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 June 30, 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 August 13, 2012: 67,290,081
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 ANDQUALITATIVE 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
ORGANIC
PLANT HEALTH, INC. AND SUBSIDIARY
|
CONSOLIDATED
BALANCE SHEETS
|
AS OF
JUNE 30, 2012 AND DECEMBER 31, 2011
|
(UNAUDITED)
|
|
|
|
|
|
|
|
June
30, 2012
|
|
December
31, 2011
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
7,183
|
|
|
$
|
42,651
|
|
Accounts receivable,
net
|
|
|
48,187
|
|
|
|
48,963
|
|
Inventory
|
|
|
79,631
|
|
|
|
38,812
|
|
Total Current Assets
|
|
|
135,001
|
|
|
|
130,426
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
91,716
|
|
|
|
106,774
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Security
deposits
|
|
|
17,700
|
|
|
|
6,700
|
|
Total Other Assets
|
|
|
17,700
|
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
244,417
|
|
|
$
|
243,900
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
244,726
|
|
|
$
|
199,095
|
|
Notes payable - current
portion
,
Net of debt discount
|
|
|
231,535
|
|
|
|
103,310
|
|
Notes payable - related
parties
|
|
|
106,684
|
|
|
|
116,684
|
|
Accrued expenses
|
|
|
52,617
|
|
|
|
30,785
|
|
Accrued interest
|
|
|
46,074
|
|
|
|
30,137
|
|
Common stock to be
issued
|
|
|
100,000
|
|
|
|
32,500
|
|
Deferred
revenues
|
|
|
19,177
|
|
|
|
55,129
|
|
Total Current Liabilities
|
|
|
800,813
|
|
|
|
567,640
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Notes payable, Net of debt discount
|
|
|
72,677
|
|
|
|
152,227
|
|
Notes
payable - related parties
|
|
|
42,500
|
|
|
|
42,500
|
|
Total Long-Term Liabilities
|
|
|
115,177
|
|
|
|
194,727
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
915,990
|
|
|
|
762,367
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, par
value $0.001; 150,000,000 shares authorized; 66,440,081 and 61,215,081 shares issued and outstanding as of June 30, 2012 and
December 31, 2011, respectively
|
|
|
66,440
|
|
|
|
61,215
|
|
Preferred stock, par
value $0.001; 5,000,000 shares authorized; none share issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
|
|
|
—
|
|
|
|
—
|
|
Deferred compensation
|
|
|
(336,233
|
)
|
|
|
0
|
|
Paid-in capital
|
|
|
1,346,440
|
|
|
|
671,754
|
|
Accumulated
deficit
|
|
|
(1,748,220
|
)
|
|
|
(1,251,436
|
)
|
Total Stockholders'
Deficit
|
|
|
(671,573
|
)
|
|
|
(518,467
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
244,417
|
|
|
$
|
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 AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the six months ended
|
|
|
June
30, 2012
|
|
June
30, 2011
|
|
June
30, 2012
|
|
June
30, 2011
|
REVENUES
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
219,618
|
|
|
$
|
216,515
|
|
|
$
|
470,787
|
|
|
$
|
441,730
|
|
Cost
of Goods Sold
|
|
|
(114,649
|
)
|
|
|
(88,780
|
)
|
|
|
(195,293
|
)
|
|
|
(162,773
|
)
|
GROSS
PROFIT
|
|
|
104,969
|
|
|
|
127,735
|
|
|
|
275,494
|
|
|
|
278,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
285,747
|
|
|
|
28,966
|
|
|
|
303,107
|
|
|
|
44,322
|
|
Rent
|
|
|
33,823
|
|
|
|
30,839
|
|
|
|
64,685
|
|
|
|
60,904
|
|
Bank and finance charges
|
|
|
(974
|
)
|
|
|
3,719
|
|
|
|
2,766
|
|
|
|
9,126
|
|
Depreciation
|
|
|
7,529
|
|
|
|
7,527
|
|
|
|
15,058
|
|
|
|
15,053
|
|
Advertising and promotion
|
|
|
22,782
|
|
|
|
16,738
|
|
|
|
43,384
|
|
|
|
52,182
|
|
Automobile
|
|
|
3,248
|
|
|
|
4,589
|
|
|
|
6,011
|
|
|
|
8,697
|
|
Contract labor
|
|
|
45,237
|
|
|
|
34,340
|
|
|
|
63,552
|
|
|
|
59,473
|
|
Credit card processing
fees
|
|
|
3,594
|
|
|
|
3,321
|
|
|
|
5,581
|
|
|
|
6,337
|
|
Website maintenance
|
|
|
12,280
|
|
|
|
2,232
|
|
|
|
12,505
|
|
|
|
3,227
|
|
Insurance
|
|
|
11,243
|
|
|
|
8,358
|
|
|
|
20,828
|
|
|
|
15,051
|
|
Travel, meals and
entertainment
|
|
|
2,262
|
|
|
|
3,930
|
|
|
|
4,388
|
|
|
|
8,949
|
|
Wages and taxes
|
|
|
49,090
|
|
|
|
58,417
|
|
|
|
81,249
|
|
|
|
98,445
|
|
Commissions
|
|
|
—
|
|
|
|
3,178
|
|
|
|
—
|
|
|
|
6,202
|
|
Supplies
|
|
|
3,687
|
|
|
|
2,351
|
|
|
|
6,507
|
|
|
|
6,747
|
|
Telephone and utilities
|
|
|
6,731
|
|
|
|
7,660
|
|
|
|
14,764
|
|
|
|
15,970
|
|
Product development
|
|
|
8,509
|
|
|
|
6,000
|
|
|
|
11,764
|
|
|
|
6,000
|
|
Bad debt
|
|
|
—
|
|
|
|
143
|
|
|
|
1,687
|
|
|
|
3,122
|
|
General
and administrative
|
|
|
25,966
|
|
|
|
15,970
|
|
|
|
37,816
|
|
|
|
22,869
|
|
TOTAL
OPERATING EXPENSES
|
|
|
520,754
|
|
|
|
238,278
|
|
|
|
695,652
|
|
|
|
442,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(415,785
|
)
|
|
|
(110,543
|
)
|
|
|
(420,158
|
)
|
|
|
(163,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
—
|
|
|
|
12,951
|
|
|
|
—
|
|
|
|
12,951
|
|
Interest
expense
|
|
|
(52,020
|
)
|
|
|
(19,061
|
)
|
|
|
(76,626
|
)
|
|
|
(37,816
|
)
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(52,020
|
)
|
|
|
(6,110
|
)
|
|
|
(76,626
|
)
|
|
|
(24,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION
FOR INCOME TAXES
|
|
|
(467,805
|
)
|
|
|
(116,653
|
)
|
|
|
(496,784
|
)
|
|
|
(188,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(467,805
|
)
|
|
$
|
(116,653
|
)
|
|
$
|
(496,784
|
)
|
|
$
|
(188,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
- BASIC
|
|
$
|
(0.01
|
)
|
|
|
**
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING - BASIC
|
|
|
65,802,581
|
|
|
|
48,444,792
|
|
|
|
63,496,158
|
|
|
|
30,957,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** 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
SIX MONTHS ENDED JUNE 30, 2012 AND 2011
|
(UNAUDITED)
|
|
|
|
|
|
|
|
For the six months ended
|
|
|
June
30, 2012
|
|
June
30, 2011
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net loss
for the period
|
|
$
|
(496,784
|
)
|
|
$
|
(188,584
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
1,687
|
|
|
|
3,122
|
|
Depreciation
|
|
|
15,058
|
|
|
|
15,053
|
|
Amortization of debt
discount
|
|
|
52,296
|
|
|
|
25,000
|
|
Common stock issued
for services renderred
|
|
|
264,367
|
|
|
|
18,750
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(911
|
)
|
|
|
(56,958
|
)
|
Inventory
|
|
|
(40,819)
|
|
|
|
28,568
|
|
Accounts payable
|
|
|
45,632
|
|
|
|
(91,858
|
)
|
Accrued expenses
|
|
|
21,832
|
|
|
|
13,615
|
|
Accrued interest
|
|
|
15,937
|
|
|
|
7,127
|
|
Deferred
revenues
|
|
|
(35,952
|
)
|
|
|
21,363
|
|
Net cash (used in) operating activities
|
|
|
(157,657
|
)
|
|
|
(204,802
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Security
deposits
|
|
|
(11,000
)
|
|
|
|
—
|
|
Purchase
of property and equipment
|
|
|
—
|
|
|
|
(303
|
)
|
Net cash (used in)
investing activities
|
|
|
(11,000)
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments on notes
payable - related parties
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
Proceeds from notes
payable
|
|
|
75,000
|
|
|
|
142,500
|
|
Payments on notes
payable
|
|
|
(24,311
|
)
|
|
|
(27,278
|
)
|
Proceeds
from stock issuance
|
|
|
92,500
|
|
|
|
102,835
|
|
Net cash provided
by financing activities
|
|
|
133,189
|
|
|
|
208,057
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
(35,468
|
)
|
|
|
2,952
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents,
Beginning of Period
|
|
|
42,651
|
|
|
|
6,625
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents,
End of Period
|
|
$
|
7,183
|
|
|
$
|
9,577
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
7,323
|
|
|
$
|
5,688
|
|
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
|
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 June 30, 2012 and December 31, 2011:
|
|
As of
|
|
|
June
30, 2012
|
|
December
31, 2011
|
|
|
|
|
|
Gross
trade accounts receivable from customers
|
|
$
|
52,451
|
|
|
$
|
51,540
|
|
Allowance
for doubtful customer accounts
|
|
|
(4,264
|
)
|
|
|
(2,577
|
)
|
Accounts
receivable, net
|
|
$
|
48,187
|
|
|
$
|
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 and six months ended June 30, 2012, the Company had b
ad debt expenses of $0 and $1,687,
respectively, compared to $143 and 3,122 for the three and six months ended June 30, 2011 respectively, in the accompanying
consolidated statements of operations.
NOTE
5 INVENTORY
Inventory
was comprised of the following as of June 30, 2012 and December 31, 2011:
|
|
As of
|
|
|
June
30, 2012
|
|
December
31, 2011
|
|
|
|
|
|
Raw materials
|
|
$
|
56,339
|
|
|
$
|
16,665
|
|
Work in process
|
|
|
0
|
|
|
|
0
|
|
Finished goods
|
|
|
23,292
|
|
|
|
22,147
|
|
|
|
|
79,631
|
|
|
|
38,812
|
|
Provision for
obsolete inventories
|
|
|
0
|
|
|
|
0
|
|
|
|
$
|
79,631
|
|
|
$
|
38,812
|
|
|
|
|
|
|
|
|
|
|
NOTE
6 PROPERTY AND EQUIPMENT
Property
and equipments were comprised of the following as of June 30, 2012 and December 31, 2011:
|
|
As of
|
|
|
June
30, 2012
|
|
December
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
|
|
|
(125,468
|
)
|
|
|
(110,410
|
)
|
Property and
equipment, net
|
|
$
|
91,716
|
|
|
$
|
106,774
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $7,529 and $15,058 for the three and six months ended June 30, 2012, respectively. Compared to $7,527 and $15,053
for the three and six months ended June 30, 2011 respectively.
NOTE
7 NOTES PAYABLE
The
Company had outstanding balances on its notes payable of the following amounts as of June 30, 2012 and December 31, 2011:
|
|
As of
|
|
|
June
30, 2012
|
|
December
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)
|
|
|
49,332
|
|
|
|
66,337
|
|
Greentree Financial
Group, 6% interest rate, due on January 1, 2013, net of discount
(3)
|
|
|
75,000
|
|
|
|
50,000
|
|
NEKCO LLC, 20%
interest rate, due on April 21, 2012. Default interest rate is 5% per month
(4)
|
|
|
40,000
|
|
|
|
40,000
|
|
Mark Blumberg,
5.75% interest rate, due on October 1, 2015
(5)
|
|
|
91,894
|
|
|
|
96,823
|
|
Asher Enterprises
Inc., 8% interest rate, due on December 9, 2012, net of discount
(6)
|
|
|
31,045
|
|
|
|
0
|
|
Asher
Enterprises Inc., 8% interest rate, due on February 4, 2013, net of discount
(7)
|
|
|
16,941
|
|
|
|
|
|
Total notes payable
|
|
$
|
304,212
|
|
|
$
|
255,537
|
|
Less: Current portion
of notes payable
|
|
|
(231,535
|
)
|
|
|
(103,310
|
)
|
Total long-term
notes payable
|
|
$
|
72,677
|
|
|
$
|
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 six months ended June 30,
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 $49,332 as of June 30, 2012, all of which was classified as short-term loan payable. The Company recorded
interest expenses of $648 and $1,428 during the three and six months ended June 30, 2012, 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 and $28,000 for the three and six months ended June 30, 2012, respectively.
The
carry value of GT Note was $75,000 as of June 30, 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. In the event the note was not paid in full as of the Maturity Date, the default interest will be accrued at a rate
of 5% per month on the outstanding balance. Accordingly, the Company recorded interest expense of $5,060 and $7,033 related to
this note during the three and six months ended June 30, 2012, respectively.
(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 $91,894 as of June 30, 2012, of which
$19,217 was classified as short-term loan payable. The Company recorded interest expenses of $1,343 and $2,271 during the three
and six months ended June 30, 2012, respectively.
(6) On
March 9, 2012, the Company entered into a convertible promissory note (Asher Note I) 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 I, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance
of Asher Note I 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 I 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 I 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 $16,407 and $20,373 for the three and six months ended June 30, 2012, respectively.
The
carry value of Asher Note I was $31,045 as of June 30, 2012.
(7) On
April 30, 2012, the Company entered into a convertible promissory note (Asher Note II) in a principal amount of $32,500 payable
to Asher Enterprises Inc. (“Asher”), which bears an interest rate of 8% per annum and is due on February 4, 2013.
Pursuant to Asher Note II, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance
of Asher Note II into the Common Stock of the Company or its successors, at 58% of the market price, no sooner than October 27,
2012. The conversion price associated with Asher Note II 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 II is discounted in amount of $23,534 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 $8,410 for the three months ended June 30, 2012.
The
carry value of Asher Note II was $16,941 as of June 30, 2012.
NOTE
8 NOTES PAYABLE – RELATED PARTIES
The
Company had outstanding balances on its notes payable – related parties of the following amounts as of June 30, 2012 and
December 31, 2011:
|
|
As of
|
|
|
June
30, 2012
|
|
December
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
|
|
|
50,884
|
|
|
|
60,884
|
|
Loans
from company owned by shareholders, 5.5% interest rate, due May 2016
|
|
|
42,500
|
|
|
|
42,500
|
|
Total notes payable – related parties
|
|
$
|
149,184
|
|
|
$
|
159,184
|
|
Less: Current portion
of notes payable – related parties
|
|
|
(106,684
|
)
|
|
|
(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 June 30, 2012. Accordingly, the Company recorded interest expenses of $800
and $1,591 during the three and six months ended June 30, 2012, respectively.
In
addition, the Company had outstanding balances of $50,884 due to the Company’s President as of June 30, 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 $1,421 and $2,972 during the three and six months ended June 30, 2012, 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 June 30, 2012. Accordingly, the Company recorded interest
expenses of $530 and $1,054 during the three and six months ended June 30, 2012, respectively.
NOTE
9 COMMON STOCK TO BE ISSUED
As
of June 30, 2012 and December 31, 2011, the Company had common stock to be issued in amount of $100,000 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 agreement 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 investor. 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
agreement. The proceeds from the subscription agreement, 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 second quarter of 2012, three investors submitted subscription agreements to the Company regarding the purchase of total 550,000
shares of the Company’s Common Stock at a price of $.05 per share, or cash payment of total $27,500. 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 second quarter of 2012, mitigated the Company’s
cash pressure in short term. The 550,000 shares have not been granted or issued as of the date of this report.
NOTE
10 CAPITAL TRANSACTIONS
During
the first quarter of 2012, one investor submitted subscription agreement 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 investor. 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 agreement. The
proceeds from the subscription agreement, which were collected in full during the first quarter of 2012, mitigated the Company’s
cash pressure in short term. The 125,000 shares were issued on April 4, 2012.
NOTE
11 STOCK BASED COMPENSATION
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 5,700,000 shares of Common Stock of the Company, of which 2,500,000 shares for the services period from
April 1, 2012 through September 30, 2012, and 3,200,000 shares for the services period from April 1, 2012 through March 31, 2013.
The fair value of the stock issuance was determined by 70% of market value of the Company’s Common Stock on the grant date, at
a price of approximately $.126 per share. Accordingly, the Company calculated the stock based compensation of $718,200 at its
fair value and booked pro rata within the relative service periods. For the six months ended June 30, 2012, the Company recognized
stock based compensation of $258,300 to the consolidated statements of operations. In addition, the Company recorded deferred
compensation of $308,700 to the consolidated balance sheet as of June 30, 2012 reflecting the issuance of 4,500,000 shares 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
June 4, 2012, the Company entered into an agreement with a Consultant for marketing services during the period from June 4, 2012
through December 3, 2012 in exchange for the total issuance of 750,000 shares of Common Stock. The fair value of the stock issuance
was determined by 70% of market value of the Company’s Common Stock on the grant date, at a price of approximately
$.056 per share. Accordingly, the Company calculated the stock based compensation of $42,000 at its fair value and booked pro
rata within the relative service periods. For the six months ended June 30, 2012, the Company recognized stock based compensation
of $6,067 to the consolidated statements of operations. In addition, the Company recorded deferred compensation of $27,533
to the consolidated balance sheet as of June 30, 2012 reflecting the issuance of 600,000 shares on June 20, 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.
NOTE
12 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 and six months ended June 30, 2012, the Company had rental expenses of $33,823 and $64,685, respectively.
NOTE
13 LOSS PER SHARE
Basic
net loss per share is computed using the weighted average number of common shares outstanding during the three and six months
ended June 30, 2012 and 2011, respectively. There was no dilutive earning per share 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
|
|
For the six months ended
|
|
|
June
30, 2012
|
|
June
30, 2011
|
|
June
30, 2012
|
|
June
30, 2011
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(467,805
|
)
|
|
$
|
(116,653
|
)
|
|
$
|
(496,784
|
)
|
|
$
|
(188,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic
|
|
$
|
(0.01
|
)
|
|
|
**
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
- basic
|
|
|
65,802,581
|
|
|
|
48,444,792
|
|
|
|
63,496,158
|
|
|
|
30,957,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
**
Less than $.01
NOTE
14 CONCENTRATION AND RISK
(1) Major
Customers
During
the six months ended June 30, 2012, major customers with their revenues are presented as follows:
Customers
|
|
|
Revenues
|
|
|
|
|
|
|
Accounts
Receivable
|
|
Customer
A
|
|
|
$
|
52,733
|
|
|
|
12
|
%
|
|
|
$
|
0
|
|
|
Total
|
|
$
|
52,733
|
|
|
|
12
|
%
|
Total:
|
|
$
|
0
|
|
During
the six months ended June 30, 2011, major customers with their revenues are presented as follows:
Customers
|
|
|
Revenues
|
|
|
|
|
|
|
Accounts
Receivable
|
|
Customer
A
|
|
|
$
|
64,546
|
|
|
|
11
|
%
|
|
|
$
|
29,503
|
|
|
Total
|
|
$
|
64,546
|
|
|
|
11
|
%
|
Total:
|
|
$
|
29,503
|
|
(2) Major
Vendors
During
the six months ended June 30, 2012, major vendors are presented as follows:
Vendors
|
|
|
Purchase
|
|
|
|
|
|
|
Accounts
Payable
|
|
Vendor
A
|
|
|
$
|
119,809
|
|
|
|
56
|
%
|
|
|
$
|
31,352
|
|
Vendor B
|
|
|
|
39,790
|
|
|
|
19
|
%
|
|
|
|
0
|
|
Vendor C
|
|
|
|
9,500
|
|
|
|
4
|
%
|
|
|
|
743
|
|
Vendor D
|
|
|
|
8,500
|
|
|
|
4
|
%
|
|
|
|
3,023
|
|
|
Total
|
|
$
|
177,599
|
|
|
|
83
|
%
|
Total:
|
|
$
|
35,118
|
|
During
the six months ended June 30, 2011, major vendors are presented as follows:
Vendors
|
|
|
Purchases
|
|
|
|
|
|
|
Accounts
Payable
|
|
Vendor
A
|
|
|
$
|
50,818
|
|
|
|
21
|
%
|
|
|
$
|
0
|
|
Vendor B
|
|
|
|
35,520
|
|
|
|
15
|
%
|
|
|
$
|
0
|
|
Vendor C
|
|
|
|
20,493
|
|
|
|
9
|
%
|
|
|
|
5,100
|
|
Vendor D
|
|
|
|
9,373
|
|
|
|
4
|
%
|
|
|
|
6,900
|
|
|
Total
|
|
$
|
116,204
|
|
|
|
49
|
%
|
Total:
|
|
$
|
12,000
|
|
(3)
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
15 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 June 30, 2012, the Company had an accumulated deficit of $1,748,220. 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
16 SUBSEQUENT EVENTS
In
accordance with ASC Topic 855-10,
the Company has analyzed its operations subsequent to June 30, 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, other than the followings.
On
July 6, 2012, the Company issued an additional 850,000 shares to the Consultant in connection with the two consulting agreements
entered on April 1, 2012, see Note 11.
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 AND SIX MONTHS ENDED JUNE 30, 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
|
|
For the three
months ended
|
|
For the six
months ended
|
|
For the six
months ended
|
June
30, 2012
|
June
30, 2011
|
|
June
30, 2012
|
|
June
30, 2012
|
|
|
USD
|
|
%
of
|
|
USD
|
|
% of
|
|
USD
|
|
% of
|
|
USD
|
|
% of
|
Revenue
|
Revenue
|
|
Revenue
|
|
Revenue
|
Revenues
|
|
$
|
219,618
|
|
— %
|
|
$
|
216,515
|
|
— %
|
|
$
|
470,787
|
|
— %
|
|
$
|
441,730
|
|
— %
|
Cost
of Sales
|
|
$
|
(114,649)
|
|
52%
|
|
$
|
(88,780)
|
|
41%
|
|
$
|
(195,293)
|
|
41%
|
|
$
|
(162,773)
|
|
37%
|
Gross
profit
|
|
$
|
104,969
|
|
48%
|
|
$
|
127,735
|
|
59%
|
|
$
|
275,494
|
|
59%
|
|
$
|
278,957
|
|
63%
|
Operating
expenses
|
|
$
|
520,754
|
|
237%
|
|
$
|
238,278
|
|
110%
|
|
$
|
695,652
|
|
148%
|
|
$
|
442,676
|
|
100%
|
(Loss)
from operations
|
|
$
|
(415,785)
|
|
189%
|
|
$
|
(110,543)
|
|
51%
|
|
$
|
(420,158)
|
|
89%
|
|
$
|
(163,719)
|
|
37%
|
Other
(expense)
|
|
$
|
(52,020)
|
|
24%
|
|
$
|
(6,110)
|
|
3%
|
|
$
|
(76,626)
|
|
16%
|
|
$
|
(24,865)
|
|
6%
|
Net
(loss) before income taxes
|
|
$
|
(467,805)
|
|
213%
|
|
$
|
(116,653)
|
|
54%
|
|
$
|
(496,784)
|
|
106%
|
|
$
|
(188,584)
|
|
43%
|
Net
(loss)
|
|
$
|
(467,805)
|
|
213%
|
|
$
|
(116,653)
|
|
54%
|
|
$
|
(496,784)
|
|
106%
|
|
$
|
(188,584)
|
|
43%
|
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.
Revenue
for the three and six months ended June 30, 2012 was $219,618
and $470,787, respectively, including
licensing revenue of $17,877 and $35,952 during the three-month and six-month periods, respectively. Comparatively, we had revenues
of $216,515 and $441,730 for the three and six months ended June 30, 2011, respectively. 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 fewer 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
|
|
For
the six months ended
|
|
June
30, 2012
|
|
June
30, 2011
|
|
June
30, 2012
|
|
June
30, 2011
|
Mathews
Retail
|
$122,477
|
|
$ 130,644
|
|
$257,553
|
|
$249,612
|
Wholesale
|
$78,286
|
|
$73,498
|
|
$193,275
|
|
$207,964
|
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 June 30, 2012 was $114,649, increased by $25,869, or approximately 29% from $88,780 for
the comparable period in 2011. For the six months ended June 30, 2012, we had cost of goods sold in an amount of $195,293, increased
by $32,520, or approximately 20% from $162,773 for the comparable period in 2011. We experienced a slightly higher cost on certain
commodity components, and reduced costs on certain other commodity components during the three and six months ended June 30, 2012.
Commodity components that increased in cost include a pasteurized poultry litter base that provides a source of 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 or organic acids (Humic Acid and Fulvic Acid derived from plant
extracts). Although we achieved a greater impact in overall retail sales for the region, fewer of those retail sales occurred
at our Matthews retail store. 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 June 30, 2012 was $104,969, decreased by 22,766, or approximately 18% from $127,735 for the comparable
period in 2011. For the six months ended June 30, 2012, we had gross profit in an amount of $275,494, which was approximately
equal to the gross profit for the comparable period in 2011. The decrease in gross profit during the three months ended June 30,
2012 was primarily attributable to the increase in less profitable wholesale sales to our retail partners over the same period
a year ago and a decrease in the more profitable retail sales from our Matthews retail store. Gross profits also continue to be
adversely affected by ongoing effects from the recession. We expect the recession to continue to impact sales and gross profits
negatively over the next 2-3 years. Even if the economy recovers more quickly than expected, there is no assurance that sales
and gross profits will increase.
Operating
expenses
Our
operating expenses were $520,754 for the three months ended June 30, 2012,
increased by $282,476, or approximately 119%,
compared to operating expenses of $238,278 for the same period in 2011. Our operating expenses were $695,652 for the six months
ended June 30, 2012, increased by $252,976, or approximately 57%, compared to operating expenses of $442,676 for the same period
in 2011. The significant increase in operating expense during the first half of 2012 was primarily attributable to the non-cash
compensation, which were $264,367 for the six months ended June 30, 2012, of which $157,500 resulting from the issuance of 2,500,000
shares of common stock for
business advisory services in a term of 6 months effective
from April
1, 2012 through September 30, 2012, $100,800 resulting from the issuance of 3,200,000 shares of common stock for
business
advisory services in a term of 1 year effective
from April 1, 2012 through March 31, 2013, and $6,067 resulting from the
issuance of 750,000 shares of common stock for
marketing services in a term of 6 months effective
June
4, 2012 through December 3, 2012. All the shares issuances were valued based on 70% of market price on the grant date and booked
pro rata within the relative service periods. Comparatively, the Company had non-cash consulting expenses of $18,750 during the
six months ended June 30, 2011.
Except
for the non-cash compensation, our fixed expenses remained fairly constant from year to year. We realized some savings as the
result of sufficient cost control during the first half of 2012, such as the decrease in advertising and salaries by $8,798, and
$17,196, respectively. We are working to reduce some of the fixed expenses to maintain positive cash flow during the third 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 sales 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 mid to late 2012 depending upon receipt
of funding. 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 and six months ended June 30, 2012 was $52,020 and $76,626, respectively, which was an increase of $32,959,
or approximately 173%, and $38,810, or approximately 103%, respectively, compared to interest expense of $19,061 and $37,816 for
the three and six months ended June 30, 2011, respectively. An increase in interest expenses in 2012 was due primarily to
interest charges on 2 new convertible promissory notes in amount of $42,500, dated March 9, 2012, and $32,500, dated April 30,
2012, respectively. Both notes bear interest at a rate of 8% per annum and were discounted in amount of $30,776 and $23,534, respectively,
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 the notes in amount of
$20,373 and $8,410, respectively, for the six months ended June 30, 2012.
Net
loss
Net
loss for the three and six months ended June 30, 2012 was $467,805
and $
496,784
,
respectively, increased by $351,152 and $308,200,
compared to net loss of $116,653 and $188,854 for the same periods in
2011. The increase in net loss was primarily attributable to the decrease in gross profit and the increase in non-cash compensation
and interest expenses during the three and six months ended June 30, 2012.
Liquidity
and Capital Resources
The following
table sets forth a summary of our net cash flow information for the periods indicated:
|
|
For
the six months ended
|
|
|
|
June
30, 2012*
|
|
June,
30, 2011*
|
|
Net
cash (used in) by operating activities
|
$
|
(157,657)
|
|
$
|
(204,802)
|
|
|
Net
cash (used in) investing activities
|
|
$
|
(11,000)
|
|
$
|
(303)
|
|
Net
cash provided by financing activities
|
|
$
|
133,189
|
|
$
|
208,057
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and equivalents
|
|
$
|
(35,468)
|
|
$
|
2,952
|
|
Cash
and cash equivalents, beginning of period
|
|
$
|
42,651
|
|
$
|
6,625
|
|
Cash
and cash equivalents, end of period
|
|
$
|
7,183
|
|
$
|
9,577
|
|
*
The above financial data have been derived from our unaudited consolidated financial statements for the six months ended June
30, 2012 and 2011.
Operating
Activities
Net
cash used in operating activities was $157,657 and $204,802 for the six months ended June 30, 2012 and 2011, respectively. Negative
cash flows from operation during the six months ended June 30, 2012 was due primarily to the net loss of $496,784, the increase
in inventory in an amount of $40,819 and the decrease in deferred revenues by $35,952, partially offset by the increase in accounts
payable by $45,632, the increase in accrued expenses and accrued interest in amount of $21,832 and $15,937, respectively, and
the non-cash expenses in total of $333,408, which included bad debt expenses of $1,687, depreciation of $15,058, amortization
of discount to note payable in amount of $52,296, and common stock issued for services rendered in an amount of $264,367. Comparatively,
negative cash flows from operation during the same period in 2011 was due to the net loss of $188,854, increase in accounts receivables
by $56,958 and the decrease in accounts payable by 91,858, partially offset by the non-cash expenses totaling of $61,925, and
the increase in accrued expenses and deferred revenues by $13,615 and $21,363, respectively.
Investing
Activities
Cash
used in investing activities mainly consists of capital expenditures, expenditures for property, plant, and equipment.
We
had cash flow of $11,000 used in investing activities during the six months ended June 30, 2012 due to the security deposits.
Net cash used in investing activities was $303 during the six months ended June 30, 2011, due primarily to purchase of property
and equipment in the period.
Financing
Activities
Net
cash provided by financing activities was $133,189 for the six months ended June 30, 2012, due primarily to the proceeds from
notes payable in an amount of $75,000, and the proceeds from stock issuance in amount of $92,500, offset by the payments of total
$34,311 to notes payable, of which $10,000 was in connection with related parties’ loan. Comparatively, we had cash inflow
of $208,057 during the same period in 2011 due to the proceeds from notes payable in an amount of $142,500, and the proceeds from
stock issuance in amount of $102,835, offset by the payments of total $37,278 to 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 June 30, 2012 and
December 31, 2011, our outstanding loans payable to non-affiliates on the accompanying consolidated balance sheets were as follows:
|
|
As of
|
|
|
June 30, 2012
|
|
December 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)
|
|
|
49,332
|
|
|
|
66,337
|
|
Greentree Financial Group, 6% interest rate, due on January 1, 2013, net of discount
(3)
|
|
|
75,000
|
|
|
|
50,000
|
|
NEKCO LLC, 20% interest rate, due on April 21, 2012. Default interest rate is 5% per month
(4)
|
|
|
40,000
|
|
|
|
40,000
|
|
Mark Blumberg, 5.75% interest rate, due on October 1, 2015
(5)
|
|
|
91,894
|
|
|
|
96,823
|
|
Asher Enterprises Inc., 8% interest rate, due on December 9, 2012, net of discount
(6)
|
|
|
31,045
|
|
|
|
0
|
|
Asher Enterprises Inc., 8% interest rate, due on February 4, 2013, net of discount
(7)
|
|
|
16,941
|
|
|
|
|
|
Total notes payable
|
|
$
|
304,212
|
|
|
$
|
255,537
|
|
Less: Current portion of notes payable
|
|
|
(231,535
|
)
|
|
|
(103,310
|
)
|
Total long-term notes payable
|
|
$
|
72,677
|
|
|
$
|
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 six months ended June 30,
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 $49,332 as of June 30, 2012, all of which was classified as short-term loan payable. The Company recorded
interest expenses of $648 and $1,428 during the three and six months ended June 30, 2012, 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 and $28,000 for the three and six months ended June 30, 2012, respectively.
The
carry value of GT Note was $75,000 as of June 30, 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. In the event the note was not paid in full as of the Maturity Date, the default interest will be accrued at a rate
of 5% per month on the outstanding balance. Accordingly, the Company recorded interest expense of $5,060 and $7,033 related to
this note during the three and six months ended June 30, 2012, respectively.
(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 $91,894 as of June 30, 2012, of which
$19,217 was classified as short-term loan payable. The Company recorded interest expenses of $1,343 and $2,271 during the three
and six months ended June 30, 2012, respectively.
(6) On
March 9, 2012, the Company entered into a convertible promissory note (Asher Note I) 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 I, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance
of Asher Note I 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 I 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 I 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 $16,407 and $20,373 for the three and six months ended June 30, 2012, respectively.
The
carry value of Asher Note I was $31,045 as of June 30, 2012.
(7) On
April 30, 2012, the Company entered into a convertible promissory note (Asher Note II) in a principal amount of $32,500 payable
to Asher Enterprises Inc. (“Asher”), which bears an interest rate of 8% per annum and is due on February 4, 2013.
Pursuant to Asher Note II, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance
of Asher Note II into the Common Stock of the Company or its successors, at 58% of the market price, no sooner than October 27,
2012. The conversion price associated with Asher Note II 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 II is discounted in amount of $23,534 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 $8,410 for the three months ended June 30, 2012.
The
carry value of Asher Note II was $16,941 as of June 30, 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 June 30, 2012 and
December 31, 2011:
|
|
As of
|
|
|
June 30, 2012
|
|
December 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
|
|
|
50,884
|
|
|
|
60,884
|
|
Loans from company owned by shareholders, 5.5% interest rate, due May 2016
|
|
|
42,500
|
|
|
|
42,500
|
|
Total notes payable – related parties
|
|
$
|
149,184
|
|
|
$
|
159,184
|
|
Less: Current portion of notes payable – related parties
|
|
|
(106,684
|
)
|
|
|
(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 June 30, 2012. Accordingly, the Company recorded interest expenses of $800
and $1,591 during the three and six months ended June 30, 2012, respectively.
In
addition, the Company had outstanding balances of $50,884 due to the Company’s President as of June 30, 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 $1,421 and $2,972 during the three and six months ended June 30, 2012, 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 June 30, 2012. Accordingly, the Company recorded interest
expenses of $530 and $1,054 during the three and six months ended June 30, 2012, respectively.
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 June 30, 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 $
7,183
on hand as of June 30, 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 2012. 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 our current 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 June 30, 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 June 30, 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 June 30, 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: August 17, 2012
|
By:
|
/s/ William Styles
|
|
William
Styles
Chief
Executive Officer
|
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