UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended March 31, 2012
[
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____to _____
Commission
File Number: 333-176704
ORGANIC
PLANT HEALTH, INC.
(Exact
name of small business issuer as specified in its charter)
Nevada
|
27-2874167
|
(State or other jurisdiction of
|
(IRS Employer Identification No.)
|
incorporation or organization)
|
|
9206
Monroe Road
Charlotte,
NC 28270 USA
(Address
of principal executive offices)
(704) 841-1066
(Issuer's
telephone number)
Indicate
by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [x]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
Yes
[ ] No [x]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 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 has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding
12 months (or such shorter period that the registrant was required to submit and post such files).
Yes
[ ] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-Q or any amendments to this Form 10-Q.
Yes
[ ] No [x]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
£
|
|
Non-accelerated filer
£
(Do not check if a smaller reporting Company)
|
|
Accelerated filer
£
|
|
Smaller reporting company
S
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the exchange act).
Yes
[ ] No [x]
Number
of shares of common stock, par value $.001, outstanding as of May 21, 2012: 65,840,081
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
The
discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that
involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include
statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such
as "anticipate," "expect," "intend," "plan," "will," "we believe,"
"the Company believes," "management believes" and similar language, including those set forth in the discussions
under "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis or Plan of Operation"
as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available
to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking
statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.
TABLE OF
CONTENTS
|
|
|
|
PART I. FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
ITEM 1. FINANCIAL STATEMENTS
|
4
|
|
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
10
|
|
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
12
|
|
|
ITEM
4. CONTROLS AND PROCEDURES
ITEM
4T. CONTROLS AND PROCEDURES
|
12
12
|
|
|
PART II. OTHER
INFORMATION
|
|
|
|
ITEM 1. LEGAL PROCEEDINGS
|
13
|
|
|
ITEM 1A. RISK FACTORS
|
13
|
|
|
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
13
|
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
|
13
|
|
|
ITEM 4.
MINE SAFETY DISCLOSURE
|
13
|
|
|
ITEM 5. OTHER INFORMATION
|
13
|
|
|
ITEM 6. EXHIBITS
|
13
|
|
|
SIGNATURES
|
14
|
|
|
INDEX TO EXHIBITS
|
15
|
ITEM
1.
FINANCIAL STATEMENTS
Index to Unaudited Consolidated Financial
Statements
|
|
Pages
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
4
|
|
|
|
Consolidated Statements of Operations
|
|
5
|
|
|
|
Consolidated Statements of Cash Flows
|
|
6
|
|
|
|
Notes to Consolidated Financial Statements
|
|
7-11
|
|
|
|
ORGANIC
PLANT HEALTH, INC. AND SUBSIDIARY
|
CONSOLIDATED
BALANCE SHEETS
|
AS OF
MARCH 31, 2012 AND DECEMBER 31, 2011
|
(UNAUDITED)
|
|
|
|
|
|
|
|
3/31/2012
|
|
12/31/2011
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
94,535
|
|
|
$
|
42,651
|
|
Accounts receivable,
net
|
|
|
77,798
|
|
|
|
48,963
|
|
Inventory
|
|
|
110,002
|
|
|
|
38,812
|
|
Total Current Assets
|
|
|
282,335
|
|
|
|
130,426
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
99,245
|
|
|
|
106,774
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Security
deposits
|
|
|
6,700
|
|
|
|
6,700
|
|
Total Other Assets
|
|
|
6,700
|
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
388,280
|
|
|
$
|
243,900
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
265,172
|
|
|
$
|
199,094
|
|
Notes payable - current
portion
|
|
|
182,788
|
|
|
|
103,310
|
|
Notes payable - related
parties
|
|
|
116,684
|
|
|
|
116,684
|
|
Accrued expenses
|
|
|
39,923
|
|
|
|
30,785
|
|
Accrued interest
|
|
|
35,881
|
|
|
|
30,137
|
|
Common stock to be
issued
|
|
|
97,500
|
|
|
|
32,500
|
|
Deferred
revenues
|
|
|
37,252
|
|
|
|
55,129
|
|
Total Current Liabilities
|
|
|
775,201
|
|
|
|
567,639
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
87,249
|
|
|
|
152,227
|
|
Notes
payable - related parties
|
|
|
42,500
|
|
|
|
42,500
|
|
Total Long-Term Liabilities
|
|
|
129,749
|
|
|
|
194,727
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
904,950
|
|
|
|
762,367
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, par
value $0.001; 150,000,000 shares authorized; 61,215,081 shares issued and outstanding as of March 31, 2012 and December 31,
2011, respectively
|
|
|
61,215
|
|
|
|
61,215
|
|
Preferred stock, par
value $0.001; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2012 and December
31, 2011, respectively
|
|
|
—
|
|
|
|
—
|
|
Paid-in capital
|
|
|
702,530
|
|
|
|
671,754
|
|
Accumulated
deficit
|
|
|
(1,280,415
|
)
|
|
|
(1,251,436
|
)
|
Total Stockholders'
Deficit
|
|
|
(516,670
|
)
|
|
|
(518,467
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
388,280
|
|
|
$
|
243,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these consolidated financial statements
|
ORGANIC
PLANT HEALTH, INC. AND SUBSIDIARY
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
FOR THE
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
|
(UNAUDITED)
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
3/31/2012
|
|
3/31/2011
|
REVENUES
|
|
|
|
|
Sales
|
|
$
|
251,169
|
|
|
$
|
225,215
|
|
Cost
of Goods Sold
|
|
|
(80,644
|
)
|
|
|
(73,993
|
)
|
GROSS
PROFIT
|
|
|
170,525
|
|
|
|
151,222
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
17,360
|
|
|
|
15,356
|
|
Rent
|
|
|
30,862
|
|
|
|
30,065
|
|
Bank and finance charges
|
|
|
3,740
|
|
|
|
5,407
|
|
Depreciation
|
|
|
7,529
|
|
|
|
7,526
|
|
Advertising and promotion
|
|
|
20,602
|
|
|
|
35,444
|
|
Automobile
|
|
|
2,763
|
|
|
|
4,108
|
|
Contract labor
|
|
|
18,315
|
|
|
|
25,133
|
|
Credit card processing
fees
|
|
|
1,987
|
|
|
|
3,016
|
|
Website maintenance
|
|
|
225
|
|
|
|
995
|
|
Insurance
|
|
|
9,585
|
|
|
|
6,693
|
|
Travel, meals and
entertainment
|
|
|
2,126
|
|
|
|
5,019
|
|
Wages and taxes
|
|
|
32,159
|
|
|
|
40,028
|
|
Commissions
|
|
|
—
|
|
|
|
3,024
|
|
Supplies
|
|
|
2,820
|
|
|
|
4,396
|
|
Telephone and utilities
|
|
|
8,033
|
|
|
|
8,310
|
|
Product development
|
|
|
3,255
|
|
|
|
—
|
|
Bad debt
|
|
|
1,687
|
|
|
|
2,979
|
|
General
and administrative
|
|
|
11,851
|
|
|
|
6,899
|
|
TOTAL
OPERATING EXPENSES
|
|
|
174,898
|
|
|
|
204,400
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(4,373
|
)
|
|
|
(53,178
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(24,606
|
)
|
|
|
(18,755
|
)
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(24,606
|
)
|
|
|
(18,755
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION
FOR INCOME TAXES
|
|
|
(28,979
|
)
|
|
|
(71,933
|
)
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(2
8,979
|
)
|
|
$
|
(71,933
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
- BASIC
|
|
|
**
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING - BASIC
|
|
|
61,251,081
|
|
|
|
13,470,547
|
|
|
|
|
|
|
|
|
|
|
** Less than $.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these consolidated financial statements
|
ORGANIC
PLANT HEALTH, INC. AND SUBSIDIARY
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR THE
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
|
(UNAUDITED)
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
3/31/2012
|
|
3/31/2011
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net loss
for the period
|
|
$
|
(28,979
|
)
|
|
$
|
(71,933
|
)
|
Adjustments to reconcile
net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
1,687
|
|
|
|
2,979
|
|
Depreciation
|
|
|
7,529
|
|
|
|
7,526
|
|
Amortization of discount
to note payable
|
|
|
16,262
|
|
|
|
12,500
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(30,522
|
)
|
|
|
(75,223
|
)
|
Inventory
|
|
|
(71,190
|
)
|
|
|
6,982
|
|
Accounts payable
|
|
|
66,078
|
|
|
|
(62,913
|
)
|
Accrued expenses
|
|
|
9,138
|
|
|
|
7,135
|
|
Accrued interest
|
|
|
5,744
|
|
|
|
3,250
|
|
Deferred
revenues
|
|
|
(17,877
|
)
|
|
|
28,219
|
|
Net cash (used in)
provided by operating activities
|
|
|
(42,130
|
)
|
|
|
(141,478
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
—
|
|
|
|
(303
|
)
|
Net cash (used in)
investing activities
|
|
|
—
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments on notes
payable - related parties
|
|
|
—
|
|
|
|
(10,000
|
)
|
Proceeds from notes
payable
|
|
|
42,500
|
|
|
|
102,500
|
|
Payments on notes
payable
|
|
|
(13,486
|
)
|
|
|
(14,691
|
)
|
Proceeds
from stock issuance
|
|
|
65,000
|
|
|
|
75,000
|
|
Net cash provided
by (used in) financing activities
|
|
|
94,014
|
|
|
|
152,809
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
51,884
|
|
|
|
11,028
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents,
Beginning of Period
|
|
|
42,651
|
|
|
|
6,625
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents,
End of Period
|
|
$
|
94,535
|
|
|
$
|
17,653
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
1,712
|
|
|
$
|
3,005
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH
INVESTING AND FINANCING INFORMATION:
|
|
|
|
|
|
|
|
|
Common
stock issued to settle accounts payable
|
|
$
|
—
|
|
|
$
|
68,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these consolidated financial statements
|
ORGANIC
PLANT HEALTH INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2012
AND 2011
NOTE - 1 BASIS OF PRESENTATION
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting
principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal
recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the
interim periods presented. Interim results are not necessarily indicative of results for a full year.
The unaudited condensed
consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial
information have read or have access to the Company’s annual audited consolidated financial statements for the preceding
fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the related notes for the years ended December 31, 2011 and 2010 thereto contained in the
Annual Report on Form 10-K for the year ended December 31, 2011.
NOTE
-
2
ORGANIZATION AND BUSINESS BACKGROUND
Organic Plant Health,
LLC, (referred to herein as “OPH”), a North Carolina Limited Liability Company, was originally founded in Charlotte,
NC in 2007 by Billy Styles and Alan Talbert. The business produces and distributes organic based fertilizers and soil conditioners
for use in the continual care of residential and commercial landscapes.
On December 10, 2010, OPH
entered into a Plan of Exchange agreement (the “Plan of Exchange”) between and among the members of OPH (“OPH
Members”) and Acumedspa Holdings, Inc., (herein referred to as the Company), a publically traded Nevada corporation, and
its majority shareholder, Mr. Brian Sperber.
Pursuant to the
terms of the Plan of Exchange, Acumedspa Holdings, Inc. acquired 100% of the membership interests of OPH in exchange for a transfer
of 3,985,000 shares of the Company’s Convertible Preferred Stock to OPH Members, which gave
OPH
Members a controlling interest in Acumedspa Holdings, Inc., representing approximately 76.47% of the then issued and outstanding
shares on a dilutive basis. OPH and Acumedspa Holdings, Inc. were hereby reorganized, such that the Company acquired 100% of the
ownership of OPH, and OPH became a wholly-owned subsidiary of the Company.
The stock exchange
transaction was accounted for as a reverse acquisition and recapitalization of the Company whereby
OPH
was deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The
accompanying consolidated financial statements are in substance those of
OPH
, with the assets
and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction. The
Company is deemed to be a continuation of the business of
OPH
. Accordingly, the accompanying
consolidated financial statements include the following:
(1) The
balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree
at historical cost;
(2) The
financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization
had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock
exchange transaction.
On December 11,
2010, the Company vended out the two subsidiaries, ACUMEDSPA LLC, a Tennessee Limited Liability Company, and CONSUMER CARE OF AMERICA
LLC, a Florida Limited Liability Company, pursuant to an Agreement entered between and among OPH and Chinita LLC, a Nevada Limited
Liability Company (“Buyer”). Accordingly, the Buyer acquired 100% interest in ACUMEDSPA LLC and 100% interest in CONSUMER
CARE OF AMERICA LLC, as well as any and all assets and liabilities in both subsidiaries in exchange for the total payments of not
less than Two Hundred dollars ($200). As a result of the transactions consummated at the closing, the purchase gave the Buyer a
'controlling interest' in both subsidiaries; therefore, ACUMEDSPA LLC and CONSUMER CARE OF AMERICA LLC were no longer wholly-owned
subsidiaries of the Company.
Organic Plant Health, Inc
.
and OPH are hereinafter referred to as (the “Company”).
NOTE
-
3 RECENTLY
ISSUED ACCOUNTING STANDARDS
The Company has reviewed
all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
In May 2011, FASB
issued Accounting Standards Update No. 2011-04,
“Fair Value Measurements (Topic 820): Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”
(“ASU 2011-04”). ASU
2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing
information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures
for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is
to be applied prospectively. The Company anticipates that the adoption of this standard will not materially expand its
financial statement note disclosures.
In September
2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether
it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of
its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount,
the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective
for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company did
not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial
condition.
In December
2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities”
to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update
requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position
when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements
relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013.
The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will
have a material impact on its results of operations, cash flows or financial condition.
NOTE
-
4
ACCOUNTS RECEIVABLE
Accounts receivable
was comprised of the following amounts as of March 31, 2012 and December 31, 2011:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
|
|
|
|
|
Gross trade accounts receivable from customers
|
|
$
|
82,062
|
|
|
$
|
51,540
|
|
Allowance for doubtful customer accounts
|
|
|
(4,264
|
)
|
|
|
(2,577
|
)
|
Accounts receivable, net
|
|
$
|
77,798
|
|
|
$
|
48,963
|
|
|
|
|
|
|
|
|
|
|
The Company establishes
an allowance for doubtful accounts based on managements’ assessment of known requirements, aging of receivables, payment
history, the customer’s current credit worthiness and the economic environment, which is approximately 5% of accounts receivable
outstanding.
During
the three months ended March 31, 2012 and 2011, the Company had b
ad debt expenses of $1,687 and $2,979, respectively, in
the accompanying consolidated statements of operations.
NOTE
-
5 INVENTORY
Inventory was comprised
of the following as of March 31, 2012 and December 31, 2011:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
|
|
|
|
|
Raw materials
|
|
$
|
89,455
|
|
|
$
|
16,665
|
|
Work in process
|
|
|
0
|
|
|
|
0
|
|
Finished goods
|
|
|
20,547
|
|
|
|
22,147
|
|
|
|
|
110,002
|
|
|
|
38,812
|
|
Provision for obsolete inventories
|
|
|
0
|
|
|
|
0
|
|
|
|
$
|
110,002
|
|
|
$
|
38,812
|
|
NOTE
-
6 PROPERTY
AND EQUIPMENT
Property and equipments
were comprised of the following as of March 31, 2012 and December 31, 2011:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
Cost:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
178,309
|
|
|
$
|
178,309
|
|
Furniture and fixtures
|
|
|
25,623
|
|
|
|
25,623
|
|
Software
|
|
|
13,252
|
|
|
|
13,252
|
|
Total cost
|
|
|
217,184
|
|
|
|
217,184
|
|
Less: Accumulated depreciation
|
|
|
(117,939
|
)
|
|
|
(110,410
|
)
|
Property and equipment, net
|
|
$
|
99,245
|
|
|
$
|
106,774
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
was $7,529 and $7,526 for the three months ended March 31, 2012 and 2011, respectively.
NOTE
-
7 NOTES
PAYABLE
The Company had
outstanding balances on its notes payable of the following amounts as of March 31, 2012 and December 31, 2011:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
Bank of Granite, 8.5% interest rate, due on March 26, 2012
(1)
|
|
$
|
0
|
|
|
$
|
2,377
|
|
Bank of NC, 6.5% interest rate, due on June 30, 2013
(2)
|
|
|
57,900
|
|
|
|
66,337
|
|
Greentree Financial Group, 6% interest rate, due on January 1, 2013, net of discount
(3)
|
|
|
62,500
|
|
|
|
50,000
|
|
NEKCO LLC, 20% interest rate, due on April 21, 2012
(4)
|
|
|
40,000
|
|
|
|
40,000
|
|
Mark Blumberg, 5.75% interest rate, due on October 1, 2015
(5)
|
|
|
94,151
|
|
|
|
96,823
|
|
Asher Enterprises Inc., 8% interest rate, due on December 9, 2012
(6)
|
|
|
15,486
|
|
|
|
0
|
|
Total notes payable
|
|
$
|
270,037
|
|
|
$
|
255,537
|
|
Less: Current portion of notes payable
|
|
|
(182,788
|
)
|
|
|
(103,310
|
)
|
Total long-term notes payable
|
|
$
|
87,249
|
|
|
$
|
152,227
|
|
(1) The Company has a line of credit
with Bank of Granite at an interest rate of prime plus 3 % per annum. The balance on this credit line was paid in full on February
21, 2012. The Company recorded interest expenses of $89 during the three months ended March 31, 2012.
(2) The Company has loan payable
to Bank of North Carolina at an interest rate of 6.5% per annum and due on June 30, 2013. The balance of this bank loan was $57,900
as of March 31, 2012, of which $48,237 was classified as short-term loan payable. The Company recorded interest expenses of $784
and $1,519 during the three months ended March 31, 2012 and 2011, respectively.
(3) On January 1, 2011, the Company
entered into a convertible promissory note (GT Note) in a principal amount of $100,000 payable to Greentree Financial Group (“Greentree”),
which bears an interest rate of 6% per annum and is due on January 1, 2013. Pursuant to GT Note, Greentree has an option to convert
all or any portion of the accrued interest and unpaid principal balance of GT Note into the Common Stock of the Company or its
successors, at Ten Cents ($.10) per share, no sooner than September 30, 2012. The conversion price associated with GT Note was
determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at
the time of issuance.
GT Note is discounted in full amount due to the issuance of 1,000,000 shares of Common Stock as sweetener
to GT Note, and a beneficial conversion feature. The fair value of the 1,000,000 shares was $68,245 determined by an arm’s
length payable settlement with a non-affiliate since there was nominal trading volume of our common stock in the market, and recorded
as discount to note payable, which will be amortized over 2 years starting from January 1, 2011. The remaining discount of $31,755
represented the intrinsic value of the beneficial conversion option, which will be amortized over 2 years starting from January
1, 2011. The Company recorded interest expense related to this note of $14,000 for the three months ended March 31, 2012 and 2011,
respectively.
The carry
value of GT Note was $62,500 as of March 31, 2012. The 1,000,000 shares of Common Stock were issued on May 13, 2011.
(4) The Company has loan payable
to NEKCO, LLC in amount of $40,000 (“Principal Amount”) due on April 21, 2012 (“Maturity Date”). Interest
will accrue on the unpaid balance of the Principal Amount from December 21, 2011 until the maturity date of April 21, 2012, at
the fixed rate of 20.0% calculated on the basis of a flat interest payment if the loan is repaid on or before Maturity Date. Accordingly,
the Company recorded interest expense of $1,973 related to this note during the three months ended March 31, 2012.
(5) The Company has a loan payable
to Mark Blumberg (“Mr. Blumberg”), a former member of the Company, at an interest rate of 5.75% per annum and due on
October 1, 2015. The loan was due to the redemption of Mr. Blumberg’s membership of the Company pursuant to a settlement
agreement entered on January 1, 2011. The balance of this loan was $94,151 as of March 31, 2012, of which $16,566 was classified
as short-term loan payable. The Company recorded interest expenses of $928 during the three months ended March 31, 2012.
(6) On March 9, 2012, the Company
entered into a convertible promissory note (Asher Note) in a principal amount of $42,500 payable to Asher Enterprises Inc. (“Asher”),
which bears an interest rate of 8% per annum and is due on December 9, 2012. Pursuant to Asher Note, Asher has an option to convert
all or any portion of the accrued interest and unpaid principal balance of Asher Note into the Common Stock of the Company or its
successors, at 58% of the market price, no sooner than September 5, 2012. The conversion price associated with Asher Note was determined
based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of
issuance.
Asher Note is discounted
in amount of $30,776 due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the
minimum period in which Asher can recognize the return. Accordingly, the Company recorded interest expense related to this note
of $3,966 for the three months ended March 31, 2012.
The carry value
of Asher Note was $15,486 as of March 31, 2012.
NOTE
-
8 NOTES
PAYABLE – RELATED PARTIES
The Company had
outstanding balances on its notes payable – related parties of the following amounts as of March 31, 2012 and December 31,
2011:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
Shareholder loans, Prime plus 2.5% interest rate, due July 2012
|
|
$
|
55,800
|
|
|
$
|
55,800
|
|
Loans from officer, 5.5% interest rate, due on demand
|
|
|
60,884
|
|
|
|
60,884
|
|
Loans from company owned by shareholders, 5.5% interest rate, due May 2016
|
|
|
42,500
|
|
|
|
42,500
|
|
Total notes payable – related parties
|
|
$
|
159,184
|
|
|
$
|
159,184
|
|
Less: Current portion of notes payable – related parties
|
|
|
(116,684
|
)
|
|
|
(116,684
|
)
|
Total long-term note payable – related parties
|
|
$
|
42,500
|
|
|
$
|
42,500
|
|
In July 2009, the
Company’s shareholders made several loans in total amount of $275,000 to the Company to fund its operations. The shareholder
loans were evidenced by promissory notes due in July 2012, with interest at the floating interest rate of Prime plus 2.5%. The
interest rate will be adjusted each calendar quarter of January 1, April 1, July 1 and October 1. The principal balance of the
shareholder loans was $55,800 as of March 31, 2012. Accordingly, the Company recorded interest expenses of $791 and $782 during
the three months ended March 31, 2012 and 2011, respectively.
In addition, the
Company had outstanding balances of $60,884 due to the Company’s President as of March 31, 2012. The funds borrowed from
the Company’s President were to fund the Company’s operations. The loan agreement was not evidenced by any promissory
note, but rather a verbal agreement between the President and the Company. The note is due on demand. Accordingly, the Company
recorded interest expenses of $351 and $968 during the three months ended March 31, 2012 and 2011, respectively.
The Company has
a loan payable to US Green Pros, LLC, a related party to the Company, at an interest rate of 5.5% per annum and which is due in
full on May 17, 2016. The balance of this loan was $42,500 as of March 31, 2012. Accordingly, the Company recorded interest expenses
of $524 during the three months ended March 31, 2012.
NOTE
-
9 COMMON
STOCK TO BE ISSUED
As of March 31,
2012 and December 31, 2011, the Company had common stock to be issued in amount of $97,500 and $32,500, respectively, which were
in connection with the transactions as below:
In August of 2011,
2 investors submitted subscription agreements to the Company regarding the purchase of 650,000 shares of the Company’s Common
Stock at a price of $.05 per share, or cash payment of total $32,500. The transaction was independently negotiated between the
Company and the investors. The Company evaluated the transaction based on the fact that the Company had nominal trading volume
for its stock, and had negative shareholder equity at the time entering the subscription agreements. The proceeds from the subscription
agreements, which were collected in full during the fourth quarter of 2011, mitigated the Company’s cash pressure in short
term. The 650,000 shares have not been granted or issued as of the date of this report.
During the first
quarter of 2012, one of the current shareholders submitted subscription agreements to the Company regarding the purchase of 800,000
shares of the Company’s Common Stock at a price of $.05 per share, or cash payment of total $40,000. The transaction was
independently negotiated between the Company and the investors. The Company evaluated the transaction based on the fact that the
Company had nominal trading volume for its stock, and had negative shareholder equity at the time entering the subscription agreements.
The proceeds from the subscription agreements, which were collected in full during the first quarter of 2012, mitigated the Company’s
cash pressure in short term. The 800,000 shares have not been granted or issued as of the date of this report.
During the first
quarter of 2012, one investor submitted subscription agreements to the Company regarding the purchase of 125,000 shares of the
Company’s Common Stock at a price of $.20 per share, or cash payment of total $25,000. The transaction was independently
negotiated between the Company and the investors. The Company evaluated the transaction based on the fact that the Company had
nominal trading volume for its stock, and had negative shareholder equity at the time entering the subscription agreements. The
proceeds from the subscription agreements, which were collected in full during the first quarter of 2012, mitigated the Company’s
cash pressure in short term. The 125,000 shares have not been granted or issued as of the date of this report.
NOTE
-
10 COMMITMENT
AND CONTINGENCIES
The Company leases
its retail stores and manufacturing facilities under non-cancelable operating lease agreements. The Company has no long-term
lease agreements as the current expansion plans call for the Company to move to larger manufacturing and warehousing facilities
in 2012. The Company is currently working on a new lease agreement.
For the three months
ended March 31, 2012 and 2011, the Company had rental expenses of $30,862 and $30,065, respectively.
NOTE
-
11 LOSS
PER SHARE
Basic net loss per share
is computed using the weighted average number of common shares outstanding during the three months ended March 31, 2012 and 2011,
respectively. There was no dilutive earning per share as of March 31, 2012 due to net losses during the periods.
The following table sets
forth the computation of basic net loss per share for the periods indicated:
|
|
For the three months ended
|
|
|
3/31/2012
|
|
3/31/2011
|
Numerator:
|
|
|
|
|
|
|
|
|
-
Net loss
|
|
$
|
(28,979
|
)
|
|
$
|
(71,933
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
-
Weighted average common shares outstanding
|
|
|
61,251,081
|
|
|
|
13,470,547
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
|
**
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
** Less than $.01
NOTE
-
12 CONCENTRATION
AND RISK
(a) Major Customers
During the three
months ended March 31, 2012, major customers with their revenues are presented as follows:
Customers
|
|
|
Revenues
|
|
|
|
|
|
|
Accounts
Receivable
|
|
Customer A
|
|
|
$
|
42,308
|
|
|
|
17
|
%
|
|
|
$
|
15,442
|
|
|
Total
|
|
$
|
42,308
|
|
|
|
17
|
%
|
Total:
|
|
$
|
15,442
|
|
During the three
months ended March 31, 2011, major customers with their revenues are presented as follows:
Customers
|
|
|
Revenues
|
|
|
|
|
|
|
Accounts
Receivable
|
|
Customer A
|
|
|
$
|
47,238
|
|
|
|
21
|
%
|
|
|
$
|
32,195
|
|
|
Total
|
|
$
|
47,238
|
|
|
|
21
|
%
|
Total:
|
|
$
|
32,195
|
|
(b) Major Vendors
During the three
months ended March 31, 2012, major vendors are presented as follows:
Vendors
|
|
|
Purchase
|
|
|
|
|
|
|
Accounts
Payable
|
|
Vendor A
|
|
|
$
|
77,235
|
|
|
|
54
|
%
|
|
|
$
|
14,635
|
|
Vendor B
|
|
|
|
39,790
|
|
|
|
28
|
%
|
|
|
|
0
|
|
Vendor C
|
|
|
|
8,540
|
|
|
|
6
|
%
|
|
|
|
8,540
|
|
Vendor D
|
|
|
|
4,271
|
|
|
|
3
|
%
|
|
|
|
500
|
|
|
Total
|
|
$
|
129,836
|
|
|
|
91
|
%
|
Total:
|
|
$
|
23,675
|
|
During the three
months ended March 31, 2011, major vendors are presented as follows:
Vendors
|
|
|
Purchases
|
|
|
|
|
|
|
Accounts
Payable
|
|
Vendor A
|
|
|
$
|
117,395
|
|
|
|
34
|
%
|
|
|
$
|
73,245
|
|
Vendor B
|
|
|
|
55,643
|
|
|
|
16
|
%
|
|
|
$
|
47,557
|
|
Vendor C
|
|
|
|
33,000
|
|
|
|
10
|
%
|
|
|
|
32,606
|
|
Vendor D
|
|
|
|
29,797
|
|
|
|
9
|
%
|
|
|
|
0.00
|
|
|
Total
|
|
$
|
235,835
|
|
|
|
69
|
%
|
Total:
|
|
$
|
153,408
|
|
(c) Credit risk
Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral
to support such receivables.
NOTE
-
13 GOING
CONCERN
These consolidated
financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of March 31,
2012, the Company had an accumulated deficit of $280,415. Management has taken certain action and continues to implement changes
designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives
and growing strategies, including (a) reductions in raw materials costs, as well as packaging costs; and (b) expansion of the business
model into new markets. Management believes that these actions will enable the Company to improve future profitability and cash
flow in its continuing operations through December 31, 2012. As a result, the financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of the Company’s ability to continue as a going concern.
Management is confident
that funds raised through the registration statement effective with the SEC on February 10, 2012 will allow the Company to build
out its infrastructure and make key hires in sales and sales management that will increase revenues significantly and return the
Company to profitability in the short term.
NOTE
-
14 SUBSEQUENT
EVENTS
On
September 1, 2011, the Company entered into an agreement with a Security Attorney for legal advisory services in exchange for
cash payment of $6,000 and the issuance of 75,000 shares of Common Stock of the Company. The shares were valued at $.09 per share
based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time
entering the agreement. The transaction was independently negotiated between the Company and the Consultant. The stock based compensation
preserved the limited cash available currently in the Company. The issuance of the shares is scheduled for the second quarter
of 2012.
On
April 1, 2012, the Company entered into two consulting agreements with a Consultant for business advisory services in exchange
for the total issuance of 4,500,000 shares of Common Stock of the Company, of which 2,000,000 shares for the services period from
April 1, 2012 through October 1, 2012, and 2,500,000 shares for the services period from April 1, 2012 through March 31, 2013.
The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock on the grant date, at
a price of approximately $.018 per share. The 4,500,000 shares were issued on April 3, 2012. The transactions were independently
negotiated between the Company and the Consultant. The Company evaluated the transaction based on the fact that the Company had
nominal trading volume for its stock, and had negative shareholder equity at the time of issuance. The stock based compensation
preserved the limited cash available currently in the Company.
On
April 4, 2012, the Company issued 125,000 shares of the Company’s Common Stock at a price of $.20 per share, in exchange
for cash payment of total $25,000, pursuant to a subscription agreement (see Note 9). The transaction was independently negotiated
between the Company and the investors. The Company evaluated the transaction based on the fact that the Company had nominal trading
volume for its stock, and had negative shareholder equity at the time entering the subscription agreements.
In
accordance with ASC Topic 855-10,
the Company
has analyzed its operations subsequent
to March 31, 2012 to the date these financial statements were issued, and has determined that it does not have any material subsequent
events to disclose in these financial statements.
ITEM
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Forward
Looking Statements
Certain
statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained
in or implied by "Management's Discussion and Analysis" and the Notes to Consolidated Financial Statements, are "forward-looking
statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”,
“expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar
expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements.
These forward-looking statements include statements of management's plans and objectives for our future operations and statements
of future economic performance, information regarding our expansion and possible results from expansion, our expected growth,
our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the
realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements.
Actual results and developments could differ materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion strategy,
our ability to achieve operating efficiencies, our dependence on distributors, capacity, suppliers, industry pricing and industry
trends, evolving industry standards, domestic and international regulatory matters, general economic and business conditions,
the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic
climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed
with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to
differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop
and deliver our products on a timely basis and in the prescribed condition; 2) our ability to compete effectively with other companies
in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability
to retain our key executives.
History
As
used herein the terms "We", the "Company", "OPHI", the "Registrant," or the "Issuer"
refers to Organic Plant Health Inc., its subsidiary and predecessors, unless indicated otherwise. The Company was incorporated
in the State of Nevada on September 5, 2007 and subsequently changed our name to QX Bio-Tech Group,
Inc. on October 17, 2007. We further changed our name to Acumedspa Holdings, Inc. on July 30, 2009, and to Organic Plant Health
Inc. on December 15, 2010.
On
July 1, 2009, the Company entered into a Plan of Exchange between the Company, Acumedspa Group LLC (“AcuMed”), a Florida
corporation, and Consumer Care of America LLC (“CCA”), a Florida corporation, pursuant to which
the Company
acquired 100% of the capital stock of AcuMed and 100% of the capital stock of CCA in exchange for an issuance by the Company of
6,200,000 new shares of Common Stock of the Company to the Shareholders of AcuMed and CCA
. The Plan
of Exchange was approved by the Board of Directors and the Majority Shareholders of the Company on July 1, 2009.
AcuMed
and CCA were subsequently vended out after the completion of the stock exchange transaction (the “Transaction”) between
the Company and Organic Plant Health, LLC (referred to herein as “OPH”), a North Carolina Limited Liability Corporation
located in Charlotte, North Carolina. The Transaction between the Company and OPH had been accounted for as a reverse acquisition
and recapitalization of the Company and resulted in the change of control in the Company. Pursuant to an Agreement (the “Agreement”),
dated December 11, 2010, between and among the Company and Mr. Brian Sperber, an prior director and prior majority shareholder
of the Company (“Mr. Sperber”), Mr. Sperber acquired 100% interest in the common shares of AcuMed, as well as assumed
any and all liabilities of AcuMed in exchange for the payment of good and valuable consideration of not less than One Hundred
dollars ($100), and acquired 100% interest in the common shares of CCA, as well as assumed any and all liabilities of Consumer
Care Of America LLC in exchange for the payment of good and valuable consideration of not less than One Hundred dollars ($100).
As a result of the transactions consummated at the closing, the purchase gave Mr. Sperber a 'controlling interest' in Acumedspa
LLC and Consumer Care Of America LLC, both of which was no longer wholly-owned subsidiaries of the Company.
The Agreement was approved by the Board of Directors of the Company on December 11, 2010.
On
December 10, 2010, the Company entered into a Plan of Exchange agreement (the “Plan of Exchange”) with the members
of OPH and Mr. Sperber, pursuant to which the Company acquired 100% of the membership interests of OPH in exchange for a transfer
of 3,985,000 shares of the Company’s Convertible Preferred Stock to OPH Members, which gave
OPH
Members a controlling interest in the Company, representing approximately 76.47% of the then issued and outstanding shares on
a dilutive basis. OPH and the Company were hereby reorganized, such that the Company acquired 100% of the ownership of OPH, and
OPH became a wholly-owned subsidiary of the Company.
The
stock exchange transaction had been accounted for as a reverse acquisition and recapitalization of the Company whereby
OPH
was deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The
accompanying consolidated financial statements were in substance those of
OPH
, with the assets
and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction. The
Company is deemed to be a continuation of the business of
OPH
.
OPH
was originally founded in Charlotte, NC in 2007 by Billy Styles and Alan Talbert. The business produces and distributes organic
based fertilizers and soil conditioners for use in the continual care of residential and commercial landscapes.
Business
Description of the Issuer
Overview
We
produce, distribute and sell organic based, natural and environmentally responsible products for the continual care of the urban
and suburban landscape. Our products
consist of granular and liquid fertilizers, soil conditioners,
pest control products and select garden tools. Certain of those products promote and support
soil health and plant health
in a variety of residential and commercial landscape applications, however, there is no assurance that these products will improve
soil health, plant health, control for fungus, diseases and insect infestation in every landscape and every property.
Our
products are formulated and blended from raw materials brought in from around the country. Our products and education oriented
business practices are designed to appeal to green-minded consumers and businesses, as well as homeowners with do-it-yourself
tendencies. We currently service over 4,500 residential customers located throughout the region, and over 100
commercial landscapers.
We
consider the business a part of the “new” Green Economy because many of the products we manufacture and distribute
support sustainable plant growth, have less impact on the environment than traditional chemical fertilizers, and support conservation
of water if used consistently.
After
achieving some success and increasing revenues with the basic retail model in 2007 and 2008, we began to feel the effects from
the recession in early 2009, and by June of 2009, we recognized that the recession would be protracted and would likely continue
to have a negative impact on our business. In July of 2009 we brought on minor investors, and jointly decided that our best opportunity
for prolonged growth and expansion with the least amount of capital was to change the business model from basic retail to a more
traditional manufacturer/distributor model. This growth strategy change would lessen our cost of expansion, otherwise, (appx.
$250,000.00 - $300,000.00 annually, per retail store if we had stayed with the previous business model), and allow us to expand
faster, and over a larger area by selling our exclusive products through independent retail partners. These retail partners, existing
businesses with built-in consumer traffic, consist of hardware stores, garden centers and nurseries.
We
began transitioning to the manufacturing/distribution model in the fall of 2009. We currently sell our exclusive products through
30+ retail partners. Although, we have not added as many retail partners as initially planned due to the limited cash flow available
to support an experienced sales staff, we have experienced some measure of success with the new business model and believe it
is viable and will become profitable in the next 18 to 24 months, if partially or fully funded from our current public offering
up to 10,000,000 shares of common stock at price of $0.20 per share. Without receiving any funding from this offering, we will
have to make significant changes in our operations to sustain the business. We further believe that we will need a minimum of
$500,000 over the next 6 to 10 months to achieve our initial expansion goals.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 and 2011
The
following tables set forth key components of our results of operations for the periods indicated, in dollars and as a percentage
of revenue.
Consolidated Statements of Operations Data
|
|
For the three months ended
March 31, 2012
|
|
For the months ended
March 31, 2011
|
|
|
USD
|
|
% of
Revenue
|
|
USD
|
|
% of
Revenue
|
Revenues
|
|
$
|
251,169
|
|
|
|
—
|
|
|
|
%
|
|
|
$
|
225,215
|
|
|
-%
|
Cost of Sales
|
|
$
|
(80,644
|
)
|
|
|
32
|
|
|
|
%
|
|
|
$
|
(73,993
|
)
|
|
33%
|
Gross profit
|
|
$
|
170,525
|
|
|
|
68
|
|
|
|
%
|
|
|
$
|
151,222
|
|
|
67%
|
Operating expenses
|
|
$
|
174,898
|
|
|
|
70
|
|
|
|
%
|
|
|
$
|
204,400
|
|
|
91%
|
(Loss) from operations
|
|
$
|
(4,373
|
)
|
|
|
2
|
|
|
|
%
|
|
|
$
|
(53,178
|
)
|
|
24%
|
Other (expense)
|
|
$
|
(24,606
|
)
|
|
|
10
|
|
|
|
%
|
|
|
$
|
(18,755
|
)
|
|
8%
|
Net (loss) before income taxes
|
|
$
|
(28,979
|
)
|
|
|
12
|
|
|
|
%
|
|
|
$
|
(71,933
|
)
|
|
32%
|
Net (loss)
|
|
$
|
(28,979
|
)
|
|
|
12
|
|
|
|
%
|
|
|
$
|
(71,933
|
)
|
|
32%
|
Revenues
Our
revenues consist of the sale of our fertility products less, returns and allowances, and the sale of license agreements. We currently
sell our products directly to ultimate end users via our retail store located in downtown Matthews; we also sell them to non-related
retailers and wholesalers who then sell such products to the ultimate end users. To date, returns and allowances have been virtually
non-existent and as such have had no material effect on our revenues. The revenues from the sale of license agreements, and optional
license agreements are in connection with our approval to the distribution partners that desire to represent us in developing
sales and marketing agreements with potential wholesale customers. We amortize licensing revenue on a straight-line basis over
two years when license period begins.
Revenues
for the three months ended March 31, 2012 and 2011 was $251,169
and $225,215, respectively,
including licensing revenue of $17,877 and $6,781, respectively. Our revenues during the first quarter of 2012 were approximately
same as the first quarter of 2011. The slightly higher revenues in 2012 were due to the increase in licensing revenue, which was
generated from the sale of license agreements, and optional license agreements, to approved distribution partners that desire
to represent us in developing sales and marketing agreements with potential wholesale customers.
Management
believes that the effects from the ongoing recession or weakened economy will continue to hamper growth unless the Company increases
the number of retail partners purchasing products on a consistent basis. In addition, we currently have a public offering up to
10,000,000 shares of common stock at price of $0.20 per share. Management believes that the receipt of partial or full funding
from this public offering will enable the Company to expand the Company’s sales efforts on increasing the number of retail
partners. In that case, new revenues over the next 18-24 months will be expected to grow at a pace greater than our operating
expenses and bring about profitability. However, there is no assurance that revenues will grow and there is reason to believe
that sales will continue to decline under the current economic climate.
There
are several trends that currently affect our revenues.
i)
Economic Trends: Management conservatively expects that effects from the recession will continue to linger through 2012 and into
2013. Lingering effects from the recession could continue to adversely affect revenues and gross profits, and if this occurs it
could adversely affect the company’s ability to continue operations.
ii)
Consumer Trends: Management expects that, generally, consumers will show increased interest in products that support sustainability,
conserve energy, conserve water and use less natural resources. Although this statement is unsubstantiated, it is widely accepted
that, globally, consumers are tending towards a greater concern for the environment and using products that have a lower impact
on the environment and the use of natural resources. Without partial or full funding to provide for initial sales force expansion
and the development of new packing and branding strategy the company will be likely not be in a sufficient position to take full
advantage of this increased interest.
In
order to reduce the impact from financial crisis, our management decided to shift our business model in 2009 to include new distribution
through established retail outlets such as hardware stores, independent garden centers and nurseries, referred as our “Retail
Partners”. We believe these Retail Partners enable us to expand awareness and distribution of our exclusive products, while
maximizing sales through the added exposure to the Retail Partner’s existing customer base. However, the increase in numbers
of Retail Partners in the Charlotte area has an adverse effect on retail sales at the Matthews retail store, because of the close
proximity, and causes the decrease in our total revenue during the short term. We believe the gross revenues from Retail Partners,
as the number of retail partners increase over time, will far exceed Matthews’ retail store sales potential, resulting in
greater long-term revenue stability and profitability.
Revenues
less Sales Tax
|
|
For the three months ended
|
|
|
March 31, 2012
|
|
March 31, 2011
|
Matthews Retail
|
|
$135,076
|
|
$118,968
|
Wholesale
|
|
$111,033
|
|
$106,247
|
The
above chart shows a decline in retail sales at the Matthews Retail Store, with an offsetting increase in Wholesale sales. Although
the offset shown here is not balanced, it does illustrate the trend we expect to continue, with one caveat – we anticipate
that annual retail sales will level off by the end of 2013, as we do not anticipate adding more retail partners in the Charlotte
NC metro area after that time. Thus, assuming a strengthening economy, retail sales will likely rebound slightly at the Matthews
Retail store, while wholesale revenues should continue to climb. Although management believes this is the trend, there is no assurance
that this trend will continue, and there is no assurance that revenues, in general, will not continue to decline in the current
economic climate.
Cost
of Goods Sold
Our cost of goods sold consists primarily
of costs of raw materials and direct labor, and other costs directly attributable to the production of our products. Write-down
of inventories to lower of cost or market is also recorded in cost of goods sold. Cost of goods sold for the three months ended
March 31, 2012 and 2011 were $80,644 and $73,993, respectively. We experienced a slightly higher cost on certain commodity components,
and reduced costs on certain other commodity components during the first quarter of 2012. Commodity components that increased
in cost include a granular compost material and a pasteurized poultry litter base that provide sources of organic matter and organic
nutrients, (Nitrogen, Phosphorous and Potassium), as well as beneficial bacteria and micorrhizal fungi, which add bio-diversity
to the soil. Commodity components that decreased in cost include one source of organic acids (Humic Acid and Fulvic Acid derived
from plant extracts), and one source of sea kelp extract. The Company observed an increase in retail and wholesale sales during
this period over the same period last year, resulting in a slightly higher cost of goods sold during the first quarter of 2012.
As referenced above, we believe the long-term gross revenues from our increasing number of wholesale customers will far exceed
the sales potential at our Matthews’ retail store, simply because adding additional wholesale partners is much faster and
significantly less costly than expanding our existing retail store, or opening additional brick and mortar retail stores.
There
are several trends that currently affect our cost of goods sold:
i)
Commodity price volatility: The current weakened economy has increased the volatility of commodity prices for raw materials. The
company has not seen a significant increase in raw materials, nor do we expect one, however the current economic instability could
cause price fluctuations. If these price fluctuations resulted in higher raw goods prices this could have an adverse effect on
our operations, as it would increase our cost of goods sold. It is the nature of commodities to fluctuate in price based on supply
and demand forces. Over the past several years one of the largest consumers of raw goods has been China, since its middle class
has been expanding, creating increased demand for goods. If this trend continues it could have an adverse effect on our ability
to receive favorable pricing on certain of our commodity based products. However, management does not believe that this will affect
our long-term pricing outlook. Most, if not all, of our raw materials now come from the United States, or at least North America
and we do not anticipate great price volatility with respect to those components. However, if such price volatility occurs, and
it could, this would have an adverse effect on our cost of goods sold and negatively affect our operations.
ii)
Cost of Direct Labor Trends: The current weakened economy has increased the company’s ability to hire and retail direct
labor at a reasonable cost. We anticipate this to be consistent through 2012 and into 2013. However, if the economy were to sharply
improve our direct labor costs could increase. If this were to occur, it would result in higher direct labor costs and this would
have an adverse effect on our operations, as it would reduce our gross profit margins.
We
have made efforts to reduce cost of goods sold wherever possible. Some of the results from these efforts have come from negotiating
lower pricing with certain manufacturers of raw goods, or choosing to work with new suppliers that can provide similar quality
goods at a lower cost. We will continue to monitor our vendor pricing relative to other similar vendors to ensure we have competitive
pricing associated with our raw materials. Further, we have explored options with our vendors for purchasing in larger quantities,
which would reduce our per unit price. We will continue to work with our vendors to make sure we are taking advantage of every
opportunity afforded to us to reduce our materials cost. However, there is no assurance that any prices we have negotiated will
continue to be available to us in the future, and if our costs were to rise significantly, it would have an adverse effect on
operations.
Gross
profit
Our gross profit is obtained based upon our
total revenues minus our cost of goods sold for a particular period. Gross profit for the three months ended March 31, 2012 was
$170,525, increased by $19,303, or approximately 12.8% from $151,222 during the same period ended March 31, 2011. The increase
in gross profit during the first quarter of 2012 was primarily attributable to the increase in licensing revenue, which had no
cost allocated.
Operating expenses
Our operating expenses
were $174,898 for the three months ended March 31, 2012,
decreased by $29,502, or approximately 14.4% from $204,400 during
the same period ended March 31, 2011.
Our fixed expenses remained fairly constant from year to year.
We realized some savings as the result of sufficient cost control during the first quarter of 2012, such as the decrease in advertising,
contract labor and salaries by $14,842, $6,818 and $7,869, respectively. We are working to reduce some of the fixed expenses to
maintain positive cash flow during the first quarter of 2012. However, the reduction in fixed expenses was offset by the additional
expenses incurred
as a result of becoming a publicly traded company in the United States. Such increase included legal
service fees, audit fees and other cash or non-cash payments for professional services
. In addition,
we expect an increase in overall expenses during 2012 due to the plan to hire 2-3 new employees. However, there is no assurance
that we will be able to hire new sales and support staff, and this could negatively affect our ability to generate new sales for
the period and this could impact the Company’s operations and ability to continue operations.
Management
has determined that executing a new packaging strategy will reduce our expenses associated with this part of our operating expenses.
We have retained Kaleidoscope-Chicago, a branding and packaging design company to help us with the development of this packaging
strategy. This will include pre-printed bags and pre-printed product labels. Not only will this reduce our expenses, it will help
us to compete better, head-to–head on retailer shelves. Currently all products labels are printed in-house at greater cost
per unit, but with lower upfront costs. We anticipate converting to the new packaging in early 2012. However if we are not
able to convert to the new packaging strategy, our expenses will remain higher and this could negatively affect operations, and
could cause our end pricing to the retailer to be so high as to not be competitive. This would also affect our revenues and our
sell through at the retail level and this could jeopardize the Company’s ability to generate sufficient revenue to continue
operations.
Interest expense
Interest expense for the three months ended
March 31, 2012 was $24,606, increased by $5,851, or approximately 30.7%, compared to interest expense of $18,755 for the same period
ended March 31, 2011. An increase in interest expenses in the first quarter of 2012 was due primarily to interest charges
on a new convertible promissory note in amount of $42,500 (the “Note”), dated March 9, 2012. The Note bears interest
at a rate of 8% per annum and is discounted in amount of $30,776 due to the intrinsic value of the beneficial conversion option,
which will be amortized over 180 days, the minimum period in which the Note holder can recognize the return. Accordingly, the Company
recorded interest expense related to this note of $3,966 for the three months ended March 31, 2012.
N
et loss
Net loss for the three months ended March
31, 2012 was $28,979
, decreased by $42,954
compared to net loss of $71,933 for the same period
ended March 31, 2011. The decrease in net loss was primarily attributable to the increase in gross profit and the decrease in
total operating expenses during current period.
Liquidity
and Capital Resources
The following
table sets forth a summary of our net cash flow information for the periods indicated:
|
|
|
|
For the three months ended
|
|
|
|
|
|
|
3/31/2012*
|
|
3/31/2011*
|
Net cash (used in) operating activities
|
|
|
|
|
$
|
(42,130
|
)
|
|
$
|
(141,478
|
)
|
Net cash (used in) by investing activities
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
(303
|
)
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
$
|
94,014
|
|
|
$
|
152,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and equivalents
|
|
|
|
|
|
|
|
|
|
$
|
51,884
|
|
|
$
|
11,028
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
$
|
42,651
|
|
|
$
|
6,625
|
|
Cash and cash equivalents, end of period
|
|
|
|
|
|
|
|
|
|
$
|
94,535
|
|
|
$
|
17,653
|
|
*
The above financial data have been derived from our unaudited consolidated financial statements for the three months ended
March 31, 2012 and 2011.
Operating
Activities
Net cash used in operating activities was
$42,130 and $141,478 for the three months ended March 31, 2012 and 2011, respectively. Negative cash flows from operation during
the three months ended March 31, 2012 was due primarily to the net loss of $28,979, the increase in accounts receivable and inventories
in an amount of $30,522 and $71,190, respectively, partially offset by the increase in account payable by $66,078, and the non-cash
expenses in total of $25,478, which included bad debt expenses of $1,687, depreciation of $7,529, and amortization of discount
to note payable in amount of $16,262. Comparatively, negative cash flows during the three months ended March 31, 2011 were due
primarily to the net loss of $71,933, the increase in accounts receivable by $75,223 and the decrease in accounts payable by $62,913,
partially offset by the non-cash expenses in total of $23,005, the decrease in inventory in the amount of $6,982, and the increase
in deferred revenues in the amount of $28,219.
Investing
Activities
Cash
used in investing activities mainly consists of capital expenditures, expenditures for property, plant, and equipment.
We
had no cash flow from investing activities during the three months ended March 31, 2012. Net cash used in investing activities
was $303 during the three months ended March 31, 2011, due to purchase of property and equipment in the period.
Financing
Activities
Net cash provided by financing activities was
$94,014 and $152,809 for three months ended March 31, 2012 and 2011, respectively. Positive cash flows in the first quarter of
2012 were due to proceeds from notes payable in amount of $42,500, which is due on December 9, 2012 with annual interest at a rate
of 8% and is discounted in amount of $30,776 due to the intrinsic value of the beneficial conversion option. We also had proceeds
of $65,000 from sales of our common stock, offset by the payments of $13,486 on notes payable. Positive cash flows from financing
activities during the three months ended March 31, 2011 were due primarily to the proceeds from notes payable in an amount of $102,500,
of which $2,500 from related parties, and the proceeds from stock issuance in amount of 75,000, offset by the payments of total
$24,691 on notes payable, of which $10,000 was in connection with related parties’ loan.
Loan Facilities
We believe that we currently maintain good
business relationships with our local banks and note holders. As of March 31, 2012 and December 31, 2011, our outstanding loans
payable to non-affiliates on the accompanying consolidated balance sheets were as follows:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
Bank of Granite, 8.5% interest rate, due on March 26, 2012
(1)
|
|
$
|
0
|
|
|
$
|
2,377
|
|
Bank of NC, 6.5% interest rate, due on June 30, 2013
(2)
|
|
|
57,900
|
|
|
|
66,337
|
|
Greentree Financial Group, 6% interest rate, due on January 1, 2013, net of discount
(3)
|
|
|
62,500
|
|
|
|
50,000
|
|
NEKCO LLC, 20% interest rate, due on April 21, 2012
(4)
|
|
|
40,000
|
|
|
|
40,000
|
|
Mark Blumberg, 5.75% interest rate, due on October 1, 2015
(5)
|
|
|
94,151
|
|
|
|
96,823
|
|
Asher Enterprises Inc., 8% interest rate, due on December 9, 2012
(6)
|
|
|
15,486
|
|
|
|
0
|
|
Total notes payable
|
|
$
|
270,037
|
|
|
$
|
255,537
|
|
Less: Current portion of notes payable
|
|
|
(182,788
|
)
|
|
|
(103,310
|
)
|
Total long-term notes payable
|
|
$
|
87,249
|
|
|
$
|
152,227
|
|
|
|
|
|
|
|
|
|
|
(1) The Company has a line of credit with
Bank of Granite at an interest rate of prime plus 3 % per annum. The balance on this credit line was paid in full on February 21,
2012. The Company recorded interest expenses of $89 during the three months ended March 31, 2012.
(2) The Company has loan payable to Bank
of North Carolina at an interest rate of 6.5% per annum and due on June 30, 2013. The balance of this bank loan was $57,900 as
of March 31, 2012, of which $48,237 was classified as short-term loan payable. The Company recorded interest expenses of $784 and
$1,519 during the three months ended March 31, 2012 and 2011, respectively.
(3) On January 1, 2011, the Company entered
into a convertible promissory note (GT Note) in a principal amount of $100,000 payable to Greentree Financial Group (“Greentree”),
which bears an interest rate of 6% per annum and is due on January 1, 2013. Pursuant to GT Note, Greentree has an option to convert
all or any portion of the accrued interest and unpaid principal balance of GT Note into the Common Stock of the Company or its
successors, at Ten Cents ($.10) per share, no sooner than September 30, 2012. The conversion price associated with GT Note was
determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at
the time of issuance.
GT Note is discounted in
full amount due to the issuance of 1,000,000 shares of Common Stock as sweetener to GT Note, and a beneficial conversion feature.
The fair value of the 1,000,000 shares was $68,245 determined by an arm’s length payable settlement with a non-affiliate
since there was nominal trading volume of our common stock in the market, and recorded as discount to note payable, which will
be amortized over 2 years starting from January 1, 2011. The remaining discount of $31,755 represented the intrinsic value of the
beneficial conversion option, which will be amortized over 2 years starting from January 1, 2011. The Company recorded interest
expense related to this note of $14,000 for the three months ended March 31, 2012 and 2011, respectively.
The carry value of GT Note
was $62,500 as of March 31, 2012. The 1,000,000 shares of Common Stock were issued on May 13, 2011.
(4) The Company has loan payable to NEKCO,
LLC in amount of $40,000 (“Principal Amount”) due on April 21, 2012 (“Maturity Date”). Interest will accrue
on the unpaid balance of the Principal Amount from December 21, 2011 until the maturity date of April 21, 2012, at the fixed rate
of 20.0% calculated on the basis of a flat interest payment if the loan is repaid on or before Maturity Date. Accordingly, the
Company recorded interest expense of $1,973 related to this note during the three months ended March 31, 2012.
(5) The Company has a loan payable to Mark
Blumberg (“Mr. Blumberg”), a former member of the Company, at an interest rate of 5.75% per annum and due on October
1, 2015. The loan was due to the redemption of Mr. Blumberg’s membership of the Company pursuant to a settlement agreement
entered on January 1, 2011. The balance of this loan was $94,151 as of March 31, 2012, of which $16,566 was classified as short-term
loan payable. The Company recorded interest expenses of $928 during the three months ended March 31, 2012.
(6) On March 9, 2012, the Company entered
into a convertible promissory note (Asher Note) in a principal amount of $42,500 payable to Asher Enterprises Inc. (“Asher”),
which bears an interest rate of 8% per annum and is due on December 9, 2012. Pursuant to Asher Note, Asher has an option to convert
all or any portion of the accrued interest and unpaid principal balance of Asher Note into the Common Stock of the Company or its
successors, at 58% of the market price, no sooner than September 5, 2012. The conversion price associated with Asher Note was determined
based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of
issuance.
Asher Note is discounted
in amount of $30,776 due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the
minimum period in which Asher can recognize the return. Accordingly, the Company recorded interest expense related to this note
of $3,966 for the three months ended March 31, 2012.
The carry value of Asher
Note was $15,486 as of March 31, 2012.
We do not foresee a squeeze on the availability
of credit to fund our operations and meet our growth objectives.
In addition, we had outstanding balances on
our notes payable to related parties of the following amounts as of March 31, 2012 and December 31, 2011:
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
Shareholder loans, Prime plus 2.5% interest rate, due July 2012
|
|
$
|
55,800
|
|
|
$
|
55,800
|
|
Loans from officer, 5.5% interest rate, due on demand
|
|
|
60,884
|
|
|
|
60,884
|
|
Loans from company owned by shareholders, 5.5% interest rate, due May 2016
|
|
|
42,500
|
|
|
|
42,500
|
|
Total notes payable – related parties
|
|
$
|
159,184
|
|
|
$
|
159,184
|
|
Less: Current portion of notes payable – related parties
|
|
|
(116,684
|
)
|
|
|
(116,684
|
)
|
Total long-term note payable – related parties
|
|
$
|
42,500
|
|
|
$
|
42,500
|
|
In July 2009, the Company’s
shareholders made several loans in total amount of $275,000 to the Company to fund its operations. The shareholder loans were evidenced
by promissory notes due in July 2012, with interest at the floating interest rate of Prime plus 2.5%. The interest rate will be
adjusted each calendar quarter of January 1, April 1, July 1 and October 1. The principal balance of the shareholder loans was
$55,800 as of March 31, 2012. Accordingly, the Company recorded interest expenses of $791 and $782 during the three months ended
March 31, 2012 and 2011, respectively.
In addition, the Company
had outstanding balances of $60,884 due to the Company’s President as of March 31, 2012. The funds borrowed from the Company’s
President were to fund the Company’s operations. The loan agreement was not evidenced by any promissory note, but rather
a verbal agreement between the President and the Company. The note is due on demand. Accordingly, the Company recorded interest
expenses of $351 and $968 during the three months ended March 31, 2012 and 2011, respectively.
The Company has a loan
payable to US Green Pros, LLC, a related party to the Company, at an interest rate of 5.5% per annum and which is due in full on
May 17, 2016. The balance of this loan was $42,500 as of March 31, 2012. Accordingly, the Company recorded interest expenses of
$524 during the three months ended March 31, 2012.
Capital
Expenditures
We
project that we will need additional capital to fund operations over the next 12 months. We anticipate we will need a minimum
of $500,000 additional funds for the year of 2012 to meet our expansion objectives.
Overall,
we have funded our cash needs from inception through March 31, 2012 with a series of debt and equity transactions, primarily with
related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside
sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions.
Failure to obtain such financing could have a material adverse effect on operations and financial condition.
We
had cash of $
94,535
on hand as of March 31, 2012. Currently, we do not have enough cash to fund
our operations for the next 12 months. This is based on current negative cash flows from operation and working capital deficit.
Therefore, we will need to obtain additional capital through equity or debt financing to sustain operations for an additional
year. Our current level of operations would require capital of approximately $500,000 per year starting in 2011. Modifications
to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital
in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical
areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital
will be available to us when needed or available on terms favorable to us.
On
a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions
of capital and debt financing. Our current capital and revenues are insufficient to fund such expansion. If we choose to launch
such an expansion campaign, we will require substantially more capital. The funds raised from this offering will also be used
to market our products and services as well as expand operations and contribute to working capital. However, there can be no assurance
that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional
capital, our growth potential will be adversely affected and we will have to significantly modify our plans. For example, if we
are unable to raise sufficient capital to develop our business plan, we may need to:
·
|
Curtail new product launches
|
·
|
Limit our future marketing efforts
to areas that we believe would be the most profitable.
|
Demand
for the products and services will be dependent on, among other things, market acceptance of our products, organic-based fertilizer
market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities
is the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors
and prolonged recession periods.
Our
success will be dependent upon implementing our plan of operations and the risks associated with our business plans. We manufacture,
trade and distribute contemporary, professional grade, organic, natural and environmentally responsible products for the continual
care of the urban landscape through our wholly-owned subsidiary and our Retail Partners. We plan to strengthen our position in
these markets. We also plan to expand our operations through aggressively marketing our products and our concept.
Seasonality
Our
operating results and cash flows historically have been subject to seasonal variations. Because a high percentage of our
sales are from lawn care fertilizers, revenues increase proportionately during the fall, late winter and spring months. Conversely,
our sales cycle dips during the summer months and early winter months. As we expand our sales into other parts of the country
and online via our ecommerce website, our sales cycles will broaden and we will experience fewer peaks and valleys. However, this
expansion process will take time to develop and until this occurs, we will continue to experience revenues in a cyclical fashion.
Off-Balance
Sheet Arrangements
We
have not entered into, nor do we expect to enter into, any off-balance sheet arrangements. We also have not entered into
any financial guarantees or other commitments to guarantee the payment obligations of third parties. In addition, we have
not entered into any derivative contracts that are indexed to our equity interests and classified as shareholders’ equity.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves
as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development
services with us.
ITEM
3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
information to be reported under this item is not required of smaller reporting companies.
ITEM
4. CONTROLS AND PROCEDURES.
We
maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under
the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified
time periods. Our Chief Executive Officer and its Chief Financial Officer (collectively, the “Certifying Officers”)
are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed
to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s
rules and forms.
As
of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls
and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective
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 applicable rules and forms,
and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely
decisions regarding required disclosure.
The
Certifying Officers have also concluded, based on their evaluation of our controls and procedures that as of March 31, 2012, our
internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.
The
Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified
in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
ITEM
4T. CONTROLS AND PROCEDURES
(a)
Conclusions
regarding disclosure controls and procedures
. Disclosure controls and procedures are the Company’s controls and
other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the
Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible
for establishing and maintaining adequate internal control over financial reporting.
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated
under the Exchange Act as of March 31, 2012, and, based on their evaluation, as of the end of such period, the our disclosure
controls and procedures were effective as of the end of the period covered by the Quarterly Report,
(b)
Management’s
Report On Internal Control Over Financial Reporting
. It is management’s responsibilities to establish and maintain
adequate internal controls over the Company’s financial reporting. Internal control over financial reporting is defined
in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s
principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of the assets of the issuer; and
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only
in accordance with authorizations of management of the issuer; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
issuer’s assets that could have a material effect on the financial statements.
As
of the end of the period covered by the Quarterly Report, an evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control
over financial reporting.
Management
assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework.
Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period,
internal controls over financial reporting were effective as of the end of the period covered by the Report.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control
over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore,
it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
This
Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this
Quarterly Report.
(c)
Changes
in internal control over financial reporting
. There were no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS
The
information to be reported under this item has not changed since the previously filed 10K, for the year ended December 31, 2011.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
31.1 Certification
of Chief Executive Officer
31.2 Certification
of Chief Financial Officer
32.1 Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley
Act of 2002.
32.2 Statement
required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley
Act of 2002
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, there unto duly authorized.
|
ORGANIC PLANT HEALTH INC.
|
|
|
|
Date: May 21, 2012
|
By:
|
/s/ William Styles
|
|
William
Styles
Chief
Executive Officer
|
INDEX
TO EXHIBITS
(16)