PART
I. FINANCIAL INFORMATION
Item
1. Unaudited Condensed Consolidated Financial Statements
Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Condensed
Consolidated Balance Sheets
(In
thousands, except per share amounts)
|
|
(audited)
December 31,
2007
|
|
(unaudited)
March 31,
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
668
|
|
$
|
8,601
|
|
Accounts
receivable, net
|
|
|
1,099
|
|
|
1,437
|
|
Inventory
|
|
|
845
|
|
|
1,042
|
|
Prepaid
expenses and other current assets
|
|
|
489
|
|
|
810
|
|
Total
current assets
|
|
|
3,101
|
|
|
11,890
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
5,465
|
|
|
6,723
|
|
Identifiable
intangible assets, net
|
|
|
3,853
|
|
|
2,542
|
|
Deposits
and other assets
|
|
|
521
|
|
|
264
|
|
TOTAL
ASSETS
|
|
$
|
12,940
|
|
$
|
21,419
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,040
|
|
$
|
2,152
|
|
Accrued
liabilities
|
|
|
780
|
|
|
546
|
|
Current
portion of notes payable,
|
|
|
1,474
|
|
|
1,091
|
|
Current
portion of capital lease obligations
|
|
|
463
|
|
|
683
|
|
Total
current liabilities
|
|
|
4,757
|
|
|
4,472
|
|
|
|
|
|
|
|
|
|
Deferred
rent
|
|
|
52
|
|
|
52
|
|
Notes
payable, net of current portion
|
|
|
1,044
|
|
|
1,364
|
|
Capital
lease obligations, net of current portion
|
|
|
440
|
|
|
1,001
|
|
TOTAL
LIABILITIES
|
|
|
6,293
|
|
|
6,889
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (see Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Preferred
Stock - $0.001 par value per share, 10,000,000 shares authorized,
no
shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock and additional paid-in capital - $0.001 par value per share,
500,000,000 shares authorized, 27,758,326 and 36,329,755 shares
issued and
outstanding
|
|
|
33,215
|
|
|
43,944
|
|
Accumulated
deficit
|
|
|
(26,568
|
)
|
|
(29,414
|
)
|
TOTAL
SHAREHOLDERS’ EQUITY
|
|
|
6,647
|
|
|
14,530
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
12,940
|
|
$
|
21,419
|
|
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
(Unaudited
and in thousands, except per share amounts)
|
|
Three Months Ended
March 31,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,618
|
|
$
|
5,175
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,842
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,776
|
|
|
3,194
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
3,462
|
|
|
4,205
|
|
Depreciation
and amortization
|
|
|
434
|
|
|
1,770
|
|
Total
operating expenses
|
|
|
3,896
|
|
|
5,975
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,120
|
)
|
|
(2,781
|
)
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(347
|
)
|
|
(65
|
)
|
Loss
before income taxes
|
|
|
(2,467
|
)
|
|
(2,846
|
)
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,467
|
)
|
$
|
(2,846
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.21
|
)
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
12,022
|
|
|
31,479
|
|
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
(Unaudited
and in thousands, except share amounts)
|
|
Common
Stock
|
|
|
|
|
|
|
|
and
Additional
|
|
|
|
Total
|
|
|
|
Paid
In Capital
|
|
Accumulated
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
27,758,326
|
|
$
|
33,215
|
|
$
|
(26,568
|
)
|
$
|
6,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares and warrants for cash
|
|
|
8,571,429
|
|
|
12,000
|
|
|
-
|
|
|
12,000
|
|
Stock
issue costs
|
|
|
-
|
|
|
(1,386
|
)
|
|
-
|
|
|
(1,386
|
)
|
Share
based compensation
|
|
|
-
|
|
|
115
|
|
|
-
|
|
|
115
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(2,846
|
)
|
|
(2,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
36,329,755
|
|
$
|
43,944
|
|
$
|
(29,414
|
)
|
$
|
14,530
|
|
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
and in thousands)
|
|
Three Months Ended
March 31,
|
|
|
|
2007
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,467
|
)
|
$
|
(2,846
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
434
|
|
|
1,771
|
|
Share-based
compensation cost
|
|
|
19
|
|
|
115
|
|
Amortization
of debt issue costs and debt discount included in interest
expense
|
|
|
232
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(210
|
)
|
|
(338
|
)
|
Inventory
|
|
|
(91
|
)
|
|
(197
|
)
|
Prepaid
expenses and other current assets
|
|
|
(420
|
)
|
|
(321
|
)
|
Accounts
payable
|
|
|
(251
|
)
|
|
(38
|
)
|
Accrued
liabilities
|
|
|
203
|
|
|
(234
|
)
|
Other
|
|
|
(72
|
)
|
|
(19
|
)
|
Net
cash used by operating activities
|
|
|
(2,623
|
)
|
|
(2,107
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property, equipment and other assets
|
|
|
(494
|
)
|
|
(605
|
)
|
Purchase
of intangible assets
|
|
|
(580
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(1,074
|
)
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Principal
payments on notes payables
|
|
|
(347
|
)
|
|
(63
|
)
|
Principal
payments on capital lease obligations
|
|
|
(39
|
)
|
|
(186
|
)
|
Proceeds
from sale of common stock, net of issue costs
|
|
|
6,002
|
|
|
10,894
|
|
Net
cash provided by financing activities
|
|
|
5,616
|
|
|
10,645
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,919
|
|
|
7,933
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
865
|
|
|
668
|
|
End
of period
|
|
$
|
2,784
|
|
$
|
8,601
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
66
|
|
$
|
74
|
|
Cash
paid for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Fixed
assets acquired though capital lease
|
|
$
|
-
|
|
$
|
967
|
|
Fixed
assets purchased though accounts payable
|
|
$
|
-
|
|
$
|
150
|
|
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
March
31, 2008
Organization
and Business
Organic
To Go Food Corporation, formerly SP Holding Corporation (“SP”) prior to May
2007, and its wholly owned subsidiary Organic To Go, Inc. (“Organic” and
together with Organic To Go Food Corporation, collectively, the “Company”),
which was acquired in a reverse merger on February 12, 2007, provides convenient
retail cafes and delivery and catering services, preparing and serving “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. During 2007, the Company further expanded
its
operations by acquiring the assets of three separate businesses, for a total
of
six additional locations in San Diego, California. As of March 31, 2008,
the
Company operates six stores in Washington and twenty stores in California.
Basis
of Presentation
In
the
opinion of management, the accompanying Condensed Consolidated Balance Sheets
and related Condensed Consolidated Statements of Operations, Condensed
Consolidated Statement of Stockholders’ Equity and Statements of Cash Flows have
been prepared in accordance with accounting principles generally accepted
in the
United States of America (“GAAP”)
for interim financial information and with the instructions to Form 10-Q
and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements.
Management believes that all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Interim results are not necessarily indicative of results for a full year.
The
information included in this Form 10-Q should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2007.
The
presentation of financial statements prepared in conformity with GAAP
contemplates continuation of the Company as a going concern. The Company
has
reported recurring losses and cash used by operating activities, and at
March 31,
2008
has a net working capital deficiency and accumulated 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. 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 its reverse merger and private placement,
and approximately $5.3 million of notes payable were converted into common
shares. Additionally, during the three months ended June 30, 2007, proceeds
of
approximately $6.7 million were received from the sale of debt and equity
securities. In October 2007, the Company closed its private placement offering
and issued approximately 3.2 million shares of Company common stock and warrants
to purchase approximately 1.5 million shares of Company common stock. The
aggregate gross proceeds raised by the Company were approximately $5.7 million.
Subsequent to December 31, 2007, the Company closed a private placement offering
in January 2008 and issued approximately 1.4 million shares of Company common
stock and warrants to purchase approximately 0.6 million shares of Company
common stock. The aggregate gross proceeds raised by the Company were
approximately $2.0 million. In February 2008, the Company closed a private
placement offering and issued approximately 7.1 million shares of Company
common
stock and a warrant to purchase approximately 4.3 million shares of Company
common stock and a conditional warrant to purchase shares of Company common
stock, which may only be exercised under certain circumstances. The aggregate
gross proceeds raised by the Company were approximately $10.0 million. Company
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 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
Preparation
of financial statements in conformity with GAAP 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, recoverability of receivables, valuation and recoverability 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.
Summary
of Significant Accounting Policies
Cash
and cash equivalents
- The
Company considers all highly liquid investments purchased with maturities
of
three months or less to be cash equivalents. The Company places its cash
balances on deposit with high credit, highly-rated financial institutions.
At
times, such balances may be in excess of the FDIC insurance limit. At
March 31, 2008, approximately $8.6 million was in excess of the FDIC limit.
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. As
a result, the Company 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.
Fair
value of financial instruments
- The
Company measures its financial assets and liabilities in accordance with
GAAP.
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 certain of its customers. Accounts receivable are
customer obligations due under normal trade terms. The Company performs credit
evaluations of its customers’ financial condition. Management reviews accounts
receivable on a regular basis on contracted terms and how recent 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 than not to be uncollectible in its allowance for doubtful accounts.
Accounts uncollected are ultimately written off after all reasonable collection
efforts have been exhausted.
Inventory -
Inventory,
which consists primarily of food, beverages and packaging products, is stated
at
the lower of cost or market. Cost is determined according to 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 ten years.
Identifiable
intangible assets
-
Through its acquisitions of other businesses, the Company has acquired certain
identifiable intangible assets including customer-based intangibles and a
covenant not to compete. All such intangible assets have been accounted for
in
accordance with Statement of Financial Accounting Standards No. 141, “Business
Combinations” (“SFAS 141”). The estimate of useful lives of each intangible
asset was based on an analysis by management of all pertinent factors, and
selection of an estimated useful life of up to two years has been identified
for
each intangible asset. Customer based intangible assets are amortized utilizing
an accelerated method and non-compete intangible assets are amortized on
a
straight-line basis.
Statement
of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets,” (“SFAS 142”) requires that 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.
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.
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.
Pre-operating
costs
- Costs
incurred in connection with start-up and promotion of new store openings
are
expensed as incurred.
Income
taxes
- The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, “Accounting
for Income Taxes”
(“SFAS
109”), 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.
Stock-based
compensation
- The
Company accounts for its share-based compensation under the provisions of
FASB
Statement No. 123(R), Share-Based
Payment,
(“FAS
123R”).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 FAS 123R 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. Computations
of net
loss per share for the periods ending March 31, 2007 and 2008 exclude
approximately 5.3 million and 12.4 million common shares, respectively, issuable
upon exercise of outstanding and issuable warrants, 2.1 million and 4.9 million
shares, respectively, of common stock issuable upon exercise of outstanding
stock options, and 766,000 and 302,000 shares, respectively, of common stock
issuable upon conversion of convertible notes payable. These common stock
equivalents could have the effect of decreasing diluted net income per share
in
future periods when the Company generates net income.
Reclassifications
-
Certain reclassifications have been made to prior years’ financial statements to
conform to current year presentation. Such reclassifications had no effect
on
stockholders’ equity, net loss or net increase in cash and cash
equivalents.
Recent
accounting pronouncements
- In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business
Combinations (“SFAS 141R”),
which revises current purchase accounting guidance in SFAS 141,
Business
Combinations.
SFAS 141R requires most assets acquired and liabilities assumed in a
business combination to be measured at their fair values as of the date of
acquisition. SFAS 141R also modifies the initial measurement and subsequent
remeasurement of contingent consideration and acquired contingencies, and
requires that acquisition related costs be recognized as expense as incurred
rather than capitalized as part of the cost of the acquisition. SFAS 141R
is effective for fiscal years beginning after December 15,
2008
(the Company’s fiscal 2009) and is to be applied prospectively to business
combinations occurring after adoption. The impact of SFAS 141R on the
Company’s consolidated financial statements will depend on the nature and extent
of the Company’s future acquisition activities.
In
December 2007, the FASB issues SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51 (“SFAS
160”). SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of
a
subsidiary. SFAS 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should
be
reported as equity in the consolidated financial statements and requires
retroactive adoption of the presentation and disclosure requirements for
existing minority interests, of which the Company currently has
none. All other requirements of SFAS 160 shall be applied
prospectively. SFAS 160 is effective for fiscal years beginning after
December 15, 2008.
Note
2. Inventories
Inventories
consist of the following (in thousands):
|
|
December
31,
2007
|
|
March
31,
2008
|
|
Food
and beverages
|
|
$
|
820
|
|
$
|
1,014
|
|
Paper
products
|
|
|
25
|
|
|
28
|
|
Total
inventories
|
|
$
|
845
|
|
$
|
1,042
|
|
Note
3. Property and Equipment
Property
and equipment consists of the following (in thousands):
|
|
December
31,
2007
|
|
March
31,
2008
|
|
Leasehold
improvements
|
|
$
|
2,389
|
|
$
|
2,933
|
|
Furniture,
fixtures and equipment
|
|
|
3,878
|
|
|
4,090
|
|
Vehicles
|
|
|
1,156
|
|
|
1,156
|
|
Leased
equipment
|
|
|
686
|
|
|
1,648
|
|
|
|
|
8,109
|
|
|
9,827
|
|
Less
accumulated depreciation and amortization
|
|
|
2,644
|
|
|
3,104
|
|
Total
property and equipment, net
|
|
$
|
5,465
|
|
$
|
6,723
|
|
Amortization
of leased equipment is included in depreciation and amortization
expense.
Note
4. Identifiable Intangible Assets
Identifiable
intangible assets consist of the following (in thousands):
|
|
December
31,
2007
|
|
March
31,
2008
|
|
Customer
based intangible assets
|
|
$
|
6,303
|
|
$
|
6,303
|
|
Non-compete
intangible assets
|
|
|
589
|
|
|
589
|
|
|
|
|
6,892
|
|
|
6,892
|
|
Less
accumulated amortization
|
|
|
(3,039
|
)
|
|
(4,350
|
)
|
Total
identifiable intangible assets, net
|
|
$
|
3,853
|
|
$
|
2,542
|
|
The
Company recorded amortization expense on intangible assets of $211,000 and
$1.3
million, respectively, for the periods ended March 31, 2007 and
2008.
Note
5. Notes Payable
Notes
payable consist of the following (in thousands):
|
|
December
31,
2007
|
|
March
31,
2008
|
|
Notes
payable, 6% to 25% interest collateralized by vehicles and
equipment
|
|
|
141
|
|
|
103
|
|
Convertible
note payable, 8.25% interest, collateralized by substantially
all
assets
|
|
|
759
|
|
|
759
|
|
Notes
payable, 7.75% interest, collateralized by certain assets, due
April
2010
|
|
|
418
|
|
|
418
|
|
Note
payable, 9.25% interest, due March 2009
|
|
|
97
|
|
|
78
|
|
Note
payable, 8.0% interest, due October 2009
|
|
|
54
|
|
|
47
|
|
Notes
payable, 18% interest, due May 2008
|
|
|
500
|
|
|
500
|
|
Notes
payable, 10.5% interest, due December 2009
|
|
|
549
|
|
|
550
|
|
Total
notes payable
|
|
|
2,518
|
|
|
2,455
|
|
Less:
current portion of notes payable
|
|
|
(1,474
|
)
|
|
(1,091
|
)
|
Notes
payable, net of current portion
|
|
$
|
1,044
|
|
$
|
1,364
|
|
The
Company has a borrowing agreement with a vendor pursuant to which the Company
has had outstanding borrowings of approximately $759,000 since March 31,
2006.
The note payable requires monthly payments of interest at the prime rate
plus 1%
(8.25% at December 31, 2007 and 6.25% at March 31, 2008), with the principal
due
in September, 2007. The note 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 was not converted in
full on
or before the maturity date, the then outstanding principal balance and accrued
interest automatically converts into a term note, which shall provide for
thirty-six equal monthly payments and a final maturity date in September
2010.
Since the note was not converted or repaid on or prior to the maturity date
the
original note has been replaced with a 36 month term loan with interest at
prime
plus 1%. The note is collateralized by a pledge of Company assets.
In
December 2007, the proceeds from the issuance of two separate promissory
notes
payable in the amounts of $258,500 and $291,500 were used to pay off a prior
note payable in the amount of $550,000. Each bears interest at 10.5% per
annum
and both are due in December, 2009. The holder of each note can elect to
require
payment in full in December, 2008.
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 in May, 2008.
Also
during 2007, as part of asset purchase agreements, the Company issued to
the
sellers promissory notes of $150,000 and $75,000, bearing interest at 9.25%
and
8% per annum, payable monthly and due in March, 2009 and October, 2010,
respectively.
Future
minimum principal payments on notes payable at March 31, 2008 are as follows
(in
thousands):
One
year (4/2008 – 3/2009)
|
|
$
|
1,091
|
|
Two
years (4/2009 – 3/2010)
|
|
|
1,238
|
|
Three
years (4/2010 – 3/2011)
|
|
|
126
|
|
Total
|
|
$
|
2,455
|
|
Note
6. Stockholders’ Equity
Authorized
shares–
The
Company 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.
Warrants
- During
the three months ended March 31, 2008, in conjunction with various equity
financing related agreements and related issuance of equity securities, the
Company issued warrants for a term of approximately 5 years to purchase shares
of the Company’s common stock at an exercise price of $2.50 per share for
approximately 7.9 million shares. As of March 31, 2008, there were a total
of
12.4 million warrants outstanding as follows:
Exercise
Price
|
|
Number of warrants
|
|
$
1.38
|
|
|
|
66,629
|
|
1.68
|
|
|
|
2,151,986
|
|
2.12
|
|
|
|
2,229,430
|
|
2.50
|
|
|
|
7,938,563
|
|
|
|
|
12,386,608
|
|
Stock
options –
From
time to time, the Company grants to its directors, officers, employees and
consultants options to purchase shares of the Company’s common stock. The
Company accounts for its share-based compensation under the provisions of
FAS
123R. Options have a term of 10 years from the date of grant, with exercise
prices at no less than the price of a share of the Company’s common stock on the
date of grant. The Company uses the Black-Scholes option pricing model to
estimate the fair value of its stock options on the date of grant. Fair value
determination using this model is affected by the Company’s stock price on the
date of grant as well as the expected life of the award, expected stock price
volatility over the term of the award and actual and projected exercise
behaviors. FAS 123R requires that the Company recognize compensation expense
for
only the portion of options that are expected to vest. Therefore, management
applies an estimated forfeiture rate for projected future employee turnover
rates. The estimated forfeiture rate is approximately 12%. If the actual
number
of forfeitures differs from those estimated by management, additional
adjustments to compensation expense may be required in future periods. The
Company’s stock price volatility, option lives and expected forfeiture rates
involve management’s best estimates at the time of such determination, all of
which impact the fair value of the option calculated under the Black-Scholes
methodology and, ultimately, the expense that will be recognized over the
life
of the option. The Company typically issues stock options with a four-year
vesting period (defined by FAS 123R as the requisite service period). The
Company amortizes stock compensation cost ratably over the requisite service
period.
Although
the fair value of share-based awards is determined in accordance with FAS
123R
and SAB 107, the Black-Scholes option pricing model requires the input of
highly
subjective assumptions, and other reasonable assumptions could provide different
results. The weighted average fair value of stock options granted during
the
quarters ended March 31, 2007 and 2008 was approximately $0.50 and $0.64
per
share, respectively, 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 5.0% and 2.9 %, respectively; and
estimated lives of 5 years.
Compensation
expense recognized for stock options and restricted stock approximated $19,000
and $115,000, respectively, for the quarters ended March 31, 2007 and 2008.
As
of March 31, 2008, there was approximately $2.3 million of unrecognized
compensation cost related to unvested stock options and restricted stock,
which
is expected to be recognized as expense over a period of approximately 3
years.
The following summarizes activity for stock options:
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2007
|
|
|
3,050,938
|
|
$
|
1.50
|
|
|
|
|
|
|
|
Grants
|
|
|
2,076,000
|
|
|
|
|
|
|
|
|
|
|
Cancellations
|
|
|
(212,000
|
)
|
|
3.08
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
4,914,938
|
|
$
|
1.38
|
|
|
9.3
years
|
|
$
|
483,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2008
|
|
|
834,502
|
|
$
|
0.90
|
|
|
8.6
years
|
|
$
|
357,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for grant at March 31, 2008
|
|
|
430,024
|
|
|
|
|
|
|
|
|
|
|
Additional
information regarding stock options outstanding as of March 31, 2008, is
as
follows:
|
|
Outstanding Options
|
|
Exercisable Options
|
|
Range of
Exercise Prices
Per Share
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
$
0.17
|
|
|
335,298
|
|
|
7.9
|
|
$
|
0.17
|
|
|
282,058
|
|
$
|
0.17
|
|
$
0.34
|
|
|
132,584
|
|
|
8.3
|
|
$
|
0.34
|
|
|
58,005
|
|
$
|
0.34
|
|
$
1.37 - $ 1.38
|
|
|
2,712,674
|
|
|
9.5
|
|
$
|
1.38
|
|
|
363,614
|
|
$
|
1.38
|
|
$
1.40 - $ 1.48
|
|
|
979,781
|
|
|
9.7
|
|
$
|
1.43
|
|
|
130,825
|
|
$
|
1.41
|
|
$
1.60 - $ 1.92
|
|
|
293,000
|
|
|
9.5
|
|
$
|
1.82
|
|
|
-
|
|
$
|
-
|
|
$
2.23
|
|
|
461,601
|
|
|
9.1
|
|
$
|
2.23
|
|
|
-
|
|
$
|
-
|
|
$
0.17 - $ 2.23
|
|
|
4,914,938
|
|
|
9.3
|
|
$
|
1.38
|
|
|
834,502
|
|
$
|
0.90
|
|
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 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 rent credit. The Company also leases certain point-of-sale computer
hardware and software pursuant to capital leases. At March 31, 2008, minimum
future annual lease obligations are as follows (in thousands):
|
|
Operating
Leases
|
|
Capital
Leases
|
|
Total
|
|
1
year (April 2008 – March 2009)
|
|
$
|
1,459
|
|
$
|
841
|
|
$
|
2,300
|
|
2
years (April 2009 – March 2010)
|
|
|
1,183
|
|
|
568
|
|
|
1,751
|
|
3
years (April 2010 – March 2011)
|
|
|
1,096
|
|
|
476
|
|
|
1,572
|
|
4
years (April 2011 – March 2012)
|
|
|
917
|
|
|
85
|
|
|
1,002
|
|
5
years and thereafter (April 2012 and beyond)
|
|
|
2,239
|
|
|
12
|
|
|
2,251
|
|
|
|
|
6,894
|
|
|
1,982
|
|
|
8,876
|
|
Less
amounts representing interest
|
|
|
-
|
|
|
(298
|
)
|
|
(298
|
)
|
Total
lease obligations
|
|
$
|
6,894
|
|
$
|
1,684
|
|
$
|
8,578
|
|
On
January 8, 2008, Esther Sanchez, a former employee of Organic To Go, Inc.,
the
Company’s wholly owned subsidiary, brought suit against the Company, seeking
damages in the Superior Court of the State of California for the County of
Los
Angeles, claiming wrongful termination, sexual harassment and related causes
of
action in connection with the termination of Ms. Sanchez’s employment. The
Company’s employment practices liability insurer has agreed to provide a defense
on its behalf, subject to a reservation of rights letter and the terms and
conditions of its insurance policy.
The
Company is currently in mediation pursuant to the Standard Form of Agreement
with Wheelihan Construction, Inc. This matter arose out of tenant improvements
made by Wheelihan Construction, Inc. and its subcontractors at one of the
Company’s retail locations in San Diego, California. In connection with the
matter, four subcontractors/suppliers have commenced actions against the
Company, Wheelihan Construction, Inc. and other defendants.
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. The Company is
not a party to any other material legal proceedings other than those disclosed
above, nor is it aware of any circumstance that may reasonably lead a third
party to initiate material legal proceedings against it at this
time.
Note
8. Subsequent Events
On
May
14, 2008, pursuant to terms an asset purchase agreement, the Company acquired
for $250,000
cash, shares of Company’s common stock having a fair value of $500,000 and
another $950,000 due in six quarterly installments beginning August 14, 2008,
all inventory, furniture, fixtures, equipment, customer lists, trade names
and
leasehold improvements used in connection with a retail business operating
three
stores in Seattle, Washington. The Company also entered into a consulting
agreement with the seller wherein that individual will provide consulting
services to the Company for a one year period, pursuant to which, among other
things, the Company will pay monthly fees of $8,333. The Company assumed
operating leases for the three locations, as well as various equipment leases
and financing agreements. The total purchase price of approximately $1.7
million
will be allocated to assets acquired based on estimated fair values, which
will
result in the majority being allocated to trade names, customer-based intangible
assets, and goodwill.
Item
2. Management’s Discussion and Analysis or Plan of
Operation
The
following discussion and analysis of the results of operations and financial
condition of Organic To Go Food Corporation for the periods ended March 31,
2007
and 2008 should be read in conjunction with our financial statements and
the
notes to those financial statements that are included elsewhere in this Form
10-Q. 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 are the nation’s first fast casual café chain to be certified as an
organic retailer, with our food available in more than 160 locations. We
provide
convenient cafés which prepare and serve fresh custom-made and “grab and go”
breakfast, lunch and dinner foods and beverages prepared using organic
ingredients, whenever possible. We also distribute our products through
delivery, catering and wholesale accounts. Our company has grown through
both
organic expansion and acquisitions. 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. In March 2007, we expanded
our catering operations by acquiring the assets of a catering operation located
in Seattle, Washington, and in July, September and October 2007 we further
expanded our operations by acquiring the assets of six retail and catering
stores in San Diego, California. At March 31, 2008, we operated six stores
in
Washington and twenty stores in California, with central kitchens in Seattle,
Los Angeles and San Diego. In addition to the twenty-six cafés, our food is
available in more than 120 wholesale locations, 14 universities and 11 locations
at Los Angeles International Airport.
Management
believes we have the opportunity to capture increasing market share in all
three
of our business channels: Retail Cafes, Delivery and Catering,, and Wholesale
of
our “grab & go” sandwiches, wraps and salads, 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 cafés, catering customers
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 - Since
our
inception, we have funded operations and business development and growth
through
debt and equity financings. In this regard we closed two private placement
offerings raising a total of approximately $12 million, The proceeds are
intended to be used for the expansion of the company and working capital
needs.
In January 2008, we closed a private placement offering and issued approximately
1.4 million shares of Company common stock and warrants to purchase
approximately 0.6 million shares of common stock. The aggregate gross proceeds
raised by the Company were approximately $2.0 million. Additionally, in February
2008, we closed a private placement offering and issued approximately 7.1
million shares of common stock, a warrant to purchase approximately 4.3 million
shares of common stock and a conditional warrant to purchase shares of common
stock, which may be exercised only under certain circumstances. The aggregate
gross proceeds raised by the Company were $10.0 million. 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.
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 Note 1 to our financial statements included
elsewhere in this Form 10-Q. 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.
Intangible
Assets - In
connection with our 2006 and 2007 asset acquisitions, we acquired certain
identifiable intangible assets including customer-based intangibles. These
acquisitions have been accounted for in accordance with SFAS No. 141. Amounts
allocated to intangible assets were identified by management and have been
valued based 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. Management 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.
Stock-based
Compensation – We
account for share-based compensation under the provisions of FAS 123R, which
we
adopted effective beginning January 1, 2006 using the modified prospective
method.
Results
of Operations
Sales
- Sales
for
the first quarter of 2008 increased approximately 43%, to $5.2 million, as
compared with $3.6 million in the first quarter of 2007. Retail café sales were
$2.3 million during the quarter ended March 31, 2008, an increase of
approximately 54% over $1.5 million during the comparable prior year period.
Café sales comprised 44% of total sales in the 2008 quarter compared to 41% of
total sales in the first quarter of 2007. The increase in year-over-year
retail
sales is primarily a result of the addition of eleven Retail Cafés that were
opened or acquired from July through October in 2007 and three more that
were
opened during the first quarter of 2008. We ended the first quarter of 2008
with
twenty-six Retail Cafés as compared with twelve at the end of the same period in
2007.
Delivery
and Catering sales were nearly $2.0 million for the first quarter of 2008,
an
increase of $467,000, or approximately 31% over $1.5 million during the first
quarter of 2007. Delivery and Catering sales comprised 38% of total sales
in the
first period of 2008 as compared with 42% for the same period of the prior
year.
In addition to increased business volume in all delivery and catering
operations, the increase in delivery and catering sales in 2008 is attributable
to the mid- to late-2007 fiscal year acquisitions of catering businesses
in
Seattle and San Diego.
Wholesale
sales were $917,000 in the quarter ending March 31, 2008, an increase of
nearly
47%, as compared with $624,000 in the comparable quarter of 2007. Wholesale
sales comprised 18% of total sales in the 2008 period as compared with 17%
in the comparable 2007 period. In addition to increased sales efforts in
all
markets, the increase in wholesale sales is due to our entrance into the
San
Diego market in mid-2007.
Cost
of Sales - Cost
of
sales includes the cost of food and paper products. Cost of sales for the
first
quarter of 2008 increased only 8% as compared to a 43% increase in sales,
to
nearly $2.0 million, as compared with $1.8 million for the first quarter of
2007. Cost of sales for quarter ended March 31, 2008 was approximately 38%
as a
percent of sales as compared with 51% during the comparable prior year
period. Later in 2007, we were able to negotiate lower costs on our food
and
paper products and reduce the amount of food waste and spoilage, which has
brought positive changes to our cost of sales in early 2008 when compared
to the
prior year period.
Gross
Profit - Gross
profit increased approximately 80%, to $3.2 million for the first quarter
in
2008, as compared with $1.8 million for the first quarter in 2007. Gross
profit
for our 2008 period was approximately 62% of sales as compared with 49%
during the comparable 2007 period. In addition to negotiating lower costs
on our
food and paper products and reducing the amount of food waste and spoilage,
we
also increased retail and wholesale prices during 2007, which has improved
our
gross margin.
Operating
Expenses - Operating
expenses for the first quarter of 2008 were $4.2 million, as compared with
$3.5 million for the comparable 2007 period; a 21% increase or approximately
half the sales increase percentage Operating expenses are comprised primarily
of
labor, and, to a lesser extent, occupancy, utilities, and selling, general
and
administrative expenses. Operating expenses increased in 2008 as
compared with 2007, primarily due to increased labor and related costs as a
result of continued growth since the prior year period, including the
acquisition of two catering businesses, increasing the number of Retail Cafés
from twelve as of March 31, 2007 to twenty-six as of March 31, 2008, and
preparing for future growth, both in facilities leases and with the hiring
of
members to the executive management team.
Depreciation
and Amortization - Depreciation
and amortization expense for the first quarter of 2008 increased to $1.8
million
as compared with $434,000 during the comparable 2007 period, due primarily
to amortization of identifiable intangible assets acquired in the catering
and
retail business acquisitions in the latter part of 2006 and throughout 2007.
Depreciation and amortization for the periods ended March 31, 2007 and 2008
were
approximately 12% and 34% of sales, respectively. We amortize identifiable
intangibles over a relatively short period, generally no more than two
years.
Loss
from Operations - Loss
from
operations during the first quarter of 2008 increased to approximately $2.8
million as compared with $2.1 million during the first quarter of 2007. The
increase in loss from operations over the prior year period is the result
of an
increase in gross profit of $1.4 million being offset by a $2.1 million increase
in total operating expenses.
Interest
Expense, Net – Net
interest expense for the quarter ended March 31, 2008 decreased to $65,000
as
compared with $347,000 for the quarter ended March 31, 2007. The decrease
was
primarily due to an increase in total debt from July 2006 through March 2007,
prior to $5.3 million of debt being converted into equity in March 2007.
Net
Loss - Net
loss
in the first quarter of 2008 increased to $2.8 million, or $(0.09) basic
and
diluted net loss per share, as compared with $2.5 million, or $(0.21) basic
and diluted net loss per share in the first quarter of 2007.
Liquidity
and Capital Resources
As
planned, we have funded operations through financing activities consisting
primarily of private placements of debt and equity securities. In January
and
February 2008, gross proceeds of approximately $12.0 million were received
from
the sales of equity securities. We intend to continue to engage in additional
fund-raising activities to fund future capital expenditures, potential
acquisitions of businesses, and provide additional working capital.
Net
cash
used by operating activities was approximately $2.1 million during the first
quarter of 2008 and $2.6 million in the comparable 2007 period. The decrease
in
cash used by operating activities was due primarily to an increase in net
loss
offset by an adjustment for depreciation and amortization expense, most of
which
represented amortization of identifiable intangible assets.
Net
cash
used in investing activities was approximately $605,000 and $1.1 million
for the
quarters ended March 31, 2008 and 2007, respectively. Uses of cash flow for
investing activities in both periods was primarily related to capital
expenditures associated with business expansion for the acquisition of store
and
kitchen fixtures, equipment and leasehold improvements, although to a lesser
extent during the 2008 period.
Net
cash
provided by financing activities was approximately $10.6 million and $5.6
million for the quarters ended March 31, 2008 and 2007, respectively. The
increase of net cash provided during the first quarter of 2008 was due to
an
increase in proceeds, net of issuance costs, from the issuance of common
stock
in private placements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
Not
applicable.
Item
4. Controls and Procedures
(a)
Evaluation
of Disclosure Controls and Procedures .
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls
and
procedures (as defined in the rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended)
as of
the end of the period covered by this report (the “Evaluation Date”). Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
have
concluded that our disclosure controls and procedures were effective as of
the
Evaluation Date.
(b)
Changes
in Internal Control Over Financial Reporting .
During
the fiscal quarter ended March 31, 2008, there were no changes to our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.