<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 December 31, 1996
[ ] 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 (I.R.S. Employer
incorporation or organization) 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 February 14, 1997
15,410,305 COMMON EQUITY, $0.001 PAR VALUE
Transitional Small Business Disclosure Format
Yes No X
--- ---
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
ORGANIC SOLUTIONS, INC.
AND SUBSIDIARY
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1996
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 9,500
Inventory 331,500
Accounts Receivable
Trade 45,400
Officers 26,500
------------
412,900
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $91,200 1,402,000
OTHER ASSETS
Deposits 10,200
------------
$ 1,825,100
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Trade $ 516,600
Officers and shareholders 11,800
Bank Overdrafts 193,900
Accrued Expenses 341,500
Notes Payable to Shareholders 1,133,100
------------
2,196,900
Capital Lease Obligation 398,000
STOCKHOLDERS' EQUITY
Common Stock, par value $.001 per share:
authorized 200,000,000 shares,
issued 14,660,305 shares 14,700
Additional Paid-in Capital 9,421,500
Retained Deficit (10,206,000)
------------
(769,800)
------------
$ 1,825,100
============
</TABLE>
See accompanying notes.
2
<PAGE> 3
ORGANIC SOLUTIONS, INC.
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES $ 132,300 $ 8,500 $ 213,200 $ 13,150
COSTS OF GOODS SOLD 128,300 4,000 196,300 5,850
----------- ----------- ----------- -----------
GROSS PROFIT 4,000 4,500 16,900 7,300
EXPENSES
Advertising 8,800 39,000 78,900 191,300
Sales and Marketing 46,200 218,750 137,100 419,100
General and Administrative 514,300 465,900 977,700 818,300
Depreciation and Amortization 32,700 2,800 65,300 5,700
Litigation Settlement (321,600) (321,600)
Amortization of Employee Stock Grants 612,500 800,000
----------- ----------- ----------- -----------
1,214,500 404,850 2,059,000 1,112,800
----------- ----------- ----------- -----------
NET LOSS $(1,210,500) $ (400,350) $(2,042,100) $(1,105,500)
NET LOSS PER SHARE $ (0.08) $ (0.03) $ (0.14) $ (0.08)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
ORGANIC SOLUTIONS, INC.
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (1,210,500) $ (400,350) $ (2,042,100) (1,105,500)
Adjustments to reconcile net loss to
net cash used in operating activities:
Litigation Settlement -- (321,600) -- (321,600)
Amortization of Employee Stock
Grants 612,500 -- 800,000 --
Depreciation and amortization 32,700 2,800 65,300 5,700
(Increase) Decrease in inventory (30,100) (125,700) (33,400) (100,850)
(Increase) Decrease in accounts
receivable (14,600) (15,600) (38,600) 178,800
(Increase) Decrease in prepaid
expenses -- (1,750) -- (297,950)
Increase in Bank Overdraft 193,900 -- 193,900 --
Increase (Decrease)in accounts
payable 17,700 (146,150) 65,000 (232,100)
Increase (Decrease) in accrued
expenses 32,800 8,600 120,200 83,750
------------ ------------ ------------ ------------
844,900 (599,400) 1,172,700 (684,250)
------------ ------------ ------------ ------------
Net cash used in operating activities (365,600) (999,750) (869,700) (1,789,750)
INVESTING ACTIVITIES
Purchase of property and equipment, net of
returns (810,150) 5,800 (835,700)
Refund of Deposit 3,000 6,400
Organization costs (10,450) (44,450)
------------ ------------ ------------ ------------
Net cash used in investing activities 3,000 (820,600) 12,200 (880,150)
FINANCING ACTIVITIES
Increase (Decrease) in Notes payable to
stockholders 108,300 (1,300,000) 583,200 (525,000)
Increase (Decrease) in Capital Lease
Obligation 404,500 (4,500) 404,500
Sale of Shares of Subsidiary 27,500 77,500
Issuance of Common Stock 186,700 4,500,000 186,700 4,500,000
------------ ------------ ------------ ------------
Net cash provided by financing activities 322,500 3,604,500 842,900 4,379,500
------------ ------------ ------------ ------------
Net increase (decrease) in cash (40,100) 1,784,150 (14,600) 1,709,600
Cash at beginning of period 49,600 36,750 24,100 211,300
------------ ------------ ------------ ------------
Cash at end of period $ 9,500 $ 1,920,900 $ 9,500 $ 1,920,900
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
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 DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATION
Revenues for the quarter ended December 31, 1996 (the "1996 Quarter"),
were $80,900, $76,250 more than that reported for the quarter ended December
31, 1995 (the "1995 Quarter"). Revenues for the 1996 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. Increases in production are anticipated during the remainder of the
fiscal year. Sales of the Company's organic insecticide products increased by
$7,100 over the 1995 Quarter. Gross profit for the 1996 Quarter declined due to
the small margins currently being realized by NutraFeed.
Revenues for the six months ended December 31, 1996 (the "1996 YTD"),
were $213,200, $200,050 more than that reported for the six months ended
December 31, 1995 (the "1995 YTD"). Revenues for the 1996 YTD were largely
generated by the initial operations of NutraFeed. Sales of the Company's
organic insecticide products during the 1996 YTD increased by $18.950 over the
same period of the prior year. Gross profit for the 1996 YTD declined due to
the small margins currently being obtained by NutraFeed.
Advertising expenses of $8,800 for the 1996 Quarter decreased $30,100
from that reported for the 1995 Quarter. The decrease in expenses for the 1996
Quarter can be chiefly attributed to the seasonal nature of the organic
insecticide products. Expenses for the 1995 Quarter were associated with the
development of the Company's overall marketing campaign as well as some
television production expense.
Advertising expenses of $78,900 for the 1996 YTD decreased $112,400
from that reported for the 1995 YTD. The expense for 1996 YTD are chiefly costs
relating to the Company's participation in the National Hardware Show in
Chicago in August 1996. Expenses for the 1995 YTD were associated with the
development of the Company's overall marketing campaign as well as some
television production expense.
Sales and marketing expenses of $46,200 for the 1996 Quarter,
decreased $172,550 from that reported for 1995 Quarter. A large portion of
the expense for the 1996 Quarter can be attributed to efforts expended on
continued sales calls, many of which were developed at the National Hardware
Show. A portion of the decrease is due to the reclassification of expenses
associated with the NutraFeed operation to General and Administrative Expenses.
5
<PAGE> 6
Sales and marketing expenses of $137,100 for the 1996 YTD, decreased
$282,000 from that reported for 1995 YTD. A large portion of the expense for
the 1996 YTD can be attributed to efforts expended on continued sales calls,
many of which were developed at the National Hardware Show. A portion of the
decrease is due to the reclassification of expenses associated with the
NutraFeed operation to General and Administrative Expenses.
General and administrative expense of $514,300 for the 1996 Quarter,
increased $48,400 from that reported for the 1995 Quarter. General and
administrative expense of $977,700 for the 1996 YTD, increased $159,400 from
that reported for the 1995 YTD. The increases are attributable, primarily, the
reclassification of NutraFeed expenses discussed above. Excluding the impact
of the NutraFeed expense reclassification, General and Administrative Expense
declined $113,800 for the 1996 Quarter and $204,400 for the 1996 YTD.
During the 1995 Quarter, the Company entered into a settlement
agreement with Organic Plus, Inc. relating to their then pending litigation. As
a part of this settlement, the Company's payable of $321,600 to Organic Plus,
Inc. was canceled. Additionally, Organic Plus, Inc. agreed to pay the Company
up to $100,000 at a point in the future. The Company has elected not to
recognize payment from Organic Plus, Inc. until they are actually received.
During December 1996, the Company's Board of Directors elected to
modify the existing stock grant program by imediately 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 $612,500 for the 1996 Quarter and $800,000 for the
1996 YTD.
Depreciation increased $29,900 from the corresponding quarter of the
prior year and $59,600 from the corresponding six month period of the prior
year. This increase is attributable to commencement of production at
NutraFeed..
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
$750,000. The shares, which were issued pursuitant to Regulation S of the
Securities Act of 1933, were sold to overseas investors. These funds are to be
part of a larger fund raising program which the Company hopes to conclude
during the current fiscal quarter.
Additionally, the Company is in the process of privately placing
NutraFeed, Inc. securities. This private placement, if successfully
consumated, would include a partial sale of the Company's holdings of NutraFeed
common stock. Proceeds from this private placement would be used, in part, to
provide working capital, purchase additional equipment at the Claremont
location, finance additional NutraFeed operations and to repay the Company
amounts advanced to NutraFeed over the past year.
Additionally, the Company is exploring other fund raising
alternatives.
6
<PAGE> 7
Based on the infusion of capital through the private placements, the
Company believes it will be able to adequately meet its anticipated short-term
requirements for working capital, promotional expenditures and capital
expenditures. However, if the Company is unsuccessful in implementing its
planned business operations 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 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
7
<PAGE> 8
b. Reports on Form 8-K
None
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: February 19, 1997 /s/ John L. Sharp
----------------- ------------------------
John L. Sharp
Chief Accounting Officer
8
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,500
<SECURITIES> 0
<RECEIVABLES> 71,900
<ALLOWANCES> 0
<INVENTORY> 311,500
<CURRENT-ASSETS> 412,900
<PP&E> 1,493,200
<DEPRECIATION> 91,200
<TOTAL-ASSETS> 1,825,100
<CURRENT-LIABILITIES> 2,196,900
<BONDS> 398,000
0
0
<COMMON> 14,700
<OTHER-SE> 9,421,500
<TOTAL-LIABILITY-AND-EQUITY> 1,825,100
<SALES> 213,200
<TOTAL-REVENUES> 213,200
<CGS> 196,300
<TOTAL-COSTS> 196,300
<OTHER-EXPENSES> 2,059,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,042,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,042,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,042,100)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
