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EX-31.2 - ORGANIC PLANT HEALTH INC.ex31_2.htm
EX-31.1 - ORGANIC PLANT HEALTH INC.ex31_1.htm
EX-32.2 - ORGANIC PLANT HEALTH INC.ex32_2.htm
EX-32.1 - ORGANIC PLANT HEALTH INC.ex32_1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

For the Quarterly Period Ended June 30, 2012


 

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

       For the Transition Period From ____to _____

 

Commission File Number: 333-176704

 

ORGANIC PLANT HEALTH, INC.

(Exact name of small business issuer as specified in its charter) 

 

 

Nevada 27-2874167
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)  

 

9206 Monroe Road

Charlotte, NC 28270 USA

(Address of principal executive offices)

 

(704) 841-1066

(Issuer's telephone number)

 

Indicate by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [x]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

Yes [ ] No [x]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-Q or any amendments to this Form 10-Q.

Yes [ ] No [x]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  £
Non-accelerated filer  £(Do not check if a smaller reporting company) 
Accelerated filer  £
Smaller reporting company  S

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the exchange act).

Yes [ ] No [x]

 

Number of shares of common stock, par value $.001, outstanding as of August 13, 2012: 67,290,081

  

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

 

(1)

  

  TABLE OF CONTENTS  
   
PART I. FINANCIAL INFORMATION  
   
   
   
ITEM 1. FINANCIAL STATEMENTS 4
   
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
   
ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK     12
   

ITEM 4. CONTROLS AND PROCEDURES

 

ITEM 4T. CONTROLS AND PROCEDURES

12

 

12

   
PART II. OTHER INFORMATION  
   
ITEM 1. LEGAL PROCEEDINGS 13
   
ITEM 1A. RISK FACTORS      13
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 13
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES      13
   
ITEM 4. MINE SAFETY DISCLOSURE      13
   
ITEM 5. OTHER INFORMATION  13
   
ITEM 6. EXHIBITS 13
   
SIGNATURES 14
   
INDEX TO EXHIBITS 15

 

(2)

 

ITEM 1. FINANCIAL STATEMENTS

 

ORGANIC PLANT HEALTH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2012 AND DECEMBER 31, 2011
(UNAUDITED)
       
   June 30, 2012  December 31, 2011
ASSETS      
Current Assets      
Cash and cash equivalents  $7,183   $42,651 
Accounts receivable, net   48,187    48,963 
Inventory   79,631    38,812 
Total Current Assets   135,001    130,426 
           
Property and equipment, net   91,716    106,774 
           
Other Assets          
Security deposits   17,700    6,700 
Total Other Assets   17,700    6,700 
           
TOTAL ASSETS  $244,417   $243,900 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
LIABILITIES          
Current Liabilities          
Accounts payable  $244,726   $199,095 
Notes payable - current portion, Net of debt discount   231,535    103,310 
Notes payable - related parties   106,684    116,684 
Accrued expenses   52,617    30,785 
Accrued interest   46,074    30,137 
Common stock to be issued   100,000    32,500 
Deferred revenues   19,177    55,129 
Total Current Liabilities   800,813    567,640 
           
Long-Term Liabilities          
Notes payable, Net of debt discount   72,677    152,227 
Notes payable - related parties   42,500    42,500 
Total Long-Term Liabilities   115,177    194,727 
           
TOTAL LIABILITIES   915,990    762,367 
           
STOCKHOLDERS' DEFICIT          
Common stock, par value $0.001; 150,000,000 shares authorized; 66,440,081 and 61,215,081 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively   66,440    61,215 
Preferred stock, par value $0.001; 5,000,000 shares authorized; none share issued and outstanding as of June 30, 2012 and December 31, 2011, respectively   —      —   
Deferred compensation   (336,233)   0 
Paid-in capital   1,346,440    671,754 
Accumulated deficit   (1,748,220)   (1,251,436)
Total Stockholders' Deficit   (671,573)   (518,467)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $244,417   $243,900 
           
           
The accompanying notes are an integral part of these  consolidated  financial statements

 

 

(3)

 

ORGANIC PLANT HEALTH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
             
   For the three months ended  For the six months ended
   June 30, 2012  June 30, 2011  June 30, 2012  June 30, 2011
REVENUES            
Sales  $219,618   $216,515   $470,787   $441,730 
Cost of Goods Sold   (114,649)   (88,780)   (195,293)   (162,773)
GROSS PROFIT   104,969    127,735    275,494    278,957 
                     
OPERATING EXPENSES                    
Professional fees   285,747    28,966    303,107    44,322 
Rent   33,823    30,839    64,685    60,904 
Bank and finance charges   (974)   3,719    2,766    9,126 
Depreciation   7,529    7,527    15,058    15,053 
Advertising and promotion   22,782    16,738    43,384    52,182 
Automobile   3,248    4,589    6,011    8,697 
Contract labor   45,237    34,340    63,552    59,473 
Credit card processing fees   3,594    3,321    5,581    6,337 
Website maintenance   12,280    2,232    12,505    3,227 
Insurance   11,243    8,358    20,828    15,051 
Travel, meals and entertainment   2,262    3,930    4,388    8,949 
Wages and taxes   49,090    58,417    81,249    98,445 
Commissions   —      3,178    —      6,202 
Supplies   3,687    2,351    6,507    6,747 
Telephone and utilities   6,731    7,660    14,764    15,970 
Product development   8,509    6,000    11,764    6,000 
Bad debt   —      143    1,687    3,122 
General and administrative   25,966    15,970    37,816    22,869 
TOTAL OPERATING EXPENSES   520,754    238,278    695,652    442,676 
                     
LOSS FROM OPERATIONS   (415,785)   (110,543)   (420,158)   (163,719)
                     
OTHER INCOME (EXPENSE)                    
Other income  (expenses)   —      12,951    —      12,951 
Interest expense   (52,020)   (19,061)   (76,626)   (37,816)
TOTAL OTHER INCOME (EXPENSE)   (52,020)   (6,110)   (76,626)   (24,865)
                     
LOSS BEFORE PROVISION FOR INCOME TAXES   (467,805)   (116,653)   (496,784)   (188,584)
                     
PROVISION FOR INCOME TAXES   —      —      —      —   
                     
NET LOSS  $(467,805)  $(116,653)  $(496,784)  $(188,584)
                     
NET LOSS PER SHARE - BASIC  $(0.01)    **    $(0.01)  $(0.01)
                     
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC   65,802,581    48,444,792    63,496,158    30,957,670 
                     
** Less than $(.01)                    
                     
The accompanying notes are an integral part of these  consolidated  financial statements

 

 

(4)

 

 

ORGANIC PLANT HEALTH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
       
   For the six months ended
   June 30, 2012  June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss for the period  $(496,784)  $(188,584)
Adjustments to reconcile net loss to net cash used in operating activities:          
Bad debt expense   1,687    3,122 
Depreciation   15,058    15,053 
Amortization of debt discount    52,296    25,000 
Common stock issued for services renderred   264,367    18,750 
Changes in assets and liabilities:          
Accounts receivable   (911)   (56,958)
Inventory   (40,819)   28,568 
Accounts payable   45,632    (91,858)
Accrued expenses   21,832    13,615 
Accrued interest   15,937    7,127 
Deferred revenues   (35,952)   21,363 
Net cash (used in) operating activities   (157,657)   (204,802)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Security deposits   (11,000)     
Purchase of property and equipment   —      (303)
Net cash (used in) investing activities   (11,000)    (303)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Payments on notes payable - related parties   (10,000)   (10,000)
Proceeds from notes payable   75,000    142,500 
Payments on notes payable   (24,311)   (27,278)
Proceeds from stock issuance   92,500    102,835 
Net cash provided by financing activities   133,189    208,057 
           
Net increase (decrease) in cash and cash equivalents   (35,468)   2,952 
           
Cash and Cash Equivalents, Beginning of Period   42,651    6,625 
           
Cash and Cash Equivalents, End of Period  $7,183   $9,577 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for interest    7,323    $5,688 
Cash paid for income taxes  $—     $—   
           
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:          
Common stock issued to settle accounts payable  $—     $68,245 
           
The accompanying notes are an integral part of these  consolidated  financial statements

 

(5)

 

NOTE 1 BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

 

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2011 and 2010 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2011.

 

NOTE 2 ORGANIZATION AND BUSINESS BACKGROUND

 

Organic Plant Health, LLC, (referred to herein as “OPH”), a North Carolina Limited Liability Company, was originally founded in Charlotte, NC in 2007 by Billy Styles and Alan Talbert. The business produces and distributes organic based fertilizers and soil conditioners for use in the continual care of residential and commercial landscapes.

 

On December 10, 2010, OPH entered into a Plan of Exchange agreement (the “Plan of Exchange”) between and among the members of OPH (“OPH Members”) and Acumedspa Holdings, Inc., (herein referred to as the Company), a publically traded Nevada corporation, and its majority shareholder, Mr. Brian Sperber.

 

Pursuant to the terms of the Plan of Exchange, Acumedspa Holdings, Inc. acquired 100% of the membership interests of OPH in exchange for a transfer of 3,985,000 shares of the Company’s Convertible Preferred Stock to OPH Members, which gave OPH Members a controlling interest in Acumedspa Holdings, Inc., representing approximately 76.47% of the then issued and outstanding shares on a dilutive basis. OPH and Acumedspa Holdings, Inc. were hereby reorganized, such that the Company acquired 100% of the ownership of OPH, and OPH became a wholly-owned subsidiary of the Company.

 

The stock exchange transaction was accounted for as a reverse acquisition and recapitalization of the Company whereby OPH was deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer).  The accompanying consolidated financial statements are in substance those of OPH, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction.  The Company is deemed to be a continuation of the business of OPH.  Accordingly, the accompanying consolidated financial statements include the following:

 

(1)         The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost; 

 

(2)         The financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction.

 

On December 11, 2010, the Company vended out the two subsidiaries, ACUMEDSPA LLC, a Tennessee Limited Liability Company, and CONSUMER CARE OF AMERICA LLC, a Florida Limited Liability Company, pursuant to an Agreement entered between and among OPH and Chinita LLC, a Nevada Limited Liability Company (“Buyer”). Accordingly, the Buyer acquired 100% interest in ACUMEDSPA LLC and 100% interest in CONSUMER CARE OF AMERICA LLC, as well as any and all assets and liabilities in both subsidiaries in exchange for the total payments of not less than Two Hundred dollars ($200). As a result of the transactions consummated at the closing, the purchase gave the Buyer a 'controlling interest' in both subsidiaries; therefore, ACUMEDSPA LLC and CONSUMER CARE OF AMERICA LLC were no longer wholly-owned subsidiaries of the Company.

 

Organic Plant Health, Inc. and OPH are hereinafter referred to as (the “Company”).

 

(6)

 

NOTE 3 RECENTLY ISSUED ACCOUNTING STANDARDS

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

 

In May 2011, FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”).  ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively.  The Company anticipates that the adoption of this standard will not materially expand its financial statement note disclosures.

 

In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company did not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition.

In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows or financial condition.

NOTE 4 ACCOUNTS RECEIVABLE

 

Accounts receivable was comprised of the following amounts as of June 30, 2012 and December 31, 2011:

 

   As of
   June 30, 2012  December 31, 2011
       
Gross trade accounts receivable from customers  $52,451   $51,540 
Allowance for doubtful customer accounts   (4,264)   (2,577)
Accounts receivable, net  $48,187   $48,963 
           

 

The Company establishes an allowance for doubtful accounts based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment, which is approximately 5% of accounts receivable outstanding.

 

During the three and six months ended June 30, 2012, the Company had bad debt expenses of $0 and $1,687, respectively, compared to $143 and 3,122 for the three and six months ended June 30, 2011 respectively, in the accompanying consolidated statements of operations.

 

(7)

 

NOTE 5 INVENTORY

 

Inventory was comprised of the following as of June 30, 2012 and December 31, 2011:

 

   As of
   June 30, 2012  December 31, 2011
       
Raw materials  $56,339   $16,665 
Work in process   0    0 
Finished goods   23,292    22,147 
    79,631    38,812 
Provision for obsolete inventories   0    0 
   $79,631   $38,812 
           

 

NOTE 6 PROPERTY AND EQUIPMENT

 

Property and equipments were comprised of the following as of June 30, 2012 and December 31, 2011:

 

   As of
   June 30, 2012  December 31, 2011
Cost:      
Machinery and equipment  $178,309   $178,309 
Furniture and fixtures   25,623    25,623 
Software   13,252    13,252 
Total cost   217,184    217,184 
Less: Accumulated depreciation   (125,468)   (110,410)
Property and equipment, net  $91,716   $106,774 
           

 

Depreciation expense was $7,529 and $15,058 for the three and six months ended June 30, 2012, respectively. Compared to $7,527 and $15,053 for the three and six months ended June 30, 2011 respectively.

 

(8)

 

NOTE 7 NOTES PAYABLE

 

The Company had outstanding balances on its notes payable of the following amounts as of June 30, 2012 and December 31, 2011:

   As of
   June 30, 2012  December 31, 2011
Bank of Granite, 8.5% interest rate, due on March 26, 2012 (1)  $0   $2,377 
Bank of NC, 6.5% interest rate, due on June 30, 2013 (2)   49,332    66,337 
Greentree Financial Group, 6% interest rate, due on January 1, 2013, net of discount (3)   75,000    50,000 
NEKCO LLC, 20% interest rate, due on April 21, 2012. Default interest rate is 5% per month (4)   40,000    40,000 
Mark Blumberg, 5.75% interest rate, due on October 1, 2015 (5)   91,894    96,823 
Asher Enterprises Inc., 8% interest rate, due on December 9, 2012, net of discount (6)   31,045    0 
Asher Enterprises Inc., 8% interest rate, due on February 4, 2013, net of discount (7)   16,941      
Total notes payable  $304,212   $255,537 
Less: Current portion of notes payable   (231,535)   (103,310)
Total long-term notes payable  $72,677   $152,227 
           

 

(1) The Company has a line of credit with Bank of Granite at an interest rate of prime plus 3 % per annum. The balance on this credit line was paid in full on February 21, 2012. The Company recorded interest expenses of $89 during the six months ended June 30, 2012.

 

(2) The Company has loan payable to Bank of North Carolina at an interest rate of 6.5% per annum and due on June 30, 2013. The balance of this bank loan was $49,332 as of June 30, 2012, all of which was classified as short-term loan payable. The Company recorded interest expenses of $648 and $1,428 during the three and six months ended June 30, 2012, respectively.

 

(3) On January 1, 2011, the Company entered into a convertible promissory note (GT Note) in a principal amount of $100,000 payable to Greentree Financial Group (“Greentree”), which bears an interest rate of 6% per annum and is due on January 1, 2013. Pursuant to GT Note, Greentree has an option to convert all or any portion of the accrued interest and unpaid principal balance of GT Note into the Common Stock of the Company or its successors, at Ten Cents ($.10) per share, no sooner than September 30, 2012. The conversion price associated with GT Note was determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance.

 

GT Note is discounted in full amount due to the issuance of 1,000,000 shares of Common Stock as sweetener to GT Note, and a beneficial conversion feature. The fair value of the 1,000,000 shares was $68,245 determined by an arm’s length payable settlement with a non-affiliate since there was nominal trading volume of our common stock in the market, and recorded as discount to note payable, which will be amortized over 2 years starting from January 1, 2011. The remaining discount of $31,755 represented the intrinsic value of the beneficial conversion option, which will be amortized over 2 years starting from January 1, 2011. The Company recorded interest expense related to this note of $14,000 and $28,000 for the three and six months ended June 30, 2012, respectively.

 

The carry value of GT Note was $75,000 as of June 30, 2012. The 1,000,000 shares of Common Stock were issued on May 13, 2011.

 

(4) The Company has loan payable to NEKCO, LLC in amount of $40,000 (“Principal Amount”) due on April 21, 2012 (“Maturity Date”). Interest will accrue on the unpaid balance of the Principal Amount from December 21, 2011 until the maturity date of April 21, 2012, at the fixed rate of 20.0% calculated on the basis of a flat interest payment if the loan is repaid on or before Maturity Date. In the event the note was not paid in full as of the Maturity Date, the default interest will be accrued at a rate of 5% per month on the outstanding balance. Accordingly, the Company recorded interest expense of $5,060 and $7,033 related to this note during the three and six months ended June 30, 2012, respectively.

 

(5) The Company has a loan payable to Mark Blumberg (“Mr. Blumberg”), a former member of the Company, at an interest rate of 5.75% per annum and due on October 1, 2015. The loan was due to the redemption of Mr. Blumberg’s membership of the Company pursuant to a settlement agreement entered on January 1, 2011. The balance of this loan was $91,894 as of June 30, 2012, of which $19,217 was classified as short-term loan payable. The Company recorded interest expenses of $1,343 and $2,271 during the three and six months ended June 30, 2012, respectively.

 

(6) On March 9, 2012, the Company entered into a convertible promissory note (Asher Note I) in a principal amount of $42,500 payable to Asher Enterprises Inc. (“Asher”), which bears an interest rate of 8% per annum and is due on December 9, 2012. Pursuant to Asher Note I, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance of Asher Note I into the Common Stock of the Company or its successors, at 58% of the market price, no sooner than September 5, 2012. The conversion price associated with Asher Note I was determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance.

 

Asher Note I is discounted in amount of $30,776 due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the minimum period in which Asher can recognize the return. Accordingly, the Company recorded interest expense related to this note of $16,407 and $20,373 for the three and six months ended June 30, 2012, respectively.

 

The carry value of Asher Note I was $31,045 as of June 30, 2012.

 

(7) On April 30, 2012, the Company entered into a convertible promissory note (Asher Note II) in a principal amount of $32,500 payable to Asher Enterprises Inc. (“Asher”), which bears an interest rate of 8% per annum and is due on February 4, 2013. Pursuant to Asher Note II, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance of Asher Note II into the Common Stock of the Company or its successors, at 58% of the market price, no sooner than October 27, 2012. The conversion price associated with Asher Note II was determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance.

 

Asher Note II is discounted in amount of $23,534 due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the minimum period in which Asher can recognize the return. Accordingly, the Company recorded interest expense related to this note of $8,410 for the three months ended June 30, 2012.

 

The carry value of Asher Note II was $16,941 as of June 30, 2012.

 

(9)

 

NOTE 8 NOTES PAYABLE – RELATED PARTIES

 

The Company had outstanding balances on its notes payable – related parties of the following amounts as of June 30, 2012 and December 31, 2011:

 

   As of
   June 30, 2012  December 31, 2011
Shareholder loans, Prime plus 2.5% interest rate, due July 2012  $55,800   $55,800 
Loans from officer, 5.5% interest rate, due on demand   50,884    60,884 
Loans from company owned by shareholders, 5.5% interest rate, due May 2016   42,500    42,500 
Total notes payable – related parties  $149,184   $159,184 
Less: Current portion of notes payable – related parties   (106,684)   (116,684)
Total long-term note payable – related parties  $42,500   $42,500 

 

In July 2009, the Company’s shareholders made several loans in total amount of $275,000 to the Company to fund its operations. The shareholder loans were evidenced by promissory notes due in July 2012, with interest at the floating interest rate of Prime plus 2.5%. The interest rate will be adjusted each calendar quarter of January 1, April 1, July 1 and October 1. The principal balance of the shareholder loans was $55,800 as of June 30, 2012. Accordingly, the Company recorded interest expenses of $800 and $1,591 during the three and six months ended June 30, 2012, respectively.

 

In addition, the Company had outstanding balances of $50,884 due to the Company’s President as of June 30, 2012. The funds borrowed from the Company’s President were to fund the Company’s operations. The loan agreement was not evidenced by any promissory note, but rather a verbal agreement between the President and the Company. The note is due on demand. Accordingly, the Company recorded interest expenses of $1,421 and $2,972 during the three and six months ended June 30, 2012, respectively.

 

The Company has a loan payable to US Green Pros, LLC, a related party to the Company, at an interest rate of 5.5% per annum and which is due in full on May 17, 2016. The balance of this loan was $42,500 as of June 30, 2012. Accordingly, the Company recorded interest expenses of $530 and $1,054 during the three and six months ended June 30, 2012, respectively.

 

(10)

 

NOTE 9 COMMON STOCK TO BE ISSUED

 

As of June 30, 2012 and December 31, 2011, the Company had common stock to be issued in amount of $100,000 and $32,500, respectively, which were in connection with the transactions as below:

 

In August of 2011, 2 investors submitted subscription agreements to the Company regarding the purchase of 650,000 shares of the Company’s Common Stock at a price of $.05 per share, or cash payment of total $32,500. The transaction was independently negotiated between the Company and the investors. The Company evaluated the transaction based on the fact that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time entering the subscription agreements. The proceeds from the subscription agreements, which were collected in full during the fourth quarter of 2011, mitigated the Company’s cash pressure in short term. The 650,000 shares have not been granted or issued as of the date of this report.

 

During the first quarter of 2012, one of the current shareholders submitted subscription agreement to the Company regarding the purchase of 800,000 shares of the Company’s Common Stock at a price of $.05 per share, or cash payment of total $40,000. The transaction was independently negotiated between the Company and the investor. The Company evaluated the transaction based on the fact that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time entering the subscription agreement. The proceeds from the subscription agreement, which were collected in full during the first quarter of 2012, mitigated the Company’s cash pressure in short term. The 800,000 shares have not been granted or issued as of the date of this report.

 

During the second quarter of 2012, three investors submitted subscription agreements to the Company regarding the purchase of total 550,000 shares of the Company’s Common Stock at a price of $.05 per share, or cash payment of total $27,500. The transaction was independently negotiated between the Company and the investors. The Company evaluated the transaction based on the fact that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time entering the subscription agreements. The proceeds from the subscription agreements, which were collected in full during the second quarter of 2012, mitigated the Company’s cash pressure in short term. The 550,000 shares have not been granted or issued as of the date of this report.

 

(11)

 

NOTE 10 CAPITAL TRANSACTIONS

 

During the first quarter of 2012, one investor submitted subscription agreement to the Company regarding the purchase of 125,000 shares of the Company’s Common Stock at a price of $.20 per share, or cash payment of total $25,000. The transaction was independently negotiated between the Company and the investor. The Company evaluated the transaction based on the fact that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time entering the subscription agreement. The proceeds from the subscription agreement, which were collected in full during the first quarter of 2012, mitigated the Company’s cash pressure in short term. The 125,000 shares were issued on April 4, 2012.

 

NOTE 11 STOCK BASED COMPENSATION

 

On April 1, 2012, the Company entered into two consulting agreements with a Consultant for business advisory services in exchange for the total issuance of 5,700,000 shares of Common Stock of the Company, of which 2,500,000 shares for the services period from April 1, 2012 through September 30, 2012, and 3,200,000 shares for the services period from April 1, 2012 through March 31, 2013. The fair value of the stock issuance was determined by 70% of market value of the Company’s Common Stock on the grant date, at a price of approximately $.126 per share. Accordingly, the Company calculated the stock based compensation of $718,200 at its fair value and booked pro rata within the relative service periods. For the six months ended June 30, 2012, the Company recognized stock based compensation of $258,300 to the consolidated statements of operations. In addition, the Company recorded deferred compensation of $308,700 to the consolidated balance sheet as of June 30, 2012 reflecting the issuance of 4,500,000 shares on April 3, 2012.

 

The transactions were independently negotiated between the Company and the Consultant. The Company evaluated the transaction based on the fact that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance. The stock based compensation preserved the limited cash available currently in the Company.

 

On June 4, 2012, the Company entered into an agreement with a Consultant for marketing services during the period from June 4, 2012 through December 3, 2012 in exchange for the total issuance of 750,000 shares of Common Stock. The fair value of the stock issuance was determined by 70% of market value of the Company’s Common Stock on the grant date, at a price of approximately $.056 per share. Accordingly, the Company calculated the stock based compensation of $42,000 at its fair value and booked pro rata within the relative service periods. For the six months ended June 30, 2012, the Company recognized stock based compensation of $6,067 to the consolidated statements of operations. In addition, the Company recorded deferred compensation of $27,533 to the consolidated balance sheet as of June 30, 2012 reflecting the issuance of 600,000 shares on June 20, 2012.

 

The transactions were independently negotiated between the Company and the Consultant. The Company evaluated the transaction based on the fact that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance. The stock based compensation preserved the limited cash available currently in the Company.

 

(12)

 

NOTE 12 COMMITMENT AND CONTINGENCIES

 

The Company leases its retail stores and manufacturing facilities under non-cancelable operating lease agreements.  The Company has no long-term lease agreements as the current expansion plans call for the Company to move to larger manufacturing and warehousing facilities in 2012. The Company is currently working on a new lease agreement.

 

For the three and six months ended June 30, 2012, the Company had rental expenses of $33,823 and $64,685, respectively.

 

NOTE 13 LOSS PER SHARE

 

Basic net loss per share is computed using the weighted average number of common shares outstanding during the three and six months ended June 30, 2012 and 2011, respectively.  There was no dilutive earning per share due to net losses during the periods.  

 

The following table sets forth the computation of basic net loss per share for the periods indicated:

 

   For the three months ended  For the six months ended
   June 30, 2012  June 30, 2011  June 30, 2012  June 30, 2011
             
Net loss  $(467,805)  $(116,653)  $(496,784)  $(188,584)
                     
Net loss per share - basic  $(0.01)    **   $(0.01)  $(0.01)
                     
Weighted average number of shares outstanding - basic   65,802,581    48,444,792    63,496,158    30,957,670 
                     

 

** Less than $.01

 

(13)

 

NOTE 14 CONCENTRATION AND RISK

 

(1) Major Customers

 

During the six months ended June 30, 2012, major customers with their revenues are presented as follows:

 

 

Customers

    Revenues            

Accounts

Receivable

 
Customer A     $ 52,733       12 %     $ 0  
  Total   $ 52,733       12 % Total:   $ 0  

 

During the six months ended June 30, 2011, major customers with their revenues are presented as follows:

 

 

Customers

    Revenues            

Accounts

Receivable

 
Customer A     $ 64,546       11 %     $ 29,503  
  Total   $ 64,546       11 % Total:   $ 29,503  

 

(2) Major Vendors

 

During the six months ended June 30, 2012, major vendors are presented as follows:

 

 

Vendors

    Purchase            

Accounts

Payable

 
Vendor A     $ 119,809       56 %     $ 31,352  
Vendor B       39,790       19 %       0  
Vendor C       9,500       4 %       743  
Vendor D       8,500       4 %       3,023  
  Total   $ 177,599       83 % Total:   $ 35,118  

 

During the six months ended June 30, 2011, major vendors are presented as follows:

 

 

Vendors

    Purchases            

Accounts

Payable

 
Vendor A     $ 50,818       21 %     $ 0  
Vendor B       35,520       15 %     $ 0  
Vendor C       20,493       9 %       5,100  
Vendor D       9,373       4 %       6,900  
  Total   $ 116,204       49 % Total:   $ 12,000  

 

(3) Credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

 

(14)

 

NOTE 15 GOING CONCERN

 

These consolidated financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 

As of June 30, 2012, the Company had an accumulated deficit of $1,748,220. Management has taken certain action and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including (a) reductions in raw materials costs, as well as packaging costs; and (b) expansion of the business model into new markets. Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through December 31, 2012. As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.

 

Management is confident that funds raised through the registration statement effective with the SEC on February 10, 2012 will allow the Company to build out its infrastructure and make key hires in sales and sales management that will increase revenues significantly and return the Company to profitability in the short term.

 

NOTE 16 SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to June 30, 2012 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements, other than the followings.

 

On July 6, 2012, the Company issued an additional 850,000 shares to the Consultant in connection with the two consulting agreements entered on April 1, 2012, see Note 11.

 

(15)

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Forward Looking Statements

 

Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Consolidated Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion strategy, our ability to achieve operating efficiencies, our dependence on distributors, capacity, suppliers, industry pricing and industry trends, evolving industry standards, domestic and international regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop and deliver our products on a timely basis and in the prescribed condition; 2) our ability to compete effectively with other companies in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability to retain our key executives.

 

History

 

As used herein the terms "We", the "Company", "OPHI", the "Registrant," or the "Issuer" refers to Organic Plant Health Inc., its subsidiary and predecessors, unless indicated otherwise. The Company was incorporated in the State of Nevada on September 5, 2007 and subsequently changed our name to QX Bio-Tech Group, Inc. on October 17, 2007. We further changed our name to Acumedspa Holdings, Inc. on July 30, 2009, and to Organic Plant Health Inc. on December 15, 2010.

 

On July 1, 2009, the Company entered into a Plan of Exchange between the Company, Acumedspa Group LLC (“AcuMed”), a Florida corporation, and Consumer Care of America LLC (“CCA”), a Florida corporation, pursuant to which the Company acquired 100% of the capital stock of AcuMed and 100% of the capital stock of CCA in exchange for an issuance by the Company of 6,200,000 new shares of Common Stock of the Company to the Shareholders of AcuMed and CCA. The Plan of Exchange was approved by the Board of Directors and the Majority Shareholders of the Company on July 1, 2009.

 

AcuMed and CCA were subsequently vended out after the completion of the stock exchange transaction (the “Transaction”) between the Company and Organic Plant Health, LLC (referred to herein as “OPH”), a North Carolina Limited Liability Corporation located in Charlotte, North Carolina. The Transaction between the Company and OPH had been accounted for as a reverse acquisition and recapitalization of the Company and resulted in the change of control in the Company. Pursuant to an Agreement (the “Agreement”), dated December 11, 2010, between and among the Company and Mr. Brian Sperber, an prior director and prior majority shareholder of the Company (“Mr. Sperber”), Mr. Sperber acquired 100% interest in the common shares of AcuMed, as well as assumed any and all liabilities of AcuMed in exchange for the payment of good and valuable consideration of not less than One Hundred dollars ($100), and acquired 100% interest in the common shares of CCA, as well as assumed any and all liabilities of Consumer Care Of America LLC in exchange for the payment of good and valuable consideration of not less than One Hundred dollars ($100). As a result of the transactions consummated at the closing, the purchase gave Mr. Sperber a 'controlling interest' in Acumedspa LLC and Consumer Care Of America LLC, both of which was no longer wholly-owned subsidiaries of the Company. The Agreement was approved by the Board of Directors of the Company on December 11, 2010.

 

On December 10, 2010, the Company entered into a Plan of Exchange agreement (the “Plan of Exchange”) with the members of OPH and Mr. Sperber, pursuant to which the Company acquired 100% of the membership interests of OPH in exchange for a transfer of 3,985,000 shares of the Company’s Convertible Preferred Stock to OPH Members, which gave OPH Members a controlling interest in the Company, representing approximately 76.47% of the then issued and outstanding shares on a dilutive basis. OPH and the Company were hereby reorganized, such that the Company acquired 100% of the ownership of OPH, and OPH became a wholly-owned subsidiary of the Company.

 

The stock exchange transaction had been accounted for as a reverse acquisition and recapitalization of the Company whereby OPH was deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer).  The accompanying consolidated financial statements were in substance those of OPH, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of stock exchange transaction.  The Company is deemed to be a continuation of the business of OPH.  

 

OPH was originally founded in Charlotte, NC in 2007 by Billy Styles and Alan Talbert. The business produces and distributes organic based fertilizers and soil conditioners for use in the continual care of residential and commercial landscapes.

 

(16)

 

Business Description of the Issuer 

 

Overview

 

We produce, distribute and sell organic based, natural and environmentally responsible products for the continual care of the urban and suburban landscape. Our products consist of granular and liquid fertilizers, soil conditioners, pest control products and select garden tools. Certain of those products promote and support soil health and plant health in a variety of residential and commercial landscape applications, however, there is no assurance that these products will improve soil health, plant health, control for fungus, diseases and insect infestation in every landscape and every property.

 

Our products are formulated and blended from raw materials brought in from around the country. Our products and education oriented business practices are designed to appeal to green-minded consumers and businesses, as well as homeowners with do-it-yourself tendencies.  We currently service over 4,500 residential customers located throughout the region, and over 100 commercial landscapers.

 

We consider the business a part of the “new” Green Economy because many of the products we manufacture and distribute support sustainable plant growth, have less impact on the environment than traditional chemical fertilizers, and support conservation of water if used consistently.

 

After achieving some success and increasing revenues with the basic retail model in 2007 and 2008, we began to feel the effects from the recession in early 2009, and by June of 2009, we recognized that the recession would be protracted and would likely continue to have a negative impact on our business. In July of 2009 we brought on minor investors, and jointly decided that our best opportunity for prolonged growth and expansion with the least amount of capital was to change the business model from basic retail to a more traditional manufacturer/distributor model. This growth strategy change would lessen our cost of expansion, otherwise, (appx. $250,000.00 - $300,000.00 annually, per retail store if we had stayed with the previous business model), and allow us to expand faster, and over a larger area by selling our exclusive products through independent retail partners. These retail partners, existing businesses with built-in consumer traffic, consist of hardware stores, garden centers and nurseries.

 

We began transitioning to the manufacturing/distribution model in the fall of 2009. We currently sell our exclusive products through 30+ retail partners. Although, we have not added as many retail partners as initially planned due to the limited cash flow available to support an experienced sales staff, we have experienced some measure of success with the new business model and believe it is viable and will become profitable in the next 18 to 24 months, if partially or fully funded from our current public offering up to 10,000,000 shares of common stock at price of $0.20 per share. Without receiving any funding from this offering, we will have to make significant changes in our operations to sustain the business. We further believe that we will need a minimum of $500,000 over the next 6 to 10 months to achieve our initial expansion goals. 

 

(17)

 

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

 

The following tables set forth key components of our results of operations for the periods indicated, in dollars and as a percentage of revenue.

 

Consolidated Statements of Operations Data   For the three months ended   For the three months ended   For the six months ended   For the six months ended
June 30, 2012 June 30, 2011   June 30, 2012   June 30, 2012
    USD   % of   USD   % of   USD   % of   USD   % of
Revenue Revenue   Revenue   Revenue
Revenues   $ 219,618   —  %   $ 216,515   —  %   $ 470,787   —  %   $ 441,730   —  %
Cost of Sales   $ (114,649)   52%   $ (88,780)   41%   $ (195,293)   41%   $ (162,773)   37%
Gross profit   $ 104,969   48%   $ 127,735   59%   $ 275,494   59%   $ 278,957   63%
Operating expenses   $ 520,754   237%   $ 238,278   110%   $ 695,652   148%   $ 442,676   100%
(Loss) from operations   $ (415,785)   189%   $ (110,543)   51%   $ (420,158)   89%   $ (163,719)   37%
Other (expense)   $ (52,020)   24%   $ (6,110)   3%   $ (76,626)   16%   $ (24,865)   6%
Net (loss) before income taxes   $ (467,805)   213%   $ (116,653)   54%   $ (496,784)   106%   $ (188,584)   43%
Net (loss)   $ (467,805)   213%   $ (116,653)   54%   $ (496,784)   106%   $ (188,584)   43%

 

Revenues

 

Our revenues consist of the sale of our fertility products less, returns and allowances, and the sale of license agreements. We currently sell our products directly to ultimate end users via our retail store located in downtown Matthews; we also sell them to non-related retailers and wholesalers who then sell such products to the ultimate end users. To date, returns and allowances have been virtually non-existent and as such have had no material effect on our revenues. The revenues from the sale of license agreements, and optional license agreements are in connection with our approval to the distribution partners that desire to represent us in developing sales and marketing agreements with potential wholesale customers. We amortize licensing revenue on a straight-line basis over two years when license period begins.

 

Revenue for the three and six months ended June 30, 2012 was $219,618 and $470,787, respectively, including licensing revenue of $17,877 and $35,952 during the three-month and six-month periods, respectively. Comparatively, we had revenues of $216,515 and $441,730 for the three and six months ended June 30, 2011, respectively. The slightly higher revenues in 2012 were due to the increase in licensing revenue, which was generated from the sale of license agreements, and optional license agreements, to approved distribution partners that desire to represent us in developing sales and marketing agreements with potential wholesale customers.

 

Management believes that the effects from the ongoing recession or weakened economy will continue to hamper growth unless the Company increases the number of retail partners purchasing products on a consistent basis. In addition, we currently have a public offering up to 10,000,000 shares of common stock at price of $0.20 per share. Management believes that the receipt of partial or full funding from this public offering will enable the Company to expand the Company’s sales efforts on increasing the number of retail partners. In that case, new revenues over the next 18-24 months will be expected to grow at a pace greater than our operating expenses and bring about profitability. However, there is no assurance that revenues will grow and there is reason to believe that sales will continue to decline under the current economic climate.

  

(18)

 

There are several trends that currently affect our revenues.

 

i) Economic Trends: Management conservatively expects that effects from the recession will continue to linger through 2012 and into 2013. Lingering effects from the recession could continue to adversely affect revenues and gross profits, and if this occurs it could adversely affect the company’s ability to continue operations.

 

ii) Consumer Trends: Management expects that, generally, consumers will show increased interest in products that support sustainability, conserve energy, conserve water and use fewer natural resources. Although this statement is unsubstantiated, it is widely accepted that, globally, consumers are tending towards a greater concern for the environment and using products that have a lower impact on the environment and the use of natural resources. Without partial or full funding to provide for initial sales force expansion and the development of new packing and branding strategy the company will be likely not be in a sufficient position to take full advantage of this increased interest.

 

In order to reduce the impact from financial crisis, our management decided to shift our business model in 2009 to include new distribution through established retail outlets such as hardware stores, independent garden centers and nurseries, referred as our “Retail Partners”. We believe these Retail Partners enable us to expand awareness and distribution of our exclusive products, while maximizing sales through the added exposure to the Retail Partner’s existing customer base. However, the increase in numbers of Retail Partners in the Charlotte area has an adverse effect on retail sales at the Matthews retail store, because of the close proximity, and causes the decrease in our total revenue during the short term. We believe the gross revenues from Retail Partners, as the number of retail partners increase over time, will far exceed Matthews’ retail store sales potential, resulting in greater long-term revenue stability and profitability.

 

Revenues less Sales Tax 

 

  For the three months ended   For the six months ended
  June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011
Mathews Retail  $122,477   $ 130,644    $257,553   $249,612 
Wholesale  $78,286   $73,498    $193,275   $207,964 

 

The above chart shows a decline in retail sales at the Matthews Retail Store, with an offsetting increase in Wholesale sales. Although the offset shown here is not balanced, it does illustrate the trend we expect to continue, with one caveat – we anticipate that annual retail sales will level off by the end of 2013, as we do not anticipate adding more retail partners in the Charlotte NC metro area after that time. Thus, assuming a strengthening economy, retail sales will likely rebound slightly at the Matthews Retail store, while wholesale revenues should continue to climb. Although management believes this is the trend, there is no assurance that this trend will continue, and there is no assurance that revenues, in general, will not continue to decline in the current economic climate.

 

Cost of Goods Sold

 

Our cost of goods sold consists primarily of costs of raw materials and direct labor, and other costs directly attributable to the production of our products. Write-down of inventories to lower of cost or market is also recorded in cost of goods sold. Cost of goods sold for the three months ended June 30, 2012 was $114,649, increased by $25,869, or approximately 29% from $88,780 for the comparable period in 2011. For the six months ended June 30, 2012, we had cost of goods sold in an amount of $195,293, increased by $32,520, or approximately 20% from $162,773 for the comparable period in 2011. We experienced a slightly higher cost on certain commodity components, and reduced costs on certain other commodity components during the three and six months ended June 30, 2012. Commodity components that increased in cost include a pasteurized poultry litter base that provides a source of organic nutrients, (Nitrogen, Phosphorous and Potassium), as well as beneficial bacteria and micorrhizal fungi, which add bio-diversity to the soil. Commodity components that decreased in cost include one source or organic acids (Humic Acid and Fulvic Acid derived from plant extracts). Although we achieved a greater impact in overall retail sales for the region, fewer of those retail sales occurred at our Matthews retail store. As referenced above, we believe the long-term gross revenues from our increasing number of wholesale customers will far exceed the sales potential at our Matthews’ retail store, simply because adding additional wholesale partners is much faster and significantly less costly than expanding our existing retail store, or opening additional brick and mortar retail stores.

 

(19)

 

There are several trends that currently affect our cost of goods sold:

 

i) Commodity price volatility: The current weakened economy has increased the volatility of commodity prices for raw materials. The company has not seen a significant increase in raw materials, nor do we expect one, however the current economic instability could cause price fluctuations. If these price fluctuations resulted in higher raw goods prices this could have an adverse effect on our operations, as it would increase our cost of goods sold. It is the nature of commodities to fluctuate in price based on supply and demand forces. Over the past several years one of the largest consumers of raw goods has been China, since its middle class has been expanding, creating increased demand for goods. If this trend continues it could have an adverse effect on our ability to receive favorable pricing on certain of our commodity based products. However, management does not believe that this will affect our long-term pricing outlook. Most, if not all, of our raw materials now come from the United States, or at least North America and we do not anticipate great price volatility with respect to those components. However, if such price volatility occurs, and it could, this would have an adverse effect on our cost of goods sold and negatively affect our operations.

 

ii) Cost of Direct Labor Trends: The current weakened economy has increased the company’s ability to hire and retail direct labor at a reasonable cost. We anticipate this to be consistent through 2012 and into 2013. However, if the economy were to sharply improve our direct labor costs could increase. If this were to occur, it would result in higher direct labor costs and this would have an adverse effect on our operations, as it would reduce our gross profit margins.

 

We have made efforts to reduce cost of goods sold wherever possible. Some of the results from these efforts have come from negotiating lower pricing with certain manufacturers of raw goods, or choosing to work with new suppliers that can provide similar quality goods at a lower cost. We will continue to monitor our vendor pricing relative to other similar vendors to ensure we have competitive pricing associated with our raw materials. Further, we have explored options with our vendors for purchasing in larger quantities, which would reduce our per unit price. We will continue to work with our vendors to make sure we are taking advantage of every opportunity afforded to us to reduce our materials cost. However, there is no assurance that any prices we have negotiated will continue to be available to us in the future, and if our costs were to rise significantly, it would have an adverse effect on operations.

 

Gross profit

 

Our gross profit is obtained based upon our total revenues minus our cost of goods sold for a particular period. Gross profit for the three months ended June 30, 2012 was $104,969, decreased by 22,766, or approximately 18% from $127,735 for the comparable period in 2011. For the six months ended June 30, 2012, we had gross profit in an amount of $275,494, which was approximately equal to the gross profit for the comparable period in 2011. The decrease in gross profit during the three months ended June 30, 2012 was primarily attributable to the increase in less profitable wholesale sales to our retail partners over the same period a year ago and a decrease in the more profitable retail sales from our Matthews retail store. Gross profits also continue to be adversely affected by ongoing effects from the recession. We expect the recession to continue to impact sales and gross profits negatively over the next 2-3 years. Even if the economy recovers more quickly than expected, there is no assurance that sales and gross profits will increase.

 

Operating expenses

 

Our operating expenses were $520,754 for the three months ended June 30, 2012, increased by $282,476, or approximately 119%, compared to operating expenses of $238,278 for the same period in 2011. Our operating expenses were $695,652 for the six months ended June 30, 2012, increased by $252,976, or approximately 57%, compared to operating expenses of $442,676 for the same period in 2011. The significant increase in operating expense during the first half of 2012 was primarily attributable to the non-cash compensation, which were $264,367 for the six months ended June 30, 2012, of which $157,500 resulting from the issuance of 2,500,000 shares of common stock for business advisory services in a term of 6 months effective from April 1, 2012 through September 30, 2012, $100,800 resulting from the issuance of 3,200,000 shares of common stock for business advisory services in a term of 1 year effective from April 1, 2012 through March 31, 2013, and $6,067 resulting from the issuance of 750,000 shares of common stock for marketing services in a term of 6 months effective June 4, 2012 through December 3, 2012. All the shares issuances were valued based on 70% of market price on the grant date and booked pro rata within the relative service periods. Comparatively, the Company had non-cash consulting expenses of $18,750 during the six months ended June 30, 2011.

 

Except for the non-cash compensation, our fixed expenses remained fairly constant from year to year. We realized some savings as the result of sufficient cost control during the first half of 2012, such as the decrease in advertising and salaries by $8,798, and $17,196, respectively. We are working to reduce some of the fixed expenses to maintain positive cash flow during the third quarter of 2012. However, the reduction in fixed expenses was offset by the additional expenses incurred as a result of becoming a publicly traded company in the United States. Such increase included legal service fees, audit fees and other cash or non-cash payments for professional services. In addition, we expect an increase in overall expenses during 2012 due to the plan to hire 2-3 new sales employees. However, there is no assurance that we will be able to hire new sales and support staff, and this could negatively affect our ability to generate new sales for the period and this could impact the Company’s operations and ability to continue operations.

 

Management has determined that executing a new packaging strategy will reduce our expenses associated with this part of our operating expenses. We have retained Kaleidoscope-Chicago, a branding and packaging design company to help us with the development of this packaging strategy. This will include pre-printed bags and pre-printed product labels. Not only will this reduce our expenses, it will help us to compete better, head-to–head on retailer shelves. Currently all products labels are printed in-house at greater cost per unit, but with lower upfront costs. We anticipate converting to the new packaging in mid to late 2012 depending upon receipt of funding. However if we are not able to convert to the new packaging strategy, our expenses will remain higher and this could negatively affect operations, and could cause our end pricing to the retailer to be so high as to not be competitive. This would also affect our revenues and our sell through at the retail level and this could jeopardize the Company’s ability to generate sufficient revenue to continue operations.

 

(20)

 

Interest expense

 

Interest expense for the three and six months ended June 30, 2012 was $52,020 and $76,626, respectively, which was an increase of $32,959, or approximately 173%, and $38,810, or approximately 103%, respectively, compared to interest expense of $19,061 and $37,816 for the three and six months ended June 30, 2011, respectively. An increase in interest expenses in 2012 was due primarily to interest charges on 2 new convertible promissory notes in amount of $42,500, dated March 9, 2012, and $32,500, dated April 30, 2012, respectively. Both notes bear interest at a rate of 8% per annum and were discounted in amount of $30,776 and $23,534, respectively, due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the minimum period in which the note holder can recognize the return. Accordingly, the Company recorded interest expense related to the notes in amount of $20,373 and $8,410, respectively, for the six months ended June 30, 2012.

 

Net loss

 

Net loss for the three and six months ended June 30, 2012 was $467,805 and $496,784, respectively, increased by $351,152 and $308,200, compared to net loss of $116,653 and $188,854 for the same periods in 2011. The increase in net loss was primarily attributable to the decrease in gross profit and the increase in non-cash compensation and interest expenses during the three and six months ended June 30, 2012.

  

Liquidity and Capital Resources

 

The following table sets forth a summary of our net cash flow information for the periods indicated:

 

 

    For the six months ended  
    June 30, 2012*   June, 30, 2011*  
Net cash (used in) by operating activities $ (157,657)   $ (204,802)  
 
Net cash (used in) investing activities   $ (11,000)   $ (303)  
Net cash provided by financing activities   $ 133,189   $ 208,057  
               
Net increase (decrease) in cash and equivalents   $ (35,468)   $ 2,952  
Cash and cash equivalents, beginning of period   $ 42,651   $ 6,625  
Cash and cash equivalents, end of period   $ 7,183   $ 9,577  

 

 

 * The above financial data have been derived from our unaudited consolidated financial statements for the six months ended June 30, 2012 and 2011.

 

Operating Activities

 

Net cash used in operating activities was $157,657 and $204,802 for the six months ended June 30, 2012 and 2011, respectively. Negative cash flows from operation during the six months ended June 30, 2012 was due primarily to the net loss of $496,784, the increase in inventory in an amount of $40,819 and the decrease in deferred revenues by $35,952, partially offset by the increase in accounts payable by $45,632, the increase in accrued expenses and accrued interest in amount of $21,832 and $15,937, respectively, and the non-cash expenses in total of $333,408, which included bad debt expenses of $1,687, depreciation of $15,058, amortization of discount to note payable in amount of $52,296, and common stock issued for services rendered in an amount of $264,367. Comparatively, negative cash flows from operation during the same period in 2011 was due to the net loss of $188,854, increase in accounts receivables by $56,958 and the decrease in accounts payable by 91,858, partially offset by the non-cash expenses totaling of $61,925, and the increase in accrued expenses and deferred revenues by $13,615 and $21,363, respectively.

 

(21)

 

Investing Activities

 

Cash used in investing activities mainly consists of capital expenditures, expenditures for property, plant, and equipment.

 

We had cash flow of $11,000 used in investing activities during the six months ended June 30, 2012 due to the security deposits. Net cash used in investing activities was $303 during the six months ended June 30, 2011, due primarily to purchase of property and equipment in the period.

 

Financing Activities

 

Net cash provided by financing activities was $133,189 for the six months ended June 30, 2012, due primarily to the proceeds from notes payable in an amount of $75,000, and the proceeds from stock issuance in amount of $92,500, offset by the payments of total $34,311 to notes payable, of which $10,000 was in connection with related parties’ loan. Comparatively, we had cash inflow of $208,057 during the same period in 2011 due to the proceeds from notes payable in an amount of $142,500, and the proceeds from stock issuance in amount of $102,835, offset by the payments of total $37,278 to notes payable, of which $10,000 was in connection with related parties’ loan.

 

Loan Facilities

 

We believe that we currently maintain good business relationships with our local banks and note holders. As of June 30, 2012 and December 31, 2011, our outstanding loans payable to non-affiliates on the accompanying consolidated balance sheets were as follows:

 

   As of
   June 30, 2012  December 31, 2011
Bank of Granite, 8.5% interest rate, due on March 26, 2012 (1)  $0   $2,377 
Bank of NC, 6.5% interest rate, due on June 30, 2013 (2)   49,332    66,337 
Greentree Financial Group, 6% interest rate, due on January 1, 2013, net of discount (3)   75,000    50,000 
NEKCO LLC, 20% interest rate, due on April 21, 2012. Default interest rate is 5% per month (4)   40,000    40,000 
Mark Blumberg, 5.75% interest rate, due on October 1, 2015 (5)   91,894    96,823 
Asher Enterprises Inc., 8% interest rate, due on December 9, 2012, net of discount (6)   31,045    0 
Asher Enterprises Inc., 8% interest rate, due on February 4, 2013, net of discount (7)   16,941      
Total notes payable  $304,212   $255,537 
Less: Current portion of notes payable   (231,535)   (103,310)
Total long-term notes payable  $72,677   $152,227 

 

(1) The Company has a line of credit with Bank of Granite at an interest rate of prime plus 3 % per annum. The balance on this credit line was paid in full on February 21, 2012. The Company recorded interest expenses of $89 during the six months ended June 30, 2012.

 

(2) The Company has loan payable to Bank of North Carolina at an interest rate of 6.5% per annum and due on June 30, 2013. The balance of this bank loan was $49,332 as of June 30, 2012, all of which was classified as short-term loan payable. The Company recorded interest expenses of $648 and $1,428 during the three and six months ended June 30, 2012, respectively.

 

(3) On January 1, 2011, the Company entered into a convertible promissory note (GT Note) in a principal amount of $100,000 payable to Greentree Financial Group (“Greentree”), which bears an interest rate of 6% per annum and is due on January 1, 2013. Pursuant to GT Note, Greentree has an option to convert all or any portion of the accrued interest and unpaid principal balance of GT Note into the Common Stock of the Company or its successors, at Ten Cents ($.10) per share, no sooner than September 30, 2012. The conversion price associated with GT Note was determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance.

 

(22)

 

GT Note is discounted in full amount due to the issuance of 1,000,000 shares of Common Stock as sweetener to GT Note, and a beneficial conversion feature. The fair value of the 1,000,000 shares was $68,245 determined by an arm’s length payable settlement with a non-affiliate since there was nominal trading volume of our common stock in the market, and recorded as discount to note payable, which will be amortized over 2 years starting from January 1, 2011. The remaining discount of $31,755 represented the intrinsic value of the beneficial conversion option, which will be amortized over 2 years starting from January 1, 2011. The Company recorded interest expense related to this note of $14,000 and $28,000 for the three and six months ended June 30, 2012, respectively.

 

The carry value of GT Note was $75,000 as of June 30, 2012. The 1,000,000 shares of Common Stock were issued on May 13, 2011.

 

(4) The Company has loan payable to NEKCO, LLC in amount of $40,000 (“Principal Amount”) due on April 21, 2012 (“Maturity Date”). Interest will accrue on the unpaid balance of the Principal Amount from December 21, 2011 until the maturity date of April 21, 2012, at the fixed rate of 20.0% calculated on the basis of a flat interest payment if the loan is repaid on or before Maturity Date. In the event the note was not paid in full as of the Maturity Date, the default interest will be accrued at a rate of 5% per month on the outstanding balance. Accordingly, the Company recorded interest expense of $5,060 and $7,033 related to this note during the three and six months ended June 30, 2012, respectively.

 

(5) The Company has a loan payable to Mark Blumberg (“Mr. Blumberg”), a former member of the Company, at an interest rate of 5.75% per annum and due on October 1, 2015. The loan was due to the redemption of Mr. Blumberg’s membership of the Company pursuant to a settlement agreement entered on January 1, 2011. The balance of this loan was $91,894 as of June 30, 2012, of which $19,217 was classified as short-term loan payable. The Company recorded interest expenses of $1,343 and $2,271 during the three and six months ended June 30, 2012, respectively.

 

(6) On March 9, 2012, the Company entered into a convertible promissory note (Asher Note I) in a principal amount of $42,500 payable to Asher Enterprises Inc. (“Asher”), which bears an interest rate of 8% per annum and is due on December 9, 2012. Pursuant to Asher Note I, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance of Asher Note I into the Common Stock of the Company or its successors, at 58% of the market price, no sooner than September 5, 2012. The conversion price associated with Asher Note I was determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance.

 

Asher Note I is discounted in amount of $30,776 due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the minimum period in which Asher can recognize the return. Accordingly, the Company recorded interest expense related to this note of $16,407 and $20,373 for the three and six months ended June 30, 2012, respectively.

 

The carry value of Asher Note I was $31,045 as of June 30, 2012.

 

(7) On April 30, 2012, the Company entered into a convertible promissory note (Asher Note II) in a principal amount of $32,500 payable to Asher Enterprises Inc. (“Asher”), which bears an interest rate of 8% per annum and is due on February 4, 2013. Pursuant to Asher Note II, Asher has an option to convert all or any portion of the accrued interest and unpaid principal balance of Asher Note II into the Common Stock of the Company or its successors, at 58% of the market price, no sooner than October 27, 2012. The conversion price associated with Asher Note II was determined based on the facts that the Company had nominal trading volume for its stock, and had negative shareholder equity at the time of issuance.

 

Asher Note II is discounted in amount of $23,534 due to the intrinsic value of the beneficial conversion option, which will be amortized over 180 days, the minimum period in which Asher can recognize the return. Accordingly, the Company recorded interest expense related to this note of $8,410 for the three months ended June 30, 2012.

 

(23)

 

The carry value of Asher Note II was $16,941 as of June 30, 2012.

 

We do not foresee a squeeze on the availability of credit to fund our operations and meet our growth objectives. 

 

In addition, we had outstanding balances on our notes payable to related parties of the following amounts as of June 30, 2012 and December 31, 2011:

 

   As of
   June 30, 2012  December 31, 2011
Shareholder loans, Prime plus 2.5% interest rate, due July 2012  $55,800   $55,800 
Loans from officer, 5.5% interest rate, due on demand   50,884    60,884 
Loans from company owned by shareholders, 5.5% interest rate, due May 2016   42,500    42,500 
Total notes payable – related parties  $149,184   $159,184 
Less: Current portion of notes payable – related parties   (106,684)   (116,684)
Total long-term note payable – related parties  $42,500   $42,500 

 

In July 2009, the Company’s shareholders made several loans in total amount of $275,000 to the Company to fund its operations. The shareholder loans were evidenced by promissory notes due in July 2012, with interest at the floating interest rate of Prime plus 2.5%. The interest rate will be adjusted each calendar quarter of January 1, April 1, July 1 and October 1. The principal balance of the shareholder loans was $55,800 as of June 30, 2012. Accordingly, the Company recorded interest expenses of $800 and $1,591 during the three and six months ended June 30, 2012, respectively.

 

In addition, the Company had outstanding balances of $50,884 due to the Company’s President as of June 30, 2012. The funds borrowed from the Company’s President were to fund the Company’s operations. The loan agreement was not evidenced by any promissory note, but rather a verbal agreement between the President and the Company. The note is due on demand. Accordingly, the Company recorded interest expenses of $1,421 and $2,972 during the three and six months ended June 30, 2012, respectively.

 

The Company has a loan payable to US Green Pros, LLC, a related party to the Company, at an interest rate of 5.5% per annum and which is due in full on May 17, 2016. The balance of this loan was $42,500 as of June 30, 2012. Accordingly, the Company recorded interest expenses of $530 and $1,054 during the three and six months ended June 30, 2012, respectively.

 

Capital Expenditures

 

We project that we will need additional capital to fund operations over the next 12 months. We anticipate we will need a minimum of $500,000 additional funds for the year of 2012 to meet our expansion objectives.

 

Overall, we have funded our cash needs from inception through June 30, 2012 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.

    

We had cash of $7,183 on hand as of June 30, 2012. Currently, we do not have enough cash to fund our operations for the next 12 months. This is based on current negative cash flows from operation and working capital deficit. Therefore, we will need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $500,000 per year starting in 2012. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.

 

(24)

 

On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. Our current capital and revenues are insufficient to fund such expansion. If we choose to launch such an expansion campaign, we will require substantially more capital. The funds raised from our current offering will also be used to market our products and services as well as expand operations and contribute to working capital. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected and we will have to significantly modify our plans. For example, if we are unable to raise sufficient capital to develop our business plan, we may need to:

 

·

 

Curtail new product launches

·

 

Limit our future marketing efforts to areas that we believe would be the most profitable.

 

Demand for the products and services will be dependent on, among other things, market acceptance of our products, organic-based fertilizer market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.

        

Our success will be dependent upon implementing our plan of operations and the risks associated with our business plans. We manufacture, trade and distribute contemporary, professional grade, organic, natural and environmentally responsible products for the continual care of the urban landscape through our wholly-owned subsidiary and our Retail Partners. We plan to strengthen our position in these markets. We also plan to expand our operations through aggressively marketing our products and our concept. 

 

Seasonality

 

Our operating results and cash flows historically have been subject to seasonal variations. Because a high percentage of our sales are from lawn care fertilizers, revenues increase proportionately during the fall, late winter and spring months. Conversely, our sales cycle dips during the summer months and early winter months. As we expand our sales into other parts of the country and online via our ecommerce website, our sales cycles will broaden and we will experience fewer peaks and valleys. However, this expansion process will take time to develop and until this occurs, we will continue to experience revenues in a cyclical fashion.

 

Off-Balance Sheet Arrangements

 

We have not entered into, nor do we expect to enter into, any off-balance sheet arrangements.  We also have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties.  In addition, we have not entered into any derivative contracts that are indexed to our equity interests and classified as shareholders’ equity.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.  We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.  

 

(25)

 

ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information to be reported under this item is not required of smaller reporting companies.

  

ITEM 4. CONTROLS AND PROCEDURES.

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and its Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

 

As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

 

The Certifying Officers have also concluded, based on their evaluation of our controls and procedures that as of June 30, 2012, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.

 

The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 4T. CONTROLS AND PROCEDURES

 

(a) Conclusions regarding disclosure controls and procedures. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Exchange Act as of June 30, 2012, and, based on their evaluation, as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Quarterly Report,

 

(b) Management’s Report On Internal Control Over Financial Reporting. It is management’s responsibilities to establish and maintain adequate internal controls over the Company’s financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and

 

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management of the issuer; and

 

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

  

As of the end of the period covered by the Quarterly Report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting.

 

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

 

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, internal controls over financial reporting were effective as of the end of the period covered by the Report.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report.

 

(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

(26)

 

PART II. OTHER INFORMATION

 

ITEM 1.      LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

The information to be reported under this item has not changed since the previously filed 10K, for the year ended December 31, 2011.

 

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.      MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5.      OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the

Sarbanes-Oxley Act of 2002.

32.2 Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the

Sarbanes-Oxley Act of 2002

 

(27)

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

 

  ORGANIC PLANT HEALTH INC.
     
Date: August 17, 2012 By:   /s/ William Styles
 

William Styles

Chief Executive Officer

 

(28)

 

INDEX TO EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of Chief Executive Officer
     
31.2   Certification of Chief Financial Officer
     
32.1  

Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

     
32.2   Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002