<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 3 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
For the quarter period ended April 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
For the transition period from ______ to ______
Commission File No.: 0-18935
ORGANIK TECHNOLOGIES, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
WASHINGTON 81-0440517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
1919 70TH AVENUE WEST, TACOMA, WASHINGTON 98466
------------------------------------------------
(Address of principal executive offices.)
Issuer's telephone number: (206) 564-1400
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _.
6,650,698 SHARES OF COMMON STOCK OUTSTANDING AS OF JUNE 10, 1996
Indicate the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Organik Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, 1996 July 31, 1995
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash on hand and cash equivalents $ 188,444 $ 134,920
Accounts receivable less allowance for
doubtful accounts of $51,656 and
$13,142, respectively 96,752 28,961
Other receivables 31,748 7,622
Inventories, net 1,412,272 994,118
Prepaid expenses 42,383 103,359
---------------- ----------------
Total current assets 1,771,599 1,268,980
Property and equipment, net of accumulated
depreciation 517,642 755,732
Other assets:
Purchased cotton technology net of
accumulated amortization of $150,000 and
$127,500, respectively 150,000 172,500
Other 112,933 196,746
---------------- ----------------
Total assets $ 2,552,174 $ 2,393,958
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to others $ 55,149 $ 126,898
Accounts payable 461,663 262,799
Accrued payroll and related liabilities 90,828 231,517
Other accrued expenses 254,008 325,098
---------------- ----------------
Total current liabilities 861,648 946,312
Long-term indebtedness - -
Shareholders' equity (deficit):
Preferred stock, no par value, 10,000,000
shares authorized, 11,500 shares
outstanding 100,317 100,317
Common stock, and additional paid-in
capital, no par value, 50,000,000 shares
authorized, 6,650,698 and 5,180,523
shares issued and outstanding,
respectively 15,904,304 12,363,989
Accumulated deficit (14,314,095) (11,016,660)
---------------- ----------------
Total shareholders' equity 1,690,526 1,447,646
---------------- ----------------
Commitments and contingencies - -
Total liabilities and shareholders' equity $ 2,552,174 $ 2,393,958
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
Organik Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
----------------------------------- -----------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 115,569 $ 542,497 $ 1,676,604 $ 3,492,322
Cost of sales 362,654 947,438 2,773,260 4,110,840
--------------- --------------- --------------- ---------------
Gross profit (247,085) (404,941) (1,096,656) (618,518)
Selling, general and
administrative expenses
554,682 646,930 2,174,883 1,638,502
--------------- --------------- --------------- ---------------
Loss from operations (801,767) (1,051,871) (3,271,539) (2,257,020)
Other income (expense)
Interest income (expense) 103 4,104 28,376 17,288
Loan fees and other (2,083) (1,876) (45,646) (6,478)
--------------- --------------- --------------- ---------------
Net loss $ (803,747) $(1,049,643) $(3,288,809) $(2,246,210)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Net loss per common share $ (0.27) $ (0.23) $ (0.51) $ (0.51)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average number of
shares outstanding 6,650,698 4,472,144 6,446,479 4,407,682
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
Organik Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
April 30,
----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,288,809) $ (2,246,210)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock and warrants issued for
services provided and other costs 6,000 -
Depreciation and amortization 334,742 163,199
Changes in:
Accounts receivable (67,791) 252,993
Other receivables (24,126) (33,004)
Inventories (418,154) 416,917
Prepaid expenses 60,975 163,659
Other assets 18,009 -
Accounts Payable 198,864 (121,058)
Accrued Expenses (211,779) 102,002
---------------- ----------------
Net cash used in operating activities (3,392,069) (1,301,502)
---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (90,258) (367,721)
Proceeds from disposal of property and
equipment 16,105 -
Other - 13,450
---------------- ----------------
Net cash used in investing activities (74,153) (354,271)
---------------- ----------------
Cash flows from financing activities:
Proceeds from short-term debt incurred 255,377 29,199
Retirement of short-term debt (327,127) -
Gross proceeds from issuance of common
stock and warrants 3,822,442 1,150,663
Common stock and warrant offering costs (222,321) -
Payment of deferred offering costs - (23,427)
Payment of preferred stock dividends (8,625) (8,625)
---------------- ----------------
Net cash (used) provided by financing
activities 3,519,746 1,147,810
---------------- ----------------
Net increase (decrease) in cash 53,524 (507,963)
Beginning cash and cash equivalents 134,920 1,641,803
---------------- ----------------
Ending cash and cash equivalents $ 188,444 $ 1,133,840
---------------- ----------------
---------------- ----------------
</TABLE>
See notes to Consolidated Financial Statements.
4
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. FINANCIAL PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. They do not include all information and disclosures
required by generally accepted accounting principles for annual financial
statements. Users of these interim consolidated financial statements should
refer to the consolidated annual financial statements for additional information
and disclosure.
In the opinion of management, all adjustments consisting of normal
recurring accruals considered necessary for a fair presentation have been
included. Interim operating results are not necessarily indicative of the
results that may be expected for a full year.
The Company has experienced significant losses since July 31, 1995.
Management believes that the Company may not have adequate resources to continue
at the present level of operations through the end of its current fiscal year
(July 31, 1996). The Company's internal forecasts indicate that it will need
additional funds through equity or debt financing in order for the Company to
operate in its next fiscal year beginning August 1, 1996. Should the Company
not be able to obtain suitable financing the Company may elect to scale back its
operations by taking one or more of the following actions: liquidating equipment
and inventories and decreasing personnel expenditures through reduction of
administrative support staff and deferral of certain management salaries. There
can be no assurance that any such measures, if taken, would be adequate to
reduce costs to an acceptable level or would not unduly damage the Company's
credibility as a supplier to its major customers to an extent that would not
preclude its ability to timely recover operations to an acceptable level.
NOTE 2. INVENTORIES
Inventories at April 30, 1996 and July 31, 1995, net of reserves of
$300,000 and $45,000, respectively, consist of the following:
<TABLE>
<CAPTION>
April 30, July 31,
1996 1995
--------------- --------------
<S> <C> <C>
Raw materials $ 423,552 $763,997
Work in process 223,515 153,465
Finished Goods 765,205 76,656
---------- --------
$1,412,272 $994,118
---------- --------
---------- --------
</TABLE>
NOTE 3. EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average number
of common shares outstanding for each period. The potential effect of common
shares contingently issuable have not been included in the calculation as their
effect would be antidilutive. The net loss per share for the three and nine
month periods have been adjusted for dividends paid to the holders of the
Company's preferred stock.
5
<PAGE>
NOTE 4. CONVERTIBLE PROMISSORY NOTE
On August 16, 1995, the Company issued a $255,377 convertible promissory
note and repaid the note in full August 25, 1995 with proceeds from the July 17,
1995 offering. (See Note 5) The note bore interest at 9% annually. In
connection therewith the Company issued warrants to purchase 25,538 shares of
the Company's common stock at $1.75 per share. The warrants, valued at $6,000,
are included in loan fees expensed for the nine months ended April 30, 1996.
NOTE 5. SHAREHOLDERS' EQUITY
On July 17, 1995 and for a period of time initially expiring August 18,
1995, which was extended until September 12, 1995 (the "Special Offering
Period"), the Company allowed warrantholders to exercise the outstanding
Class A and Class B Warrants at $3.25 per warrant, and receive one and
one-quarter share of Common Stock and a Class C Warrant. Each Class C
Warrant entitles the warrantholder to purchase one share of Common Stock for
$5.00 and expires in March 1999. As of September 12, 1995, 245,552, or 86%
of the then outstanding Class A Warrants and 921,584 or 84% of the
outstanding Class B Warrants were exercised generating net proceeds to the
Company of $3,496,815. The proceeds from the exercise of the Class A and
Class B Warrants were added to working capital for general corporate
purposes, including financing the manufacture of the Company's products
off-shore. This offering may or may not limit the Company's ability to
utilize net operating loss carryforwards due to changes in ownership.
In October 1995, the Company entered into an agreement with the
underwriter of its 1994 stock offering, Whale Securities Co., LP, to extend its
current consulting agreement which expires in March 1996, another two years.
The terms include $75,000 of previously paid cash compensation and a warrant to
purchase 150,000 shares of common stock at a price of $3.23 per share. The
warrants were valued at $37,500.
NOTE 6. RELATED PARTY TRANSACTIONS
In December 1995 the Company amended the employment agreement of John
McNulty, the Company's former Chief Executive Officer, to provide for one year
of consulting by him. As part of this amendment non-vested stock options
previously granted Mr. McNulty became immediately fully vested.
NOTE 7. STOCK OPTIONS
In October 1995, the Company granted, subject to certain conditions, a
director and Board Vice Chairman a non-qualified stock option to purchase 75,000
shares at $3.23 per share, vesting between April 1996 and April 1998. During
the first nine months of 1996 warrants were granted to a consultant and a lender
to purchase 175,538 shares at prices ranging from $1.75 to $3.23 per share.
Non-qualified stock options to purchase an additional 227,500 shares at prices
ranging from $1.13 to $3.23 per share were granted, subject to certain
conditions, in October, December and February to employees of the Company.
In February 1996 the Company entered into an employment agreement with
William L. Bryson, the Company's new Chief Executive Officer. Under the
agreement Mr. Bryson was granted stock options to purchase 60,000 shares of
Common Stock at $1.13, which was the market value at the date of the grant, and
30,000 shares at the market value seven months from the date of the grant, with
33% vesting immediately, 66% vesting at the end of six months and 100% at the
end of 13 months.
6
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
Included in cash and cash equivalents is a $100,000 short-term certificate
of deposit. This deposit is collateral for a standby letter of credit issued to
the Company's factor as security against potential chargebacks, if any,
allowable under contract with one of its customers.
NOTE 9. SUBSEQUENT EVENTS
NOTE 10. CONSOLIDATED STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In October 1995 warrants were issued to Whale Securities Co., LP, valued at
$37,500, were recorded as an increase to both common stock and deferred
consulting fees.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
During the first nine months of 1996 the Company experienced substantial
quality control problems and production difficulties during the start-up phase
of the Central American operation. These difficulties combined with liquidity
limitations in August and September 1995 resulted in a significant number of
order cancellations, customer chargebacks and defective products. There can be
no assurance that the Company will be successful in eliminating manufacturing
losses in the future, or that its off-shore manufacturing operations or cost-
reduction strategies will result in increased revenues or profitable operations.
In February 1996 the Board of Directors appointed William L. Bryson as
President and Chief Executive Officer and William F. Gould as Chief Financial
Officer replacing Jeff Harden as Chief Executive Officer, John Lindsey as
President and Greg McWade as interim Chief Financial Officer. In February and
March 1996 the Company terminated the employment of 34 employees and hired 10
replacements for a net reduction in annual payroll expense of $235,000.
In March 1996 the Board of Directors authorized the Vice Chairman to
investigate opportunities to license the Company's proprietary shrinkfree cotton
fabric and to hold discussions with interested potential purchasers of the
Company.
In May 1996 the Company received notice from a customer that it intended to
cancel an $800,000 order scheduled for shipment in July. The Company is
currently negotiating with the customer concerning the approximately $200,000
expended by the Company in anticipation of this order. No reserve has been
established on the approximately $200,000 as management believes the entire
amount will be realized.
In May 1996 the Company informed a customer that due to production
difficulties it would be unable to produce and ship complete an order scheduled
to ship in June. The original order totaled $750,000. The company estimates
that it will be able to ship approximately $360,000 of that order.
At June 10, 1996, the backlog of orders for ORGANIK-TM- apparel was
approximately $373,000 which represents a decrease of approximately 85% over the
backlog a year ago.
Forward looking information in this report is subject to the assumptions
and contingencies described in the risk factors as set forth in the Company's
July 17, 1995 prospectus in connection with its registration of securities under
the Securities Act of 1933 (No. 33-98610), including Organik's history of
significant and continuing losses and declining revenues, possible needs for
additional financing, additional capital requirements, shifts in business
emphasis, uncertainty of its cost reduction strategy (including its move to
offshore production), dependence on principal customers, lack of patent
protection, seasonality, length of production cycle, changes in key personnel
and other risk factors.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE AND NINE
MONTHS ENDED APRIL 30, 1995
In accordance with its cost reduction strategy the Company closed its
domestic sewing operations in June 1995 and relocated the manufacture of its
ORGANIK-TM- products off-shore which, as expected, affected revenues during this
transitional period. Net sales for the three and nine months ended April 30,
1996 were $115,569 and $1,676,604, a decrease of $426,928 (78.7%) and $1,815,718
(52.0%) as compared to the three and nine months ended April 30, 1995,
respectively. The decrease in net sales for the most recent nine months was
substantially attributable to a decrease in domestic
8
<PAGE>
contract manufacturing services of $2,502,606, partially offset by an increase
in ORGANIK-TM- product sales of $811,823.
The following table sets forth information relating to the dollar amounts
and percentages of revenues derived from the Company's principal activities.
<TABLE>
<CAPTION>
Nine Months ended April 30,
1996 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
ORGANIK-TM- Products $1,662,739 99.1% $ 850,916 24.4%
Contract Manufacturing 13,865 .9% 2,516,471 72.1%
Other - - % 124,935 3.5%
---------- ------ ---------- ------
$1,676,604 100.0% $3,492,322 100.0%
---------- ------ ---------- ------
---------- ------ ---------- ------
</TABLE>
Gross losses for the three and nine months ended April 30, 1996 were
$247,085 and $1,096,656 as compared to gross losses of $404,941 and $618,518 for
the three and nine months ended April 30, 1995 The gross loss also increased as
a percent of sales from 76.6% and 17.7% for the three and nine months ending
April 30, 1995 to 213.8% and 65.4% for the same periods in 1996. The decreases
were the result of substantial quality and production inefficiencies associated
with start-up operations in Central America. The Company also increased
inventory reserves for potential losses on goods which did not meet quality
standards or were obsolete.
Selling, general and administrative expenses for the three and nine months
ended April 30, 1996 were $554,682 and $2,174,883. This represents a decrease
of $92,348 (14.3%) in the three month period and an increase of $536,381 (32.7%)
in the nine month period. This increase reflects the Company's increased focus
on marketing, filling several management positions primarily related to the
offshore operations, significant travel and other costs associated with the
development of off-shore sourcing and manufacturing capabilities, and air
freight to customers due to late deliveries.
In December the Company terminated the services of a consultant and
recorded as a current expense $46,875 of prepaid consulting fees.
The Company has determined that certain computer software which related to
the Tacoma manufacturing operation would not be needed in the future and
accordingly has fully written-off the remaining book value of $98,830. The
Company also reduced the carrying value, by a charge to depreciation expense of
$66,164, of computer hardware, which it expects to be able to utilize in the
future in the Central American manufacturing operation, to current estimated
market value.
For the nine months ended April 30, 1996, loan fees of $39,530 were related
to bridge loans funded and repaid in August 1995.
As a result of the foregoing, for the three and nine months ended April 30,
1996 the Company incurred a net loss of $803,747 or $0.27 per share, and
$3,288,809 or $0.51 per share, compared to a net loss of $1,049,643, or $0.23
per share and $2,246,210 or $0.51 per share, for the same periods ended April
30, 1995.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's strategy to reduce costs, including the establishment of off-
shore operations, has required significant up front expenditures. This strategy
has been financed through a public stock offering in March 1994 and warrant
exercises in May 1995 and September 1995. Since inception, the Company has been
substantially dependent upon the sales of its securities and various borrowings
in order to finance its working capital requirements and expects to be
substantially dependent on such sales and borrowings for the foreseeable future.
The Company had working capital of $909,951 on April 30, 1996, as compared
to working capital of $322,668 on July 31, 1995. Subsequent to July 31, 1995,
working capital was substantially increased when the Company received net
proceeds of approximately $3,500,000 through the exercise of its outstanding
Class A and Class B Warrants. Accounts receivable increased from $28,961 at
July 31, 1995 to $96,782 at April 30, 1996. The allowance for doubtful accounts
was increased from $13,142 at July 31, 1995 to $51,656 due to returns and
markdowns associated with late deliveries and quality control problems. Because
of the problems incurred in the start-up phase of Honduran operations, there can
be no assurance that reserves for doubtful accounts will prove to be adequate.
The increase in inventory from $994,118 at July 31, 1995 to $1,412,272 at April
30, 1996 reflects the increase in finished goods inventory from $76,656 to
$765,205. The bulk of the finished goods on hand at April 30, 1996 were shipped
to a customer in May and were substantially paid for by June 10. The finished
goods increase was offset by increase in reserves from $45,000 at July 31, 1995
to $300,000 at April 30, 1996. Reserves were increased for potential losses on
goods not which do not meet quality standards or are obsolete. Reserves will be
reduced as the Company trains and develops a stable workforce and sells obsolete
and poor quality inventories.
During the nine months ended April 30, 1996 net cash used in operations was
$3,392,069. Losses from the Company's start-up manufacturing operations were
$3,288,809 During the transition from domestic contract manufacturing to
private label off-shore production, the Company, as anticipated, experienced a
substantial reduction in revenues, income, liquidity, and cash flow.
Net cash used by investing activities was $74,153 for the nine months ended
April 30, 1996. During the nine months ended April 30, 1996, net cash provided
by financing activities was $3,519,746, reflecting the proceeds received from
the exercise of the Company's outstanding Class A and Class B Warrants, together
with the borrowing and repayment of bridge financing.
In January 1995, the Company entered into a factoring agreement secured by
the Company's accounts receivable and other collateral. Advances under the
agreement may be made for up to 80% to 90% of the eligible accounts receivable
and bear interest at prime plus 4% to 7%, depending on the outstanding balance.
As of April 30, 1996, the Company had advances of $55,149 against receivables
and incurred interest of $2,858 at a weighted average interest rate of 16% under
this agreement during nine months then ended. The high credit under the
agreement was $226,885. Encumbrance of certain of the Company's assets pledged
to secure the above factoring agreement has resulted in such assets, which
excludes inventory and the process technology, not being available to secure
additional indebtedness, which may adversely affect the Company's ability to
borrow in the future, including the ability to obtain a working capital loan.
On July 17, 1995 and for a period of time initially expiring August 18,
1995, which was extended until September 12, 1995 (the Special Offering Period),
the Company allowed warrantholders to exercise the outstanding Class A and Class
B Warrants at $3.25 per warrant, and receive an additional one-quarter share of
Common Stock and a Class C Warrant. As of September 12, 1995, 254,552, or 86%
of the then outstanding Class A Warrants and 921,584, or 84% of the outstanding
Class B Warrants were exercised generating net proceeds to the Company of
approximately $3,500,000.
10
<PAGE>
The proceeds from the exercise of the Class A and Class B Warrants are being
used to refine and enhance the Company's process technology, purchase equipment,
finance production of ORGANIK-TM- products, expand sales and marketing, and
otherwise for working capital and general corporate purposes.
In July 1995, the Company entered into a $100,000 unsecured note payable
bearing interest at 14% with its Honduran landlord. During the nine months
ended April 30, 1996, the note was paid in full.
On August 16, 1995, the Company issued a $255,377 convertible promissory
note and repaid the note in full August 25, 1995 with proceeds from the July 17,
1995 offering. (See Note 5) The note bore interest at 9% annually. In
connection therewith the Company issued warrants to purchase 25,538 shares of
the Company's common stock at $1.75 per share.
The Company's cash flow and capital requirements are significantly affected
by the seasonal nature of its business. The timing of production orders for
private label products and manufacturing services are also generally seasonal,
with product shipments heavily concentrated in advance of the fall and spring
seasons. Unanticipated events, including insufficient funds to purchase, or
delays in securing, adequate raw materials at the time of peak sales or
significant decreases in sales during such periods, could result in significant
losses which would not be easily reversed before the following year.
The Company is not currently generating sufficient cash flow to fund its
operations and has been dependent on the net proceeds from the recent exercises
of the Class A and Class B Warrants to meet its backlog of ORGANIK-TM- apparel
orders, and further implement its cost reduction strategy. These net proceeds,
together with the current factoring agreement, are not sufficient to fund
operations past the end of the current fiscal year (July 31, 1996). The Company
will require additional debt or equity financing until such time as the Company
is able to generate sufficient profits to fund operations. Should the Company
not be able to obtain suitable financing, the Company may elect to scale back
its operations. To this regard, the Company has periodically experienced
liquidity constraints (including in recent months) which have resulted in the
deferral or cancellation of orders. There can be no assurance that any measures
taken would be adequate to reduce costs and increase cash flow to an acceptable
level or would not unduly damage the Company's credibility as a supplier to its
major customers.
At June 10, 1996, the Company had cash of approximately $296,000,
receivables of approximately $161,000 and borrowings against receivables of
approximately $36,000.
To provide incentive to employees, officers, directors, lenders and
consultants of the Company, as well as to minimize cash expenditures, the
Company has traditionally issued options and warrants as a means of compensation
or payment for services. During the nine months ended April 30, 1996, officers,
directors, employees, a consultant and a lender were granted options and
warrants to purchase an aggregate of 478,038 shares of Common Stock at prices
ranging from $1.13 to $3.23 per share. The Company has and intends to continue
this form of compensation or payment for services in fiscal 1996.
NET OPERATING LOSS CARRYFORWARDS
At July 31, 1995, the Company had net operating loss carryforwards for
federal tax purposes of $10,562,000 to offset future taxable income. Due to a
change in ownership, the Company is subject to an annual limitation of
approximately $350,000 on its ability to utilize net operating loss
carryforwards for losses prior to July 31, 1994. Utilization of these
carryforwards is dependent on future taxable income. The
11
<PAGE>
July 17, 1995 Warrant Offering may or may not limit the Company's ability to
utilize net operating loss carryforwards due to changes in ownership.
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
12
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
On August 2, 1995 the Company was served with a complaint by John Michael
Liviakis and Liviakis Financial Communications in the Superior Court for
Sacramento County, California (Case No. 95AS04187) against the Company, five
directors and one former director. The lawsuit alleges that during the period
from the summer of 1993 through the spring of 1994 defendants committed fraud,
negligent misrepresentation, interference with and conspiracy to interfere with
prospective economic advantage, and breach of contract, in connection with the
entering into and cancellation of a financial public relations agreement with
Liviakis Financial Communications and the refusal by the Company to remove a
stop-transfer order against transfer of 172,778 shares of common stock issued to
Mr. Liviakis pursuant to the agreement. The complaint against Organik was later
amended to include a claim for breach of a purported settlement agreement. The
Company canceled the contract in April, 1994 and had previously demanded that
Mr. Liviakis return the shares for, among other reasons, failure of performance
by Liviakis Financial Communications under the agreement; however, Mr. Liviakis
has refused to do so. Plaintiff seeks a temporary restraining order and
preliminary and permanent injunctions, and claims that he has suffered damages
aggregating in excess of $4 million. The Company intends to vigorously defend
this lawsuit and to counterclaim for the return and cancellation of the shares;
however, there can be no assurance as to the outcome of this litigation or the
amount of expenses that will ultimately be incurred in its defense and
prosecution.
Other than the foregoing, the Company is unaware of any legal proceedings
other than those arising in the normal course of business, which, in the opinion
of the Company's management, are neither individually nor collectively material
to its business.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 5. OTHER INFORMATION.
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
NUMBER DESCRIPTION
- ------------------------------------
27.1 Financial Data Schedule
13
<PAGE>
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 thereunto duly authorized.
ORGANIK TECHNOLOGIES, INC.
Registrant
/s/ William F. Gould June 10, 1996
- --------------------------------------------- -------------
William F. Gould, Chief Financial Officer Date
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORGANIX
TECHNOLOGIES, INC. CONSOLIDATED FINANCIAL STATEMENTS IN THE 10QSB FILING FOR THE
THIRD QUARTER ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 188,444
<SECURITIES> 0
<RECEIVABLES> 148,408
<ALLOWANCES> 51,656
<INVENTORY> 1,412,272
<CURRENT-ASSETS> 1,771,599
<PP&E> 1,258,080
<DEPRECIATION> 740,438
<TOTAL-ASSETS> 2,552,174
<CURRENT-LIABILITIES> 861,648
<BONDS> 0
0
100,317
<COMMON> 15,904,304
<OTHER-SE> (14,314,095)
<TOTAL-LIABILITY-AND-EQUITY> 2,552,174
<SALES> 1,676,604
<TOTAL-REVENUES> 1,676,604
<CGS> 2,773,260
<TOTAL-COSTS> 2,773,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,169
<INCOME-PRETAX> (3,288,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,288,809)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
