As
filed with the Securities and Exchange Commission on September 7,
2007.
Registration
No. 333-144566
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 1 TO
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ORGANIC
TO GO FOOD CORPORATION
(Name
of
Small Business Issuer in Its Charter)
Delaware
(State
or other jurisdiction of incorporation or
organization)
|
5812
(Primary
Standard Industrial Classification Code Number)
|
58-2044900
(IRS
Employee Identification No.)
|
3317
Third Avenue South
Seattle,
Washington 98134
(206)
838-4670
(Address
and telephone number of principal executive offices and principal place of
business)
Jason
Brown, Chief Executive Officer
3317
Third Avenue South
Seattle,
Washington 98134
(206)
838-4670
(Name,
address and telephone number of agent for service)
Copies
to:
Gerald
Chizever, Esq.
Lawrence
Venick, Esq.
Loeb
& Loeb LLP
10100
Santa Monica Blvd., Suite 2200
Los
Angeles, CA 90067
(310)
282-2000
Approximate
Date of Proposed Sale to the Public: From time to time after the effective
date
of this Registration Statement.
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Calculation
of Registration Fee
|
Title
of each class of securities to be registered
|
|
Amount
to be registered
|
|
Proposed
maximum
offering
price per unit
(1)
|
|
Proposed
maximum
aggregate
offering
price
(1)
|
|
Amount
of registration fee
|
|
Common
stock, $.001 par value per share
|
|
|
3,350,000
|
(2)(3)
|
$
|
2.15
|
|
$
|
7,202,500.00
|
|
$
|
221.12
|
|
Common
Stock, $.001 par value per share, underlying warrants
|
|
|
1,361,000
|
(2)(4)
|
$
|
2.15
|
|
$
|
2,926,150.00
|
|
$
|
89.83
|
|
Common
Stock, $.001 par value per share, underlying a convertible promissory
note
|
|
|
338,527
|
(2)(5)
|
$
|
2.15
|
|
$
|
727,833.05
|
|
$
|
22.34
|
|
Total
|
|
|
5,049,527
|
(2)
|
$
|
2.15
|
|
$
|
10,856,483.05
|
|
$
|
333.29
|
(6)
|
(1)
|
Estimated
in accordance with Rule 457(c) under the Securities Act of 1933,
as
amended, solely for the purposes of calculating the registration
fee based
upon the average of the high and low prices of the common stock on
July 9,
2007, as reported on the OTC Bulletin Board.
|
|
|
(2)
|
Pursuant
to Rule 416 under the Securities Act of 1933, as amended, the registrant
is also registering such additional indeterminate number of shares
as may
become necessary to adjust the number of shares as a result of a
stock
split, stock dividend or similar adjustment of its outstanding common
stock.
|
|
|
(3)
|
Consists
of shares of common stock presently outstanding.
|
|
|
(4)
|
Consists
of shares of common stock issuable upon the exercise of outstanding
warrants.
|
|
|
(5)
|
Consists
of shares of common stock issuable upon the exercise of an outstanding
convertible promissory note.
|
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING
STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT
TO COMPLETION, DATED SEPTEMBER 7, 2007
PRELIMINARY
PROSPECTUS
ORGANIC
TO GO FOOD CORPORATION
5,049,527
SHARES OF COMMON STOCK
This
prospectus covers the resale by selling stockholders beginning on page 32
of up
to 5,049,527 shares of our common stock, $.001 par value, which consists
of:
|
·
|
3,350,000
shares of common stock;
|
|
·
|
1,361,000
shares of common stock issuable upon exercise of outstanding warrants;
and
|
|
|
|
|
·
|
338,527
shares of common stock issuable upon exercise of an outstanding
convertible promissory note.
|
This
is
not an underwritten offering. We will not receive any of the proceeds from
the
sale of these shares. We may, however, receive proceeds in the event that some
or all of the warrants held by the selling stockholders are exercised for
cash.
The
securities will be offered for sale by the selling stockholders identified
in
this prospectus in accordance with the methods and terms described in the
section of this prospectus entitled “Plan of Distribution.” The
selling stockholders will be responsible for any commissions or discounts
due to brokers or dealers. We have agreed to pay for all of the expenses of
registration of the shares covered by this prospectus. The section of this
prospectus entitled “Description of Securities” more fully describes the
characteristics of our common stock and other securities.
Our
common stock is currently listed on the OTC Bulletin Board under the symbol
“OTGO.OB” On September 4, 2007, the last reported bid price of our common stock
was $1.89 per
share.
An
investment in our common stock involves a high degree of risk. See “Risk
Factors” beginning at page 5.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus
is
, 2007.
TABLE
OF CONTENTS
|
|
|
|
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
|
|
|
1
|
|
PROSPECTUS
SUMMARY
|
|
|
2
|
|
SUMMARY
FINANCIAL INFORMATION
|
|
|
4
|
|
RISK
FACTORS
|
|
|
5
|
|
USE
OF PROCEEDS
|
|
|
10
|
|
DESCRIPTION
OF BUSINESS
|
|
|
11
|
|
LEGAL
PROCEEDINGS
|
|
|
14
|
|
DESCRIPTION
OF PROPERTY
|
|
|
14
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
|
15
|
|
DIRECTORS
AND EXECUTIVE OFFICERS
|
|
|
23
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
|
|
25
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
|
|
26
|
|
EXECUTIVE
COMPENSATION
|
|
|
27
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|
SELLING
STOCKHOLDERS
|
|
|
32
|
|
PLAN
OF DISTRIBUTION
|
|
|
35
|
|
DESCRIPTION
OF SECURITIES
|
|
|
37
|
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
|
|
39
|
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
|
|
40
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
|
|
40
|
|
LEGAL
MATTERS
|
|
|
41
|
|
EXPERTS
|
|
|
41
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
|
|
41
|
|
FINANCIAL
STATEMENTS
|
|
|
F-1
|
|
PRO
FORMA FINANCIAL INFORMATION |
|
|
PF-1 |
|
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Such forward-looking statements
include statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. Forward-looking statements, which involve assumptions and
describe our future plans, strategies and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements to be materially
different from the future results, performance, or achievements expressed or
implied by any forward-looking statements. These statements may be found under
“Prospectus Summary,” “Management's Discussion and Analysis of Financial
Condition and Results of Operations” and “Description of Business,” as well as
in this prospectus generally. Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under “Risk Factors”
and matters described in this prospectus generally. This prospectus may contain
market data related to our business, which may have been included in articles
published by independent industry sources. Although we believe these sources
are
reliable, we have not independently verified this market data. This market
data
includes projections that are based on a number of assumptions. If any one
or
more of these assumptions turns out to be incorrect, actual results may differ
materially from the projections based on these assumptions. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this prospectus will in fact occur. In addition to
the
information expressly required to be included in this prospectus, we will
provide such further material information, if any, as may be necessary to make
the required statements, in light of the circumstances under which they are
made, not misleading.
Each
forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our company and
our
business made elsewhere in this prospectus as well as other pubic reports which
may be filed with the Securities and Exchange Commission. You should not place
undue reliance on any forward-looking statement as a prediction of actual
results or developments. We are not obligated to update or revise any
forward-looking statement contained in this prospectus to reflect new events
or
circumstances, unless and to the extent required by applicable law. Neither
the
Private Securities Litigation Reform Act of 1995 nor Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), provides any
protection for statements made in this prospectus.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. It does
not contain all of the information that you should consider before investing
in
our common stock. You should read the entire prospectus carefully, including
the
section entitled “Risk Factors” and our consolidated financial statements and
the related notes. In this prospectus, unless otherwise noted, we refer to
Organic To Go Food Corporation, formerly known as SP Holding Corporation, and
our wholly owned subsidiary, Organic To Go, Inc., as “Organic,” “our company,”
“we,” “us” and “our. ”
Our
Company
We
were
incorporated in Florida on March 16, 1994 and reincorporated in Delaware on
September 26, 2000. For the years ended December 31, 2006, 2005 and
2004, we were a non-operating shell company and our business operations were
limited to sustaining a public shell vehicle.
On
February 12, 2007, we acquired Organic Holding Company, Inc., an organic food
services company, through a reverse merger with our wholly owned subsidiary.
As
a result of the merger, Organic Holding Company, Inc. became our wholly owned
subsidiary and was renamed “Organic To Go, Inc.” On May 16, 2007, our
stockholders approved an amendment to our Amended and Restated Certificate
of
Incorporation to change our name from SP Holding Corporation to Organic To
Go
Food Corporation.
Our
principal executive offices are located at 3317 Third Avenue South, Seattle,
Washington 98134 and our telephone number is (206) 838-4670. Our website address
is http://www.organictogo.com. The information on our website is not intended
to
be part of this prospectus.
Overview of
our Business
We
prepare and serve classic American cuisine. We use organic ingredients when
possible and always natural ingredients without pesticides and other harmful
additives. Customers can get our food at our convenient Retail Cafés,
through our Delivery/Casual Catering Services and at specific locations where
our branded “grab-and-go” meals are sold via wholesale relationships. Our target
customers are white collar office workers as well as students and employees
of colleges and universities.
We
provide a delicious and healthy alternative to typical fast food options,
lunch box deliveries and casual catering. We serve a wide range of organic,
natural and wholesome meals, which includes everything from ham and cheese
sandwiches to deli-style roast beef sandwiches and veggie packed salads. We
proactively source producers and manufacturers who use sustainable farming
and/or production practices as an integral part of our overall mission to
provide wholesome “clean” food from farm to table. We also use alternative
packaging such as biodegradable and recycled plastics, and sugar cane-based
disposable tableware to minimize the environmental impact of convenience
packaging for “grab-and-go” meals.
More
than
70% of our products currently offered are organic. When our food is not organic
it is either something like water or salt which cannot be certified or is made
up from all natural ingredients sourced under careful preset guidelines to
insure the highest quality products available. In February 2006, we became
the
first fast-casual restaurant and retailer to be USDA certified as “Organic” by
Quality Assurance International, the leading third-party certification agency
in
the organic foods industry.
We
currently maintain four Retail Cafés in downtown Seattle, Washington, one in
Bellevue, Washington, seven in Los Angeles, California, three in Orange County,
California and two in San Diego, California. We have an agreement with Compass
Group, Inc., pursuant to which Compass Group, Inc. maintains twenty-three
of our
“grab-and-go” locations on the Microsoft Corporate Campus near Seattle,
Washington. We also provide sandwiches and other “grab-and-go” food to
independent coffee vendors at the Los Angeles International Airport. We operate
“grab-and-go” locations at seven universities in the Seattle, Washington and Los
Angeles, California areas, including the University of Washington Medical
Center, the University of Southern California and the University of California,
Los Angeles.
Our
revenue from sales for the year ended December 31, 2006, increased approximately
58% to $9.7 million, as compared with $6.1 million for the year ended December
31, 2005. We incurred a net loss of approximately $8.0 million for the year
ended December 31, 2006, as compared with a net loss of approximately $5.7
million for the year ended December 31, 2005. Our revenue from sales for
the six
months ended June 30, 2007 was approximately $7.5 million, as compared with
$4.5
million for the six months ended June 30, 2006. We incurred a net loss of
approximately $5.1 million for the six months ended June 30, 2007, as compared
with a net loss of approximately $2.4 million for the six months ended June
30,
2006.
Registration
of Shares
We
are
registering for resale 5,049,527 shares of our common stock issued or issuable
upon the exercise of warrants as a result of the following
transactions:
Private
Placement
On
June
28, 2007, we closed a private placement with a select group of accredited
investors. In total, we raised approximately $6.7 million. In connection the
private placement, we are registering for resale:
|
·
|
3,350,000
shares of common stock issued to a select group of accredited
investors;
|
|
·
|
1,340,000
shares of common stock underlying warrants issued to investors in
connection with the private placement;
and
|
|
·
|
21,000
shares of common stock underlying a warrant issued to the placement
agent
as compensation for services rendered in connection with the private
placement.
|
Bridge
Financing
In
December 2006, we raised $525,000 through the issuance of a convertible
promissory note. The note bears interest at 8% per annum and matures on June
29,
2008. Commencing on September 1, 2007 to immediately prior to the maturity
date,
the outstanding principal amount of the note, together with all accrued and
unpaid interest due under the note, is convertible at a per share conversion
price equal to $1.68 per share. If the noteholder elects to convert the note
immediately prior to the maturity date, the noteholder will be entitled to
receive a total of 338,527 shares of our common stock, which we are registering
for resale in connection with this offering.
Summary
of the Offering
Capital
stock currently outstanding:
|
|
As
of August 28, 2007, we had outstanding 24,208,676 shares of common
stock
and options and warrants to purchase a total of 8,658,599 shares
of common
stock.
|
Common
stock offered by Organic To Go Food Corporation:
|
|
None
|
|
|
|
Common
stock offered by selling stockholders:
|
|
Up
to 5,049,527 shares of our common stock, which consists
of:
|
|
|
·
|
3,350,000
shares of common stock;
|
|
|
·
|
1,361,000
shares of common stock issuable upon exercise of outstanding warrants;
and
|
|
|
·
|
338,527
shares of common stock issuable upon exercise of an outstanding
convertible promissory note.
|
Use
of proceeds:
|
|
We
will not receive any of the proceeds from the sale of shares of common
stock by the selling stockholders. We may, however, receive proceeds
in
the event some or all of the warrants held by the selling stockholders
are
exercised.
|
|
|
|
OTC
Bulletin Board Symbol:
|
|
OTGO.OB
|
|
|
|
Risk
Factors:
|
|
As
investment in our common stock involves significant risks. See “Risk
Factors” beginning on page 5.
|
SUMMARY
FINANCIAL INFORMATION
You
should read the summary financial data set forth below in conjunction with
“Management’s Discussion and Analysis of Financial Condition or Plan of
Operations” and our financial statements and the related notes included
elsewhere in this prospectus. We derived the financial data as of the six
months
ended June 30, 2006 and 2007, and as of the year ended December 31, 2005
and
2006, from our financial statements included in this report. The historical
results are not necessarily indicative of the results to be expected for
any
future period.
|
|
Six
Months ended June 30,
|
|
|
Year
Ended December 31,
|
|
Statement
of Operations Data:
(in
thousands except for per share amounts)
|
|
2006
|
|
2007
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
$
|
4,457
|
|
|
7,472
|
|
|
$
|
6,121
|
|
$
|
9,663
|
|
|
Cost
of sales
|
|
|
|
$
|
2,218
|
|
|
3,641
|
|
|
$
|
3,895
|
|
$
|
4,876
|
|
|
Operating
Expenses
|
|
|
|
$
|
4,305
|
|
|
7,384
|
|
|
$
|
7,173
|
|
$
|
10,483
|
|
|
Net
Loss
|
|
|
|
$
|
(2,421
|
)
|
|
(5,120
|
)
|
|
$
|
(5,655
|
)
|
$
|
(7,966
|
)
|
|
Net
Loss Per Share - Basic and Diluted
|
|
|
|
$
|
(0.84
|
)
|
|
(0.32
|
)
|
|
$
|
(1.97
|
)
|
$
|
(2.78
|
)
|
|
Weighted
Average Shares Outstanding
|
|
|
|
|
2,869
|
|
|
15,788
|
|
|
|
2,875
|
|
|
2,868
|
|
|
|
|
At
June 30,
|
|
At
December 31,
|
|
Balance
Sheet Data:
(in
thousands)
|
|
2007
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
6,410
|
|
$
|
250
|
|
$
|
865
|
|
Total
Current Assets
|
|
$
|
7,824
|
|
$
|
678
|
|
$
|
1,655
|
|
Total
Assets
|
|
$
|
12,797
|
|
$
|
3,493
|
|
$
|
5,277
|
|
Total
Current Liabilities
|
|
$
|
3,804
|
|
$
|
4,184
|
|
$
|
8,549
|
|
Total
Liabilities
|
|
$
|
5,118
|
|
$
|
5,579
|
|
$
|
9,278
|
|
Stockholders’
Equity (Deficit)
|
|
$
|
7,679
|
|
$
|
(2,086
|
)
|
$
|
(4,001
|
)
|
RISK
FACTORS
You
should consider carefully the risks described below, together with all of the
other information in this prospectus, in evaluating our company, our business
and this offering. If any of the following risks actually occur, our business,
financial condition, and results of operations could suffer. In this case,
the
trading price of our common stock could decline and you may lose all or part
of
your investment.
Risks
Related to Our Company
Our
limited operating history makes it difficult for investors to evaluate our
business and the risks and uncertainties frequently encountered by new
companies.
Our
current business operations began in November 2004, and as a result, we have
a
limited operating history. This limited operating history and the
unpredictability of our industry make it difficult for investors to evaluate
our
business and future operating results. An investor in our securities must
consider the risks, uncertainties and difficulties frequently encountered by
companies in new and rapidly evolving markets. The risks and difficulties we
face include challenges in accurate financial planning as a result of limited
historical data and the uncertainties resulting from having had a relatively
limited time period in which to implement and evaluate our business strategies
as compared to older companies with longer operating histories.
If
we fail to open new Retail Cafés and expand our Delivery/Casual Catering
Services and Wholesale operations we may not be able to achieve
profitability.
Our
growth strategy requires us to open new Retail Cafés and expand our
Delivery/Casual Catering Services and Wholesale operations. The success of
our
planned expansion will be dependent upon numerous factors, many of which
are
beyond our control, including the following:
|
·
|
hiring,
training and retention of qualified operating
personnel;
|
|
·
|
identification
and availability of suitable
properties;
|
|
·
|
negotiation
of favorable lease terms;
|
|
·
|
timely
development of new Retail Café, Delivery/Casual Catering Services and
Wholesale operations;
|
|
·
|
management
of construction and development costs of Retail Café, Delivery/Casual
Catering Services and Wholesale
operations;
|
|
·
|
competition
in our markets; and
|
|
·
|
general
economic conditions.
|
Delays
or
failures in opening new Retail Cafés or in expanding our Delivery/Casual
Catering Services and Wholesale operations could materially adversely affect
our
business, financial condition, operating results or cash flows. Further,
any new
Retail Café, Delivery/Casual Catering Services or Wholesale operation we open
may not be able obtain similar operating results to those of our existing
operations.
In
order to continue our operations we may need additional financing, which
may not
be available on satisfactory terms or at all.
We
may
need to raise additional funds to support our future expansion and growth plans.
Our funding requirements may change as a result of many factors, including
underestimates of budget items, unanticipated cash requirements, future product
and service opportunities, and future business combinations. Consequently,
we
may need to seek additional sources of financing, which may not be available
on
favorable terms, if at all, and which may be dilutive to existing
stockholders.
We
may
seek to raise additional financing through equity offerings, debt financings
or
additional corporate collaboration and licensing arrangements. To the extent
we
raise additional capital by issuing equity securities, our stockholders may
experience dilution. To the extent that we raise additional capital by issuing
debt securities, we could incur substantial interest obligations, may be
required to pledge assets as collateral for the debt and may be constrained
by
restrictive financial and/or operational covenants. Debt financing would also
be
superior to the stockholders’ interests in bankruptcy or liquidation. To the
extent we raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our products,
or
grant licenses on unfavorable terms.
Our
reliance on our suppliers and distributors subjects us to a number of risks,
including possible delays or interruptions in supplies, diminished direct
control over quality and a potential lack of adequate raw material capacity.
We
depend
on our suppliers and distributors for the operation of our business. Any
disruption in the supply of or degradation in the quality of the raw materials
provided by our suppliers could have a material adverse effect on our business,
operating results and financial condition. In addition, such disruptions
in
supply or degradations in quality could have a long-term detrimental impact
on
our efforts to develop a strong brand identity and a loyal consumer base.
Although we maintain relationships with a number of suppliers and always
attempt
to have more than one potential supplier for any required item, there can
be no
assurance that we will be able to continue to maintain multiple supply sources.
If any supplier or distributor fails to perform as anticipated, or if there
is a
termination or any disruption in any of these relationships for any reason,
it
could have a material adverse effect on results of
operations.
We
could face labor shortages that could slow our growth.
Our
success depends in part upon our ability to attract, motivate and retain a
sufficient number of qualified employees, including managers, chefs and other
kitchen staff, necessary to keep pace with our expansion schedule. Qualified
individuals of the requisite caliber and number needed to fill these positions
are in short supply in some areas. Although we have not experienced any
significant challenges in recruiting or retaining employees, any future
inability to recruit and retain sufficient individuals may delay the planned
openings and development of new Retail Cafés, Delivery/Casual Catering Services
and Wholesale operations. Any such delays or any material increases in employee
turnover rates in existing Retail Cafés and in our Delivery/Casual Catering
Services and Wholesale operations could have a material adverse effect on our
business, financial condition, operating results or cash flows. Additionally,
competition for qualified employees could require us to pay higher wages to
attract sufficient employees, which could result in higher labor
costs.
Our
expansion into new markets may present increased risks due to our unfamiliarity
with the area.
On
July
20, 2007, we purchased two stores in San Diego, California in order to
facilitate our initial entry into the San Diego market. We expect to open
additional locations and kitchen facilities in San Diego during the next
six
months. We anticipate that our new Retail Cafés, Delivery/Casual Catering
Services and Wholesale operations will typically take several months to reach
budgeted operating levels due to challenges commonly associated with new
businesses, including lack of market awareness, inability to hire sufficient
staff and other factors. Although we will attempt to mitigate these factors
by
careful attention to training and staffing needs, there is a risk that we
will
not be successful in operating our new Retail Cafés, Delivery/Casual Catering
Services and Wholesale operations on a profitable basis. New markets that
we
enter may have different competitive conditions, consumer tastes and
discretionary spending patterns than our existing markets, which may cause
our
new Retail Cafés, Delivery/Casual Catering Services and Wholesale operations in
those new markets to be less successful than those in our existing
markets.
Our
expansion may strain our administrative, financial and informational
infrastructure, which could slow our development.
We
face
the risk that our existing systems and procedures, financial controls and
information systems will be inadequate to support our planned expansion. We
may
not be able to accurately predict whether we will be able to respond on a timely
basis to all of the changing demands that our planned expansion will impose
on
management and these systems and controls. If we fail to continue to improve
our
information systems and financial controls or to manage other factors necessary
for us to achieve our expansion objectives, our business, financial condition,
operating results or cash flows could be materially adversely
affected.
All
of our operations are currently located in Washington and California. As a
result, we are highly sensitive to negative occurrences in those two
states.
We
are
particularly susceptible to adverse trends and economic conditions in the States
of Washington and California, including in their labor markets. In addition,
given our geographic concentration, negative publicity regarding any of our
operations in the States of Washington or California could have a material
adverse effect on our business and operations, as could other regional
occurrences such as local strikes, supply shortages, local economic conditions,
consumer preferences, earthquakes or other natural disasters.
Our
operation as a public company subjects us to evolving corporate governance
and
public disclosure regulations that will result in additional expenses and
liability exposures.
As
a
public company, we will incur significant legal, accounting and other expenses
that non-public companies may not incur. We will incur costs associated with
our
public company reporting requirements. We also anticipate that we will incur
costs associated with corporate governance requirements, including certain
requirements under the Sarbanes-Oxley Act of 2002, as well as new rules
implemented by the Securities and Exchange Commission and the National
Association of Securities Dealers. We expect these rules and regulations, in
particular Section 404 of the Sarbanes-Oxley Act of 2002, to increase
significantly our legal and financial compliance costs and to make some
activities more time-consuming and costly. Like many smaller public companies,
we face a significant impact from required compliance with Section 404 of the
Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies
to evaluate the effectiveness of internal control over financial reporting
and
the independent auditors to attest to the effectiveness of such internal
controls and the evaluation performed by management. The Securities and Exchange
Commission has adopted rules implementing Section 404 for public companies
as
well as disclosure requirements. The Public Company Accounting Oversight Board,
or PCAOB, has adopted documentation and attestation standards that the
independent auditors must follow in conducting its attestation under Section
404. We are currently preparing for compliance with Section 404; however, there
can be no assurance that we will be able to meet effectively all of the
requirements of Section 404 as known to us in the currently mandated timeframe.
Any failure to implement effectively new or improved internal controls, or
to
resolve difficulties encountered in their implementation, could harm our
operating results, cause us to fail to meet reporting obligations or result
in
management being required to give a qualified assessment of our internal
controls over financial reporting or our independent auditors providing an
adverse opinion regarding management’s assessment. Any such result could cause
investors to lose confidence in our reported financial information, which could
have a material adverse effect on our stock price.
We
also
expect these rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required
to accept reduced policy limits and coverage or incur substantially higher
costs
to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our Board of
Directors or as executive officers. We are currently evaluating and monitoring
developments with respect to these rules, and it is difficult to predict or
estimate the amount of additional costs we may incur or the timing of such
costs.
If
we fail to maintain the adequacy of our internal controls, our ability to
provide accurate financial statements and comply with the requirements of the
Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
to decrease substantially.
All
of
our current management, other than Paul Campbell and Andrew Jacobs, was
previously the management of our operating subsidiary, Organic To Go, Inc.,
which we acquired in a reverse merger on February 12, 2007. Prior to that time,
our subsidiary was a private company without public reporting obligations.
As a
result, prior to the merger, our management had committed limited personnel
and
resources to the development of the external reporting and compliance
obligations that would be required of a public company. We have taken and will
continue to take measures to address and improve our financial reporting and
compliance capabilities. If our financial and managerial controls, reporting
systems or procedures fail, we may not be able to provide accurate financial
statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002
as it
applies to us. Any failure of our internal controls or our ability to provide
accurate financial statements could cause the trading price of our common stock
to decrease substantially.
We
depend on our key personnel, and the loss of their services may adversely affect
our business.
We
are
highly dependent upon the efforts of our senior management team. The death
or
departure of any of our key personnel could have a material adverse effect
on
our business. In particular, the loss of Jason Brown, our Chief Executive
Officer and Chairman, could significantly impact our ability to operate and
grow
and could cause performance to differ materially from projected results. We
have
a $3 million “key man” insurance policy covering Mr. Brown.
Our
past activities prior to our merger with Organic Holding Company, Inc., may
lead
to future liability for the combined companies.
Prior
to
February 12, 2007, we were engaged in businesses and were managed by parties
unrelated to that of our new operations. Any liabilities relating to such prior
business may have a material adverse effect on us.
Risks
Related to Our Industry
We
operate in a highly competitive industry where many of our competitors are
larger and have more resources than we do.
We
operate in a highly competitive environment. Many of our competitors are
substantially larger than us in terms of resources and market share. As a
result, many of our competitors offer products and services at a lower cost
to
consumers. Our success will depend to a significant extent on our ability to
continue to develop and introduce differentiated products and services and
deliver them to consumers in a widespread, convenient and cost-effective manner.
The success of our products and services is dependent on several factors
including understanding consumer needs, differentiation from competitive
offerings, market acceptance and lower costs. Although we believe that we can
take the necessary steps to meet the competitive challenges of the marketplaces
in which we operate, we may not be successful in differentiating our products
and services from those of our competitors or meeting consumer
demand.
Our
profitability depends, in part, on our ability to anticipate and react to
changes in food and supply costs. Our centralized purchasing staff negotiates
prices for all of our ingredients and supplies. Any increase in distribution
costs could cause our food and supply costs to increase. Further, various
factors beyond our control, including adverse weather conditions and
governmental regulations, could cause our food and supply costs to increase.
We
may not be able to anticipate and react to changing food and supply costs by
adjusting our purchasing practices in a timely fashion. A failure to do so
could
adversely affect our operating results and cash flows.
Changes
in consumer preferences or discretionary consumer spending could negatively
impact our results.
Our
Retail Cafés, Delivery/Casual Catering Services and Wholesale operations feature
various types of organic foods and beverages. Our continued success depends,
in
part, upon the popularity of these foods in the future. Shifts in consumer
preferences away from this cuisine could materially adversely affect our future
profitability. Also, our success depends on numerous factors affecting
discretionary consumer spending, including economic conditions, disposable
consumer income and consumer confidence. Adverse changes in these factors could
reduce customer traffic or impose practical limits on pricing, either of which
could materially adversely affect our business, financial condition, operating
results or cash flows. We can also be materially adversely affected by negative
publicity concerning food quality, illness, injury, publication of government
or
industry findings concerning food products served by us, or other health
concerns or operating issues stemming from our operations.
Our
industry is affected by litigation and publicity concerning food quality, health
and other issues which can cause customers to avoid our cafés and result in
liabilities.
We
could
become the subject of complaints or litigation from customers or employees
alleging illness, injury or other food quality, health or operational concerns.
Adverse publicity resulting from these allegations may materially adversely
affect us and our Retail Cafés, Delivery/Casual Catering Services and Wholesale
operations, regardless of whether the allegations are valid or whether we are
liable.
Our
operations are subject to governmental regulation associated with the food
service industry, the operation and enforcement of which may restrict our
ability to carry on our business.
We
are in
the perishable food industry. The development, manufacture and marketing of
products sold by us is subject to extensive regulation by various government
agencies, including the U.S. Food and Drug Administration and the U.S. Federal
Trade Commission, as well as various state and local agencies. These agencies
regulate production processes, product attributes, packaging, labeling,
advertising, storage and distribution. These agencies establish and enforce
standards for safety, purity and labeling. In addition, other governmental
agencies (including the U.S. Occupational Safety and Health Administration),
establish and enforce health and safety standards and regulations in the
workplace, including those in our retail locations. Our retail locations will
be
subject to inspection by federal, state, and local authorities. Although we
intend to comply at all times with all such laws and regulations, including
obtaining and maintaining all necessary permits and licenses relating to our
operations, there is a risk that we may not be able to comply with such laws
and
regulations on a timely basis, or at all. Our failure to comply with applicable
laws and regulations could subject us to civil remedies including fines,
injunctions, recalls or seizures as well as potential criminal sanctions. In
addition, compliance or attempted compliance with governmental laws and
regulations may result in significant time or cost expenditures, which could
delay or preclude us from marketing our products or continuing or expanding
our
operations.
The
market price of our common stock may be highly volatile, which may result
in a
significant decline in the value of our common
stock.
The
market price of our common stock may fluctuate significantly in response to
factors, most of which are beyond our control, such as:
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the
announcement of new products or services by us or our
competitors;
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quarterly
variations in our and our competitors’ results of
operations;
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changes
in earnings estimates or recommendations by securities
analysts;
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developments
in our industry; and
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general
market conditions and other factors, including factors unrelated
to our
own operating performance or the condition or prospects of our
industry.
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Further,
the stock market in general, and securities of small-cap companies in
particular, have recently experienced extreme price and volume fluctuations.
Continued market fluctuations could result in extreme volatility in the price
of
our common stock, which could cause a decline in its value. You should also
be
aware that price volatility might be worse if the trading volume of our common
stock is low.
Although
our common stock is currently quoted on the OTC Bulletin Board, trading may
be
extremely sporadic. A more active market for our common stock may not develop.
Accordingly, you may have to bear the economic risk of an investment in our
common stock indefinitely.
We
may not be able to list our common stock on a securities exchange, which
may
affect the liquidity of our common stock.
We
intend
to seek to have our common stock listed on the American Stock Exchange or the
NASDAQ Stock Market as soon as practicable. However, we may not be able to
initially meet or maintain the listing standards of either of those or any
other
stock exchange. In addition, if we fail to meet the listing standards set forth
by the Securities and Exchange Commission regulations, various requirements
may
be imposed on broker-dealers who sell our securities to persons other than
established customers and accredited investors. These requirements may deter
broker-dealers from recommending or selling our common stock, which may further
affect its liquidity and make it more difficult for us to raise additional
capital.
We
have a substantial number of convertible securities outstanding, which if fully
exercised could require us to issue a significant number of shares of our common
stock and result in substantial dilution to existing
stockholders.
As
of
August 28, 2007, we had outstanding options and warrants to purchase up to
2,839,554 and 5,819,045 shares of common stock, respectively. In addition,
we
have an outstanding a convertible promissory note, which matures on June
29,
2008. Commencing on September 1, 2007 to immediately prior to the maturity
date,
the outstanding principal amount of the note, together with all accrued and
unpaid interest due under the note, is convertible at a per share conversion
price equal to $1.68 per share. If the noteholder elects to convert the note
immediately prior to the maturity date, the noteholder will be entitled to
receive a total of 338,527 shares of our common stock. In the event these
securities are exercised, you could suffer substantial dilution in terms
of your
percentage ownership of your common stock.
A
large number of additional shares may be sold into the public market in the
near
future, which may cause the market price of our common stock to decline
significantly, even if our business is doing well.
Sales
of
a substantial amount of common stock in the public market, or the perception
that these sales may occur, could adversely affect the market price of our
common stock. On a fully diluted basis, we had 33,205,802 shares of common
stock
outstanding as of August 28, 2007. If these shares of common stock are
registered otherwise become eligible for public sale, the market price of
our
common stock could decline significantly.
We
have not and do not intend to pay any dividends. As a result, you may only
be
able to obtain a return on investment in our common stock if its value
increases.
Our
current management has not paid dividends in the past and does not plan to
pay
dividends in the near future. We expect to retain earnings to finance and
develop our business. In addition, the payment of future dividends will be
directly dependent upon our earnings, our financial needs and other similarly
unpredictable factors. As a result, the success of an investment in our common
stock will depend upon future appreciation in its value. The price of our
common
stock may not appreciate in value or even maintain the price at which you
purchased our shares.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of the shares by the selling
stockholders. All proceeds from the sale of the shares of common stock offered
under this prospectus will be for the account of the selling stockholders as
described below in the sections entitled “Selling Stockholders” and “Plan of
Distribution.” With the exception of any brokerage fees and commission which are
the obligation of the selling stockholders, we are responsible for the fees,
costs and expenses of this offering which are estimated to be $95,333.29,
inclusive of our legal and accounting fees, printing costs and filing and other
miscellaneous fees and expenses.
A
portion
of the shares of common stock covered by this prospectus are issuable upon
exercise of warrants. We may receive proceeds in the event some or all of the
warrants held by the selling stockholders are exercised for cash. Any proceeds
received from the exercise of the warrants will be used for working capital
and
general corporate purposes. There can be no assurance that the any of the
selling stockholders will exercise their warrants or that we will receive any
proceeds therefrom. Warrant holders often choose not to exercise their warrants
because the price of the common stock does not justify the exercise or the
warrant expires by its terms.
DESCRIPTION
OF BUSINESS
Our
Company
We
were
incorporated in Florida on March 16, 1994 and reincorporated in Delaware on
September 26, 2000. For the years ended December 31, 2006, 2005 and
2004, we were a non-operating shell company and our business operations were
limited to sustaining a public shell vehicle.
On
February 12, 2007, we acquired Organic Holding Company, Inc., an organic food
services company, through a reverse merger with our wholly owned subsidiary.
As
a result of the merger, Organic Holding Company, Inc. became our wholly owned
subsidiary and was renamed “Organic To Go, Inc.” On
May
16, 2007, our stockholders approved an amendment to our Amended and Restated
Certificate of Incorporation to change our name from SP Holding Corporation
to
Organic To Go Food Corporation.
Our
principal executive offices are located at 3317 Third Avenue South, Seattle,
Washington 98134 and our telephone number is (206) 838-4670.
Overview of
our Business
We
prepare and serve classic American cuisine. We use organic ingredients when
possible and always natural ingredients without pesticides and other harmful
additives. Customers can get our food at our convenient Retail Cafés,
through our Delivery/Casual Catering Services and at specific locations where
our “grab-and-go” meals are sold via a wholesale relationship. Our target
customers are white collar office workers as well as students and employees
of colleges and universities. We currently maintain four Retail Cafés in
downtown Seattle, Washington, one in Bellevue, Washington, seven in Los Angeles,
California, three in Orange County, California and two in San Diego, California.
We have an agreement with Compass Group, Inc., pursuant to which Compass
Group,
Inc. maintains twenty three of our “grab-and-go” locations on the Microsoft
Corporate Campus near Seattle, Washington. We also provide sandwiches and
other
“grab-and-go” food to independent coffee vendors at the Los Angeles
International Airport. We operate “grab-and-go” locations at seven universities
in the Seattle, Washington and Los Angeles, California areas, including the
University of Washington Medical Center, the University of Southern California
and the University of California, Los Angeles.
Our
Product
We
provide a delicious and healthy alternative to typical fast food options,
lunch box deliveries and casual catering. We serve a wide range of organic,
natural and wholesome meals, which include everything from ham and cheese
sandwiches to deli-style roast beef sandwiches and veggie packed salads. We
proactively source producers and manufacturers who use sustainable farming
and/or production practices as an integral part of our overall mission to
provide wholesome “clean” food from farm to table. We also use alternative
packaging such as biodegradable and recycled plastics, and sugar cane based
disposable tableware to minimize the environmental impact of convenience
packaging for “grab-and-go” meals.
We
offer
packaged and private label food products from key vendors prepared using our
specifications, and deliver them directly to our Retail Café and Delivery/Casual
Catering Services customers. We prepare or assemble our products at one of
two
assembly kitchens in Seattle, Washington and Los Angeles, California. Orders
that we take via the Internet or by telephone are routed to dedicated customer
service centers in Seattle and Los Angeles and are processed in real time.
While less than 15% of the orders placed are for “same day” delivery, there is a
growing need for this service, thus we are increasing our ability to provide
“same day” delivery, particularly to businesses in proximity to our Retail
Cafés. Our Retail Cafés generally operate Monday through Friday from 7:00 a.m.
to 4:30 p.m. We provide delivery and catering services after-hours and on
weekends.
More
than
70% of our products currently offered are organic. When our food is not organic
it is either something like water or salt which cannot be certified or is made
up from all natural ingredients sourced under careful preset guidelines to
insure the highest quality products available. In February 2006, we became
the
first fast-casual restaurant and retailer to be USDA certified as “Organic” by
Quality Assurance International, the leading third-party certification agency
in
the organic foods industry.
Business
Channels
We
offer
our food products through three primary business channels or units: Retail
Cafés; Delivery/Casual Catering Services; and Wholesale, which accounted for
approximately 55%, 35% and 10%, of our total sales, respectively, in 2006.
Our
core customer base consists of “white collar” workers and college students and
employees.
Retail
Cafés
We
currently operate 17 cafés in Seattle and Bellevue, Washington, Los Angeles,
Orange County and San Diego, California. We operate Retail Cafés in large
multi-tenant buildings and in large campuses. We believe these retail locations
serve as billboards for our Delivery/Casual Catering Services and branded
Wholesale units.
Comparing
the 12 months ended December 31, 2006 to the same period in 2005, same store
(comparable) sales increased approximately 4% for Retail Cafés open longer than
a year. The average sales ticket for our Retail Cafés was approximately $5.60 in
2006 and approximately $5.33 in 2005. The prices of the products we sell
in our
Retail Cafés range from $0.49 to $7.99.
Delivery/Casual
Catering Services
We
also
distribute our products through delivery and catering services. Customers of
our
Delivery/Casual Catering Services unit currently include, among others,
Starbucks Corporate Headquarters, Westin Hotels, Washington Mutual Bank,
T-Mobile, NBC and several movie studios. Approximately 80% of our delivery
orders are repeat orders from customers who have ordered five or more
times.
Wholesale
Our
Wholesale business is growing and we believe that it presents a tremendous
opportunity to build our brand. Wholesale sales currently represent
approximately 10% of our revenue. Current Wholesale customers include the
University of California, Los Angeles, University of Southern California, Cal
State Pomona, Cal State Long Beach, University of Washington, Children’s
Hospital of Seattle, Washington, NBC Studios and Euro Coffee at the Los Angeles
International Airport.
Industry
Overview and Market Opportunity
While
the
growth and popularity of natural and organic foods has been evident with the
rise of grocery stores that sell organic products, such as Whole Foods Market,
Wild Oats and Trader Joe’s, the food service side of the industry has not been
as developed. We believe that we are one of the first companies to provide
services in this area of growing consumer demand.
According
to the Organic Trade Association’s 2006 Manufacturer Survey, the market for
organic foods grew by 16.2% in 2005. The survey also found that sales of organic
foods during 2005 totaled $13.8 billion, which constituted 2.5% of total U.S.
food sales. This strong growth is consistent with annual growth rates since
1997, all of which have been between 15% to 21% per year.
The
OTA
2006 Survey also estimated that the use of organic products in the United States
food service industry is increasing annually by a rate of 20% per year.
According to the survey, as recently as 2004, $330 million in natural/organic
food sales, or only 5% of all natural/organic sales, were sold into the food
service channel. Traditionally, retail food sales constitute roughly 70% of
total food sales and food service sales constitute roughly 30%.
Competition
We
are in
competition with other food service operations within the same geographical
areas in which we operate. The Retail Cafés, Delivery/Casual Catering Services
and Wholesale business channels are highly competitive. Some of our
competitors are significantly larger than us and have greater access to
resources. We compete with other organizations primarily through the quality,
variety and value perception of the food products offered. The number and
location of units, quality and speed of service, attractiveness of facilities,
effectiveness of marketing and new product development are also important
factors. The price charged for each menu item we sell or service we provide
may
vary from market to market depending on competitive pricing and the local cost
structure.
Expansion
Plans
We
intend
to grow internally and through acquisitions by adding catering companies
and café locations that are consistent with our core business focus. In each of
the markets where we operate, we plan to take advantage of our scalability
and
acquire local catering companies with strong ties to the region’s corporate
community. We also intend to work closely with landlords and property managers
to upgrade the amenities they offer in their buildings by making our
Delivery/Casual Catering Services and food products available to their tenants.
In addition, by the end of the calendar year we expect to grow our Wholesale
business by strategically aligning with large retail stores. There can be no
assurance, however, that we will acquire or open such additional café locations
or catering companies or enter into any such strategic alliances.
Recent
Acquisitions
Acquisition
of Scott's Gourmet Sandwiches
On
July
20, 2007, we acquired Scott’s Gourmet Sandwiches, a downtown San Diego-based
quick-serve restaurant that has been serving the community since 1995. Scott’s
Gourmet Sandwiches owned two cafes and corporate catering business. Our latest
acquisition initiates San Diego as the fourth region that we operate
in.
Acquisition
of Jackrabbit, LLC
On
March
9, 2007, we acquired substantially all of the assets of Jackrabbit, LLC, a
Seattle-based catering business for cash of approximately $630,000, a $150,000
promissory note and 400,000 shares of common stock. Jackrabbit has been serving
downtown Seattle businesses since 1996 with premium box lunches and casual
catering. Jackrabbit generated approximately $1.85 million in revenue in
2006.
Acquisition
of Vinaigrettes LLC
On
October 27, 2006, we acquired all of the operating assets of Vinaigrettes LLC,
a
California limited liability company doing business as “Vinaigrettes Catering
Company,” for a purchase price of $1.0 million. Vinaigrettes was a 10-year-old
catering services company with approximately 40 employees and sales of
approximately $2.5 million per year. Vinaigrettes provided business casual
catering services, ranging from corporate box lunches to lavish Hollywood
events.
Acquisition
of Certain Operating Assets of Briazz Inc.
In
April
2005, we acquired certain operating locations and related assets of Briazz,
Inc.
for $1.35 million, comprised of $750,000 in cash and $600,000 in notes
convertible into Organic Holding Company, Inc. common stock. Briazz was a
Seattle, Washington-based sandwich cafe chain that filed for bankruptcy under
Chapter 11 in June of 2004. As part of the acquisition, we acquired 6 Retail
Cafés in the Seattle market and 6 Retail Cafés in the Los Angeles and Orange
County markets, as well as certain catering contracts.
Suppliers
We
have
not experienced any material shortages of food, equipment, fixtures or other
products which are necessary to our operations and we anticipate no such
shortages of products. Sysco Food Service and United Natural Foods West,
Inc.
are our two principal suppliers of products. Sysco Food Services supplies
approximately 22% of all products purchased and United Natural Foods West
supplies approximately 8% of all products purchased. Generally, alternate
suppliers are available for all of our raw materials and supplies.
Dependence
on Major Customers
We
are
not dependent on any major customers. No single customer of ours accounted
for
more than 10% of our total sales during 2006.
Environment
and Energy
Various
federal, state and local agencies have adopted regulations that affect the
discharge of materials into the environment or which otherwise relate to the
protection of the environment. We do not believe that such regulations will
have
a material effect on our operations, our capital expenditures, earnings or
our
competitive position. However, we cannot predict the effect of future
environmental legislation or regulations.
Companies
involved in the food industry use significant amounts of energy in their
operations. Our principal sources of energy for our operations are electricity
and natural gas. To date, the supply of energy available to us has been
sufficient to maintain normal operations.
Government
Regulation
We
operate in the perishable food industry. The development, manufacture and
marketing of products sold by us may be subject to extensive regulation by
various government agencies, including the U.S. Food and Drug Administration
and
the U.S. Federal Trade Commission, as well as various state and local agencies.
These and other agencies regulate production processes, product attributes,
packaging, labeling, advertising, storage and distribution and establish and
enforce standards for safety, purity and labeling. In addition, other
governmental agencies (including the U.S. Occupational Safety and Health
Administration), establish and enforce health and safety standards and
regulations in the workplace, including those in our retail locations. Our
retail locations will be subject to inspection by federal, state, and local
authorities.
Information
Technology
We
have
integrated information technology systems that facilitate efficient and
scaleable operations throughout our operations.
Employees
As
of August 28, 2007, we had a workforce of approximately 242 employees,
consisting of 198 full-time and 44 part-time employees. None of our
employees are represented by a collective bargaining agreement, nor have
we
experienced any work stoppages.
Trademark
and Website
We
have
registered our stylized logo, and we have registered the Internet domain name
“www.organictogo.com.”
LEGAL
PROCEEDINGS
On
October 18, 2006, Susana Chi, a former employee of Organic Holding Company,
Inc., brought suit against us in the Superior Court of the State of California
for the County of Los Angeles claiming discrimination, wrongful termination
and
infliction of emotional distress in connection with the termination of Ms.
Chi’s
employment with us. We filed an answer to Ms. Chi’s complaint and, subsequently
caused the suit to be transferred to U.S. Federal District Court. On June
15,
2007, the parties reached a settlement agreement with respect to this matter,
which was immaterial to our financial results.
We
are
not a party to any other material legal proceedings nor are we aware of any
circumstance that may reasonably lead a third party to initiate material legal
proceedings against us.
DESCRIPTION
OF PROPERTY
Our
principal executive offices are located at 3317 Third Avenue South, Seattle,
Washington 98134. This facility consists of approximately 13,500 square feet
of
office space pursuant to a lease that expires on December 31, 2011.
We
lease
space for our retail properties as needed for our business operations from
time
to time. We believe that we will continue to be able to find and lease the
properties we need on reasonable terms. However, there can be no assurance
that
we will be able to find suitable locations for our planned expansion or for
continued operations. We believe that the condition of all of the properties
we
lease are generally adequate for their respective purposes.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of the results of operations and financial
condition should be read in conjunction with our financial statements and the
notes to those financial statements that are included elsewhere in this
prospectus. This discussion includes forward-looking statements based upon
current expectations that involve risks and uncertainties, such as plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. Words such as “anticipate,”
“estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions are used to identify
forward-looking statements.
Overview
Organization
and Business
Organic
Holding Company, Inc., d/b/a Organic To Go, whose name was changed to Organic
To
Go, Inc. effective February 27, 2007, is a wholly-owned subsidiary of Organic
To
Go Food Corporation and was incorporated in the state of Delaware in February
2004. We provide convenient cafés which prepare and serve “grab and go” lunch,
dinner, and breakfast foods and beverages prepared using organic ingredients,
whenever possible. We also distribute our products through delivery, catering
and select wholesale accounts. In October 2006, we expanded our catering
operations in the California area by acquiring the assets of a catering
operation headquartered in Los Angeles, California, and in March 2007, we
expanded our catering operations by acquiring the assets of a catering operation
located in Seattle, Washington. In February, 2007 we completed a reverse
merger
with a public shell company named SP Holding Corporation. At June 30, 2007,
we
operated five stores in Washington and seven stores in California, with central
kitchens in each market.
Management
believes we have the opportunity to capture increasing market share in all
three
of our businesses: Delivery/Catering, Retail and Wholesale “grab & go”
convenience foods, by providing customers with delicious, healthy, wholesome
and
organic food choices. Management is focused in the near and long term on
the
challenges and risks that we face in expanding our business. These include
our
ability to obtain retail, catering and wholesale locations, building a
sufficient infrastructure to support our expansion, and obtaining a customer
base and margin improvement sufficient to achieve and sustain
profitability.
Basis
of Presentation and Liquidity
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate our continuation
as
a going concern. We have reported recurring losses and cash used by operating
activities, and at June 30, 2007 had a net working capital deficiency and
stockholders’ deficit that could raise doubt about our ability to continue as a
going concern. Since our inception, we have funded operations and business
development and growth through debt and equity financings. In this regard,
during 2006, we raised approximately $8.1 million pursuant to sales of debt
and
equity securities in connection with our private placement and subordinated
debt
offerings. Further, during the three months ended March 31, 2007, proceeds
of
approximately $6.9 million were received from the sale of equity securities
in
connection with the merger and private placement, and approximately $5.3
million
of notes payable has been converted into shares of common stock. Further,
during
the three months ended June 30, 2007, proceeds of approximately $6.7 million
were received from the sale of equity securities in a private placement and
proceeds of $500,000 were received from the issuance of notes payable. While
we
plan to produce cash from operations during the second half of 2007, our
management intends to continue to be engaged in additional fund-raising
activities to fund future capital expenditures, potential acquisitions of
businesses and provide additional working capital. We anticipate having
sufficient working capital in place for the next 12 months to continue
operations. The accompanying financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classifications of liabilities that could result
should we not continue as a going concern.
Critical
Accounting Policies and Estimates
Management's
discussion and analysis of financial condition and results of operations
are
based on our financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires our management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported net sales and expenses during the reporting
periods. On an ongoing basis, estimates and assumptions are evaluated. Estimates
are based on historical experience and on various other factors believed
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that
are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. A summary of significant
accounting policies is presented in Notes to our financial statements included
elsewhere in this prospectus. The following accounting policies are considered
the more critical to aid in understanding and evaluating our results of
operations and financial condition.
Use
of Estimates
In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during
the
reporting years. Actual results could differ from those estimates. The more
significant accounting estimates inherent in the preparation of our financial
statements include estimates as to the depreciable lives of property and
equipment, recoverability of long-lived assets, valuation of inventories,
valuation of equity related instruments issued, and valuation allowance for
deferred income tax assets.
Inventory
Inventory,
which consists primarily of food, beverages and packaging products, is stated
at
the lower of cost or market. Cost is determined on a first-in, first-out basis.
In assessing the ultimate realization of inventories, our management makes
judgments as to future demand requirements compared to current inventory
levels.
Impairment
of Long-lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
Impairment of long-lived assets would be recognized in the event that the
net
book values of such assets exceed the future undiscounted cash flows
attributable to such assets. No impairment of long-lived assets was recognized
for any of the periods presented.
Intangible
Assets
In
connection with acquisitions in October 2006 and March 2007, of certain assets
of catering businesses, we acquired certain identifiable intangible assets
including customer-based intangibles . These acquisitions have been accounted
for in accordance with Statement of Financial Accounting Standards No. 141,
“Business Combinations.” Amounts allocated to intangible assets were identified
by management and have been valued on a number of factors. The estimate of
useful lives of each intangible asset was based on an analysis by management
of
all pertinent factors, and selected an estimated useful life of two years
for
each identifiable intangible asset.
Revenue
Recognition
Revenues
are recognized at the point of sale at retail locations or upon delivery of
products for delivery and wholesale transactions.
Cost
of Sales
Cost
of
sales includes the cost of food, beverages and paper
products.
Income
Taxes
We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes,” which requires recognition of deferred tax assets and liabilities for
expected future tax consequences of events that have been included in financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between
the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable
to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to amounts expected to be realized. We continue to provide a full
valuation allowance in order to reduce our net deferred tax asset to zero,
inasmuch as our management has not determined that realization of deferred
tax
assets is more likely than not. The provision for income taxes represents the
tax payable for the period and change during the period in net deferred tax
assets and liabilities.
Stock-based
Compensation
In
December 2004, the FASB released SFAS No. 123 (revised 2004), “Share Based
Payment” (“SFAS 123R”). SFAS 123R sets forth the accounting for share-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise, or (b) liabilities
that
are based on the fair value of the enterprise's equity instruments or that
may
be settled by the issuance of such equity instruments. The statement eliminates
the ability to account for share-based compensation transactions using APB
Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally
requires instead that such transactions be accounted for using a
fair-value-based method, which requires recording an expense over the requisite
service period for the fair value of all options or warrants granted to
employees and consultants. We adopted SFAS 123R effective beginning January
1,
2006.
Results
of Operations
Three
months ended June 30, 2006 and 2007
Revenues
Sales
for
the three months ended June 30, 2007 increased approximately 69%, to $3.9
million, as compared with $ 2.3 million for the comparative prior year
period, and increased approximately 8% as compared to $3.6 million for the
immediately preceding three months ended March 31, 2007. On a pro forma basis,
giving effect to the acquisition of two catering businesses in October 2006
and
March 2007, sales for the three months ended June 30, 2007 increased
approximately 15% as compared to pro forma sales of approximately $3.3 million
for the three months ended June 30, 2006. Retail sales were $1.6 million
during
the three months ended June 30, 2007, an increase of 14% over $1.4 million
during the comparative prior year period. Retail sales comprised 41% of total
sales in the 2007 period as compared with 59% in the comparative prior year
period. Delivery/Catering sales were $1.8 million during the three months
ended
June 30, 2007, an increase of $ 1.1 million over the $.7 million for the
comparative prior year period. Delivery/Catering sales comprised 46% of total
sales in the 2007 period as compared with 31% for the comparative prior
year period Most of the increase was attributable to the acquisition of two
catering businesses, one in October 2006 and the other in March 2007. Wholesale
sales were $ 476,000 during the three months ended June 30, 2007, an increase
of
$249,000 over $ 227,000 during the comparative prior year period. Wholesale
sales comprised 12% of total sales in the 2007 period as compared with 10%
in 2006. The increases in retail and wholesale were due to increased business
volume. The increase in Delivery/Catering sales was primarily attributable
to
increased sales resulting from the acquisition of the businesses
of Vinaigrettes LLC and Jackrabbit, LLC.
Cost
of Sales
Cost
of
sales includes the cost of food and paper products. Cost of sales for the
three
months ended June 30, 2007 increased approximately 50%, to $1.8 million,
as
compared with $1.2 million for the comparative prior year period, and was
approximately the same as compared to $1.8 million for the immediately preceding
three months ended March 31, 2007. Cost of sales for the three months ended
June
30, 2007 approximated 48% as a percent of sales as compared with 49% during
the comparative prior year period and as compared to 51% for the immediately
preceding three months ended March 31, 2007.
Gross
Profit
Gross
profit increased approximately 75%, to $2.1 million for the three months
ended
June 30, 2007 as compared with $1.2 million for the three months ended June
30,
2006, and increased 17% as compared with $1.8 million for the three months
ended March 31, 2007. Gross profit for the three months ended June 30, 2007
approximated 53% as a percent of sales as compared with 51% during the
comparative prior year period and as compared to 49% for the immediately
preceding three months ended March 31, 2007. On a pro forma basis, giving
effect
to the acquisition of two catering businesses in October 2006 and March 2007,
gross profit for the three months ended June 30, 2007 increased approximately
15% as compared to pro forma gross profit of approximately $1.8 million for
the
three months ended June 30, 2006.
Operating
Expenses
Operating
expenses for the three months ended June 30, 2007 increased approximately
77%,
to $3.9 million, as compared with $2.2 million for the three months ended
June 30, 2006, and increased 11% as compared with $3.5 million for the
three months ended March 31, 2007. Operating expenses are comprised primarily
of
labor, and, to a lesser extent, occupancy and utilities, and selling, general
and administrative expenses. Operating expenses increased during the three
months ended June 30, 2007, as compared with the three months ended June
30, 2006, primarily due to increased labor and related costs as a result
of
continued growth since the prior year, including the acquisitions of two
catering businesses, and preparing for future growth. On a pro forma basis,
giving effect to the acquisition of two catering businesses in October 2006
and
March 2007, operating expenses for the three months ended June 30, 2007
increased approximately 40% as compared to pro forma operating expenses of
approximately $2.8 million for the three months ended June 30,
2006.
Depreciation
and Amortization
Depreciation
and amortization expense for the three months ended June 30, 2007 increased
to
$704,000, as compared with $170,000 for the three months ended June 30,
2006, due primarily to $508,000 amortization of identifiable intangible assets
acquired in the catering businesses acquisitions in October 2006, and March
2007, and to having more assets in service. Depreciation and amortization
for
the three months ended June 30, 2007 approximated 18% as a percent of sales
as
compared with 7% during the comparative prior year period 2006.
Loss
from Operations
Loss
from
operations for the three months ended June 30, 2007, increased to approximately
$2.6 million as compared with $1.2 million for the three months ended June
30, 2006, and increased 23% as compared with $2.1 million for the three
months ended March 31, 2007. The increase in loss from operations over the
comparative period last year is the result of the increase in gross profit
of
$863,000 being offset by the $1.7 million increase in operating expenses
and a
$529,000 increase in depreciation and amortization.
Interest
Expense, Net
Interest
expense, net for the three months ended June 30, 2007, decreased from the
prior
three months ended March 31, 2007 to approximately $81,000. The decrease
was
primarily due to lower debt balances due primarily to the conversion to equity
of $5.3 million of debt in March 2007.
Net
Loss
Net
loss
for the three months ended June 30, 2007, increased to approximately $2.6
million as compared with $1.3 million for the three months ended June 30,
2006, and increased 4% as compared with $2.5 million for the three months
ended March 31, 2007.
Six
months ended June 30, 2006 and 2007
Revenues
Sales
for
the six months ended June 30, 2007 increased approximately 64%, to $7.4 million,
as compared with $ 4.5 million for the comparative prior year period.
On a pro forma basis, giving effect to the acquisition of two catering
businesses in October 2006 and March 2007, sales for the six months ended
June
30, 2007 increased approximately 23% as compared to pro forma sales of
approximately $6.4 million for the six months ended June 30, 2006. Retail
sales
were $3.2 million during the six months ended June 30, 2007, an increase
of 14%
over $2.8 million during the comparative prior year period. Retail sales
comprised 43% of total sales in the 2007 period as compared with 62% in the
comparative prior year period. Delivery/Catering sales were $3.3 million
during
the six months ended June 30, 2007, an increase of $2.0 million over the
$1.3
million for the comparative prior year period. Delivery/Catering sales comprised
44% of total sales in the 2007 period as compared with 29% for the
comparative prior year period. Most of the increase was attributable to the
acquisition of two catering businesses, one in October 2006 and the other
in
March 2007. Wholesale sales were $ 927,000 during the three months ended
June
30, 2007, an increase of $ 497,000 over $ 430,000 during the comparative
prior
year period. Wholesale sales comprised 12% of total sales in the 2007 period
as
compared with 10% in 2006. The increases in retail and wholesale were due
to increased business volume. The increase in Delivery/Catering sales was
primarily attributable to increased sales resulting from the acquisition
of the
businesses of Vinaigrettes LLC and Jackrabbit, LLC.
Cost
of Sales
Cost
of
sales includes the cost of food and paper products. Cost of sales for the
six
months ended June 30, 2007 increased approximately 64%, to $3.6 million,
as
compared with $2.2 million for the comparative prior year period. Cost of
sales for the six months ended June 30, 2007 approximated 49% as a percent
of
sales as compared with 50% during the comparative prior year period.
Gross
Profit
Gross
profit increased approximately 72%, to $3.8 million for the six months ended
June 30, 2007 as compared with $2.2 million for the six months ended June
30,
2006. Gross profit for the six months ended June 30, 2007 approximated 51%
as a
percent of sales as compared with 50% during the comparative prior year
period. On a pro forma basis, giving effect to the acquisition of two catering
businesses in October 2006 and March 2007, gross profit for the six months
ended
June 30, 2007 increased approximately 18% as compared to pro forma gross
profit
of approximately $3.4 million for the six months ended June 30,
2006.
Operating
Expenses
Operating
expenses for the six months ended June 30, 2007 increased approximately 72%,
to
$7.4 million, as compared with $4.3 million for the six months ended June
30, 2006. Operating expenses are comprised primarily of labor, and, to a
lesser
extent, occupancy, utilities, and selling, general and administrative expenses.
Operating expenses increased during the six months ended June 30, 2007, as
compared with the six months ended June 30, 2006, primarily due to
increased labor and related costs as a result of continued growth since the
prior year, including the acquisition of two catering businesses, a store
closing accrual of $237,000 in March 2007, and preparing for future growth.
On a
pro forma basis, giving effect to the acquisition of two catering businesses
in
October 2006 and March 2007, operating expenses for the six months ended
June
30, 2007 increased approximately 40% as compared to pro forma operating expenses
of approximately $5.4 million for the six months ended June 30,
2006.
Depreciation
and Amortization
Depreciation
and amortization expense for the six months ended June 30, 2007 increased
to
$1,138,000 as compared with $340,000 for the six months ended June 30,
2006, due primarily to amortization of identifiable intangible assets acquired
in the catering businesses acquisitions in October 2006, and March 2007,
and to
having more assets in service. Depreciation and amortization for the six
months
ended June 30, 2007 approximated 15% as a percent of sales as compared with
8% during the comparative prior year period 2006.
Loss
from Operations
Loss
from
operations for the six months ended June 30, 2007, increased to approximately
$3.6 million as compared with $2.1 million for the six months ended June
30, 2006. The increase in loss from operations over the comparative period
last
year is the result of the increase in gross profit of $1.6 million being
offset
by the $3.1 million increase in operating expenses.
Interest
Expense, Net
Interest
expense, net for the six months ended June 30, 2007, increased to $415,000
as
compared with $15,000 for the six months ended June 30, 2006. The increase
was
primarily due to the increase in debt from July, 2006 through March 2007
prior
to the $5.3 million of debt converted to equity in March
2007.
Net
Loss
Net
loss
for the six months ended June 30, 2007, increased to approximately $5.1 million
as compared with $2.4 million for the six months ended June 30, 2006.
Year
Ended December 31, 2006 Compared With Year Ended December 31,
2005
Sales
Sales
for
2006 increased approximately 58%, to $9.7 million, as
compared with $6.1 million for 2005. Retail sales were $5.2 million
during 2006, an increase of 16% over $4.5 million during 2005. Retail sales
comprised 54% of total sales in the 2006 period as compared with 74% in
2005. Delivery/Catering sales were $3.3 million during 2006, an increase of
207%
over $1.1 million during 2005. Delivery/Catering sales comprised 34% of total
sales in the 2006 period as compared with 18% in 2005. Wholesale sales were
$1.1 million during 2006, an increase of 108% over $527,000 during 2005.
Wholesale sales comprised 11% of total sales in 2006 as compared with 9% in
2005. The increases in sales were due in part to having only one store open
during the first quarter of 2005, and also to increased business volume. With
respect to Delivery/Catering, the increase in 2006 was attributable to increased
sales resulting from the acquisition of the Vinaigrette’s business.
Cost
of Sales
Cost
of
sales includes the cost of food and paper products. Cost of sales for 2006
increased approximately 25%, to $4.9 million, as compared with $3.9 million
for 2005. Cost of sales for 2006 approximated 50% as a percent of sales as
compared with 64% during 2005. The decrease in cost of sales as a percent
of sales was due primarily to decreases in costs in each of Retail,
Delivery/Catering and Wholesale sales.
Gross
Profit
Gross
profit increased approximately 115%, to $4.8 million for 2006, as
compared with $2.2 million for 2005. Gross profit for 2006 approximated 50%
as a percent of sales as compared with 36% during 2005. The increase in
gross profit was due primarily to retail and catering sales due to increased
sales volumes and increased gross margins during 2006 as compared to
2005.
Operating
Expenses
Operating
expenses for 2006 increased approximately 46%, to $10.3 million, as
compared with $7.2 million for 2005. Operating expenses are comprised
primarily of labor, and, to a lesser extent, occupancy and utilities, and
selling, general and administrative expenses. Operating expenses increased
in
2006, as compared with 2005, primarily due to increased labor and related
costs as a result of continued growth during the year and preparing for future
growth.
Depreciation
and Amortization
Depreciation
and amortization expense for 2006 increased approximately 91%, to approximately
$1.2 million, as compared with $630,000 for 2005, due to having more assets
in service. Depreciation and amortization for 2006 approximated 12% as a percent
of sales as compared with 10% during 2005. Amortization expense includes
amortization of leasehold improvements and intangible assets.
Loss
from Operations
Loss
from
operations for 2006, increased to approximately $6.9 million as
compared with $5.6 million for 2005. The increase in loss from operations
is the result of the increase in gross profit of $2.6 million being offset
by
the $3.3 million increase in operating expenses and a $576,000 increase in
depreciation and amortization. Loss from operations for 2006 approximated 71%
as
a percent of sales as compared to 91% during 2005.
Interest
Expense, Net
Interest
expense, net for 2006, increased to approximately $1.1 million from $78,000
for
2005. The increase was primarily due to increased borrowings in 2006 and related
amortization of debt discount and debt issue costs, which resulted in non-cash
interest expense of approximately $687,000.
Net
Loss
Net
loss
for 2006 increased approximately $2.3 million, or approximately 41%, to $8.0
million as compared with $5.7 million for 2005. The increase in net loss
was due primarily to the increase in gross profit being offset by increases
in
operating expenses, depreciation and amortization and interest expense.
Approximately $1.6 million of the increase in net loss was attributable to
increases in depreciation and amortization and interest expense.
Liquidity
and Capital Resources
Since
our
inception, we have funded operations through financing activities consisting
primarily of private placements of debt and equity securities. Our management
intends to raise additional debt and equity financing to fund future expansion
and capital expenditures, operations and to provide additional working capital,
and in this regard, during 2006, we raised approximately $8.1 million pursuant
to sales of debt and equity securities in connection with our 2006 private
placement and subordinated debt offerings. Further, during the three months
ended March 31, 2007, we received aggregate proceeds of approximately $6.9
million from the sale of equity securities in connection with the merger
and
private placement, and $5.3 million of notes payable have been converted
into
shares of our common stock. Further, during the three months ended June 30,
2007, proceeds of approximately $6.7 million were received from the sale
of
equity securities in a private placement and proceeds of $500,000 were received
from the issuance of debt in the form of notes payable.
While
we
continue to be engaged in additional fund-raising activities, we intend to
produce cash from operations during the second half of 2007. Management expects
to achieve increased sales and improved margins that will result in positive
cash from operations at some point in the second half of 2007. We anticipate
having sufficient working capital in place for the next 12 months to continue
operations due to cash flow from operations and our ability to raise additional
capital. There is no assurance that such increased sales and improved margins
will occur or that financing will be obtained in sufficient amounts necessary
to
meet our needs. In light of these matters, continuation as a going concern
is
dependent upon our ability to meet our operational goals, our financing
requirements, raise additional capital, and the success of our future operations
or completion of a successful business combination.
Six
Months Ended June 30, 2007 Compared With Six Months Ended June 30,
2006
Net
cash
used by operating activities was approximately $4.7 million in the six
months ended June 30, 2007 and $2.4 million in the six months ended June
30, 2006. The $2.3 million increase in cash used by operating activities
was due
primarily to the increase in net loss as adjusted for depreciation and
amortization expense.
Net
cash
used in investing activities was approximately $1.9 million and $60,000 for
the six months ended June 30, 2007 and 2006, respectively. Uses of cash
flow for investing activities in 2007 primarily relate to the capital
expenditures associated with business expansion for the acquisition of store
and
kitchen fixtures, equipment and leasehold improvements.
Net
cash
provided by financing activities was approximately $12.1 million and $2.6
million for the six months ended June 30, 2007 and 2006, respectively. The
increase of net cash provided in 2007 was due to an increase in proceeds,
net of
issuance costs, from the issuance of common stock in March and June, 2007
private placements.
Year
Ended December 31, 2006 Compared With Year Ended December 31,
2005
Net
cash
used by operating activities was approximately $6.0 million in 2006 and $3.4
million in 2005. The $2.6 million increase in cash used by operating activities
was due primarily to the $962,000 increase in net loss as adjusted for
depreciation and amortization expense, along with the decrease in accounts
payable of approximately $1.8 million (an increase of $1.6 million in 2005
as
compared with a decrease of $245,000 in 2006).
Net
cash
used in investing activities was approximately $1.2 million and $2.3 million
for
2006 and 2005, respectively. Uses of cash flow for investing activities in
2006
primarily relate to the acquisition of identifiable intangible assets in
connection with the acquisition of Vinaigrettes, and in 2005, relate primarily
to capital expenditures associated with business expansion for the acquisition
of store and kitchen fixtures, equipment and leasehold improvements, including
payments for the acquisition of certain store operations and assets of a former
retailer.
Net
cash
provided by financing activities was $7.8 million and $5.8 million for 2006
and
2005, respectively. The increase of net cash provided in 2006 was primarily
due
to an increase in proceeds, net of issuance costs, from the issuance of notes
payable and preferred stock.
Recent
Accounting Pronouncements
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”
(“FIN No. 48”), which prescribes a recognition threshold and
measurement process for recording in the financial statements uncertain tax
positions taken or expected to be taken in a tax return. Additionally,
FIN No. 48 provides guidance on the recognition, classification,
accounting in interim periods and disclosure requirements for uncertain tax
positions. The accounting provisions of FIN No. 48 became effective
for us beginning January 1, 2007. The adoption of FIN No. 48 did
not have a material effect on our results of operations or financial
position.
In
December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2 “Accounting
for Registration Payment Arrangements” (“FSP EITF 00-19-2”), which addresses an
issuer’s accounting and disclosures relating to registration payment
arrangements. In connection with issuance of the units in the private placement
in February 2007, we have agreed to register the shares underlying the units.
In
accordance with FSP EITF 00-19-2, the registration payment arrangements are
accounted for as an instrument separate and apart from the related securities
and will be accounted for in accordance with SFAS No. 5 “Accounting for
Contingencies,” accruing a liability if payment is probable and the amount can
be reasonably estimated.
Contractual
Obligations and Off-Balance Sheet Arrangements
We
have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. The following table summarizes our contractual
obligations as of December 31, 2006, and the effect these obligations are
expected to have on liquidity and cash flows in future periods (in
thousands).
|
|
Total
|
|
Less
than 1
year
|
|
1-3
Years
|
|
3-5
Years
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
Notes
payable (1)
|
|
$
|
7,575
|
|
$
|
6,983
|
|
$
|
592
|
|
$
|
-
|
|
Capital
Lease Obligations
|
|
|
214
|
|
|
63
|
|
|
151
|
|
|
-
|
|
Operating
Leases
|
|
|
1,059
|
|
|
493
|
|
|
530
|
|
|
36
|
|
Total
Contractual Obligations:
|
|
$
|
8,848
|
|
$
|
7,539
|
|
$
|
1,273
|
|
$
|
36
|
|
(1)
The amounts disclosed do not include interest.
Notes
payable consist primarily of convertible notes payable resulting from debt
financing from independent third parties for working capital purposes, and
of
other notes payable collateralized by vehicles and certain other
assets.
Capital
lease obligations consist of leases for certain office equipment under
non-cancelable lease agreements.
Operating
lease amounts include leases for store, kitchen and office facilities under
various non-cancelable operating lease agreements that expire at various dates
through years 2011, with options to renew certain of the leases. Most leases
are
on a fixed repayment basis, with two containing provisions for contingent
rentals.
We
have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties, nor entered into any
derivative contracts that are indexed to our shares and classified as
stockholder’s equity or that are not reflected in our financial statements.
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 engages in leasing, hedging or research and development
services with us.
Quantitative
and Qualitative Disclosures about Market Risk
We
do not
use derivative financial instruments. Our financial instruments consist of
cash
and cash equivalents, trade accounts receivable, accounts payable and long-term
obligations. Investments in highly liquid instruments purchased with a remaining
maturity of 90 days or less at the date of purchase are considered to be cash
equivalents.
Our
exposure to market risk for changes in interest rates relates primarily to
our
short-term investments and short and long-term obligations, all of which
have
fixed interest rates. Thus, fluctuations in interest rates would not have
a
material impact on the fair value of these securities. At December 31, 2006,
we
had approximately $865,000 in cash and cash equivalents. At June 30, 2007,
we
had approximately $6.4 million in cash and cash equivalents. A hypothetical
10%
increase or decrease in interest rates would not have a material impact on
our
results of operations, or the fair market value or cash flows of these
instruments.
DIRECTORS
AND EXECUTIVE OFFICERS
The
table
below sets forth information regarding our current directors and executive
officers. All of our directors and executive officers, other than Paul Campbell
and Andrew Jacobs, have held their positions with us since February 12, 2007,
which is the date when we acquired Organic Holding Company, Inc. Prior to the
merger, Mark Schaftlein served as our sole officer and director since January
2004.
Name
|
|
Age
|
|
Position
|
Jason
Brown
|
|
50
|
|
Chief
Executive Officer and Chairman
|
Michael
Johnson
|
|
41
|
|
Vice
President of Retail Operations
|
Wendy
Tenenberg
|
|
51
|
|
Vice
President of Marketing
|
Paul
Campbell
|
|
51
|
|
Chief
Financial Officer
|
Andrew
Jacobs
|
|
49
|
|
Senior
Vice President of Operations
|
Dave
Smith
|
|
64
|
|
Director
|
Peter
Meehan
|
|
50
|
|
Director
|
Roy
Bingham
|
|
44
|
|
Director
|
Douglas
Lioon
|
|
50
|
|
Director
|
S.M.
“Hass” Hassan
|
|
58
|
|
Director
|
Jason
Brown
served
as Chief Executive Officer and Chairman of the Board of Directors of Organic
Holding Company, Inc. since its inception in February 2004. Mr. Brown has more
than 25 years of experience in branded direct to consumer retail operations.
From 2000 through March 2003, Mr. Brown served as the Chief Executive Officer
of
Custom Nutrition Services, a company which provided consumers with personalized
vitamin solutions based on tailored medical expertise which he founded. In
April
2003, Custom Nutrition Services was sold to Drugstore.com for $5.6 million
in
cash and stock. From 1995 to 2000, Mr. Brown served as the Chief Executive
Officer of Concept Development, an alternative healthcare consulting firm.
From
1990 to 2000, Mr. Brown served as a Managing Director for Columbia Sportswear
NZ/Australia, an international sportswear manufacturer and retailer. From 1978
to 1989, Mr. Brown served as the Chief Executive Officer of Cotton Comfort,
a
vertically integrated cotton clothing store chain.
Michael
Johnson
served
as Vice President of Retail Operations of Organic Holding Company, Inc. since
January 2006. As Vice President of Retail Operations, Mr. Johnson is responsible
for overseeing the operations of our cafés and overseeing the business
relationships we have with colleges and universities. Mr. Johnson has more
than
20 years of experience managing restaurants including white tablecloth cafes
and
other retail food establishments such as Noah’s bagel shop and Briazz Specialty
Cafes.
Wendy
Tenenberg
served
as Vice President of Retail Marketing of Organic Holding Company, Inc. since
its
inception in February 2004. As Vice President of Marketing, Ms. Tenenberg is
responsible for all aspects of graphic design and direct-to-consumer marketing
initiatives. Ms. Tenenberg has more than 15 years of experience in retail and
direct-to-consumer marketing that has included extensive experience in customer
acquisition and direct marketing. From 2000 to 2003, Ms. Tenenberg was in charge
of marketing at Custom Nutrition Services. From 2003 to 2004, Ms. Tenenberg
served as the Director of Marketing of Drugstore.com.
Paul
Campbell
has
served as our Chief Financial Officer since May 7, 2007. Mr. Campbell has a
23-year track record in the food service industry, including serving as the
Chief Financial Officer of Famous Dave’s of America, Cucina! Cucina! and
Checkers Drive-In and in the finance department at Taco Bell. During the past
five years, Mr. Campbell served as the President and Chief Executive Officer
of
Campbell Capital, LLC, a consulting company for the retail food service
industry.
Andrew
Jacobs
has
served as Senior Vice President of Operations since April 27, 2007. Mr. Jacobs
has 27 years of experience in all aspects of food service operations, including
significant experience in the research and development of menus and recipes.
Prior to joining us, Mr. Jacobs worked with Costco Wholesale since 1991,
directing all U.S. food service operations and focusing on business related
to
food court and deli operation. Mr. Jacobs oversaw the growth and expansion
of
Costco’s food court and service deli departments to over $500 million in annual
sales. Prior to working for Costo, Mr. Jacobs worked as a consultant and
operator in restaurant management, restaurant real estate and food service
contract management.
Dave
Smith
served
as a Director of Organic Holding Company, Inc. since its inception in February
2004. Mr. Smith is the co-founder of Smith & Hawken, the garden tool
company. From July of 1979 to September of 1988, Mr. Smith served as President
and Chief Operating Officer of Smith & Hawken. From September of 1997 to
June of 2001, Mr. Smith served as the Vice President of Catolog/Internet
Marketing and Operations of Seeds of Change. Since June of 2001, Mr. Smith
has
worked as an independent consultant to a variety of companies. Mr. Smith
has
been involved in the retail and catalog industries as an executive and
consultant for over 20 years with companies such as SelfCare, Real Goods,
Diamond Organics, Seeds of Change and Organic Bouquet.
Peter
Meehan
served
as a Director of Organic Holding Company, Inc. since its inception in February
2004. Mr. Meehan has served as the Chief Executive Officer of Newman's Own
Organics since it was co-founded in 1993 by Mr. Meehan, Paul Newman and Nell
Newman.
Roy
Bingham
served
as a Director of Organic Holding Company, Inc. since its inception in February
2004. In 2006, Mr. Bingham co-founded NourishLife, LLC, an online marketer
of
branded nutritional solutions. Until recently, Mr. Bingham served as a Managing
Director of Health Business Partners, LLC, an investment banking company
he
co-founded. From 1995 to 1997, Mr. Bingham served as a consultant with McKinsey
& Company in Boston, where he provided management-consulting services to
several Fortune 500 companies. From 1988 to 1993, Mr. Bingham worked in London,
England as the corporate treasurer and eventually a Board member of Paragon,
PLC. Mr. Bingham earned a Masters Degree in Business Administration with
distinction from Harvard Business School in 1995.
Douglas Lioon
served
as a Director of Organic Holding Company, Inc. since its inception in February
2004. Mr. Lioon joined HVL Incorporated, a healthcare and nutritional products
company whose principal brand is Douglas Laboratories, in 1978 as a Sales
Representative and served as its President from 1985 to December 2005, when
HVL
Incorporated was sold to Atrium Biotechnologies Inc. for $92 million. Mr. Lioon
created and developed the Douglas Laboratories brand, a leading dietary
supplement company, and engineered its vertical integration strategy growing
Douglas Laboratories into one of the leaders in the practitioner segment of
the
dietary supplement industry.
S.M.
“Hass” Hassan
served
as a Director of Organic Holding Company, Inc. since December 2006. Since June
2006, Mr. Hassan has served as a member of the Board of Directors of Whole
Foods
Markets, a leading natural food supermarket chain. In 1979, Mr. Hass founded
Alfalfa’s Markets, a whole food supermarket chain, and served as its President
and Chief Executive Officer until 1996. From 1996 to 1998, Mr. Hassan served
as
the President of Wild Oats Markets, a whole food supermarket chain. In 1999,
Mr.
Hassan founded Fresh & Wild, the United Kingdom’s leading retailer of
organic foods, and served as its Executive Chairman until its sale to Whole
Foods Markets in 2004. During his career, Mr. Hassan has received many industry
recognitions, including the Chain Store Retail Executive of the Year, Boulder
Entrepreneur of the Year and EY National Entrepreneur of the Year. Since 2004,
Mr. Hassan has been working as an active board member and investor in several
companies in the natural products industry.
The
following table sets forth certain information regarding our common stock
beneficially owned on August 28, 2007, for (i) each executive officer and
director, (ii) all executive officers and directors as a group and (iii)
each
stockholder known to be the beneficial owner of more than 5% of our outstanding
common stock.
Name
of Beneficial Owner (1)
|
|
Amount
and
Nature
of
Beneficial
Ownership
of
Common
Stock
(2)
|
|
Percent
of Class
of
Common
Stock
|
|
Officers
and Directors:
|
|
|
|
|
|
Jason
Brown, Chief Executive Officer and Chairman (3)
|
|
|
2,231,664
|
|
|
9.2
|
%
|
Michael
Johnson, VP of Retail Operations (4)
|
|
|
29,657
|
|
|
*
|
|
Wendy
Tenenberg, VP of Marketing (5)
|
|
|
237,969
|
|
|
1.2
|
%
|
Paul
Campbell, Chief Financial Officer
|
|
|
0
|
|
|
*
|
|
Andrew
Jacobs (6)
|
|
|
25,000
|
|
|
*
|
|
Dave
Smith, Director (7)
|
|
|
100,701
|
|
|
*
|
|
Peter
Meehan, Director (8)
|
|
|
78,503
|
|
|
*
|
|
Roy
Bingham, Director (9)
|
|
|
204,253
|
|
|
*
|
|
Douglas
Lioon, Director (10)
|
|
|
549,090
|
|
|
2.3
|
%
|
S.M.
“Hass” Hassan, Director (11)
|
|
|
114,089
|
|
|
*
|
|
All
directors and executive officers as a group (10 persons)
(12)
|
|
|
3,570,926
|
|
|
14.6
|
%
|
More
than 5% Beneficial Owners:
|
|
|
|
|
|
|
|
Vicis
Capital Master Fund, LLC (13)
|
|
|
1,320,000
|
|
|
5.5
|
%
|
Trinad
Capital Master Fund, Ltd. (14)
|
|
|
1,331,775
|
|
|
5.4
|
%
|
Trellus
Offshore Fund Ltd (15)
|
|
|
2,800,000
|
|
|
11.2
|
%
|
Trellus
Partners LP (15)
|
|
|
2,800,000
|
|
|
11.2
|
%
|
Trellus
Small Cap Opportunity Fund LP (15)
|
|
|
2,800,000
|
|
|
11.2
|
%
|
Trellus
Small Cap Opportunity Offshore Fund Ltd (15)
|
|
|
2,800,000
|
|
|
11.2
|
%
|
Trellus
Partners II LP (15)
|
|
|
2,800,000
|
|
|
11.2
|
%
|
(1)
|
Unless
otherwise indicated, the address of the beneficial owner is c/o Organic
To
Go Food Corporation, 3317 Third Avenue South, Seattle, Washington
98134.
|
(2)
|
Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting
or
investment power with respect to securities. Shares of common stock
which
are purchasable under options or warrants which are currently exercisable,
or which will become exercisable no later than 60 days after August
28,
2007, are deemed outstanding for computing the percentage of the
person
holding such options or warrants, but not deemed outstanding for
computing
the percentage of any other person. Except as indicated by footnote
and
subject to community property laws where applicable, the persons
named in
the table have sole voting and investment power with respect to
all shares
of common stock shown as beneficially owned by them.
|
|
|
(3)
|
Mr.
Brown’s holdings consist of 2,183,161 shares of common stock, options
to
purchase 36,635 shares of common stock and warrants to purchase
11,868
shares of common stock.
|
|
|
|
Mr.
Johnson’s holdings consist of options to purchase 29,657 shares of common
stock.
|
|
|
(5)
|
Ms.
Tenenberg’s holdings consist of 227,939 shares of common stock and options
to purchase 10,030 shares of common stock.
|
|
|
(6)
|
Mr.
Jacobs’ holdings consist of options to purchase 25,000 shares of common
stock.
|
|
|
(7)
|
Mr.
Smith’s holdings consist of 58,255 shares of common stock, options to
purchase 42,297 shares of common stock and warrants to purchase
149 shares
of common stock.
|
|
|
(8)
|
Mr.
Meehan’s holdings consist of 41,868 shares of common stock and options
to
purchase 36,635 shares of common stock.
|
|
|
(9)
|
Mr.
Bingham’s holdings consist of 167,380 shares of common stock, options to
purchase 36,635 shares of common stock and warrants to purchase
238 shares
of common stock.
|
|
|
(10)
|
Mr.
Lioon’s holdings consist of 500,587 shares of common stock, options to
purchase 36,635 shares of common stock and warrants to purchase
11,868
shares of common stock.
|
|
|
(11)
|
Mr.
Hassan’s holdings consist of 66,000 shares of common stock, options to
purchase 19,189 shares of common stock and warrants to purchase
28,900
shares of common stock.
|
|
|
(12)
|
Consists of
3,245,190 shares of common stock, options to purchase 247,713 shares
of
common stock and warrants to purchase 53,023 shares of common
stock.
|
(13)
|
The
address of the beneficial owner is 126 East 56 th
Street, Tower 56, Suite 700, New York, New York 10022. The company
is
reporting this stock ownership based upon a Schedule 13G filed with
the
Securities and Exchange Commission.
|
|
|
(14)
|
The
address of the beneficial owner is 2121 Avenue of the Stars, Suite
2550, Los Angeles, CA 90067. The company is reporting this stock
ownership
based upon a Schedule 13G filed with the Securities and Exchange
Commission.
|
|
|
(15)
|
Consists
of 869,500 shares of common stock and warrants to purchase 347,800
shares
of common stock held by Trellus Offshore Fund Ltd; 605,600 shares
of
common stock and warrants to purchase 242,240 shares of common stock
held
by Trellus Partners LP; 311,600 shares of common stock and warrants
to
purchase 124,640 shares of common stock held by Trellus Small Cap
Opportunity Fund LP; 188,400 shares of common stock and warrants
to
purchase 75,360 shares of common stock held by Trellus Small Cap
Opportunity Offshore Fund Ltd; and 24,900 shares of common stock
and
warrants to purchase 9,960 shares of common stock held by Trellus
Partners
II LP. By reason of the relationship between Trellus Offshore Fund
Ltd,
Trellus Partners LP, Trellus Small Cap Opportunity Fund LP, Trellus
Small
Cap Opportunity Offshore Fund Ltd and Trellus Partners II LP, these
entities may be deemed to share voting and investment control over
the
shares. The address of each beneficial owner is 350 Madison Avenue,
9
Floor, New York, New York 10017.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Mark
Schaftlein was our sole officer and director during the fiscal year ended
December 31, 2006. From time to time, we utilized the services of a consulting
firm where Mr. Schaftlein is a managing partner. The fees paid to the firm
were $50,727 and $15,000 in years 2005 and 2004, respectively. We did not pay
fees to Mr. Schaftlein’s consulting firm for the year ended December 31, 2006.
Mr. Schaftlein resigned from all of his positions with us on February 12, 2007
upon consummation of our merger with Organic Holding Company, Inc.
For
purposes of the discussion contained in this section entitled “Executive
Compensation,” information regarding our executive compensation is presented in
each instance, first with respect to Organic To Go Food Corporation, formerly
known as SP Holding Corporation, prior to the merger, and second, with respect
to our operating subsidiary, Organic Holding Company, Inc., prior to the
merger.
Summary
Compensation
Organic
To Go Food Corporation (f/k/a SP Holding Corporation)
Mark
Schaftlein served as our sole officer and director prior to the merger. Mr.
Schaftlein did not receive direct cash or non-cash compensation during the
fiscal year ended December 31, 2006. From time to time, we utilized the
services of a consulting firm where Mr. Schaftlein is a managing partner
and the fees paid to the firm were $50,727 and $15,000 in years 2005 and 2004,
respectively. We did not pay fees to Mr. Schaftlein’s consulting firm for the
year ended December 31, 2006. No other executive officer received total
compensation in excess of $100,000 during the fiscal year ended December 31,
2006.
Organic
Holding Company, Inc.
The
following Summary Compensation Table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 2006 by Jason
Brown, Organic Holding Company, Inc.’s Chief Executive Officer, for the year
ended December 31, 2006. Organic Holding Company, Inc. did not have any
executive officers, other than Mr. Brown, whose total compensation exceeded
$100,000 for the year ended December 31, 2006. Certain aspects of Mr.
Brown’s compensation are governed by an employment agreement, the materials
terms of which are presented below under the heading “Employment
Agreements.”
SUMMARY
COMPENSATION TABLE (1)
|
|
|
|
Name
and principal
position
(a)
|
|
Year
(b)
|
|
Salary
($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards ($)
(e)
|
|
Option
Awards ($)
(f)
(2)
|
|
All
Other
Compensation
($)
(i)
|
|
Total
($)
(j)
|
|
Jason
Brown, Chairman and Chief Executive Officer
|
|
|
2006
|
|
$
|
156,924
|
|
|
—
|
|
|
—
|
|
$
|
3,600
|
|
|
|
|
$
|
5,000
|
(3)
|
$
|
165,524
|
|
(1)
Mr. Brown did not receive any Non-Equity Incentive
Plan Compensation or Nonqualified Deferred Compensation Earnings during the
year
ended December 31, 2006. Accordingly, columns (g) and (h) of the foregoing
table
relating to such items were omitted from the tabular presentation.
(2)
The amount in the “Option Awards” column is calculated
using the provisions of SFAS 123R for the fiscal year ended December 31, 2006.
For a description of SFAS 123R and the assumptions used in determining the
value
of the options, see the notes to the financial statements included with this
prospectus. The Board of Directors of Organic Holding Company, Inc.
approved the issuance of options to purchase 60,000 shares of common stock
to
Mr. Brown in 2006. The options had a term of 10 years, an exercise price of
$0.12 per share and vested monthly over two years from January 1, 2006. Pursuant
to the merger, Mr. Brown’s options to purchase 60,000 shares of Organic Holding
Company, Inc. common stock were converted into options to purchase 41,869 shares
of Organic To Go Food Corporation common stock, with the same term and vesting
as the prior options and with an exercise price of $0.17 per share.
(3)
Mr. Brown received $5,000 in director’s fees in
2006.
Outstanding
Equity Awards
Organic
To Go Food Corporation (f/k/a SP Holding Corporation)
Mr.
Schaftlein, who served as our sole officer and director prior to the merger,
did
not have any option awards, unexercised options, unvested stock awards or equity
incentive plan awards during the fiscal year ended December 31,
2006.
Organic
Holding Company, Inc.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|
OPTION
AWARDS
|
|
Name
(a)
|
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
|
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
|
|
Option
Exercise Price
($)
(e)
|
|
Option
Expiration Date
(f)
|
|
Jason
Brown (1) (2)
|
|
|
27,500
|
|
|
|
|
|
32,500
|
|
|
|
|
|
-0-
|
|
$
|
0.12
|
|
|
2-29-16
|
|
(1)
Mr. Brown did not receive any stock awards during the
year ended December 31, 2006 or have any stock awards at such date. Accordingly,
columns (g), (h), (i) and (j) of the foregoing table relating to such items
were
omitted from the tabular presentation.
(2)
The Board of Directors of Organic Holding Company,
Inc. approved the issuance of options to purchase 60,000 shares of common stock
to Mr. Brown in 2006. The options had a term of 10 years, an exercise price
of
$0.12 per share and vested monthly over two years from January 1, 2006. Pursuant
to the merger, Mr. Brown’s options to purchase 60,000 shares of Organic Holding
Company, Inc. common stock were converted into options to purchase 41,869 shares
of Organic To Go Food Corporation, with the same term and vesting as the prior
options and with an exercise price of $0.17 per share.
Director
Compensation
Organic
To Go Food Corporation (f/k/a SP Holding Corporation)
Prior
to
the merger, we only had one director, Mr. Schaftlein. Mr. Schaftlein did
not receive any direct compensation for his services as a director. From time
to
time, we utilized the services of a consulting firm where Mr. Schaftlein is
a managing partner. The fees paid to the firm were $50,727 and $15,000 in years
2005 and 2004, respectively.
In
connection with the merger, which occurred on February 12, 2007,
Mr. Schaftlein resigned as a director and concurrently, we appointed six
new directors to our Board of Directors: Messrs. Brown, Smith, Meehan, Bingham,
Lioon and Hassan, who were formally the directors of Organic Holding Company,
Inc.
Organic
Holding Company, Inc.
The
following Director Compensation Table indicates the compensation earned during
the fiscal year ended December 31, 2006 by the directors of Organic Holding
Company, Inc. Each director of Organic Holding Company, Inc. was paid an annual
director’s fee of $5,000 and was awarded a one-time grant of options to purchase
60,000 shares of common stock. Pursuant to the merger, the directors’ options to
purchase shares of Organic Holding Company, Inc. common stock were converted
into options to purchase shares of Organic To Go Food Corporation common
stock.
|
|
Name
(a)
(1) (2)
|
|
Fees
Earned or Paid in Cash
($)
(b)
|
|
Option
Awards ($)
(d)
(3)
|
|
All
Other
Compensation ($)
(g)
|
|
Total
($)
(j)
|
|
Dave
Smith
|
|
$
|
5,000
|
|
$
|
3,600
|
|
|
-
|
|
$
|
8,600
|
|
Peter
Meehan
|
|
$
|
5,000
|
|
$
|
3,600
|
|
|
-
|
|
$
|
8,600
|
|
Roy
Bingham
|
|
$
|
5,000
|
|
$
|
3,600
|
|
|
-
|
|
$
|
8,600
|
|
Douglas
Lioon
|
|
$
|
5,000
|
|
$
|
3,600
|
|
|
-
|
|
$
|
8,600
|
|
S.M.
“Hass” Hassan
|
|
$
|
5,000
|
|
$
|
46,200
|
|
|
-
|
|
$
|
51,200
|
|
(1)
Mr. Brown also serves as a director. He does not
receive any additional compensation beyond that disclosed in the “Summary
Compensation Table” set forth above for his services as a director.
(2)
None of the directors received any Non-Equity
Incentive Plan Compensation or Non-Qualified Deferred Compensation Earnings
during the year ended December 31, 2006. Accordingly, columns (e) and (f) of
the
foregoing table relating to such items were deleted from the tabular
presentation.
(3)
The amount in the “Option Awards” column is calculated
using the provisions of SFAS 123R for the fiscal year ended December 31, 2006.
For a description of SFAS 123R and the assumptions used in determining the
value
of the options, see the notes to the financial statements included with this
prospectus. As of December 31, 2006, each of the directors, other than Mr.
Smith, held options to purchase 60,000 shares of Organic Holding Company, Inc.
common stock, which were converted into options to purchase 41,869 shares of
Organic To Go Food Corporation common stock pursuant to the merger. As of
December 31, 2006, Mr. Smith held options to purchase 80,500 shares
of Organic Holding Company, Inc. common stock, which were converted into
options to purchase 56,174 shares of Organic To Go Food Corporation common
stock
pursuant to the merger.
Employment
Agreements
All
of
our employees, other than Mr. Brown, Mr. Campbell and Mr. Jacobs, are “at-will”
employees.
We
entered into an employment agreement with Mr. Brown, effective January 1, 2007,
which has a three-year term. The summary of Mr. Brown’s employment
agreement presented below is qualified in its entirety by reference to full
text
of the employment agreement, which was filed with our Current Report on Form
8-K
filed with the Securities and Exchange Commission on February 13,
2007.
Pursuant
to the employment agreement, we are obligated to pay Mr. Brown a base salary
at
an annual rate of $225,000, subject to annual increases by the Board of
Directors. Mr. Brown is eligible for a cash incentive bonus of up to 35% of
his
base salary per year. The total amount of Mr. Brown’s cash incentive bonus is
determined by the following:
|
·
|
25%
is based on Mr. Brown achieving certain performance goals mutually
agreed
upon by him and the Board of Directors each year;
|
|
|
|
|
·
|
25%
is determined at the discretion of the Board of Directors;
and
|
|
|
|
|
·
|
50%
is based on achievement of performance goals set by our
company.
|
The
performance goals are designed to focus our executives on annual operating
achievement and to correlate closely with the growth of long-term stockholder
value. Bonus awards are granted based upon an evaluation of our progress
in
achieving our goals and each such officers’ contribution to such progress.
Because we were recently established and have a limited operating history,
our
current performance goals are focused on the expansion of operations, increasing
revenue and achieving profitability. Specifically, we will look at the following
factors in determining whether we will distribute a cash incentive bonuses
to
Mr. Brown:
|
·
|
implementation
of operational improvements designed to increase profitability
and
revenue; and
|
|
|
|
|
·
|
development
of procedures designed to ensure that controls are in place to
promote
expansion.
|
The
Board
of Directors may pay additional bonuses in its discretion. We will also provide
Mr. Brown and his family with certain health benefits and Mr. Brown is entitled
to receive reimbursements for all reasonable business, travel and entertainment
expenses that he incurs or he pays for on our behalf.
Effective
upon the closing of our merger with Organic Holding Company, Inc., we issued
to
Mr. Brown options to purchase 1,246,674 shares of common stock, which was equal
to 5% of the outstanding shares of common stock as of the closing of the merger
determined on a fully-diluted basis. Except in connection with a “Change in
Control” (as defined in the employment agreement), 25% of such options vest
after 12 months of employment, with the remainder vesting monthly over the
next
three years, for a total vesting period of 48 months. All of Mr. Brown’s options
vest immediately if, within 12 months after a “Change in Control,” Mr. Brown is
terminated for any reason other than for “Cause” or if Mr. Brown terminates his
employment for “Good Reason” (each as defined in the employment agreement).
Additionally, in the event that Mr. Brown is terminated due to permanent
disability, for any other reason other than for “Cause,” or if Mr. Brown
terminates his employment for “Good Reason,” we will be obligated to pay Mr.
Brown a lump sum equal to one year’s salary (at his then current base salary)
and continue to provide him with his medical and other similar benefits for
12
months after the date of his termination.
|
·
|
becomes
physically or mentally disabled, whether totally or partially, so
that he
is substantially unable to perform his duties for more than 120 days
(whether or not consecutive) in the aggregate in any 365 day
period;
|
|
·
|
is
convicted of or pleads guilty or no contest to a felony;
or
|
|
·
|
fails
to perform his assigned duties, comply with our written policies
or rules,
or comply with any written agreement between us and Mr. Brown, which
failure continues for more than 30 days after receiving written
notification of such failure from the Board of
Directors.
|
Mr.
Brown’s employment agreement contains restrictive covenants preventing him
from:
|
·
|
competing
with us during his employment;
|
|
·
|
competing
with us for a period of 12 months after termination of his employment;
and
|
|
·
|
using
our confidential business information at any time, except in connection
with the performance of his duties for
us.
|
On
May 7,
2007, we entered into an employment agreement with Mr. Campbell, our Chief
Financial Officer. The summary of Mr. Campbell’s employment agreement presented
below is qualified in its entirety by reference to the full text of the
employment agreement, which was filed with our Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 11, 2007.
Unless
the employment agreement is terminated earlier in accordance with its terms,
we
will employ Mr. Campbell until May 3, 2009. After May 3, 2009, the employment
agreement will automatically renew for successive 1 year terms unless either
party gives the other written notice of its election not to renew the
agreement.
Pursuant
to the employment agreement, we are obligated to pay Mr. Campbell a base salary
of $200,000 per year, subject to annual increases at the discretion of our
Chief
Executive Officer, Mr Brown. In addition, Mr. Campbell is eligible to receive
a
cash incentive bonus of up to $50,000 per year. The total amount of Mr.
Campbell’s cash incentive bonus is determined in accordance with the following
formula:
|
·
|
25%
is based on Mr. Campbell achieving certain performance goals
mutually
agreed upon by him and our Chief Executive Officer, Mr. Brown,
each
year;
|
|
|
|
|
·
|
25%
is determined at the sole discretion of our Chief Executive Officer,
Mr.
Brown; and
|
|
|
|
|
·
|
50%
is based on achievement of performance goals set by us, which will
be
mutually agreed upon by Mr. Campbell and our Chief Executive Officer,
Mr.
Brown, at the beginning of each
year.
|
The
performance goals are designed to focus our executives on annual operating
achievement and to correlate closely with the growth of long-term stockholder
value. Bonus awards are granted based upon an evaluation of our progress
in
achieving our goals and each such officers’ contribution to such progress.
Because we were recently established and have a limited operating history,
our
current performance goals are focused on the expansion of operations, increasing
revenue and achieving profitability. Specifically, we will look at the following
factors in determining whether we will distribute a cash incentive bonuses
to
Mr. Campbell:
|
·
|
implementation
of operational improvements designed to increase profitability
and
revenue; and
|
|
|
|
|
·
|
development
of procedures designed to ensure that controls are in place to
promote
expansion.
|
We
will
also provide Mr. Campbell and his family with certain health benefits and Mr.
Campbell is entitled to receive reimbursements for all reasonable business,
travel and entertainment expenses that he incurs or he pays for on our
behalf.
On
May 7,
2007, Mr. Campbell received options to purchase 304,690 shares of our common
stock. 25% of such options vest after 12 months of employment, with the
remainder vesting monthly over the next three years, for a total vesting period
of 48 months. All of Mr. Campbell’s options vest immediately if, within 12
months after a change in control, Mr. Campbell is terminated without “Cause” (as
defined in the employment agreement). Additionally, in the event that Mr.
Campbell is terminated due to “Permanent Disability” (as defined in the
agreement), or for any other reason other than for “Cause,” Mr. Campbell will be
entitled to receive his base salary in accordance with our standard payroll
procedures for six months following the date of termination.
Mr.
Campbell’s employment agreement contains restrictive covenants preventing him
from:
|
·
|
competing
with us during his employment and for a period 12 months after
termination
of his employment;
|
|
|
|
|
·
|
soliciting
any person employed by us, any of our sales representatives or
consultants, or any of our clients, customers or suppliers during
his
employment and for a period of 9 to 12 months after termination
of his
employment; and
|
|
|
|
|
·
|
using
our confidential business information at any time, except in
connection
with the performance of his
duties.
|
On
April
27, 2007, we entered into an employment agreement with Mr. Jacobs, our Senior
Vice President of Operations. The summary of Mr. Jacobs’ employment agreement
presented below is qualified in its entirety by reference to the full text
of
the employment agreement, which is filed with the Securities and Exchange
Commission as an exhibit to this registration statement.
Unless
the employment agreement is terminated earlier in accordance with its terms,
we
will employ Mr. Jacob until April 26, 2009. After April 26, 2009, the employment
agreement will automatically renew for successive 1 year terms unless either
party gives the other written notice of its election not to renew the
agreement.
Pursuant
to the employment agreement, we are obligated to pay Mr. Jacob a base salary
of
$200,000 per year, subject to annual increases at the discretion of our Chief
Executive Officer, Mr. Brown. In addition, Mr. Jacob is eligible to receive
a
cash incentive bonus of up to $50,000 per year. The total amount of Mr. Jacobs’
cash incentive bonus is determined in accordance with the following
formula:
·
|
25%
is based on Mr. Jacobs achieving certain performance goals mutually
agreed
upon by him and our Chief Executive Officer, Mr. Brown, each
year;
|
·
|
25%
is determined at the sole discretion of our Chief Executive Officer,
Mr.
Brown; and
|
·
|
50%
is based on achievement of performance goals set by us, which will
be
mutually agreed upon by Mr. Jacobs and our Chief Executive Officer,
Mr.
Brown, at the beginning of each
year.
|
The
performance goals are designed to focus our executives on annual operating
achievement and to correlate closely with the growth of long-term stockholder
value. Bonus awards are granted based upon an evaluation of our progress
in
achieving our goals and each such officers’ contribution to such progress.
Because we were recently established and have a limited operating history,
our
current performance goals are focused on the expansion of operations, increasing
revenue and achieving profitability. Specifically, we will look at the following
factors in determining whether we will distribute a cash incentive bonuses
to
Mr. Jacobs:
|
·
|
implementation
of operational improvements designed to increase profitability
and
revenue; and
|
|
|
|
|
·
|
development
of procedures designed to ensure that controls are in place to
promote
expansion.
|
We
will
also provide Mr. Jacobs and his family with certain health benefits and Mr.
Jacobs is entitled to receive reimbursements for all reasonable business, travel
and entertainment expenses that he incurs or he pays for on our
behalf.
In
connection with Mr. Jacobs’ employment, he received options to purchase 461,601
shares of our common stock. The options were granted in accordance with the
terms and conditions of our 2007 Equity Participation Plan. 25,000 options
fully
vested on the date of grant. 25% of the balance of such options will vest after
12 months of employment, with the remainder vesting in equal monthly
installments over the next three years, for a total vesting period of 48 months.
All of Mr. Jacobs’ options vest immediately if, within 12 months after a change
in control, Mr. Jacob is terminated without “Cause” (as defined in the
employment agreement). Additionally, in the event that Mr. Jacob is terminated
due to “Permanent Disability” (as defined in the agreement), or for any other
reason other than for “Cause,” Mr. Campbell will be entitled to receive his base
salary in accordance with our standard payroll procedures for nine months
following the date of termination.
Mr.
Jacobs’ employment agreement contains restrictive covenants preventing him
from:
·
|
competing
with us during his employment and for a period 12 months after termination
of his employment, subject to certain
exceptions;
|
·
|
soliciting
any person employed by us, any of our sales representatives or
consultants, or any of our clients, customers or suppliers during
his
employment and for a period of 9 to 12 months after termination of
his
employment; and
|
·
|
using
our confidential business information at any time, except in connection
with the performance of his duties.
|
SELLING
STOCKHOLDERS
This
prospectus covers the resale by selling stockholders of up to 5,049,527 shares
of common stock, comprised of:
|
·
|
3,350,000
shares of common stock and 1,340,000 shares of common stock underlying
warrants, which were issued to investors in connection with the private
placement;
|
|
·
|
21,000
shares of common stock underlying warrants, which were issued as
compensation for services to the placement agent in connection with
the
private placement; and
|
|
·
|
338,527
shares of common stock underlying a convertible promissory note,
which was
issued in connection with our December 2006 bridge
financing.
|
The
following table sets forth as of August 28, 2007, (1) the name of each selling
stockholder, (2) the number of shares of our common stock beneficially owned
by
each selling stockholder, (3) the maximum number of shares of common stock
that
the selling stockholders can sell pursuant to this prospectus assuming exercise
of all warrants held, (4) the number of shares of our common stock that will
be
beneficially owned by each selling stockholder assuming all of the shares
they
are offering pursuant to this prospectus are sold, and (5) the percentage
ownership of our outstanding common stock that each selling stockholder will
hold after the offering.
Although
we have assumed for purposes of the table that the selling stockholders will
sell all of the shares offered by this prospectus, we are unaware of any present
intent to sell such shares and no assurance can be given as to the actual number
of shares that will be sold, if at all. In addition, a selling stockholder
may
have sold or otherwise disposed of shares in transactions exempt from
registration or otherwise since the date he or she provided information to
us.
Except as set forth below, no selling stockholder has held any position, office
or material relationship with us or our predecessor or affiliates during the
past three years.
Name
of Selling Stockholder
|
|
Number
of
Shares
of
Common
Stock Beneficially
Owned
Prior to
Offering
(1)
|
|
Maximum
Number
of
Shares
of
Common
Stock
to
be Offered
|
|
Number
of
Shares
of
Common
Stock Beneficially
Owned
After Offering (1)
|
|
Percentage
Ownership After Offering (%) (2)
|
|
Clyde
Berg (3)
|
|
|
865,059
|
|
|
175,000
|
|
|
690,059
|
|
|
2.8
|
|
Heller
Capital Investments (4)
|
|
|
582,671
|
|
|
350,000
|
|
|
232,671
|
|
|
*
|
|
Irvine
Capital Partners III, L.P. (5)
|
|
|
175,000
|
|
|
175,000
|
|
|
0
|
|
|
0
|
|
Meadowbrook
Opportunity Fund LLC (6)
|
|
|
240,000
|
|
|
140,000
|
|
|
100,000
|
|
|
*
|
|
Nite
Capital Master LTD (7)
|
|
|
140,000
|
|
|
140,000
|
|
|
0
|
|
|
0
|
|
Roth
Capital Partners, LLC (8)
|
|
|
21,133
|
|
|
21,000
|
|
|
133
|
|
|
*
|
|
Sandor
Capital Master Fund, L.P. (9)
|
|
|
245,000
|
|
|
245,000
|
|
|
0
|
|
|
0
|
|
Satellite
Credit Opportunities Fund, Ltd (10)
|
|
|
479,882
|
|
|
338,527
|
|
|
129,094
|
|
|
*
|
|
Spinner
Investments, LLC (11)
|
|
|
140,000
|
|
|
140,000
|
|
|
0
|
|
|
0
|
|
Stiassni
Capital Partners, L.P. (12)
|
|
|
675,000
|
|
|
525,000
|
|
|
150,000
|
|
|
*
|
|
Trellus
Offshore Fund Ltd (13)
|
|
|
1,217,300
|
(14)
|
|
1,217,300
|
|
|
0
|
|
|
0
|
|
Trellus
Partners LP (15)
|
|
|
847,840
|
(16)
|
|
847,840
|
|
|
0
|
|
|
0
|
|
Trellus
Partners II LP (17)
|
|
|
34,860
|
(18)
|
|
34,860
|
|
|
0
|
|
|
0
|
|
Trellus
Small Cap Opportunity Fund LP (19)
|
|
|
436,240
|
(20)
|
|
436,240
|
|
|
0
|
|
|
0
|
|
|
|
|
263,760
|
(22)
|
|
263,760
|
|
|
0
|
|
|
0
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting
or
investment power with respect to securities. Shares of common stock
which
are purchasable under options or warrants which are currently exercisable,
or which will become exercisable no later than 60 days after August
28,
2007, are deemed outstanding for the purposes of computing the
percentage
of the person holding such options or warrants, but not deemed
outstanding
for the purposes of computing the percentage of any other person.
Except
as indicated by footnote and subject to community property laws
where
applicable, the persons named in the table have sole voting and
investment
power with respect to all shares of common stock shown as beneficially
owned by them.
|
|
|
(2)
|
Based
on 24,208,676 shares of common stock outstanding as of July 9, 2007
and
assumes that (i) all of the shares offered hereby are sold; (ii)
all of
the shares owned before the offering, but not offered hereby, are
not
sold; and (iii) none of our outstanding convertible securities, other
than
the warrants relating to the common stock covered by this prospectus,
are
converted into shares of common stock.
|
|
|
(3)
|
The
selling stockholder is offering 125,000 shares of common stock and
50,000
shares of common stock underlying warrants received as an investor
in the private placement. The selling stockholder purchased the
securities in the ordinary course of business and at the time of
the
purchase of the securities being registered for sale pursuant to
the
registration statement, of which this prospectus is a part, the selling
stockholder had no arrangements or understandings, directly or indirectly,
with any person to distribute the
securities.
|
(4)
|
The
selling stockholder is offering 250,000 shares of common stock and
100,000
shares of common stock underlying warrants received as an investor
in the private placement. Ronald I. Heller, the chief investment
officer of Heller Capital Investments, has voting and investment
control
over the shares. The selling stockholder purchased the securities
in the
ordinary course of business and at the time of the purchase of the
securities being registered for sale pursuant to the registration
statement, of which this prospectus is a part, the selling stockholder
had
no arrangements or understandings, directly or indirectly, with any
person
to distribute the securities.
|
|
|
(5)
|
The
selling stockholder is offering 125,000 shares of common stock and
50,000
shares of common stock underlying warrants received as an investor
in the private placement. David M. Bunzel, the general partner of
Irvine Capital Partners III, L.P., has voting and investment control
over
the shares. The selling stockholder purchased the securities in the
ordinary course of business and at the time of the purchase of the
securities being registered for sale pursuant to the registration
statement, of which this prospectus is a part, the selling stockholder
had
no arrangements or understandings, directly or indirectly, with any
person
to distribute the securities.
|
|
|
(6)
|
The
selling stockholder is offering 100,000 shares of common stock and
40,000
shares of common stock underlying warrants received as an investor
in the private placement. Michael Ragins, the manager of Meadowbrook
Opportunity Fund LLC, has voting and investment control over the
shares.
The selling stockholder purchased the securities in the ordinary
course of
business and at the time of the purchase of the securities being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
|
|
(7)
|
The
selling stockholder is offering 100,000 shares of common stock and
40,000
shares of common stock underlying warrants received as an investor
in the private placement. Keith Goodman has voting and investment
control over the shares. The selling stockholder purchased the securities
in the ordinary course of business and at the time of the purchase
of the
securities being registered for sale pursuant to the registration
statement, of which this prospectus is a part, the selling stockholder
had
no arrangements or understandings, directly or indirectly, with any
person
to distribute the securities.
|
|
|
(8)
|
The
selling stockholder is offering 21,000 shares of common stock underlying
warrants received as compensation for services as the placement agent
in
the private placement. Byron Roth, the Chief Executive Officer of
Roth
Capital Partners, LLC and Gordon Roth, the Chief Financial Officer
of Roth
Capital Partners, LLC, share voting and investment control over the
shares. The selling stockholder is a member firm of the NASD. The
selling
stockholder has no arrangement under which the selling stockholder
may
purchase additional securities in connection with the offering. At
the
time of the acquisition of the securities, the selling stockholder
had no
understanding, directly or indirectly, with any person to distribute
securities being offered hereunder.
|
|
|
(9)
|
The
selling stockholder is offering 175,000 shares of common stock and
70,000
shares of common stock underlying warrants received as an investor
in the private placement. John S. Lemak, the manager of Sandor
Capital Master Fund, L.P., has voting and investment control over
the
shares. The selling stockholder purchased the securities in the ordinary
course of business and at the time of the purchase of the securities
being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
|
|
(10)
|
The
selling stockholder is offering 338,527 shares of common stock underlying
a convertible promissory note issued in connection with our December
2006
bridge financing. Satellite Asset Management, L.P. is the discretionary
investment manager of Satellite Credit Opportunities Fund, Ltd. The
controlling entity of Satellite Asset Management, L.P. is Satellite
Fund
Management, LLC. Lief Rosenblutt, Mark Sonnino and Gabe Bechamkin,
the
managing members of Satellite Fund Management, LLC, share voting
and
investment control over the shares. The note was issued to the investor
in
the ordinary course of business and at the time of issuance, the
selling
stockholder had no arrangements or understandings, directly or indirectly,
with any person to distribute the securities underlying the
note.
|
|
|
(11)
|
The
selling stockholder is offering 100,000 shares of common stock and
40,000
shares of common stock underlying warrants received as an investor
in the private placement. Peter Spinner and Allan Spinner share
voting and investment control over the shares. The selling stockholder
purchased the securities in the ordinary course of business and at
the
time of the purchase of the securities being registered for sale
pursuant
to the registration statement, of which this prospectus is a part,
the
selling stockholder had no arrangements or understandings, directly
or
indirectly, with any person to distribute the
securities.
|
|
|
(12)
|
The
selling stockholder is offering 375,000 shares of common stock and
150,000
shares of common stock underlying warrants received as an investor
in the private placement. Nicholas C. Stiassni, the president and
manager of Stiassni Capital, LLC, which is the general partner of
Stiassni
Capital Partners, L.P., has voting and investment control over the
shares.
The selling stockholder purchased the securities in the ordinary
course of
business and at the time of the purchase of the securities being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
|
|
(13)
|
The
selling stockholder is offering 869,500 shares of common stock and
347,800
shares of common stock underlying warrants received as an investor
in the private placement. Adam Usdan, the president of Trellus
Offshore Fund Ltd, has voting and investment control over the shares.
The
selling stockholder purchased the securities in the ordinary course
of
business and at the time of the purchase of the securities being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
(14)
|
Excludes
shares of common stock and shares of common stock underlying warrants
held
by Trellus Partners LP, Trellus Partners II LP, Trellus Small Cap
Opportunity Fund LP and Trellus Small Cap Opportunity Offshore Fund
Ltd.
|
|
|
(15)
|
The
selling stockholder is offering 605,600 shares of common stock and
242,240
shares of common stock underlying warrants received as an investor
in the private placement. Adam Usdan, the president of Trellus
Partners LP, has voting and investment control over the shares. The
selling stockholder purchased the securities in the ordinary course
of
business and at the time of the purchase of the securities being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute the
securities.
|
|
|
(16)
|
Excludes
shares of common stock and shares of common stock underlying warrants
held
by Trellus Offshore Fund Ltd, Trellus Partners II LP, Trellus Small
Cap
Opportunity Fund LP and Trellus Small Cap Opportunity Offshore Fund
Ltd.
|
|
|
(17)
|
The
selling stockholder is offering 24,900 shares of common stock and
9,960
shares of common stock underlying warrants received as an investor
in the private placement. Adam Usdan, the president of Trellus
Partners II LP, has voting and investment control over the shares.
The
selling stockholder purchased the securities in the ordinary course
of
business and at the time of the purchase of the securities being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
|
|
(18)
|
Excludes
shares of common stock and shares of common stock underlying warrants
held
by Trellus Offshore Fund Ltd, Trellus Partners LP, Trellus Small
Cap
Opportunity Fund LP and Trellus Small Cap Opportunity Offshore Fund
Ltd.
|
|
|
(19)
|
The
selling stockholder is offering 311,600 shares of common stock and
124,640
shares of common stock underlying warrants received as an investor
in the private placement. Adam Usdan, the president of Trellus Small
Cap Opportunity Fund LP, has voting and investment control over the
shares. The selling stockholder purchased the securities in the ordinary
course of business and at the time of the purchase of the securities
being
registered for sale pursuant to the registration statement, of which
this
prospectus is a part, the selling stockholder had no arrangements
or
understandings, directly or indirectly, with any person to distribute
the
securities.
|
|
|
(20)
|
Excludes
shares of common stock and shares of common stock underlying warrants
held
by Trellus Offshore Fund Ltd, Trellus Partners LP, Trellus Partners
II LP
and Trellus Small Cap Opportunity Offshore Fund Ltd.
|
|
|
(21)
|
The
selling stockholder is offering 188,400 shares of common stock and
75,360
shares of common stock underlying warrants received as an investor
in the private placement. Adam Usdan, the president of Trellus Small
Cap Opportunity Offshore Fund Ltd, has voting and investment control
over
the shares. The selling stockholder purchased the securities in the
ordinary course of business and at the time of the purchase of the
securities being registered for sale pursuant to the registration
statement, of which this prospectus is a part, the selling stockholder
had
no arrangements or understandings, directly or indirectly, with any
person
to distribute the securities.
|
|
|
(22)
|
Excludes
shares of common stock and shares of common stock underlying warrants
held
by Trellus Offshore Fund Ltd, Trellus Partners LP, Trellus Partners
II LP
and Trellus Small Cap Opportunity Fund
LP.
|
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or quoted or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any
one
or more of the following methods when selling shares:
· |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
· |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
· |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
· |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
· |
privately
negotiated transactions;
|
· |
to
cover short sales made after the date that this registration statement
is
declared effective by the Securities and Exchange
Commission;
|
· |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
· |
a
combination of any such methods of sale;
and
|
· |
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon
our
being notified in writing by a selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of each such selling stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such the shares of common stock were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where applicable,
(v)
that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and (vi)
other facts material to the transaction. In addition, upon our being notified
in
writing by a selling stockholder that a donee or pledgee intends to sell more
than 500 shares of common stock, a supplement to this prospectus will be filed
if then required in accordance with applicable securities law.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of shares
of common stock will be paid by the selling stockholder and/or the purchasers.
Each selling stockholder has represented and warranted to us that it acquired
the securities subject to this registration statement in the ordinary course
of
such selling stockholder’s business and, at the time of its purchase of such
securities such selling stockholder had no agreements or understandings,
directly or indirectly, with any person to distribute any such
securities.
We
have
advised each selling stockholder that it may not use shares registered on this
registration statement to cover short sales of common stock made prior to the
date on which this registration statement shall have been declared effective
by
the Securities and Exchange Commission. If a selling stockholder uses this
prospectus for any sale of the common stock, it will be subject to the
prospectus delivery requirements of the Securities Act. The selling stockholders
will be responsible to comply with the applicable provisions of the Securities
Act and the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder promulgated, including, without limitation, Regulation
M,
as applicable to such selling stockholders in connection with resales of their
respective shares under this registration statement.
We
are
required to pay all fees and expenses incident to the registration of the shares
of common stock covered by this registration statement, but we will not receive
any proceeds from the sale of the common stock. We have agreed to indemnify
the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
DESCRIPTION
OF SECURITIES
Our
Amended and Restated Certificate of Incorporation authorizes us to issue up
to
500,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares
of
preferred stock, $0.001 par value.
The
following description of our securities is only a summary and is subject to
and
qualified by our Amended and Restated Certificate of Incorporation, our Amended
and Restated Bylaws, the Certificate of Designation for our Series A Convertible
Preferred Stock and by the provisions of applicable corporate laws of the State
of Delaware.
Common
Stock
As
of
August 28, 2007, we had 24,208,676 shares of common stock outstanding.
Holders of our common stock are entitled to one vote for each share held
of
record on all matters submitted to a vote of the stockholders. Subject to
any
preferential rights of holders of our preferred stock, holders of common
stock
are entitled to receive a pro rata share of distributions declared by our
Board
of Directors. Our common stock does not provide for preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking
fund provisions with respect to our common stock. All outstanding shares
of our
common stock are fully paid and non-assessable. To the extent that we issue
additional shares of our common stock in the future, the relative interests
of
the then existing stockholders may be diluted.
Preferred
Stock
As
of
August 28, 2007, we had no shares of preferred stock outstanding. We may
issue
preferred stock in one or more class or series pursuant to resolution of
the
Board of Directors. The Board of Directors may determine and alter the rights,
preferences, privileges, and restrictions granted to or imposed upon any wholly
unissued series of preferred stock, and fix the number of shares and the
designation of any series of preferred stock. The Board of Directors may
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any wholly unissued class or series
subsequent to the issue of shares of that class or series. We have no present
plans to issue any shares of preferred stock.
Warrants
As
of
August 28, 2007, we had warrants to purchase an aggregate of 5,819,045
shares of our common stock outstanding. The exercise prices for the warrants
range from $1.17 per share to $2.50 per share, with a weighted average exercise
price of approximately per share of $1.92.
Options
As
of
August 28, 2007, we had options to purchase an aggregate of 2,839,554
shares of our common stock outstanding, with exercise prices ranging from
$0.17
per share to $3.60 per share, with a weighted average exercise price per
share
of approximately $1.54.
Registration
Rights
If
we
fail to file the registration statement with the Securities and Exchange
Commission within 30 days following the closing of the private placement, or
fail to cause the registration statement to be declared by the Securities and
Exchange Commission pursuant to the terms of the registration rights agreement,
then we will be required to pay liquidated damages to each investor equal to
1%
of the aggregate investment amount paid by each such investor on the date of
such failure and on each monthly anniversary of the date of such failure until
such failure is cured, with the maximum liquidated damages payable by us capped
at 10% of the aggregate investment amount paid by each such investor. We will
not be liable for damages under the registration rights agreement with respect
to any shares of common stock underlying warrants granted in the private
placement.
Anti-Takeover
Provisions
Our
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
contain provisions that may make it more difficult for a third party to acquire
or may discourage acquisition bids for us. Our Board of Directors may, without
action of our stockholders, issue authorized but unissued common stock and
preferred stock. The existence of undesignated preferred stock and authorized,
but unissued common stock, enables us to discourage or to make it more difficult
to obtain control of our company through a merger, tender offer, proxy contest
or otherwise.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is traded on the OTC Bulletin Board under the symbol
“OTGO.OB.”
The
following table sets forth, for the periods indicated, the reported high and
low
closing bid quotations for our common stock as reported on the OTC Bulletin
Board. The bid prices reflect inter-dealer quotations, do not include retail
markups, markdowns or commissions and do not necessarily reflect actual
transactions.
Quarter
Ended
|
|
|
High
Bid ($)
|
|
|
Low
Bid ($)
|
|
June
30, 2005
|
|
|
6.90
|
|
|
3.30
|
|
September
30, 2005
|
|
|
6.00
|
|
|
3.00
|
|
December
31, 2005
|
|
|
7.50
|
|
|
2.00
|
|
March
31, 2006
|
|
|
6.00
|
|
|
3.50
|
|
June
30, 2006
|
|
|
5.03
|
|
|
3.00
|
|
September
30, 2006
|
|
|
3.25
|
|
|
3.25
|
|
December
31, 2006
|
|
|
3.25
|
|
|
2.00
|
|
March
31, 2007
|
|
|
7.25
|
|
|
2.75
|
|
June
30, 2007
|
|
|
6.00
|
|
|
1.80
|
|
Holders
As
of
August 28, 2007, there were approximately 210 holders of record our common
stock.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is American Stock Trust &
Transfer Company.
Dividend
Policy
We
did
not pay any dividends in the periods indicated in the above table. We do not
intend to pay cash dividends in the foreseeable future. We intend to retain
earnings, if any, for future operation and expansion. Any decision to declare
and pay dividends in the future will be made at the discretion of our Board
of
Directors and will depend on, among other things, our results of operations,
cash requirements, financial condition, contractual restrictions and other
factors that our Board of Directors may deem relevant.
Equity
Compensation Plan
We
did
not, nor did Organic Holding Company, Inc., have any equity compensation plans
in place as of December 31, 2006. As of the end of our fiscal year, we had
options to purchase 252 shares of common stock outstanding. None of the 252
options remain outstanding.
In
connection with our merger with Organic Holding Company, Inc. on February 12,
2007, we issued options to purchase shares of our common stock in exchange
for
outstanding options to purchase shares of Organic Holding Company, Inc. common
stock that were issued to directors, officers, employees and consultants of
Organic Holding Company, Inc. prior to the merger. The following table
summarizes the number and average weighted exercise price of Organic Holding
Company, Inc. options that were outstanding as of December 31, 2006 on a
pre-merger basis, and the equivalent information with respect to options to
purchase our common stock that were exchanged for such Organic Holding Company,
Inc. options on a post-merger basis.
|
|
Post
Merger
|
|
Number
of Shares of Organic
Holding
Company, Inc. Common
Stock
Underlying Options
|
|
Weighted
Average
Exercise
Price
of
Options
|
|
Number
of Shares
of
our Common Stock
Underlying
Options (1)
|
|
Weighted
Average
Exercise
Price
of
Options (1)
|
|
939,432
|
|
$
|
0.38
|
|
|
655,545
|
|
$
|
0.54
|
|
(1)
This amount excludes options to purchase 252 shares of our
common stock that were issued to our former directors prior to the merger at
a
weighted average exercise price of $77.00 per share.
The
options issued in connection with the merger generally expire 10 years from
the
date of grant and have vesting schedules ranging from immediately exercisable,
to fully exercisable by July 2011.
Effective
upon the closing of the merger, Mr. Brown received options to purchase 1,246,674
shares of our common stock, which represented an amount equal to approximately
5% of the outstanding shares of our common stock as of the closing date of
the
merger determined on a fully-diluted basis. The options granted to Mr. Brown
at
closing have an exercise price of $1.38 per share and expire on February 11,
2016. Except in connection with a “Change in Control” (as defined in Mr. Brown’s
employment agreement), 25% of such options vest after 12 months of employment,
with the remainder vesting over the next 36 months, for a total vesting period
of 48 months. All of the options vest immediately if, within 12 months
after a “Change in Control,” Mr. Brown is terminated for any reason other than
“Cause” or if Mr. Brown terminates his employment for “Good Reason” (each as
defined in Mr. Brown’s employment agreement).
On
May
16, 2007, our stockholders approved the adoption of the 2007 Equity
Participation Plan of Organic To Go Food Corporation. Under the plan, we
are
authorized to grant options and restricted stock to our employees, directors
and
consultants. The maximum number of shares of common stock that may be granted
as
restricted stock or issued upon the exercise of options pursuant to the plan
is
3,600,000 shares. As of August 28, 2007, no shares of restricted stock have
been
issued under the plan. As of that same date, options to purchase 951,291
shares
of common stock have been issued under the plan. None of the options issued
under the plan have been exercised.
DISCLOSURE
OF COMMISSION POSITION
ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant
to our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, we may indemnify an officer or director who is made a party
to
any proceeding, because of his position as such, to the fullest extent
authorized by Delaware General Corporation Law, as the same exists or may
hereafter be amended.
To
the
extent that indemnification for liabilities arising under the Securities Act
may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of
the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. If
a
claim for indemnification against such liabilities (other than the payment
by us
of expenses incurred or paid by a director, officer or controlling person of
our
company in the successful defense of any action, suit or proceeding) is asserted
by any of our directors, officers or controlling persons in connection with
the
securities being registered, we will, unless in the opinion of our counsel
the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
On
February 27, 2007, the Board of Directors approved the dismissal of De Leon
& Company, P.A. as our independent registered public accounting
firm.
The
reports of De Leon & Company on our financial statements for the fiscal
years ended December 31, 2006 and 2005 did not contain an adverse opinion or
disclaimer of opinion, except that the reports stated that they were prepared
assuming that we would continue as a going concern, as to which our recurring
operating losses raised substantial doubt. The reports were not modified as
to
uncertainty, audit scope, or accounting principles.
During
our fiscal years ended December 31, 2006 and 2005 and the subsequent interim
period preceding the termination, we had no disagreements with De Leon &
Company on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of De Leon & Company, would have caused De Leon &
Company to make reference to the subject matter of the disagreements in
connection with its report on the financial statements for such years or
subsequent interim periods.
Effective
February 27, 2007, we engaged Rose, Snyder & Jacobs as our new independent
accountants. During our two most recent fiscal years and the interim period
preceding our engagement of Rose, Snyder & Jacobs, we did not consult with
Rose, Snyder & Jacobs regarding either: (1) the application of accounting
principles to a specified transaction, either completed or proposed, or the
type
of audit opinion that might be rendered on our financial statements; or (2)
any
matter that was either the subject of a disagreement or an event identified
in
paragraph (a)(1)(iv) of Item 304 of Regulation S-B.
We
provided De Leon & Company with a copy of our Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 29, 2007,
announcing the change in certifying accountants, and requested that De Leon
& Company furnish us with a letter addressed to the Securities and Exchange
Commission stating whether it agreed with the statements made by us regarding
De
Leon & Company in the Form 8-K. A copy of De Leon & Company’s letter to
the Securities and Exchange Commission, dated March 7, 2007, was filed as
Exhibit 16.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 9, 2007.
'
The
validity of the securities offered hereby has been passed upon for us by Loeb
& Loeb LLP.
EXPERTS
Our
audited financial statements for the period ended December 31, 2005 and 2006
have been included in this prospectus in reliance upon the report of Rose,
Snyder & Jacobs, independent auditors, appearing in this registration
statement, and their authority as experts in accounting and
auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
are a
public company and file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may
read
and copy any document we file at the Securities and Exchange Commission’s public
reference room at 100 F Street, N.E., Washington, D.C. 20549. You can request
copies of these documents by writing to the Securities and Exchange Commission
and paying a fee for the copying cost. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for more information about the operation of the
public reference room. Our filings are also available, at no charge, to the
public at http://www.sec.gov
.
Index
to Financial Statements
Audited
Financial Statements as of December 31, 2006
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
Balance
Sheets (December 31, 2006 and 2005)
|
|
|
F-3
|
|
|
|
|
|
|
Statements
of Operations (Years Ended December 31, 2006 and 2005)
|
|
|
F-4
|
|
|
|
|
|
|
Statement
of Stockholders’ Deficit (Years Ended December 31, 2006 and
2005)
|
|
|
F-5
|
|
|
|
|
|
|
Statements
of Cash Flows (Years Ended December 31, 2006 and 2005)
|
|
|
F-6
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
|
F-7
|
|
Unaudited
Interim Financial Statements as of June 30, 2007
Balance
Sheets (June 30, 2007 and December 31, 2006)
|
|
|
F-20
|
|
|
|
|
|
|
Statements
of Operations (Three Months and Six Months Ended June 30, 2007
and
2006)
|
|
|
F-21
|
|
|
|
|
|
|
Statement
of Stockholders’ Deficit (Six Months Ended June 30, 2007)
|
|
|
F-22
|
|
|
|
|
|
|
Statements
of Cash Flows (Six Months Ended June 30, 2007 and 2006)
|
|
|
F-23
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
|
F-25
|
|
Pro
Forma Information
Introduction
|
|
|
PF-1
|
|
|
|
|
|
|
Unaudited
Pro Forma Condensed Consolidated Statements of Operations (Year
Ended
December 31, 2006)
|
|
|
PF-2
|
|
|
|
|
|
|
Unaudited
Pro Forma Condensed Consolidated Statements of Operations (Six
Months
Ended June 30, 2007)
|
|
|
PF-3
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
|
PF-4
|
|
To
the
Board of Directors and Stockholders
Organic
To Go, Inc.
We
have
audited the accompanying balance sheets of Organic To Go, Inc. as of December
31, 2005 and 2006, and the related statements of operations, stockholders’
deficit, and cash flows for the years ended December 31, 2005 and 2006.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Organic To Go, Inc. as of December
31, 2005 and 2006, and the results of their operations and their cash flows
for
the years ended December 31, 2005 and 2006, in conformity with accounting
principles generally accepted in the United States of America.
/s/
Rose,
Snyder & Jacobs
A
Corporation of Certified Public Accountants
Encino,
California
March
8,
2007
Organic
Holding Company, Inc.
d/b/a
Organic To Go and, effective February 27, 2007, Organic To Go,
Inc.
Balance
Sheets
(in
thousands, except share amounts)
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
250
|
|
$
|
865
|
|
Accounts
receivable, net
|
|
|
84
|
|
|
365
|
|
Inventory
|
|
|
278
|
|
|
236
|
|
Prepaid
expenses and other current assets
|
|
|
66
|
|
|
189
|
|
Total
current assets
|
|
|
678
|
|
|
1,655
|
|
Property
and equipment, net
|
|
|
2,629
|
|
|
2,148
|
|
Identifiable
intangible assets, net
|
|
|
66
|
|
|
851
|
|
Deposits
and other assets
|
|
|
120
|
|
|
623
|
|
Total
assets
|
|
$
|
3,493
|
|
$
|
5,277
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,634
|
|
$
|
1,389
|
|
Accrued
liabilities
|
|
|
300
|
|
|
829
|
|
Current
portion of notes payable, net of discount
|
|
|
2,204
|
|
|
6,281
|
|
Current
portion of capital lease obligations
|
|
|
46
|
|
|
50
|
|
Total
current liabilities
|
|
|
4,184
|
|
|
8,549
|
|
Notes
payable, net of current portion
|
|
|
1,207
|
|
|
592
|
|
Capital
lease obligations, net of current portion
|
|
|
188
|
|
|
137
|
|
Total
liabilities
|
|
|
5,579
|
|
|
9,278
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
Series
A preferred stock
|
|
|
3
|
|
|
3
|
|
Series
B preferred stock
|
|
|
1
|
|
|
1
|
|
Series
C preferred stock
|
|
|
-
|
|
|
4
|
|
Common
stock, 15,100,000 shares of $0.001 par value authorized; 2,942,402
and
2,898,904 Exchange Ratio adjusted shares issued and
outstanding
|
|
|
4
|
|
|
4
|
|
Additional
paid-in-capital
|
|
|
4,363
|
|
|
10,410
|
|
Accumulated
deficit
|
|
|
(6,457
|
)
|
|
(14,423
|
)
|
Total
stockholders’ deficit
|
|
|
(2,086
|
)
|
|
(4,001
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
3,493
|
|
$
|
5,277
|
|
The
accompanying notes are an integral part of these financial
statements.
Organic
Holding Company, Inc.
d/b/a
Organic To Go and, effective February 27, 2007, Organic to Go,
Inc.
Statements
of Operations
(in
thousands, except per share amounts)
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
2006
|
|
Sales
|
|
$
|
6,121
|
|
$
|
9,663
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,895
|
|
|
4,876
|
|
Gross
Profit
|
|
|
2,226
|
|
|
4,787
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
7,173
|
|
|
10,483
|
|
Depreciation
and amortization
|
|
|
630
|
|
|
1,206
|
|
Loss
from operations
|
|
|
(5,577
|
)
|
|
(6,902
|
)
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(78
|
)
|
|
(1,064
|
)
|
Loss
before income taxes
|
|
|
(5,655
|
)
|
|
(7,966
|
)
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
$
|
(5,655
|
)
|
$
|
(7,966
|
)
|
Net
loss per share - basic and diluted
|
|
$
|
(1.97
|
)
|
$
|
(2.78
|
)
|
Weighted
average shares outstanding
|
|
|
2,875
|
|
|
2,868
|
|
The
accompanying notes are an integral part of these financial
statements.
Organic
Holding Company, Inc.
d/b/a
Organic To Go and, effective February 27, 2007, Organic to Go,
Inc.
Statement
of Stockholders’ Deficit
(in
thousands, except share amounts)*
|
|
Series
A
Preferred
Stock
|
|
Series
B Preferred Stock
|
|
Series
C
Preferred
Stock
|
|
Common
Stock
|
|
Additional
paid-in
|
|
Accumulated
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
capital
|
|
deficit
|
|
deficit
|
|
Balance
at December 31, 2004
|
|
|
715,255
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,905,543
|
|
$
|
4
|
|
$
|
1,048
|
|
$
|
(802
|
)
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,019
|
|
|
|
|
|
32
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A Preferred Stock for cash and conversion of notes
payable
|
|
|
1,423,428
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,038
|
|
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Stock
|
|
|
|
|
|
|
|
|
849,999
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,424
|
|
|
|
|
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180,159
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issue costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,655
|
)
|
|
(5,655
|
)
|
Balance
at December 31, 2005
|
|
|
2,138,684
|
|
|
3
|
|
|
849,999
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
2,942,402
|
|
|
4
|
|
|
4,363
|
|
|
(6,457
|
)
|
|
(2,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series C Preferred Stock and warrants for cash and conversion
of notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,664,153
|
|
$
|
4
|
|
|
|
|
|
|
|
|
4,477
|
|
|
|
|
|
-
4,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants with borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issue costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,961
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,463
|
|
|
|
|
|
128
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,966
|
)
|
|
(7,966
|
)
|
Balance
at December 31, 2006
|
|
|
2,138,684
|
|
$
|
3
|
|
|
849,999
|
|
$
|
1
|
|
|
2,664,153
|
|
$
|
4
|
|
|
2,898,904
|
|
$
|
4
|
|
$
|
10,410
|
|
$
|
(14,423
|
)
|
$
|
(4,001
|
)
|
*
Shares
are presented after multiplied by the .69781 Exchange Ratio—See Note
1.
The
accompanying notes are an integral part of these financial
statements.
Organic
Holding Company, Inc.
d/b/a
Organic To Go and, effective February 27, 2007, Organic to Go,
Inc.
Statements
of Cash Flows
(in
thousands)
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,655
|
)
|
$
|
(7,966
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
630
|
|
|
1,206
|
|
Amortization
of debt issue costs and debt discount included in interest
expense
|
|
|
3
|
|
|
776
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(84
|
)
|
|
(281
|
)
|
Inventory
|
|
|
(93
|
)
|
|
42
|
|
Other
current assets
|
|
|
(54
|
)
|
|
(123
|
)
|
Accounts
payable
|
|
|
1,563
|
|
|
(245
|
)
|
Accrued
liabilities
|
|
|
222
|
|
|
431
|
|
Other
|
|
|
50
|
|
|
143
|
|
Net
cash used by operating activities
|
|
|
(3,418
|
)
|
|
(6,017
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property, equipment and other assets
|
|
|
(2,064
|
)
|
|
(172
|
)
|
Purchases
of other assets and related costs
|
|
|
(255
|
)
|
|
(1,010
|
)
|
Net
cash used by investing activities
|
|
|
(2,319
|
)
|
|
(1,182
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Principal
payments of long-term debt
|
|
|
(50
|
)
|
|
(264
|
)
|
Proceeds
from issuance of notes payable, net of issue costs
|
|
|
2,823
|
|
|
5,918
|
|
Payments
of capital lease obligations
|
|
|
(24
|
)
|
|
(47
|
)
|
Proceeds
from sale of preferred stock, net of issue costs
|
|
|
3,038
|
|
|
2,209
|
|
Redemption
of common stock
|
|
|
(2
|
)
|
|
(2
|
)
|
Proceeds
from sale of common stock
|
|
|
10
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
5,795
|
|
|
7,814
|
|
Net
increase in cash and cash equivalents
|
|
|
58
|
|
|
615
|
|
Cash
and cash equivalents, beginning of period
|
|
|
192
|
|
|
250
|
|
Cash
and cash equivalents, end of period
|
|
$
|
250
|
|
$
|
865
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
78
|
|
$
|
237
|
|
Notes
payable converted into preferred stock
|
|
$
|
-
|
|
$
|
1,843
|
|
Fixed
assets acquired under financing agreements
|
|
$
|
600
|
|
$
|
326
|
|
Assets
acquired under capital lease
|
|
$
|
248
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
Organic
Holding Company, Inc.
d/b/a
ORGANIC TO GO and effective February 27, 2007, Organic To Go,
Inc.
Notes
to financial statements
December
31, 2006
Note
1. Description of Business and Summary of Significant
Accounting Policies
Organization
and Business
Organic
Holding Company, Inc., d/b/a Organic To Go, which name was changed to Organic
To
Go, Inc. effective February 27, 2007 (the “Company” or “Organic”), was
incorporated in the state of Delaware in February 2004. The Company provides
convenient retail and delivery store locations, which prepare and serve “grab
and go” lunch, dinner, and breakfast foods and beverages prepared using organic
ingredients, whenever possible. The Company also distributes its products
through select wholesale accounts. At December 31, 2006, the Company operated
five stores in Washington and seven stores in California. In October 2006,
the
Company expanded its catering operations in the California area by acquiring
the
assets, of a catering operation headquartered in Los Angeles,
California.
Reverse
Merger with Public Shell Company in February 2007
Pursuant
to terms of an Agreement and Plan of Merger and Reorganization by and among
the
SP Holding Corporation, Organic Acquisition Corporation and Organic on February
12, 2007, all of the outstanding shares of common and preferred stock of Organic
were exchanged for shares of SP Holding Corporation common stock as determined
by multiplying each such outstanding share of Organic stock by an exchange
ratio
of 0.69781 (the “Exchange Ratio”). In addition, convertible promissory bridge
notes of Organic approximating $5.8 million automatically converted into SP
Holding Corporation common stock. As a result, among other things, Organic
became a wholly-owned subsidiary of SP Holding Corporation. Outstanding options,
warrants and purchase rights of Organic were converted into options, warrants
and purchase rights to purchase shares of SP Holding Corporation common stock
in
accordance with the Exchange Ratio. The closing of the merger was conditioned
upon the closing a private placement offering of a minimum of eighty units
(the
“Units”) at a purchase price of $50,000 per Unit for $4 million, with the option
to offer additional Units. Each Unit consists of (i) 40,000 shares of SP Holding
Corporation common stock, and (ii) a warrant to purchase 8,000 shares of SP
Holding Corporation common stock. Each warrant entitles the holder thereof
to
purchase shares of SP Holding Corporation common stock at an exercise price
of
$2.50 per share and is exercisable for a period of five years from the date
of
issuance. The consummation of the merger occurred concurrently with the
completion of a private placement of 138 Units, for an aggregate of
approximately $6.9 million. Prior to the merger, SP Holding Corporation was
a
non-operating “public shell” company.
From
an
accounting perspective, the merger transaction is considered a recapitalization
of Organic accompanied by the issuance of securities by Organic for the net
liabilities of SP Holding Corporation, as a result of SP Holding Corporation
not
having operations immediately prior to the merger. After the merger and the
private placement, former SP Holding Corporation stockholders own approximately
5% of our common stock, and former Organic stockholders and convertible bridge
note holders own approximately 70% of our common stock. The board of directors
and executive officers are comprised of former directors and executive officers
of Organic.
The
merger transaction is accounted for as a capital transaction rather than as
a
business combination, because the transaction is equivalent to the issuance
of
securities by Organic for the net liabilities of SP Holding Corporation,
accompanied by a recapitalization. The accounting is identical to that resulting
from a reverse acquisition, except that no goodwill or other intangibles are
recorded. All share and per share information presented and disclosed in these
financial statements have been Exchange Ratio adjusted. See Note 9 for
additional information relating to this merger and pro forma balance sheet
giving effect to the transaction.
Basis
of Presentation and Liquidity
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the
Company as a going concern. The Company has reported recurring losses and cash
used by operating activities, and at December 31, 2006 has a net working capital
deficiency and stockholders’ deficit that could raise doubt about its ability to
continue as a going concern. Since inception, the Company has funded its
operations and business development and growth through debt and equity
financings . In this regard, during 2006, the Company raised
approximately $8.1 million pursuant to sales of debt and equity securities
in
connection with its private placement and subordinated debt offerings. Further,
subsequent to December 31, 2006, proceeds of approximately $6.9 million were
received from the sale of equity securities in connection with the merger and
private placement, and approximately $5.8 million of notes payable has been
converted into common shares. While the Company plans to become profitable
during the second half of 2007 management intends to continue to be engaged
in
additional fund-raising activities to fund future capital expenditures,
potential acquisitions of businesses, and provide additional working
capital. The Company anticipates having sufficient working capital in
place for the next 12 months to continue operations. The accompanying financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classifications of liabilities that could result should the Company not continue
as a going concern.
Use
of Estimates in the Preparation of Financial Statements
Preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts
of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The more significant accounting estimates inherent in
the
preparation of the Company’s financial statements include estimates as to the
depreciable lives of property and equipment, valuation of inventories, valuation
of equity related instruments issued, and valuation allowance for deferred
income tax assets.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents.
Contingencies
Certain
conditions may exist as of the date financial statements are issued, which
may
result in a loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur. Company management and its legal
counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or unasserted claims
that
may result in such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought
therein. If the assessment of a contingency indicates that it is probable that
a
liability has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial
statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, together
with
an estimate of the range of possible loss if determinable would be
disclosed.
Concentrations
The
Company maintains its cash balances in a financial institution, which at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on its cash balances.
All
of
the Company’s operations are currently located in Washington and California, and
as a result, is sensitive to negative occurrences in markets where the Company
is located, and particularly susceptible to adverse trends and economic
conditions including labor markets. In addition, given geographic
concentration, negative publicity regarding any of our operations in Washington
or California could have a material adverse effect on our business and
operations, as could other regional occurrences such as local strikes,
earthquakes or other natural disasters.
Fair
Value of Financial Instruments
The
Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company’s financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, the carrying amounts approximate fair value
due
to their short maturities. Amounts recorded for notes payable also approximate
fair value because current interest rates offered to the Company for debt of
similar maturities are substantially the same .
Accounts
Receivable
The
Company extends credit to some of its customers. Accounts receivable are
customer obligations due under normal trade terms. The Company performs
continuing credit evaluations of its customers’ financial condition. Management
reviews accounts receivable on a regular basis on contracted terms and how
recently payments have been received in order to determine estimates of amounts
that could potentially be uncollectible. The Company includes an estimate of
the
amount that is more likely that not to be uncollectible in its allowance for
doubtful accounts. Accounts uncollected are ultimately written off after all
reasonable collection efforts have occurred.
Inventory
Inventory,
which consists primarily of food, beverages and packaging products, is stated
at
the lower of cost or market. Cost is determined by the first-in, first-out
method. In assessing the ultimate realization of inventories, Company management
makes judgments as to future demand requirements compared to current inventory
levels.
Property
and Equipment
Property
and equipment is stated at cost. Additions and improvements that significantly
add to the productive capacity or extend the life of an asset are capitalized.
Maintenance and repairs are expensed as incurred. Depreciation is computed
using
the straight-line method over five to seven years for furniture, fixtures,
equipment and vehicles, and over three years for computer software and hardware.
Leasehold improvements are amortized over the shorter of the lease term or
10
years.
Identifiable
Intangible Assets
In
connection with the acquisition of certain store assets in April 2005, the
Company acquired certain leasehold interests and other intangible assets.
Leasehold interests are being amortized over the 1 to 4 year lives of the leases
and the other intangible assets were fully amortized during the year ended
December 31, 2005. In connection with the acquisition in October 2006 of certain
assets of a catering business, the Company acquired certain identifiable
intangible assets including customer-based intangibles and a covenant not to
compete received from the sellers. Amount allocated to intangible assets were
identified by management and have been valued on a number of factors based
upon
preliminary estimates. The estimate of useful lives of each intangible asset
was
based on an analysis by management of all pertinent factors, and selected an
estimated useful life of two years for each identifiable intangible asset.
Customer based intangible assets are amortized utilizing an accelerated method
and non-compete intangible assets are amortized on a straight-line basis. At
December 31, 2006, intangible assets were comprised of customer based of
approximately $860,000, less accumulated amortization of $147,000, and
non-compete of approximately $150,000, less accumulated amortization of
approximately $12,000. Amortization expense for these intangible assets will
approximate $675,000 in 2007 and $175,000 in 2008.
Impairment
of Long-lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
Impairment of long-lived assets would be recognized in the event that the net
book values of such assets exceed the future undiscounted cash flows
attributable to such assets.
Deferred
Debt Issue Costs
The
Company capitalizes costs incurred in connection with borrowings. These costs
are amortized as an adjustment to interest expense over the life of the
borrowing.
Debt
Discount
The
Company records he fair value of warrants issued with debt securities as a
debt
discount, which is amortized as an adjustment to interest expense over the
life
of the borrowings
Revenue
Recognition
Revenues
are recognized at the point of sale at retail locations or upon delivery of
the
product for delivery and wholesale transactions.
Cost
of Sales
Cost
of
sales includes the cost of food and paper products.
Pre-operating
Costs
Costs
incurred in connection with start-up and promotion of new store openings are
expensed as incurred.
Advertising
and Promotion
Advertising
and promotion costs are expensed as incurred. Approximately $434,000 and
$671,000 was expensed in 2005 and 2006, respectively.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes,” which requires recognition of deferred tax assets and
liabilities for expected future tax consequences of events that have been
included in financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory
tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to amounts expected to be realized. The Company continues
to
provide a full valuation allowance to reduce its net deferred tax asset to
zero,
inasmuch as Company management has not determined that realization of deferred
tax assets is more likely than not. The provision for income taxes represents
the tax payable for the period and change during the period in net deferred
tax
assets and liabilities.
Stock-based
Compensation
Prior
to
January 1, 2006, the Company accounted for employee stock option grants in
accordance with APB No. 25, and adopted the disclosure-only provisions of SFAS
No. 123, “Accounting for Stock-Based Compensation,” amended by SFAS No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure.” In
December 2004, the Financial Accounting Standards Board (“FASB”) released a
revision to SFAS No. 123, Accounting for Stock-Based Compensation” (“SFAS
123R”). SFAS 123R sets forth the accounting for share-based payment transactions
in which an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise, or (b) liabilities that are based on the fair
value of the enterprise’s equity instruments or that may be settled by the
issuance of such equity instruments. The statement eliminates the ability to
account for share-based compensation transactions using APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and generally requires instead that
such transactions be accounted for using a fair-value-based method, which
requires recording an expense over the requisite service period for the fair
value of all options or warrants granted to employees and consultants. The
Company adopted SFAS 123R effective beginning January 1, 2006 using the modified
prospective method.
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Task Force Issue No. 96-18,
“Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling Goods or Services.” Compensation
expense related to equity instruments issued to non-employees is recognized
as
the equity instruments vest.
Basic
and Diluted Net Loss per Share
Basic
net
loss per common share is computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. Diluted net loss per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options, warrants or convertible promissory notes, or conversion of
preferred stock. In periods where losses are reported, the weighted-average
number of common shares outstanding excludes common stock equivalents, because
their inclusion would be anti-dilutive. In connection with the merger with
SP
Holding Corporation in February 2007, all shares of Organic preferred stock
automatically converted into an equal number of Organic common shares and all
Organic common shares automatically converted into SP Holding Corporation common
shares at the Exchange Ratio adjusted number of shares equal to .69781 SP
Holding Corporation common shares for every one Organic common share. All
share and per share amounts have been Exchange Ratio adjusted. Computations
of
net loss per share for 2006, exclude approximately 3,912,000 shares of common
stock issuable upon conversion of convertible notes payable, 5,653,000 shares
issuable upon conversion of preferred stock and 2,332,000 shares issuable upon
exercise of outstanding and issuable warrants. Computations of net loss per
share for 2005, exclude approximately 1,761,000 shares issuable upon conversion
of convertible notes payable, 2,989,000 shares issuable upon conversion of
preferred stock and 43,000 shares issuable upon exercise of outstanding and
issuable warrants. These common stock equivalents could have the effect of
decreasing diluted net income per share in future periods.
For
purposes of determining the weighted average number of common shares outstanding
historical Organic shares outstanding have been multiplied by the Exchange
Ratio, which results in a fewer number of shares outstanding that historical
amounts.
Reclassifications
Certain
reclassifications have been made to prior year financial statements to conform
with current year presentations. Such reclassifications had no effect on
stockholders’ deficit, net loss or cash flows.
Recent
Accounting Pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which is an
amendment of Accounting Research Bulletin No. 43, Chapter 4, “Inventory
Pricing.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage), should be recognized
as
current-period costs incurred during fiscal years beginning after June 15,
2005.
It is expected that the adoption of provisions of SFAS No. 151 will not have
a
material effect on the Company’s results of operations or financial
condition.
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
“Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 replaced APB
Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting
Changes in Interim Financial Statements,” and changed the requirements for the
accounting for and reporting of a change in accounting principle. The Company
adopted SFAS 154 in 2006 and there was no effect on the Company’s results of
operations or financial position. The Company’s results of operations and
financial condition will only be impacted by SFAS 154 if the Company implements
changes in accounting principles that are addressed by the standard or corrects
accounting errors in future periods.
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”
(“FIN No. 48”), which prescribes a recognition threshold and
measurement process for recording in the financial statements uncertain tax
positions taken or expected to be taken in a tax return. Additionally,
FIN No. 48 provides guidance on the recognition, classification,
accounting in interim periods and disclosure requirements for uncertain tax
positions. The accounting provisions of FIN No. 48 will be effective
for the Company beginning January 1, 2007. The Company is in the process of
determining the effect, if any, that the adoption of FIN No. 48 will
have on its results of operations or financial position.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”). SAB 108 provides interpretive guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. The SEC believes
that registrants should quantify errors using both a balance sheet and income
statement approach and evaluate whether either approach results in quantifying
a
misstatement that, when all relevant quantitative and qualitative factors
considered, is material. SAB 108 is effective for fiscal years ending on
or after November 15, 2006, with early application encouraged. SAB 108 had
no effect of the Company’s results of operations or financial
position.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework
for measuring fair value and requires enhanced disclosures about fair value
measurements. SFAS 157 requires companies to disclose the fair value of its
financial instruments according to a fair value hierarchy (i.e., levels 1,
2,
and 3, as defined). Additionally, companies are required to provide enhanced
disclosure regarding instruments in the level 3 category, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. The Company is currently evaluating
the impact, if any, adoption may have on its results of operation or financial
position.
In
October 2006, the FASB issued FASB Staff Position No. 123(R)-5, “Amendment of
FASB Staff Position FAS 123(R)-1” (“FSP 123(R)-5”) FSP 123(R)-5 amends FSP
123(R)-1 for equity instruments that were originally issued as employee
compensation and then modified, with such modification made to the terms of
the
instrument solely to reflect an equity restructuring that occurs when the
holders are no longer employees. In such circumstances, no change in the
recognition or the measurement date of those instruments will result if both
of
the following conditions are met: (a) there is no increase in fair value of
the
award (or the ratio of intrinsic value to the exercise price of the award is
preserved, that is, the holder is made whole), or the antidilution provision
is
not added to the terms of the award in contemplation of an equity restructuring;
and (b) all holders of the same class of equity instruments (for example, stock
options) are treated in the same manner. The Company believes that FSP 123(R)-5
will not have a significant impact on its results of operations or financial
position.
In
December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2 “Accounting
for Registration Payment Arrangements” (“FSP EITF 00-19-2”), which addresses an
issuer’s accounting and disclosures relating to registration payment
arrangements. In connection with issuance of Units in the private placement
in
February 2007, the Company has agreed to register the shares underlying the
Units. In accordance with FSP EITF 00-19-2, the registration payment
arrangements are accounted for as an instrument separate and apart from the
related securities and will be accounted for in accordance with Statement of
Financial Accounting Standards No. 5 “Accounting for Contingencies,” accruing a
liability if payment is probable and the amount can be reasonably
estimated.
Note
2. Inventories
Inventories
at December 31, consist of the following (in thousands):
|
|
2005
|
|
2006
|
|
Food
and beverages
|
|
$
|
230
|
|
$
|
191
|
|
Paper
products
|
|
|
48
|
|
|
45
|
|
|
|
$
|
278
|
|
$
|
236
|
|
Note
3. Property and Equipment
Property
and equipment at December 31, consist of the following (in
thousands):
|
|
2005
|
|
2006
|
|
Leasehold
improvements
|
|
$
|
1,499
|
|
$
|
1,512
|
|
Furniture,
fixtures and equipment
|
|
|
1,560
|
|
|
1,711
|
|
Vehicles
|
|
|
101
|
|
|
391
|
|
|
|
|
3,160
|
|
|
3,614
|
|
Less
accumulated depreciation and amortization
|
|
|
531
|
|
|
1,466
|
|
|
|
$
|
2,629
|
|
$
|
2,148
|
|
The
Company leases certain equipment under non-cancelable capital leases having
a
cost of approximately $259,000 and accumulated amortization of $137,000 at
December 31, 2006.
Note
4. Notes Payable
Notes
payable at December 31, consist of the following (in
thousands):
|
|
2005
|
|
2006
|
|
Notes
payable, interest at 6% to 8%, collateralized by vehicles &
equipment
|
|
$
|
54
|
|
$
|
323
|
|
Convertible
promissory note, interest at 8.25%, due September 2007,collateralized
by
substantially all assets
|
|
|
568
|
|
|
759
|
|
Promissory
notes, interest at 7.75% per annum, due April 2010, collateralized
by
certain assets
|
|
|
610
|
|
|
418
|
|
Convertible
promissory notes, interest at 8% per annum, due June 2007
|
|
|
-
|
|
|
5,800
|
|
Payable
for Series C Preferred Stock Shares issued in 2006
|
|
|
1,843
|
|
|
-
|
|
Promissory
notes, interest at 8% to 12% per annum, no specified due
date
|
|
|
366
|
|
|
-
|
|
Promissory
note payable, interest at 9% per annum, due December 2006
|
|
|
-
|
|
|
275
|
|
Total
notes payable
|
|
|
3,441
|
|
|
7,575
|
|
Less:
unamortized original discount
|
|
|
(
30
|
)
|
|
(
702
|
)
|
Less:
current portion of notes payable
|
|
|
(2,204
|
)
|
|
(6,281
|
)
|
Notes
payable, net of current portion
|
|
$
|
1,207
|
|
$
|
592
|
|
The
Company has a borrowing agreement with a vendor providing for borrowings up
to
$500,000, potentially increasing up to $1 million based on the occurrence of
new
location openings, which borrowing amount was limited pursuant to terms of
the
agreement to amounts borrowed as of March 31, 2006, which was approximately
$759,000. The note payable requires monthly payments of interest at the prime
rate plus 1% (8.25% and 9.25% at December 31, 2005 and 2006, respectively),
with
the principal due in September 2007, and is convertible at the note holder’s
option into shares of the Company’s Series B Preferred Stock at the Exchange
Ratio adjusted conversion price of approximately $1.68 per share. The note
is
collateralized by a pledge of Company assets.
In
connection with an asset purchase agreement, in 2005 the Company issued
convertible promissory note of approximately $600,000, which bears interest
at
7.75% per annum payable quarterly, with principal due in April 2010. The note
was convertible until April 2006 at the note holders’ option into shares of the
Company’s Series A Preferred Stock at the Exchange Ratio adjusted conversion
price of approximately $1.86 per share and was not converted. The note is
collateralized by a security interest in the acquired assets. In 2006, the
note
issued was cancelled and separate notes, bearing essentially the same terms
and
conditions as the original convertible promissory note, were issued to the
parties to the original note. In April 2006, pursuant to a repurchase agreement,
the Company repurchased two of the notes having a total face value of
approximately $182,000 for $130,000 cash and recorded the resultant gain on
extinguishment of debt in other income.
During
2005, the Company issued promissory notes of approximately $311,000 in exchange
for $295,000 cash. The discount from face value was recorded as an original
issue discount to be amortized to interest expense on a straight-line basis
over
the 3-month term of the notes. The notes were convertible at the note holders’
option into shares of the Company’s Series C Preferred Stock, and in 2006, the
notes were converted into approximately 183,400 shares of Series C Preferred
Stock. The remaining unamortized original issue discount of approximately
$16,000 was recorded as interest expense upon conversion.
Additionally,
during 2005, the Company issued promissory notes of approximately $1.8 million
with warrants in exchange for cash. The estimated fair value of the warrants
of
approximately $18,000 was recorded as an original issue discount to be amortized
to interest expense on a straight-line basis over the 6-month term of the notes.
The notes were convertible at the note holders’ option into shares of the
Company’s Series C Preferred Stock at a conversion price of approximately $1.68
per share, and in 2006, the notes were converted into approximately 1,095,000
shares of Series C Preferred Stock. The remaining unamortized original issue
discount of approximately $15,000 was recorded as interest expense upon
conversion.
During
2006, the Company received approximately $4.3 million through the issuance
of
convertible promissory notes bearing interest at 8% due June 2007 (the “Bridge
Notes”) and warrants to purchase shares of Company common stock (together with
the notes, the “Bridge Securities”). The estimated fair value of the warrants of
approximately $768,000 was recorded as an original issue discount to be
amortized to interest expense on a straight-line basis over the 7-month term
of
the notes. Additionally, in 2006, the Company received approximately $1.6
million through the issuance convertible promissory notes bearing interest
at
24%, approximately $1.5 million of which were converted at the holders’ option
into bridge notes and the remaining notes were repaid. Warrants to purchase
Series C Preferred Stock were issued in connection with the short-term loans,
the fair value of which was expensed over the debt term prior to conversion.
Bridge Notes of approximately $5.8 million were convertible at the note holders’
option, or in certain circumstances automatically, into shares of the Company’s
common stock at the Exchange Ratio adjusted conversion price of approximately
$1.68 per share. In February 2007, in connection with the closing of the merger
with SP Holding Corporation, the Bridge Notes were automatically converted
into
common stock. See Note 9.
During
2006, the Company borrowed $275,000 from one of the Company’s equity and bridge
note investors pursuant to a promissory note payable of $275,000, bearing
interest at 9% per annum and due in December 2006. On the basis of discussions
with the lender, the Company has been making payments on the note and expects
to
fully repay the note in 2007.
During
2006, the Company repaid promissory notes borrowings in 2005 of approximately
$56,000.
Future
minimum principal payments on notes payable at December 31, 2006 are as follows
(in thousands):
2007
|
|
$
|
6,984
|
|
2008
|
|
|
147
|
|
2009
|
|
|
21
|
|
2010
|
|
|
423
|
|
|
|
$
|
7,575
|
|
Note
5. Stockholders’ Deficit
The
Company is authorized to issue 15,100,000 shares of its common stock, par value
$0.001 per share, 3,070,000 shares of preferred stock, par value $0.001 per
share, all of which are designated as “Series A Preferred Stock,” 1,750,000
shares of preferred stock, par value $0.001 per share, all of which are
designated as “Series B Preferred Stock,” and 4,850,000 shares of preferred
stock, par value $0.001 per share, all of which are designated as “Series C
Preferred Stock.” Authorized shares have not been adjusted in accordance with
the Exchange Ratio.
Series
A
Preferred Stock - During 2004 and 2005, the Company issued approximately
2,138,700 Exchange Ratio adjusted shares of its Series A Preferred Stock, in
exchange for cash of approximately $2,815,000 and conversion of a $250,000
convertible promissory note.
Series
B
Preferred Stock - During 2005, the Company issued approximately 850,000 shares
of its Series B Preferred Stock, in exchange for cash of approximately
$1,372,000 and conversion of a $53,000 convertible promissory note.
Series
C
Preferred Stock - During 2005 and 2006, the Company received proceeds of
approximately $4,500,000 from the sale of approximately 2,664,200 shares of
its
Series C Preferred Stock and approximately 268,300 warrants to purchase shares
of Series C Preferred Stock at an Exchange Ratio adjusted price per share of
approximately $1.68, such warrants expiring in October 2010. The shares were
issued in 2006.
In
connection with the merger with SP Holding Corporation in February 2007, all
of
the issued and outstanding shares of Series A, B and C Preferred Stock were
converted into shares of the Company’s common stock on a one-for-one basis, and
all shares of the Company’s common stock and rights to acquire shares of the
Company’s common stock were exchanged for shares of SP Holding Corporation in
such amounts as determined by multiplying the number of issued and outstanding
shares of Company’s common stock by the Exchange Ratio. See Note 9.
Conversion,
voting and other rights - Shares of Series A, B and C Preferred Stock were
convertible into shares of the Company’s common stock on a one-share for
one-share basis, had voting rights on an as-converted basis, had certain
registration rights and rights of first refusal on future financings, and in
certain circumstances, the right, as holders of preferred stock, to elect 25%
of
the Company’s Board of Directors.
Dividends
- Terms of Series A, B and C Preferred Stock provided for non-cumulative
dividends at non-Exchange Ratio adjusted rates of $0.05, $0.0585 and $0.0585
per
annum per share, respectively, when, as, and if declared by the Board of
Directors.
Liquidation
Preference - The liquidation preference value of Series A, B and C Preferred
Stock was $1.00, $1.17 and $1.17 per share, respectively, representing
liquidation preference amounts of approximately $3.1 million, $1.4 million
and
$4.5 million, respectively, at December 31, 2006.
Voting
-
Except as otherwise provided, preferred stock had no voting rights. In any
situation in which, by the articles of incorporation or the bylaws, the holders
of preferred stock have the right to vote, they will vote together with the
common stock as a single class on all actions to be taken by the stockholders
of
the Company, including, but not limited to, actions amending the articles of
incorporation to increase the number of shares of common stock, with each share
of preferred stock entitling the holder to one vote.
Redemption
- The Board of Directors of the Company has the right at any time there are
Company funds legally available for redemption of shares of preferred stock,
to
redeem any or all of the outstanding shares of Series A, B or C preferred stock
by payment of the liquidation price of the shares redeemed. If fewer than all
of
the outstanding shares of Series A or Series B preferred stock are to be
redeemed, shares redeemed will be pro rata from the holders of Series A, B
or C
Preferred Stock. No shares of Series B Preferred Stock can be redeemed until
all
of the outstanding and issued shares of Series A Preferred Stock have been
redeemed and paid in full in cash.
Warrants
- In conjunction with various financing related agreements, including issuances
of debt and equity securities, the Company issued warrants to purchase
approximately 978,000 shares of the Company’s Series C Preferred Stock at an
Exchange Ratio adjusted exercise price of approximately $1.68 per share, of
which approximately 966,000 expire approximately five years from issuance and
12,000 expire in 2015. In addition, the Company issued warrants to purchase
approximately 1,354,000 shares of the Company’s common stock at an Exchange
Ratio adjusted exercise price of approximately $1.68 per share, which expire
in
2011. No warrants have been exercised. The Series C Preferred Stock warrants
issued in connection with borrowings were recorded at their estimated fair
value
of approximately $1.07 per share for 10 year warrants, and $0.77 for 5 year
warrants as determined utilizing the black-scholes valuation model with
assumptions of 50% volatility, risk-free interest rate of 5.1%, dividend yield
of 0% and contractual lives. The total value of approximately $556,000 has
been
recorded as an increase in additional paid-in capital and approximately $544,000
has been amortized to interest expense on the basis of the term of related
borrowings. The common stock warrants issued in connection with borrowings
were
recorded at their estimated fair value of approximately $0.01 per share as
determined utilizing the black-scholes valuation model with assumptions of
50%
volatility, risk-free interest rate of 5.1%, dividend yield of 0% and
contractual lives. The total value of approximately $91,000 has been recorded
as
an increase in additional paid-in capital and approximately has been amortized
to interest expense on the basis of the term of related borrowings.
Stock
options - In 2006, the Company’s Board of Directors approved grants of 10 year
options to purchase approximately 655,500 shares of Company common stock to
the
Company’s directors and certain of its officers and consultants. Options were
granted with an exercise price of $0.17 per share, the estimated fair value
of
common stock on the grant dates as determined by the Board of Directors.
Subsequently, in 2007, the Board of Directors determined that the estimated
fair
values of common stock for certain stock option grants were $0.34 and $1.43
per
share, and in this regard has entered into agreements to reprice those certain
stock option grants to have exercise prices of $0.34 and $1.43.
The
Company determines the fair value of options granted using the Black-Scholes
option-pricing model. The determination of the fair value of stock-based awards
on the date of grant using an option pricing model is affected by the stock
price as well as assumptions regarding a number of highly complex and subjective
variables. These variables include, among others, the expected life of the
award, expected stock price volatility over the term of the award and actual
and
projected exercise behaviors. Although the fair value of stock-based awards
is
determined in accordance with SFAS 123R and SAB 107, the Black-Scholes option
pricing model requires the input of highly subjective assumptions, and other
reasonable assumptions could provide differing results. The weighted average
fair value of stock options granted in 2006 was approximately $0.27 determined
using the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0%; expected volatility of 50% (based on the volatilities
of
common stock of comparable public companies); risk-free interest rates of
approximately 5%, and estimated lives of 5 years.
Compensation
expense recognized for stock options of approximately $60,000 has been based
on
the revised exercise prices and the following information is presented on the
basis of the revised exercise prices. As of December 31, 2006, there was
approximately $104,000 of unrecognized compensation cost related to unvested
stock options granted, which is expected to be recognized as expense over a
period of approximately 1.3 years. The intrinsic value of stock options
outstanding and exercisable at December 31, 2006 is based on an estimated fair
value of common stock of $1.43 on that date, and is calculated by aggregating
the difference between $1.43 and the exercise price of vested and unvested
stock
options which have an exercise price less than $1.43. The following summarizes
activity for stock options:
|
|
Outstanding
|
|
Weighted
average
exercise
price
|
|
Aggregate
remaining
contractual
life in years
|
|
intrinsic
value
(in
thousands)
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
655,545
|
|
$
|
0.54
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired/
Cancelled
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
655,545
|
|
$
|
0.54
|
|
|
9.4
|
|
$
|
585
|
|
Exercisable
at December 31, 2006
|
|
|
157,648
|
|
$
|
0.43
|
|
|
9.3
|
|
$
|
158
|
|
Additional
information regarding stock options outstanding as of December 31, 2006, is
as
follows:
Exercise
prices
|
|
Shares
|
|
Weighted
average
remaining
life
|
|
$
0.17
|
|
|
349,254
|
|
|
9.2
years
|
|
$
0.34
|
|
|
132,584
|
|
|
9.5
years
|
|
$
1.43
|
|
|
173,707
|
|
|
9.8
years
|
|
Total
|
|
|
655,545
|
|
|
9.4
years
|
|
Note
6. Asset Purchase Agreements
In
April
2005, pursuant to terms of an asset purchase agreement, the Company acquired
for
cash of $750,000 and a $600,000 convertible promissory note, among other things,
all inventory, furniture, fixtures, equipment, leases and leasehold
improvements, lease deposits, and owned vehicles used in connection with the
seller’s prepared food retail cafes in the Seattle market (6 cafes) and in the
Los Angeles County and Orange Country market (6 cafes). Other than future lease
obligations and deferred rent, no liabilities were assumed. The total purchase
price of approximately $1.6 million, including related acquisition costs, was
allocated to assets acquired based on relative estimated fair values, which
resulted in the majority being allocated to leasehold improvements, and which
is
summarized as follows (in thousands):
Inventory
|
|
$
|
156
|
|
Furniture,
fixtures and equipment
|
|
|
283
|
|
Leasehold
improvements
|
|
|
914
|
|
Leasehold
interests, deposits, customer lists and other
|
|
|
217
|
|
|
|
$
|
1,570
|
|
In
October 2006, pursuant to terms of an asset purchase agreement, the Company
acquired for $1 million cash, among other things, all inventory, furniture,
fixtures, equipment, customer lists, leasehold improvements, and owned vehicles
used in connection with a catering business in California. Other than the notes
payable on the vehicles, no liabilities were assumed by the buyer. The buyer
also entered in to a one year lease agreement for the building owed by the
seller. The total purchase price of approximately $1.1 million, including
related acquisition costs, was allocated to assets acquired based on relative
estimated fair values, which resulted in the majority being allocated to
customer based identifiable intangible assets, and which is summarized as
follows (in thousands):
Inventory
|
|
$
|
12
|
|
Furniture,
fixtures and equipment
|
|
|
29
|
|
Customer
based intangible assets
|
|
|
860
|
|
Covenant
not to compete intangible asset
|
|
|
150
|
|
Note
payable
|
|
|
(9
|
)
|
|
|
$
|
1,042
|
|
Operating
results for the acquired business are included in the Company’s operating
results from the date of acquisition. The following supplemental pro forma
information has been presented on the basis as if the asset acquisition of
the
catering business had occurred at the beginning of the year presented for the
years ended December 31 (in thousands):
|
|
2005
|
|
2006
|
|
Sales
|
|
$
|
8,576
|
|
$
|
11,465
|
|
Net
loss
|
|
$
|
(6,272
|
)
|
$
|
(8,465
|
)
|
Net
loss per share
|
|
$
|
(2.18
|
)
|
$
|
(2.95
|
)
|
Note
7. Commitments and Contingencies
The
Company leases its cafes, central kitchens and office facilities under
non-cancelable operating leases, some with renewal options. Rents are fixed
base
amounts, some with escalating rents and some with contingent rents based on
sales. Lease provisions also require additional payments for maintenance and
other expenses. Rent is expensed on a straight-line basis over the term of
the
lease. The difference between amounts paid and expensed is recorded as a
deferred credit. The Company also rented office facilities during 2005 on a
month-to-month basis. Rent expense was approximately $578,000 and $926,000
during 2005 and 2006, respectively. The Company also leases certain
point-of-sale computer hardware and software pursuant to capital leases. Minimum
annual future lease obligations at December 31, 2006 are as follows (in
thousands):
|
|
Operating
|
|
Capital
|
|
2007
|
|
$
|
493
|
|
$
|
63
|
|
2008
|
|
|
339
|
|
|
63
|
|
2009
|
|
|
137
|
|
|
62
|
|
2010
|
|
|
54
|
|
|
26
|
|
2011
|
|
|
36
|
|
|
-
|
|
|
|
$
|
1,059
|
|
|
214
|
|
Less:
amount representing interest
|
|
|
|
|
|
27
|
|
Present
value of future minimum lease payments
|
|
|
|
|
|
187
|
|
Current
|
|
|
|
|
|
50
|
|
|
|
|
|
|
$
|
137
|
|
From
time
to time, the Company is subject to various legal proceedings and claims that
may
arise in the ordinary course of business. Further, in the past, certain vendors
have taken legal action against the Company as a result of untimely payment
of
invoices. In some cases, the courts have stipulated judgment requiring the
Company to pay interest and comply with payment schedules. In addition, a former
employee has brought suit against the Company with what management believes
are
unfounded claims. Management currently believes that resolution of such legal
matters will not have a material adverse impact on the Company’s financial
statements.
Note
8. Income Taxes
The
Company has recorded no provision for income taxes due to net losses incurred.
A
valuation allowance has been recorded against deferred tax assets as it has
not
been determined that it is more likely than not that these deferred tax assets
will be realized. As of December 31, 2006, the Company has net operating loss
carryforwards of approximately $13 million and $6 million for federal and state
income tax purposes, respectively, which expire beginning in 2024 (federal)
and
2014 (state). As a result of ownership changes, the Company may be subject
to
annual limitations on the amount of net operating loss, which can be utilized
in
any tax year.
Deferred
income taxes consist of the following at December 31 (in
thousands):
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
2,042
|
|
$
|
4,689
|
|
Other
|
|
|
246
|
|
|
521
|
|
Total
deferred tax assets
|
|
|
2,288
|
|
|
5,210
|
|
Less:
valuation allowance
|
|
|
(
2,288
|
)
|
|
(
5,210
|
)
|
Deferred
tax assets, net of valuation allowance.
|
|
$
|
-
|
|
$
|
-
|
|
The
difference between the expected benefit computed using the statutory tax rate
and the recorded benefit of zero is primarily due to the change in the valuation
allowance. The change in the valuation allowance was approximately $2 million
and $3 million in 2005 and 2006, respectively.
Note
9. Subsequent Events
On
February 12, 2007, pursuant to an Agreement and Plan of Merger and
Reorganization by and among the SP Holding Corporation, Organic Acquisition
Corporation and Organic, Organic became a wholly owned operating subsidiary
of
SP Holding Corporation. Those persons holding shares of Organic capital stock,
warrants and options to purchase shares of Organic capital stock, and certain
promissory notes convertible into shares of Organic capital stock, received
shares of SP Holding Corporation common stock, $.001 par value per share (“SP
Holding Common Stock”) and warrants and options to purchase shares of SP Holding
Common Stock.
Under
the
terms of the merger, each share of Organic common stock and Organic preferred
stock (which included certain issued and outstanding convertible promissory
notes on an “as converted” basis) outstanding immediately prior to the closing
of the merger was converted into the right to receive 0.69781 shares of SP
Holding Common Stock. Under the terms of the merger, each then convertible
promissory note whose holder had not previously elected to convert to Organic
common stock, became convertible for shares of SP Holding Common Stock, provided
that (i) the face value of each such convertible note remained unchanged, (ii)
each such convertible note became convertible for such number of shares of
SP
Holding Common Stock as was determined by multiplying the number of Organic
shares underlying said convertible note by the Exchange Ratio, with the
resulting product rounded down to the nearest whole number of shares, and (ii)
the per share conversion price for each convertible note determined by dividing
the conversion price per share for said convertible note by the Exchange Ratio,
with the resulting quotient rounded down to the nearest whole cent.
Under
the
terms of the merger, each then outstanding option and warrant to purchase shares
of Organic common stock, whether or not exercisable, was converted into an
option or warrant to purchase shares of SP Holding Common Stock upon the same
terms and conditions as the corresponding Organic options and warrants, provided
that (i) each such Organic option and warrant related to such number of shares
of SP Holding Common Stock as was determined by multiplying the number of shares
of Organic common stock underlying such Organic option or warrant by the
Exchange Ratio, with the resulting product rounded down to the nearest whole
number of shares, and (ii) the per share exercise price for the newly-issued
SP
Holding Corporation options or warrants was determined by dividing the exercise
price per share of such Organic options or warrants by the Exchange Ratio,
with
the resulting quotient rounded down to the nearest whole cent.
Consummation of the merger occurred concurrently with the completion of a
private placement of 138 Units for an aggregate of approximately $6.9 million,
issued by SP Holding Corporation. Each Unit is comprised of (i) 40,000 shares
of
SP Holding Common Stock, and (ii) a detachable five-year warrant to purchase
8,000 shares of SP Holding Common Stock, at an exercise price of $2.50 per
share
(the “SP Holding Warrants”). The purchase price per Unit was $50,000. At the
closing of the private placement, SP Holding Corporation issued to investors
an
aggregate of 5,523,000 shares of SP Holding Common Stock and SP Holding Warrants
to purchase 1,104,600 shares of SP Holding Common Stock.
Organic
engaged Burnham Hill Partners, a division of Pali Capital, Inc., as the primary
placement agent (the “Placement Agent”) in connection with the private
placement. Pursuant to the terms of the engagement with the Placement Agent,
the
Placement Agent, or its registered assignees or designees, received a cash
commission of 10% of the gross proceeds from the Units sold in the private
placement. In addition, SP Holding Corporation issued to the Placement Agent
or
its registered assignees or designees, warrants to purchase up to 888,899 shares
of SP Holding Common Stock (the “Placement Agent Warrants”).
The
Placement Agent Warrants are exercisable at any time at a price equal to 110%
of
the price paid by the investors in the private placement, on a net-issuance
or
cashless basis. The Placement Agent Warrants will have registration rights
similar to the registration rights afforded to the holders of SP Holding
Warrants. The Placement Agent Warrants are fully vested and have a term of
five
years.
After
the
merger and private placement, former SP Holding Corporation stockholders own
approximately 5% of the common stock of SP Holding Corporation, former Organic
stockholders and convertible bridge note holders own approximately 70% of SP
Holding Corporation, and the investors purchasing Units in the private placement
own approximately 25% of SP Holding Corporation.
The
issuance of SP Holding Common Stock to the Organic stockholders and the
investors in the private placement is intended to be exempt from registration
under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to
Section 4(2) thereof. As such, the SP Holding Common Stock received by the
Organic stockholders pursuant to the merger and issued to the investors in
the
private placement may not be offered or sold in the United States unless they
are registered under the Securities Act, or an exemption from the registration
requirements of the Securities Act is available. No registration statement
covering these securities has been filed with the SEC or with any state
securities commission in respect of the merger or the private
placement.
SP
Holding Corporation has agreed to register for public re-sale the shares of
SP
Holding Common Stock underlying the Units and the shares of SP Holding Common
Stock issuable to each investor and the Placement Agent pursuant to the exercise
of the SP Holding Warrants and the Placement Agent Warrants. SP Holding
Corporation may be required to pay a penalty to the investors in the private
placement, with the maximum amount of the penalty capped at 24% of the amount
raised pursuant to the private placement, if SP Holding Corporation fails to
have a registration statement with respect to the shares of SP Holding Common
Stock issued to the investors (including the shares underlying the SP Holding
Warrants) pursuant to the private placement filed with the SEC within 90 days
after the closing of the private placement or if SP Holding Corporation fails
to
have such registration statement declared effective with respect to the shares
of SP Holding Common Stock issued to the investors (excluding, however, the
shares underlying the SP Holding Warrants) within 150 days after the filing
of
such registration statement with the SEC.
SP
Holding Corporation is currently authorized under its Amended and Restated
Certificate of Incorporation to issue 500,000,000 shares of SP Holding Common
Stock and 10,000,000 shares of SP Holding Preferred Stock. Prior to closing
of
the merger and private placement, there were 439,388 shares of SP Holding Common
Stock issued and outstanding and 60 shares of preferred stock of SP Holding
Corporation issued and outstanding. At the closing of the merger and private
placement and after giving effect thereto, there were 19,912,664 shares of
SP
Holding Common Stock issued and outstanding and no shares of preferred stock
of
SP Holding Corporation issued and outstanding (the 60 shares of preferred stock
of SP Holding Corporation issued and outstanding prior to the merger having
automatically converted into 687,271 shares of SP Holding Common Stock upon
closing of the merger).
From
an
accounting perspective, the merger transaction is considered a recapitalization
of Organic accompanied by the issuance of securities by Organic for the net
liabilities of SP Holding Corporation, as a result of SP Holding Corporation
not
having operations immediately prior to the merger. After the merger and private
placement, former SP Holding Corporation stockholders own approximately 5%
of SP
Holding Corporation, and former Organic stockholders and convertible bridge
note
holders own approximately 70% of SP Holding Corporation. The board of directors
and executive offices are comprised of former Organic directors and executive
officers. In these circumstances, the merger transaction is accounted for as
a
capital transaction rather than as a business combination, because the
transaction is equivalent to the issuance of securities by Organic for the
assets and liabilities of SP Holding Corporation, accompanied by a
recapitalization. The accounting is identical to that resulting from a reverse
acquisition, except that no goodwill or other intangibles are
recorded.
The
following unaudited pro forma condensed consolidated balance sheet has been
presented giving effect to the merger, the private placement and conversion
of
the bridge notes, including the write-off of related deferred debt issue costs
and debt discount (in
thousands):
|
|
Organic
Holding Company, Inc.
|
|
SP
Holding Corporation
|
|
Private
Placement
|
|
pro
forma
adjustments
|
|
pro
forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
865
|
|
$
|
13
|
|
$
|
6,150
|
|
|
|
|
$
|
7,028
|
|
Other
current assets
|
|
|
790
|
|
|
-
|
|
|
-
|
|
|
|
|
|
790
|
|
Total
current assets
|
|
|
1,655
|
|
|
13
|
|
|
6,150
|
|
|
|
|
|
7,818
|
|
Property
and equipment
|
|
|
2,148
|
|
|
|
|
|
|
|
|
|
|
|
2,148
|
|
Intangible
and other assets
|
|
|
1,474
|
|
|
-
|
|
|
-
|
|
$
|
(483
|
)
|
|
991
|
|
|
|
$
|
5,277
|
|
$
|
13
|
|
$
|
6,150
|
|
$
|
(483
|
)
|
$
|
10,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,389
|
|
$
|
78
|
|
|
|
|
|
|
|
$
|
1,467
|
|
Accrued
liabilities and other
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
879
|
|
Notes
payable, current
|
|
|
6,281
|
|
|
-
|
|
|
|
|
$
|
(5,111
|
)
|
|
1,170
|
|
Total
current liabilities
|
|
|
8,549
|
|
|
78
|
|
|
|
|
|
(5,111
|
)
|
|
3,516
|
|
Notes
payable, net of current
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
592
|
|
Other
liabilities
|
|
|
137
|
|
|
-
|
|
|
|
|
|
-
|
|
|
137
|
|
Total
liabilities
|
|
|
9,278
|
|
|
78
|
|
|
|
|
|
(5,111
|
)
|
|
4,245
|
|
Preferred,
common and paid in capital
|
|
|
10,422
|
|
|
25,641
|
|
$
|
6,150
|
|
|
(21,078
|
)
|
|
21,135
|
|
Accumulated
deficit
|
|
|
(14,423
|
)
|
|
(25,706
|
)
|
|
-
|
|
|
25,706
|
|
|
(14,423
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
(
4,001
|
)
|
|
(65
|
)
|
|
6,150
|
|
|
4,628
|
|
|
6,362
|
|
|
|
$
|
5,277
|
|
$
|
13
|
|
$
|
6,150
|
|
$
|
(483
|
)
|
$
|
10,957
|
|
Effective
January 1, 2007, the Company entered into an employment agreement with a
three-year term with its founder and chief executive officer, pursuant to which,
the executive officer will receive a base salary at an annual rate of $225,000,
subject to annual increases as determined by the Company’s Board of Directors.
The Company’s executive officer is also eligible for cash bonuses and other
typical employment benefits. In addition, effective upon the closing of the
merger, the executive officer received options to purchase shares of SP Holding
Common Stock in an amount equal to 5% of the outstanding shares of SP Holding
Common Stock as of the closing of the merger determined on a fully-diluted
basis. Options granted vest 25% after 12 months of employment, with the
remainder vesting over the next 36 months, subject to accelerated vesting in
the
event of a “Change in Control,” as defined in the employment agreement, or in
certain other circumstances, and are exercisable at any time at a price equal
to
110% of the price paid by the investors in the private placement, on a
net-issuance or cashless basis. Under certain departure circumstances, the
Company’s executive officer could be eligible to receive payments of one year’s
salary and benefits.
In
March
2007, pursuant to terms of an asset purchase agreement, the Company acquired
for
cash of approximately $630,000, a $150,000 promissory note and 400,000 shares
of
its common stock, among other things, all inventory, furniture, fixtures,
equipment, leasehold improvements, customer lists and other intangible assets
used in connection with Jackrabbit, LLC, a Seattle-based catering business.
Other than a facilities lease and equipment lease, no liabilities were assumed
by the Company. Substantially all of the purchase price will be recorded as
intangible assets.
Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Condensed
Consolidated Balance Sheets
(in
thousands, except share amounts)
|
|
December
31
|
|
June
30
|
|
|
|
audited
|
|
unaudited
|
|
|
|
2006
|
|
2007
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
865
|
|
$
|
6,410
|
|
Accounts
receivable, net
|
|
|
365
|
|
|
674
|
|
Inventory
|
|
|
236
|
|
|
322
|
|
Prepaid
expenses and other current assets
|
|
|
189
|
|
|
418
|
|
Total
current assets
|
|
|
1,655
|
|
|
7,824
|
|
Property
and equipment, net
|
|
|
2,148
|
|
|
3,256
|
|
Identifiable
intangible assets, net
|
|
|
851
|
|
|
1,544
|
|
Goodwill
|
|
|
-
|
|
|
-
|
|
Deposits
and other assets
|
|
|
623
|
|
|
173
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
5,277
|
|
$
|
12,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,389
|
|
$
|
1,762
|
|
Accrued
liabilities
|
|
|
829
|
|
|
475
|
|
Current
portion of notes payable, net of discount
|
|
|
6,281
|
|
|
1,474
|
|
Current
portion of capital lease obligations
|
|
|
50
|
|
|
93
|
|
Total
current liabilities
|
|
|
8,549
|
|
|
3,804
|
|
Notes
payable, net of current portion
|
|
|
592
|
|
|
1,050
|
|
Capital
lease obligations, net of current portion
|
|
|
137
|
|
|
264
|
|
Total
liabilities
|
|
|
9,278
|
|
|
5,118
|
|
Stockholders'
equity (deficit)
|
|
|
|
|
|
|
|
Preferred
Stock; $0.001 par value; 9,670,000 and 10,000,000 shares
|
|
|
8
|
|
|
-
|
|
authorized,
9,670,000 and no shares issued and outstanding
|
|
|
|
|
|
|
|
Common
stock and additional paid-in capital; $0.001 par value;
|
|
|
|
|
|
|
|
15,100,000
and 500,000,000 shares authorized; 3,454,910 and
|
|
|
|
|
|
|
|
24,208,676
Exchange Ratio adjusted shares issued and outstanding
|
|
|
10,414
|
|
|
27,222
|
|
Accumulated
deficit
|
|
|
(14,423
|
)
|
|
(19,543
|
)
|
Total
stockholders' equity (deficit)
|
|
|
(4,001
|
)
|
|
7,679
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
5,277
|
|
$
|
12,797
|
|
See
accompanying notes to condensed consolidated financial statements
Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Condensed
Consolidated Statements of Operations
(in
thousands, except share amounts)
|
|
Three
months ended June 30
|
|
Six
months ended June 30
|
|
|
|
unaudited
|
|
unaudited
|
|
unaudited
|
|
unaudited
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,347
|
|
$
|
3,854
|
|
$
|
4,457
|
|
$
|
7,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,155
|
|
|
1,799
|
|
|
2,218
|
|
|
3,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,192
|
|
|
2,055
|
|
|
2,239
|
|
|
3,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
2,244
|
|
|
3,915
|
|
|
4,305
|
|
|
7,384
|
|
Depreciation
and amortization
|
|
|
170
|
|
|
704
|
|
|
340
|
|
|
1,138
|
|
Loss
from operations
|
|
|
(1,222
|
)
|
|
(2,564
|
)
|
|
(2,406
|
)
|
|
(4,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(54
|
)
|
|
(68
|
)
|
|
(15
|
)
|
|
(415
|
)
|
Other
income (expense), net
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
(14
|
)
|
Loss
before income taxes
|
|
|
(1,276
|
)
|
|
(2,646
|
)
|
|
(2,421
|
)
|
|
(5,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,276
|
)
|
$
|
(2,646
|
)
|
$
|
(2,421
|
)
|
$
|
(5,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.45
|
)
|
$
|
(0.13
|
)
|
$
|
(0.84
|
)
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
2,852
|
|
|
20,683
|
|
|
2,869
|
|
|
15,788
|
|
See
accompanying notes to condensed consolidated financial
statements.
Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Condensed
Consolidated Statement of Stockholders' Equity
(Deficit)
(unaudited)
(in
thousands, except share amounts)
|
|
Series
A, B & C
Preferred
Stock
|
|
Common
Stock and
Additional
Paid-in Capital
|
|
Accumulated
Equity
|
|
Total
Stockholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
(Deficit)
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
5,652,836
|
|
$
|
8
|
|
|
2,898,904
|
|
$
|
10,414
|
|
$
|
(14,423
|
)
|
$
|
(4,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock into common stock
|
|
|
(5,652,836
|
)
|
|
(8
|
)
|
|
5,734,769
|
|
|
8
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of bridge notes into common stock
|
|
|
|
|
|
|
|
|
4,629,340
|
|
|
4,225
|
|
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SP
Holding Corporation shares outstanding at merger
|
|
|
|
|
|
|
|
|
1,126,659
|
|
|
(15
|
)
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares and warrants for cash
|
|
|
|
|
|
|
|
|
8,872,992
|
|
|
13,428
|
|
|
|
|
|
13,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issue costs
|
|
|
|
|
|
|
|
|
|
|
|
(1,406
|
)
|
|
|
|
|
(1,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercised
|
|
|
|
|
|
|
|
|
546,012
|
|
|
|
|
|
|
|
|
|
|
Stock
issued in connection with acquisition of assets
|
|
|
|
|
|
|
|
|
400,000
|
|
|
472
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the six months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,120
|
)
|
|
(5,120
|
)
|
Balance
at June 30, 2007
|
|
|
-
|
|
$
|
-
|
|
|
24,208,676
|
|
$
|
27,222
|
|
$
|
(19,543
|
)
|
$
|
7,679
|
|
See
accompanying notes to condensed consolidated financial statements.
Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Condensed
Consolidated Statements of Cash Flows
(unaudited)
(in
thousands)
|
|
Six
months ended
June
30
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,421
|
)
|
$
|
(5,120
|
)
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
cash
used by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
340
|
|
|
1,138
|
|
Amortization
of debt issue costs and debt
|
|
|
|
|
|
|
|
discount
included in interest expense
|
|
|
62
|
|
|
232
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(136
|
)
|
|
(309
|
)
|
Inventory
|
|
|
(212
|
)
|
|
(53
|
)
|
Prepaid
expenses and other current assets
|
|
|
(84
|
)
|
|
(230
|
)
|
Accounts
payable
|
|
|
46
|
|
|
45
|
|
Accrued
liabilities
|
|
|
84
|
|
|
(354
|
)
|
Other
|
|
|
(115
|
)
|
|
(26
|
)
|
Net
cash used by operating activities
|
|
|
(2,436
|
)
|
|
(4,677
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property, equipment and other assets
|
|
|
(63
|
)
|
|
(1,030
|
)
|
Purchase
of intangible assets
|
|
|
-
|
|
|
(837
|
)
|
Net
cash used by investing activities
|
|
|
(64
|
)
|
|
(1,867
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Principal
payments of notes payable
|
|
|
(64
|
)
|
|
(397
|
)
|
Payments
of capital lease obligations
|
|
|
(12
|
)
|
|
(38
|
)
|
Proceeds
from issuance of notes payable, net
|
|
|
-
|
|
|
500
|
|
Proceeds
from sale of preferred stock, net of issue costs
|
|
|
2,633
|
|
|
-
|
|
Redemption
of common stock
|
|
|
(1
|
)
|
|
12,025
|
|
Proceeds
from sale of common stock, net of issue costs
|
|
|
-
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
2,556
|
|
|
12,090
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
57
|
|
|
5,545
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
250
|
|
|
865
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
307
|
|
$
|
6,410
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
100
|
|
$
|
340
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non-cash
investing and financing activities:
|
|
Equipment
purchased through acquisition
|
|
Capital
leases
|
|
Assets
purchased through issuance of common stock
|
|
Conversion
of debt into common stock
|
|
Conversion
of preferred stock into common stock
|
|
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
2007
|
|
$
|
160,000
|
|
$
|
227,000
|
|
$
|
400,000
|
|
$
|
4,600,000
|
|
$
|
5,700,000
|
|
See
accompanying notes to condensed consolidated financial statements.
Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Notes
to condensed consolidated financial statements
June
30, 2007
Note
1. Description of Business and Summary of Significant Accounting
Policies
Organization
and business
SP
Holding Corporation (“SP”) and its wholly-owned subsidiary Organic To Go, Inc.
(“Organic”), which was acquired in a reverse merger on February 12, 2007 (the
“Closing Date”), provides convenient retail cafes and delivery and catering
facilities, which prepare and serve “grab and go” lunch, dinner, and breakfast
foods and beverages prepared using organic ingredients, whenever possible.
The
company also distributes its products through select wholesale accounts.
In
October 2006, Organic expanded its catering operations in the California
area by
acquiring the assets of a catering operation headquartered in Los Angeles,
California, and in March 2007, it expanded its catering operations by acquiring
the assets of a catering operation located in Seattle, Washington. In May
2007,
SP changed its name to Organic To Go Food Corporation (“the Company”). At June
30, 2007, the Company operates five stores in Washington and eight stores
in
California.
Reverse
merger with public shell company in February 2007
Pursuant
to the terms of an Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) by and among Organic and SP, on February 12, 2007, all of the
outstanding shares of Organic common and preferred stock were exchanged for
shares of SP common stock as determined by multiplying each such outstanding
share of Organic stock by the exchange ratio of 0.69781 (the “Exchange Ratio”).
In connection with the merger, Organic convertible promissory bridge notes
approximating $5.3 million automatically converted into SP common stock.
As a
result, among other things, Organic became a wholly-owned subsidiary of SP.
Outstanding Organic options, warrants and purchase rights were converted
into
options, warrants and purchase rights to purchase of shares of SP common
stock
in accordance with the Exchange Ratio. The closing of the merger was conditioned
upon SP closing a private placement offering of a minimum of eighty units
(the
“Units”) at a purchase price of $50,000 per Unit for $4 million. Each Unit
consists of (i) 40,000 shares of SP common stock and (ii) a warrant to purchase
8,000 shares of SP common stock at an exercise price of $2.50 per share,
exercisable for a period of five years from the date of issuance. Consummation
of the merger occurred concurrently with completion of a private placement
of
138 Units, for an aggregate of approximately $6.9 million. Prior to the merger,
SP was a non-operating “public shell” company. The merged company operates under
the name of Organic To Go, Inc.
From
an
accounting perspective, the merger transaction is considered a recapitalization
of Organic accompanied by the issuance of stock by Organic for the assets
and
liabilities of SP, as a result of SP not having operations immediately prior
to
the merger, and following the merger, SP becoming an operating company. After
the merger and private placement, former SP stockholders own approximately
5% of
the common stock of the merged company, former Organic stockholders and
convertible bridge note holders own approximately 70% of the merged company,
and
new investors owns approximately 25% of the merged company. The board of
directors and executive officers are comprised of Organic directors and
executive officers. In these circumstances, the merger transaction is accounted
for as a capital transaction rather than as a business combination, in that
the
transaction is equivalent to the issuance of stock by Organic for the assets
and
liabilities of SP, accompanied by a recapitalization. The accounting is
identical to that resulting from a reverse acquisition, except that no goodwill
or other intangible is recorded. All share and per share information presented
and disclosed in these financial statements have been Exchange Ratio adjusted.
Basis
of presentation and going concern
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation
of the
Company as a going concern. Since inception, the Company has reported recurring
losses and cash used by operating activities that could raise doubt about
its
ability to continue as a going concern. Since inception, the Company has
funded its operations and business development and growth through debt and
equity financings. In this regard, during 2006 the Company raised approximately
$8.1 million pursuant to sales of debt and equity securities in connection
with
its private placement and subordinated debt offerings. Further, during the
three
months ended March 31, 2007, proceeds of approximately $6.9 million were
received from the sale of equity securities in connection with the merger
and
private placement, and approximately $5.3 million of notes payable have been
converted into common shares. Additionally, during the three months ended
June 30, 2007, proceeds of approximately $7.2 million have been received
from
the sales of debt and equity securities. While the Company plans to become
profitable during the second half of 2007 management intends to continue
to be
engaged in additional fund-raising activities to fund future capital
expenditures, potential acquisitions of businesses, and provide additional
working capital. The Company anticipates having sufficient working capital
in place for the next 12 months to continue operations. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts
and classifications of liabilities that could result should the Company not
continue as a going concern.
Use
of
estimates in the preparation of financial statements
Preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts
of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The more significant accounting estimates inherent
in the
preparation of the Company's financial statements include estimates as to
the
depreciable lives of property and equipment, valuation of inventories,
recoverability of long-lived assets, valuation of intangible assets and
allocation of purchase price, valuation of equity related instruments issued,
and valuation allowance for deferred income tax assets.
Interim
financial statements
The
unaudited interim condensed consolidated financial statements and related
notes
are presented in accordance with the rules and regulations of the Securities
and
Exchange Commission with regard to interim financial information. Accordingly,
the condensed consolidated financial statements do not include all of the
information and notes to financial statements required by accounting principles
generally accepted in the United States for complete financial statements.
In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of the Company’s
financial position, results of operations and cash flows for the interim
periods
presented have been included. Results of operations for the three months
and six
months ended June 30, 2007 are not necessarily indicative of the results
to be
expected for the entire fiscal year ending December 31, 2007 or for any other
future interim period. The accompanying unaudited interim condensed consolidated
financial statements should be read in conjunction with the audited annual
financial statements included in the Company’s December 31, 2006 Annual Report
on Form 10-KSB.
Contingencies
Certain
conditions may exist as of the date financial statements are issued, which
may
result in a loss to the Company, but which will only be resolved when one
or
more future events occur or fail to occur. Company management and its legal
counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related
to
legal proceedings that are pending against the Company or unasserted claims
that
may result in such proceedings, the Company's legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as
the
perceived merits of the amount of relief sought or expected to be sought
therein. If the assessment of a contingency indicates that it is probable
that a
liability has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company's financial
statements. If the assessment indicates that a potentially material loss
contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, together
with
an estimate of the range of possible loss if determinable would be
disclosed.
Concentrations
All
of
the Company’s operations are currently located in Washington and California, and
as a result, is sensitive to negative occurrences in markets where the Company
is located, and particularly susceptible to adverse trends and economic
conditions including labor markets. In addition, given geographic
concentration, negative publicity regarding any of our operations in Washington
or California could have a material adverse effect on the Company’s business and
operations, as could other regional occurrences such as local strikes,
earthquakes or other natural disasters.
Accounts
receivable
The
Company extends credit to some of its customers. Accounts receivable are
customer obligations due under normal trade terms. The Company performs
continuing credit evaluations of its customers’ financial condition. Management
reviews accounts receivable on a regular basis on contracted terms and how
recently payments have been received in order to determine estimates of amounts
that could potentially be uncollectible. The Company includes an estimate of
the
amount that is more likely that not to be uncollectible in its allowance for
doubtful accounts. Accounts uncollected are ultimately written off after all
reasonable collection efforts have occurred.
Inventory
Inventory,
which consists primarily of food, beverages and packaging products, is stated
at
the lower of cost or market. Cost is determined by the first-in, first-out
method. In assessing the ultimate realization of inventories, Company management
makes judgments as to future demand requirements compared to current inventory
levels.
Identifiable
intangible assets
In
connection with the acquisition in October 2006 of certain assets of a catering
business, the Company acquired certain identifiable intangible assets including
customer-based intangibles and a covenant not to compete received from the
sellers. This acquisition has been accounted for in accordance with Statement
of
Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No.
141”). Amounts allocated to intangible assets were identified by management and
have been valued on a number of factors based upon preliminary estimates.
The
estimate of useful lives of each intangible asset was based on an analysis
by
management of all pertinent factors, and selected an estimated useful life
of
two years for each identifiable intangible asset. Customer based intangible
assets are amortized utilizing an accelerated method and non-compete intangible
assets are amortized on a straight-line basis. At June 30, 2007, identifiable
intangible assets were comprised of customer based of approximately $2.27
million, less accumulated amortization of $878,000, and non-compete of
approximately $150,000, less accumulated amortization of approximately $50,000.
Amortization expense for these intangible assets will approximate $1.59 million
in 2007 and $663,000 in 2008.
Goodwill
In
March
2007, the Company acquired certain assets of a catering business, which has
been
accounted for in accordance with SFAS No. 141, and in connection therewith
the
Company has preliminarily recorded the excess of purchase price over the fair
value of identifiable assets acquired as goodwill. Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No.
142”) provides that goodwill should not be amortized, but should rather be
reviewed at least annually to assess recoverability. This statement requires
that goodwill and long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability
of
assets to be held and used is measured by a comparison of the carrying amount
of
an asset to future net discounted cash flows expected to be generated by the
asset or other valuation methods. If such assets are considered to be impaired,
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the asset’s fair value.
In
accordance with SFAS No. 142, the Company will test goodwill for impairment
at
on an annual basis. SFAS No. 142 requires a two-step goodwill impairment test
whereby the first step, used to identify potential impairment, compares the
fair
value of a reporting unit with its carrying amount including goodwill. If the
fair value of a reporting unit exceeds its carrying amount, goodwill is
considered not impaired, thus the second step of the goodwill impairment test
used to quantify impairment is unnecessary.
Company
management has estimated that the fair values of the Company’s reporting units
to which goodwill has been allocated exceed their carrying amounts.
Deferred
debt issue costs
The
Company capitalizes costs incurred in connection with borrowings. These costs
are amortized as an adjustment to interest expense over the life of the
borrowing.
Debt
discount
The
Company records the fair value of warrants issued with debt securities as a
debt
discount, which is amortized as an adjustment to interest expense over the
life
of the borrowing.
Revenue
recognition
Revenues
are recognized at the point of sale at retail locations or upon delivery of
the
product for delivery and wholesale transactions.
Cost
of sales
Cost
of
sales includes the cost of food and paper products.
Income
taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes,” which requires recognition of deferred tax assets and
liabilities for expected future tax consequences of events that have been
included in financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases
of
assets and liabilities and their financial reporting amounts at each period
end
based on enacted tax laws and statutory tax rates applicable to the periods
in
which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to
amounts expected to be realized. The Company continues to provide a full
valuation allowance to reduce its net deferred tax asset to zero, inasmuch
as
Company management has not determined that realization of deferred tax assets
is
more likely than not. The provision for income taxes represents the tax payable
for the period and change during the period in net deferred tax assets and
liabilities.
Stock-based
compensation
Prior
to
January 1, 2006, the Company accounted for employee stock option grants in
accordance with APB No. 25, and adopted the disclosure-only provisions of
SFAS
No. 123, “Accounting for Stock-Based Compensation,” amended by SFAS No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure.” In
December 2004, the FASB released a revision to SFAS No. 123, “Accounting for
Stock-Based Compensation” (“FAS 123R”). FAS 123R sets forth the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions using APB Opinion No. 25, “Accounting for Stock Issued to
Employees,” and generally requires instead that such transactions be accounted
for using a fair-value-based method, which requires recording an expense
over
the requisite service period for the fair value of all options or warrants
granted to employees and consultants. The Company adopted FAS 123R effective
beginning January 1, 2006 using the modified prospective
method.
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Task Force Issue No. 96-18,
“Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling Goods or Services.” Compensation
expense related to equity instruments issued to non-employees is recognized
as
the equity instruments vest.
Basic
and diluted net loss per share
Basic
net
loss per common share is computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. Diluted net loss per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common
stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options, warrants or convertible promissory notes, or conversion of
preferred stock shares. In periods where losses are reported, the
weighted-average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive. In connection
with
the merger with SP in February 2007, all shares of Organic preferred stock
automatically converted into an equal number of Organic common shares and
all
Organic common shares automatically converted into SP common shares at the
Exchange Ratio adjusted number of shares equal to .69781 SP common shares
for
every 1 Organic common share. All share and per share amounts have been Exchange
Ratio adjusted. Computations of net loss per share for the three months ended
June 30, 2007, exclude approximately 5,819,045 shares issuable upon exercise
of
outstanding and issuable warrants and approximately 2,814,554 shares of common
stock issuable upon exercise of outstanding stock options. These common stock
equivalents could have the effect of decreasing diluted net income per share
in
future periods.
For
purposes of determining the weighted average number of common shares outstanding
historical Organic shares outstanding have been multiplied by the Exchange
Ratio, which results in a fewer number of shares outstanding that historical
amounts.
Recent
accounting pronouncements
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN No. 48”),
which prescribes a recognition threshold and measurement process for recording
in the financial statements uncertain tax positions taken or expected to
be
taken in a tax return. Additionally, FIN No. 48 provides guidance on
the recognition, classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. The accounting provisions of
FIN No. 48 was effective for the Company beginning January 1,
2007, the adoption of which did not have a significant effect on its results
of
operations or financial position.
In
December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2 “Accounting
for Registration Payment Arrangements” (“FSP EITF 00-19-2”), which addresses an
issuer’s accounting and disclosures relating to registration payment
arrangements. In connection with issuance of Units in the private placement
in
February 2007, the Company has registered the shares underlying the Units.
In
accordance with FSP EITF 00-19-2, the registration payment arrangements are
accounted for as an instrument separate and apart from the related securities
and will be accounted for in accordance with Statement of Financial Accounting
Standards No. 5 “Accounting for Contingencies,” accruing a liability if payment
is probable and the amount can be reasonably estimated.
Note
2. Notes payable
Notes
payable consist of the following (in thousands):
|
|
December
31,
2006
|
|
June
30,
2007
|
|
Notes
payable, interest at 6% to 8%, collateralized by vehicles and
equipment
|
|
$
|
323
|
|
$
|
189
|
|
Convertible
promissory note, interest at 8.25%, due September 2007, collateralized
by
substantially all assets
|
|
|
759
|
|
|
759
|
|
Promissory
notes, interest at 7.75% per annum, due April 2010, collateralized
by
certain assets
|
|
|
418
|
|
|
418
|
|
Convertible
promissory notes, interest at 8% per annum, due June 2007
|
|
|
5,275
|
|
|
-
|
|
Convertible
promissory notes, interest at 8% per annum, due June 2008
|
|
|
525
|
|
|
525
|
|
Promissory
note payable, interest at prime plus 1% per annum, due March
2009
|
|
|
-
|
|
|
133
|
|
Promissory
note payable, interest at 9% per annum, due December 2006
|
|
|
275
|
|
|
-
|
|
Promissory
note payable, interest at 8% per annum, due October 2010
|
|
|
|
|
|
68
|
|
Promissory
note payable, interest at 18% per annum, due May 2008
|
|
|
|
|
|
500
|
|
Total
notes payable
|
|
|
7,575
|
|
|
2,592
|
|
Less:
unamortized original discount
|
|
|
(
702
|
)
|
|
(
68
|
)
|
Less:
current portion of notes payable
|
|
|
(6.281
|
)
|
|
(
1,474
|
)
|
Notes
payable, net of current portion
|
|
$
|
592
|
|
$
|
1,050
|
|
The
Company has a borrowing agreement with a vendor providing for borrowings
up to
$500,000, potentially increasing up to $1 million based on the occurrence
of new
location openings, which borrowing amount was limited pursuant to terms of
the
agreement to amounts borrowed as of March 31, 2006, which was approximately
$759,000. The note payable requires monthly payments of interest at the prime
rate plus 1% (9.25% at December 31, 2006, March 31, 2007 and June 30, 2007),
with the principal due in September 2007, and is convertible at the note
holder’s option into shares of the Company’s common stock at an Exchange Ratio
adjusted conversion price of approximately $1.68 per share. If the note is
not
converted in full on or before the maturity date, the then outstanding principal
balance and accrued interest shall automatically convert into a term note,
which
shall provide for thirty-six equal monthly payments and a final maturity
date in
September 2010. The note is collateralized by a pledge of Company
assets.
In
connection with an asset purchase agreement in 2005, the Company issued
promissory notes of approximately $600,000, which bear interest at 7.75% per
annum payable quarterly, with principal due in April 2010, and are
collateralized by a security interest in the acquired assets. In April 2006,
pursuant to a repurchase agreement, the Company repurchased two of the notes
having a total face value of approximately $182,000 for $130,000 cash and
recorded the resultant gain on extinguishment of debt in other
income.
During
2006, the Company received approximately $4.3 million through the issuance
of
approximately $3.8 million of convertible promissory notes bearing interest
at
8% due June 2007 (the “Bridge Notes”) and $525,000 of convertible promissory
notes bearing interest at 8% due June 2008 (the “2 year Bridge Notes”) and
warrants to purchase shares of Company common stock (together with the notes,
the “Bridge Securities”). The estimated fair value of the warrants of
approximately $768,000 was recorded as an original issue discount to be
amortized to interest expense on a straight-line basis over the 7-month term
of
the notes. Additionally, in 2006, the Company received approximately $1.6
million through the issuance convertible promissory notes bearing interest
at
24%, approximately $1.5 million of which were converted at the holders’ option
into bridge notes and the remaining notes were repaid. Warrants were issued
in
connection with the short-term loans, the fair value of which was expensed
over
the debt term prior to conversion. Bridge Notes of approximately $5.8 million
were convertible at the note holders’ option, or in certain circumstances
automatically, into shares of the Company’s common stock at an Exchange Ratio
adjusted conversion price of approximately $1.68 per share. In February 2007,
in
connection with the closing of the merger with SP, the Bridge Notes of
approximately $5.3 million were automatically converted into common stock.
Portion of the bridge known as “Satellite Note” of $525,000 was not
converted.
During
2006, the Company borrowed $275,000 from one of the Company’s equity and bridge
note investors pursuant to a promissory note payable of $275,000, bearing
interest at 9% per annum, which was outstanding and due at December 31, 2006,
and which was repaid in full during the three months ended March 31, 2007.
During
2007, the Company borrowed $500,000 from three of the Company’s equity and
bridge note investors pursuant to a promissory note payable of $500,000,
bearing
interest at 18% per annum, all of which are due on May 15, 2008. As part
of
purchase agreements
with Jackrabbits Inc. and Leonard Rosenaur, the Company issued promissory
notes
of $150,000 and $75,000, bearing interests at 9.25% and 8% per annum, and
due on
March 11, 2009 and October 10, 2010 respectively.
Future
minimum principal payments on notes payable at June 30, 2007 are as follows
(in
thousands):
2008
|
|
$
|
1,482
|
|
2009
|
|
|
678
|
|
2010
|
|
|
12
|
|
2011
|
|
|
420
|
|
|
|
$
|
2,592
|
|
Note
3. Reverse Merger with Public Shell Company, Private Placement and Stockholders’
Equity
Reverse
merger
On
February 12, 2007, pursuant to an Agreement and Plan of Merger and
Reorganization by and among Organic and SP, Organic became a wholly owned
operating subsidiary of SP. Those persons holding shares of Organic capital
stock, warrants and options to purchase shares of Organic capital stock,
and
certain promissory notes convertible into shares of Organic capital stock,
received shares of SP common stock, $.001 par value per share and warrants
and
options to purchase shares of SP common stock.
Under
the
terms of the merger, each share of Organic common stock and Organic preferred
stock (which included certain issued and outstanding convertible promissory
notes on an “as converted” basis) outstanding immediately prior to the closing
of the merger was converted into the right to receive 0.69781 shares of SP
common stock. Under the terms of the merger, each then convertible promissory
note whose holder had not previously elected to convert to Organic common stock,
became convertible for shares of SP common stock, provided that (i) the face
value of each such convertible note remained unchanged, (ii) each such
convertible note became convertible for such number of shares of SP common
stock
as was determined by multiplying the number of Organic shares underlying said
convertible note by the Exchange Ratio, with the resulting product rounded
down
to the nearest whole number of shares, and (ii) the per share conversion price
for each convertible note determined by dividing the conversion price per share
for said convertible note by the Exchange Ratio, with the resulting quotient
rounded down to the nearest whole cent.
Under
the
terms of the merger, each then outstanding option and warrant to purchase shares
of Organic common stock, whether or not exercisable, was converted into an
option or warrant to purchase shares of SP common stock upon the same terms
and
conditions as the corresponding Organic options and warrants, provided that
(i)
each such Organic option and warrant related to such number of shares of SP
common stock as was determined by multiplying the number of shares of Organic
common stock underlying such Organic option or warrant by the Exchange Ratio,
with the resulting product rounded down to the nearest whole number of shares,
and (ii) the per share exercise price for the newly-issued SP options or
warrants was determined by dividing the exercise price per share of such Organic
options or warrants by the Exchange Ratio, with the resulting quotient rounded
down to the nearest whole cent.
Private
placement
Consummation
of the merger occurred concurrently with the completion of a private placement
of 138 Units for an aggregate of approximately $6.9 million, issued by SP.
Each
Unit is comprised of (i) 40,000 shares of SP common stock, and (ii) a detachable
five-year warrant to purchase 8,000 shares of SP common stock, at an exercise
price of $2.50 per share (the “SP Warrants”). The purchase price per Unit was
$50,000. Pursuant thereto the Company issued to the investors an aggregate
of
5,522,992 shares of SP common stock and SP Warrants to purchase 1,104,598
shares
of Company common stock.
Organic
engaged Burnham Hill Partners, a division of Pali Capital, Inc., as the
Placement Agent (the “Placement Agent”) in connection with the Private
Placement. Pursuant to the terms of the engagement with the Placement Agent,
the
Placement Agent, or its registered assignees or designees, received a cash
commission of 10% of the gross proceeds from the Units sold in the Private
Placement. In addition, the Company issued to the Placement Agent or its
registered assignees or designees, SP Warrants (the “Placement Agent Warrants”)
to purchase up to 888,899 shares of SP common stock.
The
Placement Agent Warrants are exercisable at any time at a price equal to
110% of
the price paid by the investors in the private placement, on a net-issuance
or
cashless basis. The Placement Agent Warrants have registration rights similar
to
the registration rights afforded to the holders of SP Warrants. The Placement
Agent Warrants are fully vested and have a term of five
years.
The
issuance of SP common stock to the Organic stockholders and the investors is
intended to be exempt from registration under the Securities Act of 1933, as
amended (the “Securities Act”), pursuant to Section 4(2) thereof. As such, the
SP common stock received by the Organic stockholders pursuant to the merger
and
issued to the investors pursuant to the Private Placement may not be offered
or
sold in the United States unless they are registered under the Securities Act,
or an exemption from the registration requirements of the Securities Act is
available. In April 2007, the Company filed a registration statement covering
these securities with the Securities and Exchange Commission, which such
registration statement was declared effective in May 2007.
During
the three months ended June 30, 2007, the Company closed a private placement
with select accredited investors related to the sale and issuance of an
aggregate of 3,350,000 shares of common stock of the Company and warrants
to
purchase an aggregate of 1,340,000 shares of common stock. The aggregate
gross
proceeds raised by the Company was approximately $6.7 million. Each share
was
sold to the investors at $2.00 per share. The warrants will expire five years
from the date of issue and may be exercised at $2.50 per share, subject to
adjustment in certain circumstances. In connection with the private placement,
the Company paid its placement agents an aggregate cash commission equal
to
$84,000. In addition, the Company reimbursed the placement agents $40,000
for
costs and expenses incurred in connection with the private placement, and
issued
to the placement agents five-year warrants to purchase an aggregate of 21,000
shares of common stock, at an exercise price of $2.50 per share, subject
to
adjustment in certain circumstances. The private placement was conducted
pursuant to Section 4(2) of the Securities Act , and Rule 506 promulgated
thereunder.
Authorized
shares
SP
is
currently authorized under its Amended and Restated Certificate of Incorporation
to issue 500,000,000 shares of its common stock and 10,000,000 shares of its
preferred stock. Prior to closing of the merger and private placement, there
were 439,403 shares of SP common stock issued and outstanding and 60 shares
of
SP preferred stock issued and outstanding. At the closing of the merger and
private placement and after giving effect thereto, there were 19,595,671 shares
of SP common stock issued and outstanding and no shares of preferred stock
issued and outstanding (the 60 shares of SP preferred stock issued and
outstanding prior to the merger having automatically converted into 687,271
shares of SP common stock upon closing of the merger).
Warrants
As
of
March 31, 2007, in conjunction with various financing related agreements,
including issuances of debt and equity securities, the Company issued warrants
for a term of approximately 5 years to purchase shares of the Company’s common
stock at exercise prices ranging from $1.17 to $1.38 per share for approximately
4,165,000 shares and at $2.50 per share for approximately 1,105,000 shares.
As
of June 30, 2007, the Company issued warrants at exercise prices ranging
from
$1.17 to $2.50 per share for approximately 1,371,000 shares and 822,270 shares
were redeemed .
Stock
options
During
the three and six months ended June 30, 2006, the Company granted to certain
officers and directors no options and approximately 349,000 options,
respectively, to purchase Company common stock for a period of 10 years from
grant with an exercise price of $0.17 per share. During the three months
ended
March 31, 2007, the Company granted to its Chief Executive Officer and certain
Company employees approximately 1.4 million options to purchase Company common
stock for a period of 10 years from grant with exercise prices of $1.38 for
1,246,674 shares and $3.60 per share for 150,000 shares. During the three
months
ended June 30, 2007, the Company granted to certain officers approximately
776,000 options to purchase Company common stock for a period of 10 years
from
grant with an exercise price of $2.23 per share. The Company determines the
fair
value of options granted using the Black-Scholes option-pricing model. The
determination of the fair value of stock-based awards on the date of grant
using
an option pricing model is affected by the stock price as well as assumptions
regarding a number of highly complex and subjective variables. These variables
include, among others, the expected life of the award, expected stock price
volatility over the term of the award and actual and projected exercise
behaviors. Although the fair value of stock-based awards is determined in
accordance with SFAS 123R and SAB 107, the Black-Scholes option pricing model
requires the input of highly subjective assumptions, and other reasonable
assumptions could provide differing results. The weighted average fair value
of
stock options granted during the three months ended March 31, 2006 and 2007
was
approximately $0.09 and $0.50 per share, respectively, and the weighted average
fair value of stock options granted during the three months ended June 30,
2007
was approximately $1.11 per share determined using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%; expected
volatility of 50% (based on the volatilities of common stock of comparable
public companies); risk-free interest rates of approximately 5%, and estimated
lives of 5 years.
Compensation
expense recognized for stock options approximated $9,000 and $77,000 for
the
three months ended June 30, 2006 and 2007, respectively, and $12,000 and
$96,000
for the six months ended June 30, 2006 and 2007, respectively. As of June
30,
2007, there was approximately $1.4 million of unrecognized compensation cost
related to unvested stock options granted, which is expected to be recognized
as
expense over a period of approximately 3 years. The intrinsic value of stock
options outstanding and exercisable is based on the close/last price for
the
Company’s common stock as reported by OTCBB of $1.43 per share at December 31,
2006 and $2.24 June 30, 2007, and is calculated by aggregating the difference
between the close price and the exercise price of vested and unvested stock
options which have an exercise price less than the close price. The following
summarizes activity for stock options:
|
|
|
Outstanding
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average remaining
contractual
life in years
|
|
|
Aggregate
intrinsic
value
(in
thousands)
|
|
Balance
at December 31, 2006
|
|
|
655,545
|
|
$
|
0.54
|
|
|
9.4
|
|
$
|
585
|
|
Granted
|
|
|
2,172,965
|
|
$
|
1.84
|
|
|
10.0
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired/
Cancelled
|
|
|
(13,956
|
)
|
|
-
|
|
|
|
|
|
|
|
Balance
at June 30, 2007
|
|
|
2,814,554
|
|
$
|
1.54
|
|
|
9.4
|
|
$
|
2,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2007
|
|
|
272,615
|
|
$
|
2.46
|
|
|
8.9
|
|
$
|
481
|
|
Additional
information regarding stock options outstanding as of June 30, 2007, is as
follows:
Exercise
prices
|
|
Shares
|
|
Weighted
average
remaining
life
|
|
$
0.17
|
|
|
349,254
|
|
|
8.7
years
|
|
0.34
|
|
|
118,628
|
|
|
9.0
years
|
|
1.38
|
|
|
1,246,674
|
|
|
9.6
years
|
|
1.43
|
|
|
173,707
|
|
|
9.3
years
|
|
2.23
|
|
|
776,291
|
|
|
9.8
years
|
|
3.60
|
|
|
150,000
|
|
|
9.7
years
|
|
Total
|
|
|
2,814,554
|
|
|
9.5
years
|
|
Note
4. Acquisition of businesses
In
October 2006, pursuant to terms of an asset purchase agreement, the Company
acquired for $1 million cash, among other things, all inventory, furniture,
fixtures, equipment, customer lists, leasehold improvements, and owned vehicles
used in connection with a catering business in California. Other than the notes
payable on the vehicles, no liabilities were assumed by the buyer. The buyer
also entered in to a one year lease agreement for the building owed by the
seller. The total purchase price of approximately $1.1 million, including
related acquisition costs, was allocated to assets acquired based on relative
estimated fair values, which resulted in the majority being allocated to
customer based identifiable intangible assets, and which is summarized as
follows (in thousands):
Inventory
|
|
$
|
12
|
|
Furniture,
fixtures and equipment
|
|
|
29
|
|
Customer
based intangible assets
|
|
|
860
|
|
Covenant
not to compete intangible asset
|
|
|
150
|
|
Note
payable
|
|
|
(9
|
)
|
|
|
$
|
1,042
|
|
In
March
2007, pursuant to terms of an asset purchase agreement, the Company acquired
for
cash of approximately $612,000, a $150,000 promissory note and 400,000 shares
of
its common stock, among other things, all inventory, furniture, fixtures,
equipment, leasehold improvements, customer lists and other intangible assets
used in connection with Jackrabbit, LLC, a Seattle-based catering business
(“Jackrabbit”). Other than a facilities lease and equipment lease, no
liabilities were assumed by the Company. The total purchase price approximates
$1.2 million, and because information known to exist as it pertains to estimates
of fair values of intangible assets, has been preliminarily allocated to
assets
acquired based on relative estimated fair values, which resulted in the majority
being allocated to customer based intangibles, and which is summarized as
follows (in thousands):
Inventory
|
|
$
|
32
|
|
Furniture,
fixtures, equipment and vehicles
|
|
|
160
|
|
Customer
based intangible assetsl
|
|
|
1,084
|
|
Liabilities
assumed
|
|
|
(42
|
)
|
|
|
$
|
1,234
|
|
Operating
results for the acquired businesses are included in the Company’s operating
results from the dates of acquisitions. The following supplemental pro forma
information has been presented on the basis as if the asset acquisitions of
the
catering businesses had occurred at the beginning of the periods presented
(in
thousands):
|
|
Six
months ended
June
30
|
|
|
|
2006
|
|
2007
|
|
Sales
|
|
$
|
6,365
|
|
$
|
7,831
|
|
Net
loss
|
|
$
|
(3,364
|
)
|
$
|
(5,120
|
)
|
Net
loss per share
|
|
$
|
(1.17
|
)
|
$
|
(0.32
|
)
|
Note
5. Commitments and contingencies
The
Company leases its cafes, central kitchens and office facilities under
non-cancelable operating leases, some with renewal options. Rents are fixed
base
amounts, some with escalating rents and some with contingent rentals based
on
sales. Lease provisions also require additional payments for maintenance
and
other expenses. Rent is expensed on a straight-line basis over the term of
the
lease. The difference between amounts paid and expensed is recorded as a
deferred credit. The Company also leases certain point-of-sale computer hardware
and software pursuant to capital leases. Subsequent to December 31, 2006,
the
Company has entered into two new leases, one for the former Jackrabbit, LLC
central kitchen facility in Seattle, which provides for minimum future lease
payments over its five year term of approximately $602,000, and the other
for a
new store lease in Seattle, which provides for minimum future lease payments
over its five year term of approximately $209,000. During the three months
ending June 30, 2007, the Company has entered into two new store leases in
Los
Angeles, which provides for minimum future lease payments over their five
year
term of approximately $687,000 and one new store lease in Los Angeles, which
provides for minimum future lease payments over their six year term of
approximately $221,000. The Company has also entered into three leases for
delivery vehicles pursuant to capital leases, which provides for additional
minimum future lease payments over their four and five year terms of
approximately $221,000.
From
time
to time, the Company is subject to various legal proceedings and claims that
may
arise in the ordinary course of business. Further, in the past, certain vendors
have taken legal action against the Company as a result of untimely payment
of
invoices. In some cases, the courts have stipulated judgment requiring the
Company to pay interest and comply with payment schedules. Company management
currently believes that resolution of such legal matters will not have a
material adverse impact on the Company’s financial
statements.
On
October 18, 2006, Susana Chi, a former employee of the Company, brought suit
against the Company in the Superior Court of the State of California for
the
County of Los Angeles claiming discrimination, wrongful termination and
infliction of emotional distress in connection with the termination of Ms.
Chi’s
employment. The Company filed an answer to Ms. Chi’s complaint and, subsequently
caused the suit to be transferred to U.S. Federal District Court. On June
15,
2007, the parties reached a settlement agreement with respect to this matter,
which was immaterial to the Company's financial results.
Effective
January 1, 2007, the Company entered into an employment agreement with a
three-year term with its founder and Chief Executive Officer, pursuant to
which,
the executive officer shall receive a base salary at an annual rate of $225,000,
subject to annual increases as determined by the Company’s Board of Directors,
is also eligible for cash bonuses, and other typical employment benefits.
In
addition, effective upon the closing of the merger, the executive officer
received 1,246,674 options to purchase shares of SP Common Stock at an
exercise
price of $1.38 per share, with a term of 10 years from grant. Options
granted vest 25% after 12 months of employment, with the remainder vesting
over
the next 36 months, subject to accelerated vesting in the event of a “Change in
Control,” as defined in the employment agreement, or in certain other
circumstances. Under certain departure circumstances, the executive officer
could be eligible to receive payments of one year’s salary and
benefits.
Organic
To Go Food Corporation
Unaudited
Pro Forma Condensed Consolidated Statements of
Operations
Introduction
Merger,
Private Placement and Conversion of Preferred Stock and Debt to Common Stock
-
Pursuant to terms of the Agreement and Plan of Merger and Reorganization
(the
“Merger
Agreement”) by
and
among SP Holding Corporation (“SP”)
and
Organic
Holding Company, Inc. (“Organic”),
on February 12,
2007 (the “Closing
Date”),
all outstanding
shares of Organic common and preferred stock were exchanged for shares of
SP
common stock as determined by multiplying each such outstanding share of
Organic
stock by the exchange ratio of 0.69781 (the “Exchange
Ratio”),
and Organic
convertible promissory bridge notes approximating $5.3 million automatically
converted into SP common stock. As a result, among other things, Organic
became
a wholly-owned subsidiary of SP. Outstanding Organic options, warrants and
purchase rights were converted into options, warrants and purchase rights
for
the purchase of shares of SP common stock in accordance with the same Exchange
Ratio. The closing of the merger was conditioned upon SP closing a private
placement offering of a minimum of eighty units (the “Units”)
at
a purchase
price of $50,000 per Unit for $4 million. Each Unit consists of (i) 40,000
shares of SP common stock, and (ii) a warrant to purchase 8,000 shares of
SP
common stock at an exercise price of $2.50 per share exercisable for a period
of
five years from the date of issuance. Consummation of the merger occurred
concurrently with completion of a private placement of 138 Units, for an
aggregate of approximately $6.9 million. Prior to the merger, SP was a
non-operating “public shell” company. The merged company operates under the name
Organic To Go. In May 2007, SP changed its name to Organic To Go Food
Corporation.
From
an
accounting perspective, the merger transaction is considered as a
recapitalization of Organic accompanied by an issuance of stock by Organic
for
the net liabilities of SP, as a result of SP not having operations immediately
prior to the merger, and following the merger, Organic is the operating company.
After the merger, former SP stockholders own approximately 5% of the common
stock of the merged company, and former Organic stockholders and convertible
bridge note holders own approximately 70% of the merged company, and new
investors owns approximately 25% of the merged company. The board of directors
and executive offices are comprised of Organic directors and executive officers.
In these circumstances, the merger transaction is accounted for as a capital
transaction rather than as a business combination, in that the transaction
is
equivalent to the issuance of stock by Organic for the net liabilities of
SP,
accompanied by a recapitalization. The accounting is identical to that resulting
from a reverse acquisition, except that no goodwill or other intangible is
recorded.
Business
Combinations -
On
October 27, 2006, Organic acquired for $1 million cash, among other things,
all
inventory, furniture, fixtures, equipment, customer lists, leasehold
improvements and owned vehicles used in connection with the catering business
of
Vinaigrette Catering Company, LLC (“Vinaigrette”) based in Southern California.
Other than the notes payable on the vehicles, no liabilities were assumed.
This
transaction has been accounted for as the acquisition of Vinaigrette by Organic
under the purchase method of accounting in accordance with Statement of
Financial Accounting Standards (“SFAS”) No.
141.
Under the purchase method of accounting, the total purchase price of
approximately $1.0 million was allocated to the net tangible and intangible
assets acquired in connection with the transaction, based on their relative
estimated fair values as of the Closing Date, which resulted in the majority
being allocated to customer based identifiable intangible
assets.
Additionally,
on March 19, 2007, Organic acquired for cash of approximately $612,000, a
$150,000 promissory note and 400,000 shares of its common stock, among other
things, all inventory, furniture, fixtures, equipment, leasehold improvements,
customer lists and other intangible assets used in connection with the catering
business of Jackrabbit, LLC (“Jackrabbit”),
based in
Seattle, Washington. This transaction has been accounted for as the acquisition
of Jackrabbit by Organic under the purchase method of accounting in accordance
with SFAS No. 141. Under the purchase method of accounting, the total purchase
price of approximately $1.2 million was allocated to the net tangible and
intangible assets acquired in connection with the transaction, based on their
relative estimated fair values as of the Closing Date, which resulted in
the
majority being allocated to customer based identifiable intangible
assets.
The
unaudited pro forma condensed consolidated statements of operations for the
year
ended December 31, 2006, and the six months ended June 30, 2007, gives effect
to
(i) the Organic acquisitions of Vinaigrette and Jackrabbit businesses, and
(ii)
the Organic and SP merger and related conversion of Organic preferred stock
and
certain debt into SP common stock as if they had occurred as of the beginning
of
periods presented.
The
accompanying unaudited pro forma condensed combined consolidated financial
statements are presented in accordance with Article 11 of Regulation S-X.
The
pro forma information is presented for illustrative purposes only and is
not
necessarily indicative of the operating results that would have occurred
if the
aforementioned events had been consummated as of the beginning of periods
presented, nor is it necessarily indicative of future operating results or
financial position. The pro forma financial statements should be read in
conjunction with the accompanying notes and with Organic and Vinaigrette
historical financial statements, which are included in this Registration
Statement on Form SB-2.
Organic
To Go Food Corporation
|
Unaudited
Pro Forma Condensed Statements of Operations
|
Giving
effect to the Organic Holding Company, Inc. conversion of debt
to equity
in February 2007 and
|
acquisitions
of Vinaigrettes Catering Company, LLC in October 2006 and Jackrabbit,
LLC
in March 2007
|
(in
thousands, except share data)
|
|
|
For
the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Adjustments
|
|
|
|
|
|
Organic
Holding
Company,
Inc.
|
|
Vinaigrette
Catering
Company,
LLC
|
|
|
|
|
|
Conversion
of
Debt
to Equity
|
|
|
|
|
|
|
|
(1/1
- 10/26)
|
|
(1/1
- 12/31)
|
|
|
|
|
|
|
|
Sales
|
|
$
|
9,663
|
|
$
|
1,802
|
|
$
|
1,873
|
|
|
|
|
|
|
|
$
|
13,338
|
|
Cost
of sales
|
|
|
4,876
|
|
|
663
|
|
|
766
|
|
|
|
|
|
|
|
|
6,305
|
|
Gross
Profit
|
|
|
4,787
|
|
|
1,139
|
|
|
1,107
|
|
|
|
|
|
|
|
|
7,033
|
|
Operating
expenses
|
|
|
10,483
|
|
|
1,189
|
|
|
966
|
|
|
|
|
|
|
|
|
12,638
|
|
Depreciation
and amortization
|
|
|
1,206
|
|
|
10
|
|
|
30
|
|
$
|
1,426
|
(a)
|
|
|
|
|
2,672
|
|
Loss
from operations
|
|
|
(6,902
|
)
|
|
(60
|
)
|
|
111
|
|
|
(1,426
|
)
|
|
|
|
|
(8,277
|
)
|
Interest
expense, net
|
|
|
(1,064
|
)
|
|
(171
|
)
|
|
(22
|
)
|
|
153
|
(b)
|
$
|
783
|
(c)
|
|
(321
|
)
|
Loss
before income taxes
|
|
|
(7,966
|
)
|
|
(231
|
)
|
|
89
|
|
|
(1,273
|
)
|
|
783
|
|
|
(8,598
|
)
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
$
|
(7,966
|
)
|
$
|
(231
|
)
|
$
|
89
|
|
$
|
(1,273
|
)
|
$
|
783
|
|
$
|
(8,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted pro forma net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing basic and diluted pro forma net
loss per
share (d)
|
|
14,833,170
|
|
Organic
To Go Food Corporation
|
Unaudited
Pro Forma Condensed Statements of Operations
|
Giving
effect to the Organic Holding Company, Inc. conversion of debt
to equity
in February 2007 and
|
acquisitions
of Vinaigrettes Catering Company, LLC in October 2006 and Jackrabbit,
LLC
in March 2007
|
(in
thousands, except share data)
|
|
|
For
the six months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Adjustments
|
|
|
|
|
|
Organic
Holding
Company,
Inc.
|
|
Vinaigrette
Catering
Company,
LLC
|
|
|
|
|
|
Conversion
of
Debt
to Equity
|
|
|
|
|
|
|
|
(already
included)
|
|
(1/1
- 3/19)
|
|
|
|
|
|
|
|
Sales
|
|
$
|
7,472
|
|
|
|
|
$
|
359
|
|
|
|
|
|
|
|
$
|
7,831
|
|
Cost
of sales
|
|
|
3,641
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
3,788
|
|
Gross
Profit
|
|
|
3,831
|
|
|
-
|
|
|
212
|
|
|
|
|
|
|
|
|
4,043
|
|
Operating
expenses
|
|
|
7,384
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
7,584
|
|
Depreciation
and amortization
|
|
|
1,138
|
|
|
|
|
|
7
|
|
|
236(a
|
)
|
|
|
|
|
1,381
|
|
Loss
from operations
|
|
|
(4,691
|
)
|
|
-
|
|
|
5
|
|
|
(236
|
)
|
|
|
|
|
(4,922
|
)
|
Interest
expense, net
|
|
|
(429
|
)
|
|
|
|
|
(5
|
)
|
|
(2
|
)(b)
|
$
|
284
|
(c)
|
|
(152
|
)
|
Loss
before income taxes
|
|
|
(5,120
|
)
|
|
-
|
|
|
-
|
|
|
(238
|
)
|
|
284
|
|
|
(5,074
|
)
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
$
|
(5,120
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
(238
|
)
|
$
|
284
|
|
$
|
(5,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted pro forma net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing basic and diluted pro forma net
loss per
share (d)
|
|
19,258,559
|
|
Organic
To Go Food Corporation
Notes
to Unaudited Pro Forma Condensed Consolidated Statements of
Operations
(a)
The
acquisitions of Vinaigrette and Jackrabbit were accounted for under the purchase
method of accounting for business combinations. The Vinaigrette acquisition
resulted in recording $860,000 of customer based intangible assets and $150,000
of non-compete intangible asset. The Jackrabbit acquisition resulted in
recording approximately $1.1 million of customer based intangible assets.
Amounts allocated to intangible assets were identified by management and
have
been valued on a number of factors. The estimate of useful lives of each
intangible asset was based on an analysis of a number of pertinent factors
by
management, which resulted in the selection of two years as the estimated
useful
life of each identifiable intangible asset. Customer based intangible assets
are
amortized utilizing an accelerated method and non-compete intangibles are
amortized on a straight-line basis. The unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 2006
includes pro forma adjustments to amortize the acquired intangible assets
of
Vinaigrette for the period January 1, 2006 through October 18, 2006, and
to
amortize the acquired intangible assets of Jackrabbit for one year, in both
instances as if the acquisitions had occurred at the beginning of the year.
The
unaudited pro forma condensed consolidated statement of operations for the
six
months ended June 30, 2007 include a pro forma adjustment to amortize the
acquired intangible assets of Jackrabbit for the period January 1, 2007 through
March 19,2007, as if the acquisition had occurred at the beginning of the
year.
(b)
Subsequent to September 30, 2006 and prior to the Vinaigrette acquisition,
SP
received cash of $1.6 million from the sale of convertible bridge notes and
warrants, a portion of which was used to fund the acquisition. The unaudited
pro
forma condensed consolidated statements of operations for the year ended
December 31, 2006, includes a pro forma adjustment of $18,000 representing
increased interest expense on pro forma borrowings of $300,000, such amount
approximating additional funds needed over the September 30, 2006 balance
to
fund the Vinaigrette acquisition, at the bridge note interest rate of 8%.
In
addition, the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 2006, includes a pro forma adjustment
of $171,000 representing decreased interest expense relating to interest
expense
on Vinaigrette borrowings not assumed. The unaudited pro forma condensed
consolidated statements of operations for the six months ended June 30, 2007,
includes a pro forma adjustment of $2,000 representing increased interest
expense relating to interest expense on a $150,000 promissory issued in
connection with the Jackrabbit acquisition.
(c)
In
connection with the closing of the Organic and SP merger, on February 12,
2007,
convertible promissory bridge notes totaling $5,275,000 pursuant to terms
of the
notes automatically converted into 4,629,340 shares of SP common stock. The
unaudited pro forma condensed consolidated statements of operations for the
year
ended December 31, 2006 and the six months ended June 30, 2007, include pro
forma adjustments of $783,000 and $284,000, respectively, representing decreased
interest expense relating to interest on converted promissory notes, including
amortization of debt discount and debt issue costs.
(d)
The
pro forma weighted average shares outstanding has been determined as (i)
the
Organic historical weighted average shares outstanding for all common stock
and
preferred stock on an as converted basis, adjusted by the Exchange Ratio,
(ii)
increased by 1,126,674 shares representing SP common and preferred stock
on an
as converted basis, which were outstanding immediately prior to the merger,
and
which were outstanding for the periods presented, and (iii) increased by
400,000
shares representing those issued in connection with the Jackrabbit acquisition,
all as if outstanding as of the beginning of the periods
presented.
5,049,527 Shares
Common
Stock
Organic
To Go Food Corporation
PROSPECTUS
, 2007
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers.
Our
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws provide that we may indemnify an officer or director who is made a party
to any proceeding, because of his position as such, to the fullest extent
authorized by Delaware General Corporation Law, as the same exists or may
hereafter be amended. We are subject to Section 145 of the Delaware General
Corporation Law, set forth below.
“Section
145. Indemnification of officers, directors, employees and agents;
insurance.
“(a)
A
corporation shall have power to indemnify any person who was or is a party
or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if
the
person acted in good faith and in a manner the person reasonably believed to
be
in or not opposed to the best interests of the corporation, and, with respect
to
any criminal action or proceeding, had no reasonable cause to believe the
person’s conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere
or
its equivalent, shall not, of itself, create a presumption that the person
did
not act in good faith and in a manner which the person reasonably believed
to be
in or not opposed to the best interests of the corporation, and, with respect
to
any criminal action or proceeding, had reasonable cause to believe that the
person’s conduct was unlawful.
“(b)
A
corporation shall have power to indemnify any person who was or is a party
or is
threatened to be made a party to any threatened, pending or completed action
or
suit by or in the right of the corporation to procure a judgment in its favor
by
reason of the fact that the person is or was a director, officer, employee
or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys’
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall
be
made in respect of any claim, issue or matter as to which such person shall
have
been adjudged to be liable to the corporation unless and only to the extent
that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
“(c)
To
the extent that a present or former director or officer of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this section, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection therewith.
“(d)
Any
indemnification under subsections (a) and (b) of this section (unless ordered
by
a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because
the
person has met the applicable standard of conduct set forth in subsections
(a)
and (b) of this section. Such determination shall be made, with respect to
a
person who is a director or officer at the time of such determination, (1)
by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than
a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the
stockholders.
“(e)
Expenses (including attorneys’ fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit
or
proceeding may be paid by the corporation in advance of the final disposition
of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses (including attorneys’ fees)
incurred by former directors and officers or other employees and agents may
be
so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
“(f)
The
indemnification and advancement of expenses provided by, or granted pursuant
to,
the other subsections of this section shall not be deemed exclusive of any
other
rights to which those seeking indemnification or advancement of expenses may
be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person’s official capacity and
as to action in another capacity while holding such office.
“(g)
A
corporation shall have power to purchase and maintain insurance on behalf of
any
person who is or was director, officer, employee or agent of the corporation,
or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person’s status as
such, whether or not the corporation would have the power to indemnify such
person against such liability under this section.
“(h)
For
purposes of this section, references to (the corporation) shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
“(i)
For
purposes of this section, references to (other enterprises) shall include
employee benefit plans; references to “fines” shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to “serving at the request of the corporation” shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person
who
acted in good faith and in a manner such person reasonably believed to be in
the
interest of the participants and beneficiaries of an employee benefit plan
shall
be deemed to have acted in a manner “not opposed to the best interests of the
corporation” as referred to in this section.
“(j)
The
indemnification and advancement of expenses provided by, or granted pursuant
to,
this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee
or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
“(k)
The
Court of Chancery is hereby vested with exclusive jurisdiction to hear and
determine all actions for advancement of expenses or indemnification brought
under this section or under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation’s obligation to advance expenses (including attorneys’
fees).”
Item
25. Other Expenses of Issuance and Distribution.
The
following table sets forth an estimate of the costs and expenses payable by
us
in connection with the offering described in this registration statement. We
do
not anticipate that the selling stockholders will incur any expenses with
respect to this offering. All of the amounts shown are estimates except the
Securities and Exchange Commission Registration Fee:
|
|
Amount
|
|
Registration
Fee
|
|
$
|
333.29
|
|
Accounting
Fees and Expenses
|
|
|
10,000.00
|
|
Printing
Fees
|
|
|
5,000.00
|
|
Legal
Fees and Expenses
|
|
|
75,000.00
|
|
Miscellaneous
Fees and Expenses
|
|
|
5,000.00
|
|
Total
|
|
$
|
95,333.29
|
|
Item
26. Recent Sales of Unregistered Securities.
The
following represents our sales of unregistered securities in the last three
years:
2007
(First and Second Quarters)
On
June 28, 2007, we closed a private placement with select accredited investors
related to the sale and issuance of an aggregate of 3,350,000 shares of common
stock and warrants to purchase an aggregate of 1,340,000 shares of common stock.
In connection with the private placement, we issued to the placement agent
a
five-year warrant to purchase an aggregate of 21,000 shares of common stock.
The
private placement was conducted pursuant to Section 4(2) of the Securities
Act
of 1933, as amended (the “Securities Act”), and Rule 506 promulgated
thereunder.
In
May
2007, we issued warrants to purchase a total of 10,000 shares of common stock
in
connection with a $500,000 debt financing. The warrants were issued pursuant
to
Section 4(2) of the Securities Act.
On
March 9, 2007, in connection with our acquisition of substantially all of the
assets of Jackrabbit, LLC, we issued 400,000 shares of common stock to
Jackrabbit, LLC. We issued the foregoing securities in reliance on Section
4(2) of the Securities Act.
On
February 12, 2007, in connection with our merger with Organic Holding Company,
Inc. and concurrent private placement of units, we issued the following
securities :
|
·
|
8,633,765
shares of our common stock in exchange for all 12,372,712 outstanding
shares of Organic Holding Company, Inc. common and preferred
stock;
|
|
·
|
options
to purchase an aggregate of 718,337 shares of our common stock in
exchange
for all of the outstanding options to purchase an aggregate of 1,029,432
shares of Organic Holding Company, Inc. common
stock;
|
|
·
|
options
to purchase an aggregate of 1,246,674 shares of our common stock
to our
Chief Executive Officer and Chairman, Jason Brown, pursuant to his
employment agreement;
|
|
·
|
warrants
to purchase an aggregate of 2,350,968 shares of our common stock
in
exchange for all of the outstanding warrants to purchase an aggregate
of
3,369,137 shares of Organic Holding Company, Inc. capital
stock;
|
|
·
|
115.731
units, comprised of an aggregate of 4,629,240 shares of our common
stock
and warrants to purchase 925,848 shares of our common stock in exchange
for certain Organic Holding Company, Inc. bridge
notes;
|
|
·
|
687,271
shares of our common stock upon conversion of 60 shares of our Series
A
Convertible Preferred Stock;
|
|
·
|
138
units, comprised of an aggregate of 5,523,000 shares of our common
stock
and warrants to purchase an aggregate of 1,104,600 shares of our
common
stock, at $50,000 per unit for a total offering price of $6,903,740,
to
investors in the private placement;
and
|
|
·
|
warrants
to purchase 888,899 shares of our common stock to the placement agents
in
the private placement as consideration for services
rendered.
|
These issuances were exempt from registration under Section 4(2) of
the Securities Act based on the representations of the security holders, which
included, in pertinent part, that such persons were either (a) “accredited
investors” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, or (b) not a “U.S. person” as that term is defined in Rule
902(k) of Regulation S under the Securities Act, that such persons were
acquiring our securities for investment purposes for their own respective
accounts and not as nominees or agents, and not with a view to the resale or
distribution thereof, and that said persons understood that our securities
may
not be sold or otherwise disposed of without registration under the Securities
Act or an applicable exemption therefrom.
2006
In
December 2006, we raised $525,000 through the issuance of a convertible
promissory note. The note bears interest at 8% per annum and matures on June
29,
2008. Commencing on September 1, 2007 to immediately prior to the maturity
date,
the outstanding principal amount of the note, together with all accrued and
unpaid interest due under the note, is convertible at a per share conversion
price equal to $1.68 per share. We issued the foregoing securities in reliance
on Section 4(2) of the Securities Act.
In
December 2006, we issued .8444 shares of Series A Preferred Stock to a
consultant in consideration for the settlement of $7,600 of debt. We issued
the
foregoing securities in reliance on Section 4(2) of the Securities Act.
In
February 2006, we issued an aggregate of 55.4 shares of Series A Convertible
Preferred Stock to accredited investors in consideration for the cancellation
of
outstanding bridge notes and the settlement of certain other accrued liabilities
in the aggregate principal amount plus accrued interest of $498,480. We issued
the foregoing securities in reliance on Section 4(2) of the Securities
Act.
2005
In
March
2005, we issued 9,070 shares of our common stock in exchange for warrants issued
during our June and August 2001 private placement financings. We issued the
foregoing securities in reliance on Section 4(2) of the Securities
Act.
In
February 2005, we issued 7,113 shares of common stock to a legal firm in
consideration for the cancellation of $21,338.97 of accounts payable. We
recorded an expense of $21,340 related to the issuance of the common stock.
We
issued the foregoing securities in reliance on Section 4(2) of the Securities
Act.
2004
In
December 2004, we issued 5,000,000 shares of common stock in consideration
for
the settlement of leasing obligations valued at $50,000. We issued the foregoing
securities in reliance on Section 4(2) of the Securities Act.
In
December 2004, we issued 6,500,000 shares of common stock in consideration
for
the settlement of accounts payables valued at $65,000. We issued the foregoing
securities in reliance on Section 4(2) of the Securities Act.
In
February 2004, we issued 76,868,961 shares of common stock in consideration
for
the cancellation of 3,835,554 shares of preferred stock, dividends and
registration penalties. We issued the foregoing securities in reliance on
Section 4(2) of the Securities Act.
In
January and February 2004, we issued 14,334,505 shares of common stock in
consideration for the settlement of $1,720,140 related to amounts owed to
related parties, accrued expenses, notes payable and accounts payable. We issued
the foregoing securities in reliance on Section 4(2) of the Securities
Act.
Exhibit
Number
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger and Reorganization, dated as of January 11, 2007
(1)
|
|
|
|
2.2
|
|
First
Amendment to Agreement and Plan of Merger and Reorganization and
Company
Disclosure Schedule, dated as of February 12, 2007 (2)
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation (3)
|
|
|
|
3.2
|
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation
(4)
|
|
|
|
3.3
|
|
Amended
and Restated Bylaws (5)
|
|
|
|
4.1
|
|
Specimen
Common Stock Certificate (2)
|
|
|
|
4.2
|
|
Form
of Warrant (2)
|
|
|
|
4.3
|
|
Form
of Warrant issued in connection with June 28, 2007 Private Placement
(6)
|
|
|
|
5.1
|
|
Opinion
of Loeb & Loeb LLP*
|
|
|
|
10.1
|
|
Placement
Agent Agreement, dated December 18, 2006, by and between Organic
Holding
Company, Inc. and Burnham Hill Partners, a division of Pali Capital,
Inc.
(2)
|
|
|
|
10.2
|
|
Form
of Subscription Agreement by and between SP Holding Corporation and
the
Investors (2)
|
|
|
|
10.3
|
|
Employment
Agreement by and between Jason Brown and Organic Holding Company,
Inc.
(2)
|
|
|
|
10.4
|
|
Employment
Agreement between Organic To Go, Inc. and Paul C. Campbell
(7)
|
|
|
|
10.5
|
|
Asset
Purchase Agreement by and among Vinaigrettes LLC, Dan Karzen and
Organic
Holding Company, Inc. (2)
|
|
|
|
10.6
|
|
Asset
Purchase Agreement by and between Organic Holding Company, Inc. and
Briazz
Inc. (2)
|
|
|
|
10.7
|
|
2007
Equity Participation Plan of Organic To Go Food Corporation
(4)
|
|
|
|
10.8
|
|
Securities
Purchase Agreement, dated June 26, 2007 (6)
|
|
|
Registration
Rights Agreement, dated June 26, 2007 (6) Form of
Warrant
|
10.10
|
|
Escrow
Agreement, dated June 20, 2007 (6)
|
|
|
|
10.11
|
|
Joinder
to each of the Securities Purchase Agreement and the Registration
Rights
Agreement, dated June 28, 2007 (8)
|
10.12
|
|
Employment
Agreement between Organic To Go, Inc. and Andrew Jacobs
(9)
|
|
|
|
16.1
|
|
Letter
from De Leon & Company, P.A. to the Securities and Exchange
Commission, dated March 7, 2007
(10)
|
17.1
|
|
Letter
of Resignation from Mark Schaftlein, as a director, to the Board
of
Directors of SP Holding Corporation (2)
|
|
|
|
17.2
|
|
Letter
of Resignation from Mark Schaftlein, as acting chief executive officer
and
chief financial officer, to the Board of Directors of SP Holding
Corporation (2)
|
|
|
|
21.1
|
|
List
of Subsidiaries (2)
|
|
|
|
23.1
|
|
Consent
of Rose, Snyder & Jacobs*
|
|
|
|
23.2
|
|
Consent
of Loeb & Loeb LLP (included in Exhibit 5.1)*
|
|
|
|
24.1
|
|
Power
of Attorney (set forth on the signature page to this registration
statement)
|
*
|
|
Filed
herewith
|
|
|
|
(1)
|
|
Filed
on January 17, 2007 as an exhibit to our Current Report on Form 8-K
and
incorporated herein by reference.
|
|
|
|
(2)
|
|
Filed
on February 13, 2007 as an exhibit to our Current Report on Form
8-K and
incorporated herein by reference.
|
|
|
|
(3)
|
|
Filed
on December 13, 2003 as an exhibit to our Current Report on Form
8-K and
incorporated herein by reference.
|
|
|
|
(4)
|
|
Filed
on May 21, 2007 as an exhibit to our Current Report on Form 8-K and
incorporated herein by reference.
|
|
|
|
(5)
|
|
Filed
on May 14, 2001 as an exhibit to our report on Form 10-QSB and
incorporated herein by reference.
|
|
|
|
(6)
|
|
Filed
on June 27, 2007 as an exhibit to our Current Report on Form 8-K
and
incorporated herein by reference.
|
|
|
|
(7)
|
|
Filed
on May 11, 2007 as an exhibit to our Current Report on Form 8-K and
incorporated herein by reference.
|
|
|
|
(8)
|
|
Filed
on June 29, 2007 as an exhibit to our Current Report on Form 8-K
and
incorporated herein by reference.
|
(9)
|
|
Filed
on July 13, 2007 as an exhibit to our Registration Statement on
Form SB-2
and incorporated herein by reference.
|
|
|
|
(10)
|
|
Filed
on March 9, 2007 as an exhibit to our Current Report on Form 8-K
and
incorporated herein by
reference.
|
(a)
|
The
undersigned registrant hereby
undertakes:
|
|
(1)
|
To
file, during any period in which it offers or sells securities, a
post-effective amendment to this registration
statement:
|
|
(i) |
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
|
|
(ii) |
To
reflect in the prospectus any facts or events which, individually
or
together, represent a fundamental change in the information in
this
registration statement. Notwithstanding the foregoing, any increase
or
decrease in volume of securities offered (if the total dollar value
of
securities offered would not exceed that which was registered)
and any
deviation from the low or high end of the estimated maximum offering
range
may be reflected in the form of prospectus file with the Securities
and
Exchange Commission pursuant to Rule 424(b), if in the aggregate,
the
changes in volume and price represent no more than a 20% change
in the
maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
|
|
(iii) |
To
include any additional or changed material information on the plan
of
distribution.
|
|
(2)
|
That
for purposes of determining liability under the Securities Act, to
treat
each post-effective amendment as a new registration statement of
the
securities offered, and the offering of the securities at that time
to be
the initial bona fide offering.
|
|
(3)
|
To
file a post-effective amendment to remove from registration any of
the
securities that remain unsold at the end of the
offering.
|
|
(4)
|
That,
for the purpose of determining liability under the Securities Act
to any
purchaser each prospectus filed pursuant to Rule 424(b) as part
of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed
in
reliance on Rule 430A, shall be deemed to be part of and included
in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement
or made
in a document incorporated or deemed incorporated by reference
into the
registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale
prior to
such first use, supersede or modify any statement that was made
in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such
date of
first use.
|
|
Insofar
as indemnification for liabilities arising under the Securities Act
may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that
a claim
for indemnification against such liabilities (other than the payment
by
the registrant of expenses incurred or paid by a director, officer
or
controlling person of the registrant in the successful defense of
any
action, suit or proceeding) is asserted by such director, officer
or
controlling person in connection with the securities being registered,
the
registrant will, unless in the opinion of its counsel the matter
has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against
public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such
issue.
|
In
accordance with the requirements of the Securities Act of 1933, as amended,
the
registrant certifies that it has reasonable grounds to believe that it meets
all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California, on September 7, 2007.
|
|
|
|
ORGANIC
TO GO FOOD CORPORATION
(Registrant)
|
|
|
|
|
By: |
/s/ Jason
Brown
|
|
Jason
Brown
Chief
Executive Officer and
Chairman
|
POWER
OF ATTORNEY
KNOW
BY
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jason Brown as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, for his or her
and
in his or her name, place and stead, in any and all capacities, to sign any
and
all amendments (including post-effective amendments) to this registration
statement, and any registration statement related to the offering contemplated
by this registration statement that is to be effective upon filing pursuant
to
Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done with respect to the offering of securities contemplated by this
registration statement, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his, her, or their substitute or substitutes,
may
lawfully do or cause to be done or by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, as amended,
this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
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|
Title
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Date
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/s/
Jason Brown
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|
Chief
Executive Officer and Chairman
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|
September
7, 2007
|
Jason
Brown
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(Principal
Executive Officer)
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|
|
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/s/
Paul Campbell
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Chief
Financial Officer
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|
September
7, 2007
|
Paul
Campbell
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(Principal
Accounting Officer and Principal Financial Officer)
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|
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/s/
Dave Smith
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|
Director
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|
September
7, 2007
|
Dave
Smith
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|
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|
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|
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/s/
Peter Meehan
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|
Director
|
|
September
7, 2007
|
Peter
Meehan
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|
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|
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|
|
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/s/
Roy Bingham
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|
Director
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|
September
7, 2007
|
Roy
Bingham
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|
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|
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/s/
Douglas Lioon
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Director
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|
September
7, 2007
|
Douglas
Lioon
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|
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|
|
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|
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/s/
S.M. “Hass” Hassan
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|
Director
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|
September
7, 2007
|
S.M.
“Hass” Hassan
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|
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