United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x
Quarterly
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the quarterly period ended September 30, 2007
or
¨
Transition
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the Transition Period From
to
Commission
File number 0-21061
(Exact
name of small business issuer as specified in its charter)
|
Delaware
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58-2044990
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(State
or other jurisdiction of
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(IRS
Employer
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incorporation
or organization)
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Identification
No.)
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3317
Third Avenue South, Seattle, Washington
(Address
of principal executive offices)
(206) 838-4670
(Issuer’s
telephone number)
Check
whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days. Yes x
No
¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)
Yes
¨
No
x
The
number of shares outstanding of registrant’s common stock, $0.001 par value at
November 2, 2007 was 27,758,326.
Transitional
Small Business Disclosure Format (Check one): Yes ¨
No
x
PART
I. FINANCIAL INFORMATION
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Item
1. Financial Statements (unaudited)
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Condensed
Consolidated Balance Sheets
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Page
3
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Condensed
Consolidated Statements of Operations
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Page
4
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Condensed
Consolidated Statement of Stockholders’ Equity (Deficit)
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Page
5
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Condensed
Consolidated Statements of Cash Flows
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Page
6
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Notes
to Condensed Consolidated Financial Statements
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Page
7
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Item
2. Management’s Discussion and Analysis or Plan of Operation
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Page
16
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Item
3. Controls and Procedures
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Page
20
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PART
II. OTHER INFORMATION
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Item
6. Exhibits
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Page
21
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SIGNATURES
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Page
22
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Organic
To Go Food Corporation and its wholly-owned subsidiary, Organic To Go,
Inc.
Condensed
Consolidated Balance Sheets
(in
thousands, except share amounts)
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|
December
31,
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September
30,
|
|
|
|
2006
|
|
2007
|
|
Current
assets
|
|
(audited)
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|
(unaudited)
|
|
Cash
and cash equivalents
|
|
$
|
865
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|
$
|
892
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|
Accounts
receivable, net
|
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365
|
|
|
978
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|
Inventory
|
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|
236
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|
|
449
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|
Prepaid
expenses and other current assets
|
|
|
189
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|
|
701
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|
Total
current assets
|
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|
1,655
|
|
|
3,019
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|
Property
and equipment, net
|
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|
2,148
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|
|
4,603
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|
Identifiable
intangible assets, net
|
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851
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|
2,337
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|
Deposits
and other assets
|
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623
|
|
|
554
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|
|
|
|
|
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Total
assets
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$
|
5,277
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$
|
10,514
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|
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Current
liabilities
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Accounts
payable
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$
|
1,337
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|
$
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1,729
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|
Accrued
liabilities
|
|
|
881
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|
|
1,155
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Current
portion of notes payable, net of discount
|
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6,281
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|
|
1,543
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Current
portion of capital lease obligations
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50
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251
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Total
current liabilities
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8,549
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4,679
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|
Deferred
rent
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-
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54
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|
Notes
payable, net of current portion
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592
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966
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Capital
lease obligations, net of current portion
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137
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423
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Total
liabilities
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9,278
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6,121
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Stockholders'
equity (deficit)
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Preferred
Stock; $0.001 par value; 9,670,000 and 10,000,000 shares
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8
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-
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authorized,
9,670,000 and no shares issued and outstanding
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Common
stock and additional paid-in capital; $0.001 par value;
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15,100,000
and 500,000,000 shares authorized; 3,454,910 and
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24,365,035
Exchange Ratio adjusted shares issued and outstanding
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10,414
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27,685
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Accumulated
deficit
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(14,423
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)
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(23,291
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)
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Total
stockholders' equity (deficit)
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(4,001
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)
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4,394
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Total
liabilities and stockholders' equity (deficit)
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$
|
5,277
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$
|
10,514
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|
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 per share amounts)
(unaudited)
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Three
months ended September 30,
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Nine
months ended September 30,
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2006
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2007
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2006
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2007
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Sales
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$
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2,259
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$
|
3,716
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$
|
6,716
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|
$
|
11,188
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|
|
|
|
|
|
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Cost
of sales
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1,097
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1,750
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3,315
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5,391
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Gross
Profit
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1,162
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1,966
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3,401
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5,797
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Operating
expenses
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2,411
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|
4,797
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6,716
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12,196
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|
Depreciation
and amortization
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252
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871
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|
592
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2,009
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Loss
from operations
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(1,501
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)
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|
(3,702
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)
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(3,907
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)
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(8,408
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)
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Interest
income (expense), net
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(699
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)
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(45
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)
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(714
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)
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(460
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)
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Loss
before income taxes
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(2,200
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)
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(3,747
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)
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(4,621
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)
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(8,868
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)
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Income
taxes
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-
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-
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-
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-
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|
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|
|
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|
|
|
|
|
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Net
loss
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$
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(2,200
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)
|
$
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(3,747
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)
|
$
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(4,621
|
)
|
$
|
(8,868
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)
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|
|
|
|
|
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|
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|
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Net
loss per share - basic and diluted
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$
|
(0.77
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)
|
$
|
(0.15
|
)
|
$
|
(1.61
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)
|
$
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(0.47
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)
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|
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Weighted
average shares outstanding
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2,852
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|
|
24,280
|
|
|
2,863
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|
|
19,058
|
|
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)
(in
thousands, except share amounts)
(unaudited)
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Series
A, B & C Preferred Stock
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Common
Stock and Additional Paid-In Capital
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Shares
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Amount
|
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Shares
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Amount
|
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Accumulated
Deficit
|
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Total
Stockholders' Equity (Deficit)
|
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|
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Balance
at December 31, 2006
|
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|
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
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
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SP
Holding Corporation shares outstanding at merger
|
|
|
|
|
|
|
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|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares in connection with acquisition of assets
|
|
|
|
|
|
|
|
|
556,359
|
|
|
783
|
|
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares upon exercise of warrants
|
|
|
|
|
|
|
|
|
546,012
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,868
|
)
|
|
(8,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Septemnber 30, 2007
|
|
|
-
|
|
$
|
-
|
|
|
24,365,035
|
|
$
|
27,685
|
|
$
|
(23,291
|
)
|
$
|
4,394
|
|
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
(in
thousands)
(unaudited)
|
|
Nine
months ended September 30,
|
|
|
|
2006
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,621
|
)
|
$
|
(8,868
|
)
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
cash
used by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
592
|
|
|
2,009
|
|
Non-cash
interest expense
|
|
|
583
|
|
|
386
|
|
Stock-based
compensation expense
|
|
|
10
|
|
|
248
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(166
|
)
|
|
(613
|
)
|
Inventory
|
|
|
(197
|
)
|
|
(213
|
)
|
Prepaid
expenses and other current assets
|
|
|
(117
|
)
|
|
(512
|
)
|
Accounts
payable
|
|
|
270
|
|
|
392
|
|
Accrued
liabilities and deferred rent
|
|
|
103
|
|
|
328
|
|
Other
|
|
|
(43
|
)
|
|
(466
|
)
|
Net
cash used by operating activities
|
|
|
(3,586
|
)
|
|
(7,308
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property, equipment and other assets
|
|
|
(314
|
)
|
|
(2,451
|
)
|
Purchase
of intangible assets
|
|
|
-
|
|
|
(1,923
|
)
|
Net
cash used by investing activities
|
|
|
(314
|
)
|
|
(4,374
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Principal
payments of notes payable
|
|
|
(245
|
)
|
|
(469
|
)
|
Payments
of capital lease obligations
|
|
|
(35
|
)
|
|
(88
|
)
|
Proceeds
from issuance of notes payable
|
|
|
2,328
|
|
|
500
|
|
Proceeds
from sale of preferred stock, net of issue costs
|
|
|
2,305
|
|
|
-
|
|
Redemption
of common stock
|
|
|
(1
|
)
|
|
-
|
|
Proceeds
from sale of common stock, net of issue costs
|
|
|
-
|
|
|
11,766
|
|
Net
cash provided by financing activities
|
|
|
4,352
|
|
|
11,709
|
|
Net
increase in cash and cash equivalents
|
|
|
452
|
|
|
27
|
|
Cash
and cash equivalents, beginning of period
|
|
|
250
|
|
|
865
|
|
Cash
and cash equivalents, end of period
|
|
$
|
702
|
|
$
|
892
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
151
|
|
$
|
112
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Notes
payable converted into preferred stock
|
|
$
|
2,143
|
|
$
|
-
|
|
Preferred
stock converted into common stock
|
|
$
|
-
|
|
$
|
5,700
|
|
Notes
payable converted into common stock
|
|
$
|
-
|
|
$
|
4,225
|
|
Assets
purchased through issuance of common stock
|
|
$
|
-
|
|
$
|
782
|
|
Capital
lease obligations incurred
|
|
$
|
-
|
|
$
|
572
|
|
Notes
payable for assets purchased
|
|
$
|
-
|
|
$
|
225
|
|
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
September
30, 2007
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, the “Company”), which was acquired in a reverse merger on February 12,
2007, 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 July
and
September 2007, the Company further expanded its operations by acquiring the
assets of one or two operating locations, for a total of five locations in
San
Diego in three separate transactions. At September 30, 2007, the Company
operates five stores in Washington and seventeen 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
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 liquidity -
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 were converted into common shares. Additionally, during
the three months ended June 30, 2007, proceeds of approximately $6.7 million
were received from the sales of debt and equity securities. Subsequent to
September 30, 2007, in October, 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. 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.
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, 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.
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 2007 interim periods
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 September 30, 2007,
identifiable intangible assets were comprised of customer based intangible
assets of approximately $3.6 million, less accumulated amortization of $1.3
million, and non-compete intangible assets of approximately $150,000, less
accumulated amortization of approximately $69,000. Amortization expense for
these intangible assets will approximate $636,000 in 2007, $1.3 million in
2008
and $388,000 in 2009.
Statement
of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets,” (“SFAS No. 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.
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. 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. Computations
of net loss per share for the interim 2007 periods exclude approximately
5,819,045 shares issuable upon exercise of outstanding and issuable warrants,
3,031,642 shares of common stock issuable upon exercise of outstanding stock
options, and 312,500 shares 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.
Reclassifications
-
Certain
reclassifications have been made to prior year’s financial statements to conform
with current year presentations. Such reclassifications had no effect on
stockholders’ equity, net loss or net increase in cash and cash
equivalents.
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 were 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,
|
|
September
30,
|
|
|
|
2006
|
|
2007
|
|
Notes
payable, 6% to 8% interest collateralized by vehicles and
equipment
|
|
$
|
323
|
|
$
|
177
|
|
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
|
|
Convertible
notes payable, 8% interest, due June 2008
|
|
|
525
|
|
|
525
|
|
Note
payable, 18% interest, due May 2008
|
|
|
-
|
|
|
500
|
|
Note
payable, prime plus 1% interest, due March 2009
|
|
|
-
|
|
|
115
|
|
Note
payable, 8% interest, due October 2010
|
|
|
-
|
|
|
60
|
|
Convertible
notes payable, 8% interest, due June 2007
|
|
|
5,275
|
|
|
-
|
|
Note
payable, 9% interest, due December 2006
|
|
|
275
|
|
|
-
|
|
Total
notes payable
|
|
|
7,575
|
|
|
2,554
|
|
Less:
unamortized original discount
|
|
|
(702
|
)
|
|
(
45
|
)
|
Less:
current portion of notes payable
|
|
|
(6,281
|
)
|
|
(1,543
|
)
|
Notes
payable, net of current portion
|
|
$
|
592
|
|
$
|
966
|
|
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%
(9.25% at December 31, 2006, and 8.75% at September 30, 2007), 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
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.
A
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.
Also
during 2007, as part of asset purchase agreements, the Company issued to the
sellers promissory notes of $150,000 and $75,000, bearing interests at 9.25%
and
8% per annum, payable monthly and due on March 11, 2009 and October 10, 2010
respectively.
Future
minimum principal payments on notes payable at September 30, 2007 are
approximately $126,000 in 2007, $1.5 million in 2008, $306,000 in 2009, and
$608,000 in 2010.
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 had 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. The 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 were 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. As of September 30, 2007, there were a total of 5,818,730
warrants outstanding.
Stock
options -
During
the three and nine months ended September 30, 2006, the Company granted to
certain officers and directors approximately 132,000 options and 482,000
options, respectively, to purchase Company common stock for a period of 10
years
from grant with an exercise price of $0.34 for 132,000 options and $0.17 per
share for 348,000 options. 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. During the three months ended September
30,
2007, the Company granted options to certain employees approximately 269,000
options to purchase Company common stock for a period of 10 years from grant
with an exercise price of $2.05 for 28,000 shares and of $1.82 for 241,000
shares. 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 September 30, 2006 and 2007 was approximately $0.39 and $0.90 per share,
respectively, and the weighted average fair value of stock options granted
during the nine months ended September 30, 2007 was approximately $0.74 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 $3,000 and $152,000 for the
three months ended September 30, 2006 and 2007, respectively, and $10,000 and
$248,000 for the nine months ended September 30, 2006 and 2007, respectively.
As
of September 30, 2007, there was approximately $1.5 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 the OTCBB of
$1.43 per share at December 31, 2006 and $1.94 at September 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
(intrinsic value in thousands):
|
|
Outstanding
|
|
Weighted
average exercise price
|
|
Weighted
average remaining life in years
|
|
Aggregate
intrinsic value
|
|
Balance
at December 31, 2006
|
|
|
655,545
|
|
$
|
0.54
|
|
|
9.4
|
|
$
|
585
|
|
Granted
|
|
|
2,441,965
|
|
|
1.84
|
|
|
9.8
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired/cancelled/forfeited
|
|
|
(65,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2007
|
|
|
3,031,642
|
|
$
|
1.57
|
|
|
9.4
|
|
$
|
2,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2007
|
|
|
562,725
|
|
$
|
1.40
|
|
|
9.0
|
|
$
|
558
|
|
Exercise
price
|
|
Shares
|
|
Weighted
average remaining life
|
|
|
|
|
|
|
|
$0.17
|
|
|
349,254
|
|
|
8.5
|
|
0.34
|
|
|
118,628
|
|
|
8.7
|
|
1.38
|
|
|
1,246,674
|
|
|
9.3
|
|
1.43
|
|
|
145,795
|
|
|
9.0
|
|
1.82
|
|
|
217,000
|
|
|
9.7
|
|
2.05
|
|
|
28,000
|
|
|
9.9
|
|
2.23
|
|
|
776,291
|
|
|
9.8
|
|
3.60
|
|
|
150,000
|
|
|
9.7
|
|
In
October 2006, pursuant to terms of an asset purchase agreement, the Company
acquired for $1.0 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 Company. The Company
also entered in to a one year lease agreement for the building owed by the
seller. The total purchase price of approximately $1.0 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 compete intangible asset
|
|
|
150
|
|
Note
payable assumed
|
|
|
(9
|
)
|
Total
|
|
$
|
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 a Seattle-based catering business. 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 assets
|
|
|
1,084
|
|
Liabilities
assumed
|
|
|
(42
|
)
|
Total
|
|
$
|
1,234
|
|
Operating
results for the acquired catering 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):
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
2007
|
|
Sales
|
|
$
|
9,743
|
|
$
|
11,547
|
|
Net
loss
|
|
$
|
(5,713
|
)
|
$
|
(9,072
|
)
|
Net
loss per share
|
|
$
|
(1.75
|
)
|
$
|
(0.47
|
)
|
In
July
2007, pursuant to terms of an asset purchase agreement, the Company acquired
for
approximately $375,000 cash, shares of Company common stock having a fair value
of approximately $163,000 based on the closing price as of the date of the
agreement, and $50,000 due 60 days from the date of the agreement, purchased
among other things, all inventory, furniture, fixtures, equipment, customer
lists, leasehold improvements, and owned vehicles used in connection with a
retail business operating two stores in San Diego, California. No liabilities
were assumed by the Company. The Company also entered in to a five-year lease
agreement for one of the store locations from a landlord affiliated with by
the
seller, and assumed the lease for the other store location. The total purchase
price of approximately $600,000 has been preliminarily allocated to assets
acquired based on 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
and other assets
|
|
$
|
12
|
|
Furniture,
fixtures, equipment and vehicles
|
|
|
30
|
|
Customer
based intangible assets
|
|
|
558
|
|
Total
|
|
$
|
600
|
|
In
September 2007, pursuant to terms of an asset purchase agreement, the Company
acquired for approximately $266,000 cash, shares of Company common stock having
a fair value of approximately $100,000 based on the closing price as of the
date
of the agreement, $25,000 due in equal monthly payments within 90 days from
the
date of the agreement, and related acquisition costs of approximately $22,000,
purchased among other things, all inventory, furniture, fixtures, equipment,
customer lists, leasehold improvements, and owned vehicles used in connection
with a retail business operating one store in San Diego, California. No
liabilities were assumed by the Company. The Company assumed the lease for
the
store location. The total purchase price of approximately $415,000 has been
preliminarily allocated to assets acquired based on 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
(and other assets)
|
|
$
|
11
|
|
Furniture,
fixtures, equipment and vehicles
|
|
|
25
|
|
Customer
based intangible assets
|
|
|
379
|
|
Total
|
|
$
|
415
|
|
In
September 2007, pursuant to terms of an asset purchase agreement, the Company
acquired for approximately $381,000 cash, shares of Company common stock having
a fair value of approximately $48,000 based on the closing price as of the
date
of the agreement, purchased among other things, all inventory, furniture,
fixtures, equipment, customer lists, leasehold improvements, and owned vehicles
used in connection with a retail business operating two stores in San Diego,
California. No liabilities were assumed by the Company. The Company also entered
in to a five-year lease agreement for one of the store locations from a landlord
affiliated with by the seller, and assumed the lease for the other store
location. The total purchase price of approximately $430,000 has been
preliminarily allocated to assets acquired based on 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
and other assets
|
|
$
|
6
|
|
Furniture,
fixtures, equipment and vehicles
|
|
|
30
|
|
Customer
based intangible assets
|
|
|
394
|
|
Total
|
|
$
|
430
|
|
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 new leases, for two locations in Seattle, which provide
for minimum future lease payments over five year terms of approximately
$811,000, three store leases in Los Angeles, which provide for minimum future
lease payments over their five to six year terms of approximately $908,000,
and
five store leases in San Diego, which provide for minimum future lease payments
over their four to five year terms of approximately $1.8 million. 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 $572,000. Capital lease obligations
are for terms ranging from two to five years with interest at 9% to 22%. At
September 30, 2007, minimum future annual lease obligations for fiscal years
ending September 30 are as follows (in thousands):
2008
|
|
$
|
325
|
|
2009
|
|
|
231
|
|
2010
|
|
|
137
|
|
2011
|
|
|
96
|
|
2012
|
|
|
46
|
|
|
|
|
825
|
|
Less
amounts representing interest
|
|
|
(161
|
)
|
|
|
$
|
674
|
|
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. 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. In 2006, a former employee of the Company brought suit
against us. The matter was settled for an amount immaterial to the Company’s
financial results in June 2007.
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.
The Company’s Chief 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 1,246,674 options to purchase shares
of the Company’s 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
equal
to one year’s salary and benefits.
Note
6. Subsequent Events
In
October 2007, the Company entered into a securities purchase agreement with
select accredited investors related to the sale of Company common stock and
warrants to purchase shares of Company common stock at a price of $1.75 for
one
share and .45 warrants. The Company closed its private placement, pursuant
to
which it issued an aggregate of 3,264,426 shares of Company common stock and
warrants to purchase an aggregate of 1,468,990 shares of Company common stock
at
an exercise price of $2.50 per share with a five year term. The aggregate gross
proceeds raised by the Company were approximately $5.7 million, before placement
fees of $140,000. In connection with the private placement, the Company entered
into a registration rights agreement with the investors, requiring the Company
to file with the Securities and Exchange Commission an initial registration
statement covering the resale of the common stock and the common stock issuable
upon exercise of the warrants within 30 days following the closing of the
private placement. In addition, the Company is required to cause the
registration statement to be declared effective by the Securities and Exchange
Commission 90 to 180 days following the close of the private placement,
depending on certain conditions. If the Company does not file the registration
statement by the required filing date or the Securities and Exchange Commission
does not declare the registration statement effective by the required effective
date (together, the “Event Date”), then the Company 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 Event Date and on each monthly
anniversary of the Event Date until such filing or effective date has occurred,
with the maximum liquidated damages payable by the Company capped at 10% of
the
aggregate investment amount paid by each such investor.
On
October 18, 2007, pursuant to terms an asset purchase agreement, the Company
acquired for $2.4
million cash, shares of Company common stock having a fair value of $250,000
based on the closing price as of the date of the agreement, $150,000 due 90
days
from the closing date and another $150,000 due 120 days after the close, and
upon the occurrence of certain events, additional shares of Company having
a
fair value of $50,000 based on the closing price as of the date of the
agreement, all inventory, furniture, fixtures, equipment, customer lists,
leasehold improvements, and owned vehicles used in connection with a catering
and retail business operating three stores in San Diego, California. The Company
also entered into a consulting agreement with the three sellers providing for
those individuals to provide consulting services to the Company for a one year
period, pursuant to which, among other things, the Company will pay monthly
fees
of $35,000. Other than the Company’s assumption of the leases for the three
locations, no other liabilities were assumed. The total purchase price of
approximately $3.0 million will be allocated to assets acquired based on
estimated fair values, which will result in the majority being allocated to
customer based identifiable intangible assets.
Item
2. Management’s Discussion and Analysis or Plan of
Operation
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
Quarterly Report on Form 10-QSB. 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. In March 2007, we expanded
our catering operations by acquiring the assets of a catering operation located
in Seattle, Washington, and in July and September 2007 we further expanded
our
operations by acquiring the assets of six retail and catering stores in San
Diego, California. In February 2007 we completed a reverse merger with a public
shell company named SP Holding Corporation. At September 30, 2007, we operated
five stores in Washington and seventeen 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 - 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 were
converted into shares of common stock. 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. 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 Quarterly Report on Form 10-QSB. 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 2006 and 2007, of certain assets of catering
businesses and other retail store locations 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 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 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 September 30, 2006 and 2007
Sales
- Sales
for
the three months ended September 30, 2007 increased approximately 65%, to $3.7
million, as compared with $ 2.3 million for the comparative prior year
period. Retail sales were $1.8 million during the three months ended September
30, 2007, an increase of 38% over $1.3 million during the comparative prior
year
period. Retail sales comprised 49% of total sales in the 2007 period as
compared with 57% in the comparative prior year period. Delivery/Catering
sales were $1.4 million during the three months ended September 30, 2007, an
increase of $658,000 over $742,000 for the comparative prior year period.
Delivery/Catering sales comprised 41% of total sales in the 2007 period as
compared with 32% for the comparative prior year period. Wholesale sales
were $548,000 during the three months ended September 30, 2007, an increase
of
$312,000 over $236,000 during the comparative prior year period. Wholesale
sales
comprised 13% of total sales in the 2007 period as compared with 10% in
2006. The increases in Retail, Delivery/Catering and Wholesale were due to
increased business volume.
Gross
Profit - Gross
profit increased approximately 69%, to $2.0 million for the three months ended
September 30, 2007, as compared with $1.2 million for the three months ended
September 30, 2006. Gross profit for the three months ended September 30, 2007
were approximately 53% of sales as compared with 51% during the comparative
prior year period, and as compared to 53% for the immediately preceding three
months ended June 30, 2007.
Operating
Expenses - Operating
expenses for the three months ended September 30, 2007 increased approximately
99%, to $4.8 million, as compared with $2.4 million for the three months
ended September 30, 2006. 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 September 30, 2007, as compared with the three months ended September
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 new store locations, incremental costs of being a public
company and preparing for future growth. During the three months ended September
30, 2007, we recorded $498,000 in non-recurring, one-time expenses, including
significant upfront expenses in researching and opening locations in San Diego,
the first new geographic territory since the acquisition of Briazz in
2005.
Depreciation
and Amortization - Depreciation
and amortization expense for the three months ended September 30, 2007 increased
to $871,000, as compared with $252,000 for the three months ended September
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
three months ended September 30, 2007 were approximately 23% of sales as
compared with 11% during the comparative prior year period 2006.
Loss
from Operations - Loss
from
operations for the three months ended September 30, 2007, increased to
approximately $3.7 million as compared with $1.5 million for the three
months ended September 30, 2006. The increase in loss from operations over
the
comparative prior year period is the result of the increase in gross profit
of
$804,000 being offset by the $2.4 million increase in operating expenses and
a
$619,000 increase in depreciation and amortization.
Interest
Expense, Net- Interest
expense, net for the three months ended September 30, 2007, decreased from
the
comparative prior year period to approximately $45,000. 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 September 30, 2007, increased to approximately $3.7
million as compared with $2.2 million for the three months ended September
30, 2006.
Nine
months ended September 30, 2006 and 2007
Sales
- Sales
for
the nine months ended September 30, 2007 increased approximately 67%, to $11.2
million, as compared with $6.7 million for the comparative prior year
period. Retail sales were $5.0 million during the nine months ended September
30, 2007, an increase of 25% over $4.0 million during the comparative prior
year
period. Retail sales comprised 45% of total sales in the 2007 period as
compared with 59% in the comparative prior year period. Delivery/Catering
sales were $4.7 million during the nine months ended September 30, 2007, an
increase of $2.7 million, or 135%, over $2.0 million for the comparative prior
year period. Delivery/Catering sales comprised 42% of total sales in the 2007
period as compared with 30% for the comparative prior year period.
Wholesale sales were $1.5 million during the nine months ended September 30,
2007, an increase of $800,000 as compared to $700,000 during the comparative
prior year period. Wholesale sales comprised 13% of total sales in the 2007
period as compared with 10% in 2006. The increases in Retail,
Delivery/Catering and Wholesale were due to increased business volume.
Cost
of Sales - Cost
of
sales includes the cost of food and paper products. Cost of sales for the nine
months ended September 30, 2007, increased approximately 63%, to $5.4 million,
as compared with $3.3 million for the comparative prior year period. Cost
of sales for the nine months ended September 30, 2007 were approximately 48%
as
a percent of sales as compared with 49% during the comparative prior year
period.
Gross
Profit- Gross
profit increased approximately 71%, to $5.8 million for the nine months ended
September 30, 2007, as compared with $3.4 million for the nine months ended
September 30, 2006. Gross profit for the nine months ended September 30, 2007
were approximately 52% of sales as compared with 51% during the comparative
prior year period.
Operating
Expenses - Operating
expenses for the nine months ended September 30, 2007 increased approximately
82%, to $12.2 million, as compared with $6.7 million for the nine months
ended September 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 nine months
ended September 30, 2007, as compared with the nine months ended September
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, and preparing for future growth. During the nine months ended
September 30, 2007, we recorded $498,000 in non-recurring, one-time expenses,
including significant upfront expenses to research and open locations in San
Diego, the first new geographic territory since the acquisition of Briazz in
2005.
Depreciation
and Amortization - Depreciation
and amortization expense for the nine months ended September 30, 2007 increased
to $2.0 million as compared with $592,000 for the nine months ended
September 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 nine months ended September 30, 2007 were approximately 18% of sales
as
compared with 9% during the comparative prior year period.
Loss
from Operations - Loss
from
operations for the nine months ended September 30, 2007, increased to
approximately $8.4 million as compared with $3.9 million for the nine
months ended September 30, 2006. The increase in loss from operations over
the
comparative prior year period is the result of the increase in gross profit
of
$2.4 million being offset by the $5.5 million increase in operating expenses,
and increase in depreciation and amortization of $1.4 million
Interest
Expense, Net - Interest
expense, net for the nine months ended September 30, 2007, decreased to $460,000
as compared with $714,000 for the nine months ended September 30, 2006. The
decrease was primarily due to the increase in 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
for the nine months ended September 30, 2007 increased to approximately $8.9
million as compared with $4.6 million for the nine months ended September
30, 2006.
Liquidity
and Capital Resources
As
planned, 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, 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 were converted into
shares of common stock. Additionally, during the three months ended June
30, 2007, proceeds of approximately $6.7 million were received from the sales
of
debt and equity securities. In October 2007, we closed a private placement
offering and issued approximately 3.2 million shares of common stock and
warrants to purchase approximately 1.5 million shares of common stock. The
aggregate gross proceeds raised by us was approximately $5.7 million. We intend
to continue to be engaged 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 $ 7.3 million in the nine
months ended September 30, 2007 and $3.6 million in the nine months ended
September 30, 2006. The 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 $4.4 million and $314,000 for
the nine months ended September 30, 2007 and 2006, respectively. Uses of
cash flow for investing activities in 2007 primarily relate to 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 $11.7 million and $4.4
million for the nine months ended September 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.
In
October 2007, we entered into a securities purchase agreement with select
accredited investors related to the sale of common stock and warrants to
purchase shares of common stock at an exercise price of $1.75 for one share
and
.45 warrants. We closed the private placement in October 2007, and issued an
aggregate of 3,264,426 shares of common stock and warrants to purchase an
aggregate of 1,468,990 shares of common stock at an exercise price of $2.50
per
share with a five year term. The aggregate gross proceeds raised by the us
was
approximately $5.7 million, before placement fees of $140,000. In connection
with the private placement, we entered into a registration rights agreement
with
the investors, requiring the Company to file with the Securities and Exchange
Commission an initial registration statement covering the resale of common
stock
and the common stock issuable upon exercise of the warrants within 30 days
following the closing of the private placement. In addition, we are required
to
cause the registration statement to be declared effective by the Securities
and
Exchange Commission 90 to 180 days following the close of the private placement,
depending on certain conditions. If we do not file the registration statement
by
the required filing date or the Securities and Exchange Commission does not
declare the registration statement effective by the required effective date,
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 Event
Date
and on each monthly anniversary of the Event Date until such filing or effective
date has occurred, with the maximum liquidated damages payable by the Company
capped at 10% of the aggregate investment amount paid by each such
investor.
On
October 18, 2007, pursuant to terms an asset purchase agreement, we acquired
for
$2.4 million cash, shares of common stock having a fair value of $250,000 based
on the closing price as of the date of the agreement, $150,000 due 90 days
from
the closing date and another $150,000 due 120 days after the close, and upon
the
occurrence of certain events, additional shares of common stock having a fair
value of $50,000 based on the closing price as of the date of the agreement,
all
inventory, furniture, fixtures, equipment, customer lists, leasehold
improvements, and owned vehicles used in connection with a catering and retail
business operating three stores in San Diego, California. No liabilities were
assumed by us. We also assumed the leases for the three locations.
We
lease
our 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. We also lease
certain point-of-sale computer hardware and software pursuant to capital leases.
Subsequent to December 31, 2006, we have entered into new leases, for two
locations in Seattle, which provide for minimum future lease payments over
five
year terms of approximately $811,000, three store leases in Los Angeles, which
provide for minimum future lease payments over their five to six year terms
of
approximately $908,000, and five store leases in San Diego, which provide for
minimum future lease payments over their four to five year terms of
approximately $1.8 million. In addition, we have also entered into three leases
for delivery vehicles pursuant to capital leases, which provide for additional
minimum future lease payments over their four and five year terms of
approximately $572,000.
Item
3. 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 September 30, 2007, 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.
Item
6. Exhibits
(a)
Exhibits.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer and Chief Financial Officer under
Section 906 of the Sarbanes-Oxley Act of 2002
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ORGANIC
TO GO FOOD CORPORATION
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Dated: November 13, 2007 |
By: |
/s/ Jason Brown |
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Jason
Brown, Chairman and Chief Executive Officer
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(Principal
Executive Officer)
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