<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from __________ to __________
Commission file number 33-8104/ 0-25892
ORGANIC SOLUTIONS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 74-2423728
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
6391 DE ZAVALA RD., SUITE 202
SAN ANTONIO, TEXAS 78249
(address of principal executive offices)
210-694-0152
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity as of May 15, 1997
15,105,638 COMMON EQUITY, $0.001 PAR VALUE
Transitional Small Business Disclosure Format
Yes No X
--- ---
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PART I
ITEM 1. FINANCIAL STATEMENTS
ORGANIC SOLUTIONS, INC.
AND SUBSIDIARIES
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1997
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 14,600
Inventory 330,400
Accounts Receivable 127,600
------------
472,600
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $123,800 1,385,300
OTHER ASSETS
Deposits 11,500
------------
$ 1,869,400
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Trade $ 459,600
Officers and shareholders 10,800
Accrued Expenses 271,000
Note Payable to shareholders 1,168,400
------------
1,909,800
Long-Term Note Payable 363,600
STOCKHOLDERS' EQUITY
Common Stock, par value $.001 per share:
authorized 200,000,000 shares,
issued 15,105,638 shares 15,100
Additional Paid-in Capital 10,093,500
Retained Deficit (10,512,000)
------------
(403,400)
------------
$ 1,869,400
============
</TABLE>
See accompanying notes.
2
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ORGANIC SOLUTIONS, INC.
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES $ 150,400 $ 159,150 $ 363,600 $ 172,250
COSTS OF GOODS SOLD 176,000 92,200 372,300 98,000
--------------- --------------- --------------- ---------------
GROSS PROFIT (25,600) 66,950 (8,700) 74,250
EXPENSES
Advertising 42,300 43,600 121,200 234,900
Sales and Marketing 73,800 235,000 210,900 654,050
General and Administrative 481,300 459,500 2,259,000 1,277,850
Litigation Settlement (321,600)
Depreciation and Amortization 32,700 81,250 98,000 86,950
--------------- --------------- --------------- ---------------
630,100 819,350 2,689,100 2,253,750
--------------- --------------- --------------- ---------------
NET LOSS ($ 655,700) ($ 752,400) ($ 2,697,800) ($ 2,179,500)
=============== =============== =============== ===============
NET LOSS PER SHARE ($ 0.04) ($ 0.05) ($ 0.18) ($ 0.20)
=============== =============== =============== ===============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ORGANIC SOLUTIONS, INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine
Quarter Quarter Months Months
Ended Ended Ended Ended
March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss ($ 655,700) ($ 752,400) ($2,697,800) ($1,857,900)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of Employee Stock
Grants 800,000
Litigation Settlement (321,600)
Depreciation and amortization 32,700 81,250 98,000 86,950
(Increase) Decrease in 1,100 (6,450) (32,300) (107,300)
inventory
(Increase) Decrease in accounts
(55,700) (169,350) (71,000) 9,450
receivable
(Increase) Decrease in prepaid
expenses -- (297,950)
Increase (Decrease) in
accounts (58,000) 281,550 7,000 49,450
payable
(Decrease) in Bank Overdraft (193,900)
Increase (Decrease) in accrued
expenses (70,500) (69,100) 49,900 14,650
Increase in Note Payable 35,300 100,000 612,900 100,000
----------- ----------- ----------- -----------
(309,000) 217,900 1,465,500 (466,350)
----------- ----------- ----------- -----------
Net cash used in operating activities (964,700) (534,500) (1,232,300) (2,324,250)
INVESTING ACTIVITIES
Purchase of property and equipment (16,000) (566,850) (16,000) (1,402,550)
Organization Costs (9,900) (53,550)
(Increase) Decrease in Deposits 1,300 800 (5,100)
----------- ----------- ----------- -----------
Net cash used in investing activities (14,700) (575,950) (20,100) (1,456,100)
FINANCING ACTIVITIES
(Increase) Decrease in Note Payable (35,000) 502,800 (39,500) (623,300)
Issuance of Common Stock 655,900 842,600 4,500,000
Sale of Shares of Subsidiary 363,600 440,800
----------- ----------- ----------- -----------
Net cash provided by financing activities 984,500 (502,800) 1,243,900 3,876,700
----------- ----------- ----------- -----------
Net increase (decrease) in cash 5,100 (1,613,250) (9,500) 96,350
Cash at beginning of period 9,500 1,920,900 24,100 211,300
----------- ----------- ----------- -----------
Cash at end of period $ 14,600 $ 307,650 $ 14,600 $ 307,650
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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See accompanying notes.
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Article 10 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. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary to make the financial statements
not misleading have been included.
ITEM 2. MANAGEMENT'S DISCUSSIONS AND
ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATION
Revenues for the quarter ended March 31, 1997 (the "1997 Quarter"),
were $150,400, $8,750 less than that reported for the quarter ended March 31,
1996 (the "1996 Quarter"). Revenues for the 1997 Quarter were largely
generated by the initial operations of the Company's NutraFeed, Inc. subsidiary
("NutraFeed"). The NutraFeed facility began production in the first fiscal
quarter of fiscal 1997. Sales of the Company's organic insecticide products
were negative for the 1997 Quarter due to the return of merchandise by a west
coast distributor. Sales returns of approximately $73,300 were recorded by the
Company; an amount of approximately $28,000 still remains in dispute with the
customer. Revenues from the sales of the Company's organic insecticide
products were approximately $32,700 for the 1997 Quarter, before the return of
merchandise was recorded. Gross profit for the 1997 Quarter declined due the
recording of the returned merchandise and the small margins being realized by
NutraFeed.
Revenues for the nine months of the fiscal year ended March 31, 1997
(the "1997 FYTD"), were $363,600, $191,350 more than that reported for the nine
months ended March 31, 1996 (the "1996 FYTD"). The increase in revenues for the
1997 FYTD were largely generated by the initial operations of NutraFeed. Sales
of the Company's organic insecticide products during the 1997 FYTD decreased
over the same period of the prior year due to the returned merchandise
discussed in the above paragraph. Gross profit for the 1997 FYTD declined due
the recording of the returned merchandise and the small margins being realized
by NutraFeed
Advertising expenses of $42,300 for the 1997 Quarter decreased $1,300
from that reported for the 1996 Quarter. The decrease in expenses for the 1997
Quarter can chiefly be attributed to the lack of funds available to support an
advertising campaign.
Advertising expenses of $121,200 for the 1997 FYTD decreased $113,700
from that reported for the 1996 FYTD. The expenses for the 1997 FYTD are
chiefly costs relating to the Company's participation in the National Hardware
Show in Chicago in August 1996 and limited radio advertising in selected
markets. Expenses for the 1996 FYTD were primarily due to costs related to the
development of the Company's overall marketing campaign as well as too some
television production expense.
Sales and marketing expenses of $73,800 for the 1997 Quarter,
decreased $161,200 from that reported for the 1996 Quarter. A large portion
of the expense for the 1997 Quarter can be attributed to efforts expended on
continued sales calls, many of which were developed at the National Hardware
Show, as well as calls on national home improvement retailers. A portion of
the decrease is due to the reclassification of expenses associated with the
NutraFeed operations as General and Administrative Expenses.
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Sales and marketing expenses of $137,100 for the 1997 FYTD, decreased
$443,150 from that reported for 1996 FYTD. A significant portion of the
expenses for the 1997 FYTD may be attributed to efforts expended on continued
sales calls, many of which were developed at the National Hardware Show, as
well as calls on national home improvement retailers. A portion of the
decrease is due to the reclassification of expenses associated with the
NutraFeed operations as General and Administrative Expenses.
General and administrative expense of $481,300 for the 1997 Quarter,
increased $21,800 from that reported for the 1996 Quarter. General and
administrative expense of $2,259,000 for the 1997 FYTD, increased $981,150 from
that reported for the 1996 FYTD. During December 1996, the Company's Board of
Directors elected to modify the existing stock grant program by immediately
vesting all of the remaining unvested stock grants. The stock grants, which
were granted to the employees of the Company in February 1996, were originally
scheduled to vest in May 1997 and May 1998. As a result of this action, the
Company recognized charges against earnings of $800,000 for the 1997 FYTD. A
portion of the increase is attributable to the reclassification of NutraFeed
expenses discussed above. Excluding the impact of the employee stock grant
charge and the NutraFeed expense reclassification, General and Administrative
Expense declined $30,000 for the 1997 FYTD.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to December 31, 1996, the Company sold, in a private
placement 750,000 shares of the Company's common stock for approximately
$655,900. The shares, which were issued pursuant to Regulation S of the
Securities Act of 1933, were sold to overseas investors.
Additionally, the Company privately placed 400,000 shares of common
stock of NutraFeed, Inc., a subsidiary of the Company.
The Company currently is exploring other fund raising alternatives,
including the sales of additional shares of NutraFeed, Inc. securities. The
success of these efforts is critical to the continued operations of the
Company. If the Company is successful in these efforts, the Company believes
it will be able to adequately meet its anticipated short-term requirements for
working capital, sales and marketing expenditures and capital expenditures.
However, if the Company is unsuccessful in implementing its business plan or in
raising additional capital, the Company could, in the worst case, be forced to
cease operations.
PART II
ITEM 1. LEGAL PROCEEDINGS
In 1995, the Company entered into an agreement with U.S. Mexico Trade,
Inc. ("USMT") whereby USMT was to assist the Company in establishing business
operations in Mexico. The Company filed suit to recover fees of $29,000 paid
to USMT alleging breach of contract. USMT has filed a counterclaim alleging it
is due unpaid fees, lost profits, and exemplary damages totaling $5,300,000.
The Company and its legal counsel believe the counterclaim is without merit,
and the Company intends to defend the case vigorously. Although the ultimate
outcome of this counterclaim cannot presently be determined, the Company does
not
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believe the counterclaim will have a material adverse effect on the Company's
financial position or results of operation.
In the normal course of business, the Company is named in various
legal actions in addition to those discussed above. Although the ultimate
outcome of these actions cannot be determined, the Company's management does
not believe these actions will have a material adverse effect on the Company's
financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3.1 Certified copy of Certificate of Amendment of Certificate of
Incorporation. Incorporated by reference to Exhibit 3.1 to the
Company's report on Form 8-K filed on November 11, 1994.
3.2 By-laws adopted by shareholders on October 26, 1994.
Incorporated by reference to Exhibit 3.1 to the Company's
report on Form 8-K filed on November 11, 1994.
27 Financial Data Schedule*
* filed Herewith
b. Reports on Form 8-K
1. On March 25, 1997, the Company filed a Form-8K which reported
the sale of 750,000 shares of the Company's common stock for
approximately $655,900. The shares, which were issued
pursuant to Regulation S of the Securities Act of 1933, were
sold to overseas investors.
7
<PAGE> 8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ORGANIC SOLUTIONS, INC.
(Registrant)
Date: May 19, 1997 /s/ TONY HALES
---------------------------
Tony Hales,
Chairman of the Board
/s/ JOSEPH R. TRAINOR
---------------------------
Joseph R. Trainor,
President
8
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certified copy of Certificate of Amendment of Certificate of
Incorporation. Incorporated by reference to Exhibit 3.1 to
the Company's report on Form 8-K filed on November 11, 1994.
3.2 By-laws adopted by shareholders on October 26, 1994.
Incorporated by reference to Exhibit 3.1 to the Company's
report on Form 8-K filed on November 11, 1994.
27 Financial Data Schedule*
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 14,600
<SECURITIES> 0
<RECEIVABLES> 127,600
<ALLOWANCES> 0
<INVENTORY> 330,400
<CURRENT-ASSETS> 472,600
<PP&E> 1,509,100
<DEPRECIATION> 123,800
<TOTAL-ASSETS> 1,869,400
<CURRENT-LIABILITIES> 1,909,800
<BONDS> 0
15,100
0
<COMMON> 0
<OTHER-SE> (418,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,909,800
<SALES> 363,600
<TOTAL-REVENUES> 363,600
<CGS> 372,300
<TOTAL-COSTS> (8,700)
<OTHER-EXPENSES> 2,689,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,697,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,697,800)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
