2011 the Company entered into an NDA (Non-disclosure Agreement) with a large Farm and Fleet distributor to enter into discussions concerning certain Company technologies, technology development, and other potential collaborative efforts relating to business matters and or technologies of mutual interest.  The sole purpose of these discussions is for the evaluation of these Company technologies for use in commercial and companion retail markets preliminary to possible subsequent proposals and or agreements of mutual interest under terms to be established.  As of the time of this document, no purchase orders have been placed.

Notes Payable – Related Party
Advances by the CEO to the Company of $20,192 during quarter ending June 30, 2011 have been added to an outstanding promissory note.   As of June 30, 2011 total principal owed on the note was $277,345 and accrued interest owed was $18,264.

Equity Transactions
On May 1, 2010 the Company commenced a private stock offering, whereby it authorized the issuance of 5,000,000 shares of its common stock for total proceeds of $500,000.  As of June 30, 2011 $107,005 of the $500,000 was raised and 1,070,050 shares of common stock were issued.

Stock Options
The Company has determined the estimated value of the stock options granted by using the Black-Scholes pricing model with the following assumptions: expected life of 4 or 10 years, a risk free interest rate of 2.38%, a dividend yield of 0% and volatility 205% in the current quarter.

During the quarter ended June 30, 2011 2,000 options were granted.  Total outstanding common stock options as of June 30, 2011 were 2,339,145.  Total exercisable were 2,133,983 at a weighted average exercise price of $0.45.
Stock Option Expense is included in the Statements of Operations as follows:

   
For the Three Months Ended
June 30,
   
For the Nine Months Ended
 June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
 Payroll and Compensation Expense
  $ 34,562     $ 31,913     $ 103,686     $ 87,291  
 Legal and Accounting
    33,658       32,686       100,676       97,791  
    $ 68,220     $ 64,599     $ 204,362     $ 185,082  

 
7

 

Note 3 – 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 4 – Subsequent Events

Organic Sales and Marketing, Inc. has evaluated subsequent events for the period ending June 30, 2011 through the date that the 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.
 
 
8

 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Cash was $42,608 at June 30, 2011 compared to $46,237 as of September 30, 2010, a decrease of $3,629. Net cash used in operating activities during the nine months ended June 30, 2011 decreased by $277,944 compared to the same period in the prior fiscal year.  Cash used in operations is the result of the net loss of $373,381 during the nine months ended June 30, 2011 offset, in part, by stock based compensation recognized during the period in the amount of $204,362.  Net Cash Provided by Financing Activities was $44,219 during the nine months ended June 30, 2011 compared to $331,871 during the same period in the prior year for a decrease of $287,652 or 87%.  This is mainly due to a significant decrease in borrowings from related parties.

Results of Operations

Three and Nine months ended June 30, 2011 Compared to the Three and Nine months ended June 30, 2010

Products sales for the quarter totaled $152,725 compared to $59,271 for the same period in the prior year. The year to date increase in products sales is 116.5%.  This increase is mainly due to the increase in the natural fertilizer sales as part of the joint venture with Land O’Lakes/Purina.  These sales of Bradfield Organics and private label fertilizers are at lower margins than our other lines, which is why the gross profit margin decreased between periods.

Operating expenses increased by 52.7% for quarter compared to the same quarter in the previous year, mainly due to adjustments in the prior year to stock option expense.  Year to date comparison shows an overall decrease of 3.3% versus the same period in the prior year, primarily due to ongoing cost cutting measures in both selling expenses and general and administrative costs.

Other Income has increased by $22,492 in the current quarter and $58,582 year to date vs the same periods in the prior year.  This is due to a sales and marketing agreement with a major vendor as discussed in the Company’s 8-K filing dated February 8th 2011.

The Company recently developed and launched it new product Egg Wipes, under its own Healthier Homestead brand, which is designed for use by the backyard poultry hobbyist.   On June 6, 2011, the Company invoiced $41,718.24 for its first order of private label Egg Wipes to a major farm and fleet distributor.  The Company anticipates this could lead to increased sales in the future given the newness of the concept however there is no certainty of its acceptance.
 
Interest expense increased 9.9% due to additional borrowing in the current quarter and decreased 7.5% year to date, primarily due to the Notes Payable - Related Party decreases as discussed in the footnotes to the Financial Statements included in this filing.

Forward Looking Statements

Please refer to Part II, Item 7 of Form 10K for the year ended September 30, 2010, which is incorporated by reference herein.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
We believe that there have been no significant changes in our market risk exposures for the three months ended June 30, 2011.

 
9

 

Item 4. 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 June 30, 2011.

There was no change in our internal control over financial reporting during the three months ended June 30, 2011, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
10

 

Part II – Other Information

Item 1. Legal Proceedings

The Company is the defendant in a lawsuit commenced by Entercom Boston LLC in Superior Court, Suffolk, MA. (CA 10-1652E) on May 17, 2010. Plaintiff alleges that Registrant owes approximately $64,000 for advertising and air time.  OSM has asserted a counterclaim, asserting breach of contract and other defenses.
 
The Company and Saga Communications of New England, LLC. d/b/a WZAN-AM Radio settled in an out of court settlement for the sum of $3175.00 on Monday April 25, 2011.
 
Item 1A. Risk Factors.

 
·
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.

 
·
Trading Market
 
Our stock officially began trading on Monday, May 5, 2008 on the Over The Counter Electronic Bulletin Board under the trading symbol; OGSM.  The Company is now listed on the Pink Sheets under the trading symbol; OGSM.PK. 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.

 
·
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.

 
11

 
 
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.
 
 
12

 
 
SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  ORGANIC SALES AND MARKETING, INC.  
   
(Registrant)
 
       
August 10, 2011
 
/s/ Samuel F.H. Jeffries  
Date
 
SAMUEL F.H. JEFFRIES
 
   
CEO AND CHAIRMAN
 
 
August 10, 2011
 
/s/ Keith D. Lowey  
Date
 
KEITH D. LOWEY
 
   
CHIEF FINANCIAL OFFICER
 
 
 
13