U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE
ACT
OF 1934
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FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2008
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AN EXCHANGE
ACT
OF 1934
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For
the transition period from: __________ to
__________
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Commission
file number 000-52834
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ORGANA
TECHNOLOGIES GROUP, INC.
(Exact
Name of Registrant as specified in its charter)
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DELAWARE
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02-0545879
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(State
of Incorporation)
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(IRS
Employer Identification
Number)
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2910
Bush Drive, Melbourne, FL
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32935
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(Address
of Principal Executive Offices)
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(Zip
Code)
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321-421-6652
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
past 12 month (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
o
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller
reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
At
March 31, 2008: 28,870,264 shares of the registrant’s common stock (no par
value) were outstanding.
TABLE
OF CONTENTS
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PART
I
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FINANCIAL
INFORMATION
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ITEM
I
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FINANCIAL
STATEMENTS
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2
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CONSOLIDATED
BALANCE SHEETS:
MARCH
31, 2008 AND DECEMBER 31, 2007
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2
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CONSOLIDATED
STATEMENT OF INCOME:
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
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3
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CONSOLIDATED
STATEMENT OF CASH FLOWS:
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
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4
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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS:
MARCH
31, 2008
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5
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ITEM
2
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
|
16
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ITEM
3
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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20
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ITEM
4
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CONTROLS
AND PROCEDURES
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20
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PART
II
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OTHER
INFORMATION
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20
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ITEM
1
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LEGAL
PROCEEDINGS
|
20
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ITEM
1A
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RISK
FACTORS
|
21
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ITEM
2
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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23
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ITEM
3
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DEFAULTS
UPON SENIOR SECURITIES
|
23
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ITEM
4
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SUBMISSION
OF MATTERS TO VOTE OF SECURITY HOLDERS
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23
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ITEM
5
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OTHER
INFORMATION
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23
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ITEM
6
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EXHIBITS
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23
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SIGNATURES
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24
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FORWARD
LOOKING STATEMENTS
Statements
contained in this Quarterly Report on Form 10-Q which are not historical
facts
are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts regarding Organa Technologies Group, Inc.’s (the
“Company’s”) business strategy, future operations, financial position, estimated
revenues or losses, projected costs, prospects, plans and objectives are
forward
looking statements. These forward-looking statements appear in a number of
places and can be identified by the use of forward-looking terminology such
as
“may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “future,” “intend,” “hopes” or “certain” or the negative of these
terms or other variations or comparable terminology.
Management
cautions that forward-looking statements are subject to risks and uncertainties
that could cause our actual results to differ materially from those projected
in
such forward-looking statements including, without limitation, the following:
the future prospects for and growth of the Company and the industries in
which
it operates, the level of the Company’s future sales, customer demand and cost
of raw materials, the Company’s ability to maintain its business model; the
Company’s ability to retain and recruit key personnel; the Company’s ability to
maintain its competitive strengths and to effectively compete against its
competitors; the Company’s short-term decisions and long-term strategies for the
future and its ability to implement and maintain such decisions and strategies,
including its strategies: (i) to focus on entering into the design and
manufacturing sectors., (ii) to focus on international and domestic product
distribution through its internet services and retail segments of its business
and (iii) to create a strong position in the marketplace as industry
leaders within all business segments; the Company’s engaging in and ability to
consummate future acquisitions; manufacturers’ ability to produce products to
the Company’s specification on a timely basis; the impact of debt covenants on
the Company’s flexibility in running its business and the effect of an event of
default on the Company’s results of operations; the effect of interest rate
fluctuations; the Company’s ability to manage its credit risk and accounts
receivable; the timing and amounts of future capital expenditures and the
Company’s ability to meet its needs for working capital including its ability to
negotiate lines of credit; the Company’s ability to track technology trends to
make good buy-sell decisions with respect to products; the effect of changes
to
the Company’s accounting policies and impact of evolving interpretation and
implementation of such policies; the risk of litigation and claims against
the
Company; the impact of a change in the Company’s overall effective tax rate as a
result of the Company’s mix of business levels in various tax jurisdictions in
which it does business; the adequacy of the Company’s insurance coverage; the
impact of a failure by third parties to manufacture our products timely or
properly; the effect of seasonality on the Company’s business; and the Company’s
ability to pass on increases in its costs of its components of its products
and/or labor costs, including manufacturing costs, operating expenses and
interest expense through increases in selling prices. Further, our future
business, financial condition and results of operations could differ materially
from those anticipated by such forward-looking statements and are subject
to
risks and uncertainties including the risks set forth above and the “Risk
Factors” set forth in this Form 10-Q. Moreover, neither we assume nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements.
Forward-looking
statements are made only as of the date of this Form 10-Q and are based on
management’s reasonable assumptions, however these assumptions can be wrong or
affected by known or unknown risks and uncertainties. No forward-looking
statement can be guaranteed and subsequent facts or circumstances may
contradict, obviate, undermine or otherwise fail to support or substantiate
such
statements. Readers should not place undue reliance on these forward-looking
statements and are cautioned that any such forward-looking statements are
not
guarantees of future performance. We are under no duty to update any of the
forward-looking statements after the date of this Form 10-Q to conform such
statements to actual results or to changes in our
expectations.
ITEM
I. FINANCIAL STATEMENTS
ORGANA
TECHNOLOGIES GROUP, INC.
Consolidated
Balance Sheet
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March 31,
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December 31,
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2008
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2007
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(unaudited)
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ASSETS
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Current
Assets
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Cash
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$
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358,121
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$
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37,089
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Accounts
Receivable
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115,952
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14,673
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Due
from Related Party
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541,038
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283,689
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Prepaid
Expense
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72,481
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59,728
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Inventory
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141,673
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54,815
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Total
Current Assets
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1,229,265
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449,994
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Property,
Plant and Equipment, Net
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317,386
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235,305
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Goodwill
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241,543
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241,543
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Other
Assets
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55,463
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47,991
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Total
Assets
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$
|
1,843,657
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|
$
|
974,833
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|
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LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
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|
Current
Liabilities
|
|
|
|
|
|
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Notes
Payable, Current Portion
|
|
$
|
75,294
|
|
$
|
220,837
|
|
|
Capitalized
Leases, Current Portion
|
|
|
3,217
|
|
|
3,066
|
|
|
Accounts
Payable and Accrued Expenses
|
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|
328,412
|
|
|
208,400
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Accrued
Payroll
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|
1,499
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|
2,665
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Deferred
Revenue
|
|
|
546,164
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|
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-
|
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Total
Current Liabilities
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954,586
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|
434,968
|
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Long-Term
Liabilities
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Notes
Payable
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|
302,979
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|
|
153,311
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Capitalized
Leases
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16,545
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17,409
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Total
Long-Term Liabilities
|
|
|
319,524
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|
170,720
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|
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Total
Liabilities
|
|
|
1,274,110
|
|
|
605,688
|
|
|
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|
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Minority
Interest
|
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|
56,289
|
|
|
55,764
|
|
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Stockholders'
Equity
|
|
|
|
|
|
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|
Preferred
Stock
|
|
|
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|
|
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|
Series
A Convertible Preferred Stock, voting: $1.00 par value; 5,000,000
shares
authorized; 320,000 and 130,000 shares issued and outstanding,
respectively
|
|
|
320,000
|
|
|
130,000
|
|
|
Common
Stock
|
|
|
|
|
|
|
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|
$.01
par value, 9,000,000 shares authorized, 28,870,264 shares issued
and
outstanding
|
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|
80,200
|
|
|
80,200
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|
|
Additional
Paid-in Capital
|
|
|
2,071,724
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|
2,071,724
|
|
|
Accumulated
Deficit
|
|
|
(1,958,666
|
)
|
|
(1,968,543
|
)
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
513,258
|
|
|
313,381
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
1,843,657
|
|
$
|
974,833
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statement of Operations and Deficit
For
the Three Months Ended March 31,
(unaudited)
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
509,500
|
|
$
|
234,618
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
255,600
|
|
|
124,298
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
253,900
|
|
|
110,319
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
238,226
|
|
|
93,602
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Operations
|
|
|
15,674
|
|
|
16,717
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
(5,272
|
)
|
|
(4,932
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Minority Interest
|
|
|
10,402
|
|
|
11,786
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest in Subsidiary
|
|
|
525
|
|
|
(1,199
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
9,877
|
|
$
|
12,985
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
Basic
and diluted based upon 28,870,264 weighted average shares
outstanding
|
|
$
|
0.00
|
|
$
|
0.00
|
|
See
accompanying notes to consolidated financial statements.
ORGANA
TECHNOLOGIES GROUP, INC.
Consolidated
Statement of Cash Flows
For
the Three Months Ended March 31,
(unaudited)
|
|
|
2008
|
|
2007
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
9,877
|
|
$
|
12,985
|
|
|
Adjustments
to Reconcile Net Income (Loss) to Net
|
|
|
|
|
|
|
|
|
Cash
Used In Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
3,968
|
|
|
3,712
|
|
|
Minority
Interest
|
|
|
525
|
|
|
(1,199
|
)
|
|
(Increase)
Decrease In:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(101,279
|
)
|
|
(31,784
|
)
|
|
Receivable
from Related Parties
|
|
|
(257,350
|
)
|
|
116,054
|
|
|
Prepaid
Expense
|
|
|
(12,753
|
)
|
|
-
|
|
|
Inventory
|
|
|
(86,858
|
)
|
|
(812
|
)
|
|
Other
Assets
|
|
|
(7,472
|
)
|
|
-
|
|
|
Increase
(Decrease) In:
|
|
|
|
|
|
|
|
|
Accounts
Payable and Accrued Expenses
|
|
|
118,846
|
|
|
47,881
|
|
|
Deferred
Revenue
|
|
|
546,164
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Operating Activities
|
|
|
213,669
|
|
|
146,837
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment
|
|
|
(86,049
|
)
|
|
(2,502
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Investing Activities
|
|
|
(86,049
|
)
|
|
(2,502
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance
of Preferred Stock
|
|
|
190,000
|
|
|
-
|
|
|
Repayment
of Capitalized Lease
|
|
|
(713
|
)
|
|
-
|
|
|
Issuance
of Notes Payable
|
|
|
5,998
|
|
|
-
|
|
|
Repayment
of Notes Payable
|
|
|
(1,873
|
)
|
|
(136,705
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
193,412
|
|
|
(136,705
|
)
|
|
Net
Increase in Cash
|
|
|
321,032
|
|
|
7,630
|
|
|
Cash
at Beginning of Period
|
|
|
37,089
|
|
|
19,203
|
|
|
Cash
at End of Period
|
|
$
|
358,121
|
|
$
|
26,833
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
$
|
2,587
|
|
$
|
4,932
|
|
|
Taxes
Paid
|
|
$
|
-
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements.
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Operation
The
financial information included herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim period. The results of operations for the
three
months ended March 31, 2008 are not necessarily indicative of the results
to be
expected for the full year. The accompanying unaudited consolidated financial
statements and footnotes have been condensed and, therefore, do not contain
all
required disclosures. Reference should be made to the Company’s annual audited
financial statement for the year ended December 31, 2007.
Organa
Technologies Group, Inc. (“OTG” or the “Company”), was formerly known as
Integrity Messenger Corporation (“IMC”), a Delaware corporation formed in 2002.
In October 2005, the Board approved a name change to Organa Technologies
Group,
Inc. (“OTG”). Reference to OTG will include the period prior to the name change
when the Company was IMC.
The
Company operated as a profit center, providing instant messaging services
and
on-line gaming Voice Over Internet Protocol (“VOIP”) through its licensed
software and appropriate computer servers. In addition, OTG operates an Internet
based store for weapon replicas and collectibles, is a provider of hardware
and
software solutions and consulting services for Internet based
businesses.
Basis
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries and have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”). All significant intercompany
accounts and transactions have been eliminated.
The
consolidated financial statements include the accounts of the Company and
its
wholly-owned subsidiaries, Hurricane Host, Inc. (“HH”), Davinci’s Computer Corp.
(“DCC”), Virtual ID, Inc. (“VID”), Gateway Internet Services Corporation
(“GIS”), Game2Gear, Inc. (“G2G”), Epic Weapons, Inc. (“Epic”), and its
majority-owned subsidiaries, Organa Consulting Group, Inc. (“OCG”), Zowy Media,
Incorporated (“Zowy”).
Net
Earnings (Loss) Per Share
In
accordance with SFAS No. 128,
Earnings
Per Share
,
basic
net earnings (loss) per common share is computed by dividing the net earnings
(loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share are computed
using the weighted average number of common and dilutive common stock equivalent
shares outstanding during the period. Dilutive common stock equivalent shares
consist of Series A, Series B and Series C convertible preferred stock,
convertible debentures, stock options and warrant common stock equivalent
shares
which are not utilized when the effect is anti-dilutive.
Segment
Information
In
accordance with the provisions of SFAS No. 131,
Disclosures
about Segments of an Enterprise and Related Information,
the
Company is required to report financial and descriptive information about
its
reportable operating segments. The Company identifies its operating segments
as
divisions based on how management internally evaluates separate financial
information, business activities and management responsibility. The Company
segments and the subsidiaries associated with each segment are as
follows:
|
Internet
Retail Sales
|
Computer Hardware and
Software Sales
|
Internet
Services
|
|
Zowy Media, Incorporated
|
Davinci's Computer
Corp.
|
Hurricane
Host, Inc.
|
|
Epic
Weapons, Inc.
|
|
Organa
Consulting Group, Inc.
|
|
Game2Gear,
Inc.
|
|
Gateway Internet Services, Inc.
|
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
2 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL
STATEMENTS
In
connection with subsequent reviews of the Company’s financial statements for the
year ended December 31, 2006 and prior, certain errors were discovered. These
errors were associated with 1) the Company’s recognition of goodwill associated
with the acquisition of Zowy Media, Incorporated and its subsidiary, Epic
Weapons, Inc. and the reporting of its subsequent results of operations and
2)
the proper recognition and recording of transactions for years prior to the
current reporting periods with Avante Holding Group, Inc. "Avante" (See
Note 7 - Related Parties).
The
acquisition of Zowy Media, Incorporated was on October 1, 2006. The adjustments
required for transactions related to AHG include years prior to 2007 and
are
reflected in an adjustment to beginning retained earnings as of January 1,
2006
and to operations for the year ended December 31, 2006. The financial statements
for the year ended December 31, 2006 were required to be restated. The Company
was not a reporting entity until November 26, 2007; therefore quarterly 2007
statements have not been published.
The
following table presents the impact of the financial statement
misclassifications on the Company’s previously reported consolidated financial
statements as of and for the year ended December 31, 2006.
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
2 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS -
continued
|
|
|
December 31, 2006
|
|
|
|
|
As
|
|
|
|
As
|
|
|
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
19,203
|
|
$
|
-
|
|
$
|
19,203
|
|
|
Accounts
Receivable
|
|
|
-
|
|
|
3,010
|
|
|
3,010
|
|
|
Due
From Related Party
|
|
|
311,078
|
|
|
30,539
|
|
|
341,617
|
|
|
Inventory
|
|
|
19,000
|
|
|
-
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
349,281
|
|
|
33,549
|
|
|
382,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, Net
|
|
|
223,046
|
|
|
-
|
|
|
223,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
191,752
|
|
|
49,791
|
|
|
241,543
|
|
|
Other
Assets
|
|
|
49,600
|
|
|
(25,000
|
)
|
|
24,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
813,679
|
|
$
|
58,340
|
|
$
|
872,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable, Current Portion
|
|
$
|
229,175
|
|
$
|
546
|
|
$
|
229,721
|
|
|
Accounts
Payable and Accrued Expenses
|
|
|
79,998
|
|
|
(25,992
|
)
|
|
54,006
|
|
|
Accrued
Payroll
|
|
|
-
|
|
|
893
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
309,173
|
|
|
(24,553
|
)
|
|
284,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable
|
|
|
154,949
|
|
|
(341
|
)
|
|
154,608
|
|
|
Total
Long-Term Liabilities
|
|
|
154,949
|
|
|
(341
|
)
|
|
154,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
464,122
|
|
|
(24,894
|
)
|
|
439,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
101,483
|
|
|
(38,311
|
)
|
|
63,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
80,200
|
|
|
-
|
|
|
80,200
|
|
|
Minority
Interest
|
|
|
10,000
|
|
|
(10,000
|
)
|
|
-
|
|
|
Additional
Paid-in Capital
|
|
|
1,670,300
|
|
|
406,624
|
|
|
2,076,924
|
|
|
Accumulated
Deficit
|
|
|
(1,512,426
|
)
|
|
(275,079
|
)
|
|
(1,787,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
248,074
|
|
|
121,545
|
|
|
369,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
813,679
|
|
$
|
58,340
|
|
$
|
872,019
|
|
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
2 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS -
continued
|
|
|
For the Year Ended December 31, 2006
|
|
|
|
|
As
|
|
|
|
As
|
|
|
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,483,816
|
|
$
|
-
|
|
$
|
1,483,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
450,867
|
|
|
47,888
|
|
|
498,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,032,949
|
|
|
(47,888
|
)
|
|
985,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
636,197
|
|
|
155,598
|
|
|
791,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Operations
|
|
|
396,752
|
|
|
(203,486
|
)
|
|
193,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
(7,927
|
)
|
|
5,503
|
|
|
(2,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Minority Interest
|
|
|
388,825
|
|
|
(197,983
|
)
|
|
190,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest in Subsidiary
|
|
|
(101,490
|
)
|
|
41,818
|
|
|
(59,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
287,335
|
|
$
|
(156,165
|
)
|
$
|
131,170
|
|
NOTE
3 – ACQUISITIONS AND NEW SUBSIDIARIES FORMED
Integrity
Messenger Corporation
Integrity
Messenger Corporation (“IMC-FL”), a Florida corporation, was formed in 2002. On
January 1, 2004, OTG acquired 100% of the stock of IMC-FL in exchange for
60,000,000 shares of common stock.
Hurricane
Host, LLC
On
April
1, 2004, OTG acquired 100% of the membership units of Hurricane Host, LLC
(“HH”)
for $50,000. HH, a Texas limited liability company, was originally formed
in
2003. HH merged with Hurricane Host, Inc. (“HH-FL”), a Florida corporation.
Organa
Consulting Group, Inc.
On
October 25, 2005, OTG acquired 80% of Organa Consulting Group, Inc. (“OCG”), a
Florida corporation, for $800. The minority interest of 20% in OCG is owned
by
Avante Holding Group, Inc. (“AHG”). As no tangible assets or liabilities were
acquired the full value was booked to Common Stock.
Gateway
Internet Services Corporation
On
April
20, 2006, Gateway Internet Services Corporation (“GIS”), a Florida corporation,
was formed as a subsidiary of the Company. GIS will work parallel with its
customer, Render Payment Corporation (“RPC”). RPC is the payment processor
whereas GIS has the technology to provide secure processing of payments from
individuals through bank wires and ACH processing for select Internet clients.
As of December 31, 2006, GIS was an inactive subsidiary.
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
3 – ACQUISITIONS AND NEW SUBSIDIARIES FORMED -
continued
Davinci’s
Computer Corp.
On
June
1, 2006, OTG acquired Davinci’s Computer Corp. (“DCC”) of Florida for 500,000
shares of the Company’s common stock valued at $.10 per share at the time of the
transaction. DCC provides computer consulting services to select clients
throughout the state of Florida.
In
accordance with SFAS No. 141, “Business Combinations”, the acquisition has been
accounted for under the purchase method of accounting. The purchase price
was
allocated to
DCC’s
tangible and intangible assets acquired and liabilities assumed based on
their
estimated fair values with any excess being ascribed to goodwill. Management
is
responsible for determining the fair value of these assets. The fair value
of
the assets acquired and liabilities assumed represent management’s estimate of
fair values. Goodwill, as the result of the net of assets and liabilities,
was a
negative therefore management determined that there would be no value associated
with the acquired patents and the fixed assets acquired would be reduced
on an
equal basis by the negative goodwill thereby reducing goodwill to zero. The
following table summarizes the components of the purchase price and the activity
and balance sheet of the acquired company at May 31, 2006:
STATEMENT
of OPERATIONS for the Period JANUARY 1 - MAY 31, 2006:
|
Sales
|
|
$
|
55,520
|
|
|
Cost
of Sales
|
|
|
12,555
|
|
|
Gross
Profit
|
|
|
42,965
|
|
|
Operating
Expenses
|
|
|
77,493
|
|
|
Income
from Operations
|
|
|
(34,528
|
)
|
|
Income
Before Taxes
|
|
$
|
(34,528
|
)
|
The
purchase price of DCC was $50,000. The following table summarized the estimated
fair values of the assets acquired and liabilities assumed at the date of
acquisition:
|
Current
assets
|
|
$
|
-
|
|
|
Property,
plant and equipment
|
|
|
-
|
|
|
Goodwill
|
|
|
55,571
|
|
|
Total
assets acquired
|
|
|
55,571
|
|
|
Current
liabilities
|
|
|
5,571
|
|
|
Long-term
debt
|
|
|
-
|
|
|
Total
liabilities assumed
|
|
|
5,571
|
|
|
Net
assets acquired
|
|
$
|
50,000
|
|
Zowy
Media, Incorporated
On
October 1, 2006, OTG acquired 80% of Zowy Media, Incorporated (“Zowy”) and its
subsidiaries, Epic Weapons, Inc. (f/k/a Epic Weapons, LLC) (“Epic”), all of
Florida, for 2,000,000 shares of OTG common stock, valued at $.10 per share
at
the time of the transaction. The minority interest in Zowy is owned by Titus
Blair. On January 1, 2008, the minority interest in Epic was purchased by
the
Company for $10. Zowy operates an Internet website (
www.swordsonline.com
and
www.weaponmasters.com
)
for the
marketing and selling of various products. Zowy operates under the dba
Weaponmasters. Epic has an agreement with Blizzard Entertainment® to market
certain licensed products (initially the Frostmourne™ Sword) related to the
Warcraft® game series.
In
accordance with SFAS No. 141, “Business Combinations”, the acquisition has been
accounted for under the purchase method of accounting. The purchase price
was
allocated to
Zowy’s
tangible and intangible assets acquired and liabilities assumed based on
their
estimated fair values with any excess being ascribed to goodwill. Management
is
responsible for determining the fair value of these assets. The fair value
of
the assets acquired and liabilities assumed represent management’s estimate of
fair values. Goodwill, as the result of the net of assets and liabilities,
was a
negative therefore management determined that there would be no value associated
with the acquired patents and the fixed assets acquired would be reduced
on an
equal basis by the negative goodwill thereby reducing goodwill to zero. The
following table summarizes the components of the purchase price and the activity
and balance sheet of the acquired company at October 1, 2006:
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
3 – ACQUISITIONS AND NEW SUBSIDIARIES FORMED -
continued
STATEMENT
of OPERATIONS for the Period JANUARY 1 - SEPTEMBER 30, 2006:
|
Sales
|
|
$
|
429,748
|
|
|
Cost
of Sales
|
|
|
155,235
|
|
|
Gross
Profit
|
|
|
274,513
|
|
|
Operating
Expenses
|
|
|
256,834
|
|
|
Income
from Operations
|
|
|
17,679
|
|
|
Income
Before Taxes
|
|
$
|
17,679
|
|
Note:
Income Taxes are not recorded as the company was a S Corporation from January
1
- September 30, 2006.
The
purchase price of Zowy was $200,000. The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed at the
date
of acquisition:
|
Current
assets
|
|
$
|
29,519
|
|
|
Property,
plant and equipment
|
|
|
225,083
|
|
|
Goodwill
|
|
|
185,972
|
|
|
Total
assets acquired
|
|
|
440,574
|
|
|
Current
liabilities
|
|
|
82,108
|
|
|
Long-term
debt
|
|
|
154,959
|
|
|
Minority
interest
|
|
|
3,507
|
|
|
Total
liabilities assumed
|
|
|
240,574
|
|
|
Net
assets acquired
|
|
$
|
200,000
|
|
Game2Gear,
Inc.
On
December 18, 2006, Game2Gear, Inc. (“G2G”), a Florida corporation, was formed as
a subsidiary of the Company. G2G is a technology based solution that may
be
offered to various business verticals enabling vendors to internally and
externally track and process inventory more efficiently, create industry
specific and regulatory mandated security requirements and/or compliance
protocols establishing a unique product identification method that would
be
embedded into a product allowing businesses to provide better customer service
and secure its marketplace from fraudulent and unlicensed products. As of
December 31, 2006, G2G was an inactive subsidiary.
Epic
Weapons, Inc.
On
January 1, 2008 the Company transferred ownership of Epic Weapons, Inc.,
from
Zowy Media, Inc., to Organa Technologies Group, Inc.
NOTE
4 – BALANCE SHEET DETAILS
Inventory
consist of the following:
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
141,673
|
|
$
|
54,815
|
|
The
inventory of Epic ($85,459) relates to the Frostmourne® Sword which was
contracted to be manufactured internationally. Epic’s contract is for 5,000
swords. Zowy ($24,261), DCC ($20,316), and G2G ($11,637), account for the
remaining inventory. The G2G inventory relates to the RFID Reader that will
be
sold in conjunction with the Frostmourne® Sword.
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
3 – ACQUISITIONS AND NEW SUBSIDIARIES FORMED -
continued
Property
and equipment consist of the following:
|
|
|
Useful
|
|
March 31,
|
|
December 31,
|
|
|
|
|
Life
|
|
2008
|
|
2007
|
|
|
Building
|
|
|
30
|
|
$
|
209,000
|
|
$
|
209,000
|
|
|
Land
|
|
|
|
|
|
20,000
|
|
|
20,000
|
|
|
Capital
Improvements
|
|
|
5
|
|
|
2,500
|
|
|
-
|
|
|
Computer
equipment
|
|
|
3
|
|
|
2,657
|
|
|
2,657
|
|
|
Tooling
|
|
|
(a
|
)
|
|
50,800
|
|
|
-
|
|
|
Equipment
|
|
|
5
|
|
|
57,178
|
|
|
24,428
|
|
|
|
|
|
|
|
|
342,135
|
|
|
256,085
|
|
|
Less:
accumulated depreciation
|
|
|
|
|
|
(24,749
|
)
|
|
(20,780
|
)
|
|
Net
property and equipment
|
|
|
|
|
$
|
317,386
|
|
$
|
235,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Amortized over 20,000 units.
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $3,968 and $10,138 for the three months ended March 31, 2008
and the
year ended December 31, 2007, respectively.
Other
assets consist of the following:
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Patents
|
|
$
|
4,562
|
|
$
|
1,513
|
|
|
Tooling
(a)
|
|
|
-
|
|
|
29,367
|
|
|
Design
(a)
|
|
|
50,901
|
|
|
17,111
|
|
|
Net
other assets
|
|
$
|
55,463
|
|
$
|
47,991
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Related to the Epic Weapons, LLC contract with Blizzard
Entertainment®.
|
Notes
payable consists of the following:
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
PhoenixSurf.com,
LLC (Organa Consulting Group, Inc.), principal, non-interest bearing,
convertible to common stock when, for 10 consecutive days, the
Company's
stock is trading at $0.75 or higher.
|
|
$
|
150,000
|
|
$
|
150,000
|
|
|
Coastal
Bank (Zowy Media, Incorporated), adjustable rate mortgage at 1%
over the
current index. Due September 2010. Current monthly payment of $1,573.39.
Note secured by mortgage and an unconditional and continuing guarantee
by
Titus Blair.
|
|
|
154,262
|
|
|
154,565
|
|
|
LHI
Cocoa Corp. (Zowy Media,Incorporated), 9% interest for 24 months
amortized
over 20 years. Due August 2007.
|
|
|
28,877
|
|
|
28,877
|
|
|
Washington
Mutual (Zowy Media, Incorporated), business line of credit, interest
at
11.25%.
|
|
|
45,134
|
|
|
40,706
|
|
|
Total
long-term debt
|
|
|
378,273
|
|
|
374,148
|
|
|
Less:
Current portion
|
|
|
75,294
|
|
|
220,837
|
|
|
Total
long-term portion of debt
|
|
$
|
302,979
|
|
$
|
153,311
|
|
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
5 – COMMITMENTS
The
Company leases a laser engraver from Avante Leasing Corporation, a subsidiary
of
AHG (see Note 7 – Related Parties). The terms of the agreement include a 5
year term, 19.4% interest, with a $2,159 purchase price at the end of the
term.
The lease expires on July 1, 2012. Monthly lease payments are $565.
OTG
and
DCC leases office space in Melbourne, Florida from GAMI, LLC (“GAMI” – See Note
7 – Related Parties). The terms of the agreement are monthly payments of $4,000
and $3,000, respectively, expiring May 31, 2012 and February 28, 2013,
respectively. There are two renewable five year extensions.
Future
minimum obligations for the above leases are as follows:
|
2008
|
|
$
|
42,039
|
|
|
2009
|
|
|
54,780
|
|
|
2010
|
|
|
54,780
|
|
|
2011
|
|
|
54,780
|
|
|
2012
|
|
|
23,955
|
|
|
|
|
|
|
|
|
Total
Lease Obligations
|
|
$
|
230,334
|
|
Total
rent expense under non-cancelable operating leases was $12,000 and $35,632
for
the three months ended March 31, 2008 and the year ended December 31, 2007,
respectively.
NOTE
6 – BUSINESS SEGMENTS
The
Company operates primarily in three segments: retail sales, internet services
and computer hardware and software.
Information
concerning the revenues and operating income for the three months ended March
31, 2008 and 2007, and the identifiable assets for the five segments in which
the Company operates are shown in the following table:
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
6 – BUSINESS SEGMENTS -
continued
|
|
|
Three
Months
Ended
2008
|
|
Year
Ended
2007
|
|
|
|
|
|
|
|
|
|
OPERATING
REVENUE
|
|
|
|
|
|
|
|
|
Internet
Sales
|
|
$
|
127,167
|
|
$
|
436,735
|
|
|
Computer
Hardware and Software
|
|
|
54,387
|
|
|
175,903
|
|
|
Retail Sales
|
|
|
327,946
|
|
|
530,520
|
|
|
Corporate
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
509,500
|
|
$
|
1,143,158
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
|
|
|
|
|
|
Internet Sales
|
|
$
|
17,003
|
|
$
|
(17,720
|
)
|
|
Computer
Hardware and Software
|
|
|
1,917
|
|
|
35,724
|
|
|
Retail
Sales
|
|
|
121,539
|
|
|
56,526
|
|
|
Corporate
|
|
|
(130,057
|
)
|
|
(248,134
|
)
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
10,402
|
|
$
|
(173,604
|
)
|
|
|
|
|
|
|
|
|
|
|
IDENTIFIABLE
ASSETS
|
|
|
|
|
|
|
|
|
Internet
Sales
|
|
$
|
76,996
|
|
$
|
337,792
|
|
|
Computer
Hardware and Software
|
|
|
48,163
|
|
|
50,828
|
|
|
Retail Sales
|
|
|
935,771
|
|
|
54,781
|
|
|
Corporate
|
|
|
541,184
|
|
|
289,889
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
1,602,114
|
|
$
|
733,290
|
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION
AND AMORTIZATION
|
|
|
|
|
|
|
|
|
Internet Sales
|
|
$
|
-
|
|
$
|
10,138
|
|
|
Computer
Hardware and Software
|
|
|
-
|
|
|
-
|
|
|
Retail
Sales
|
|
|
3,968
|
|
|
-
|
|
|
Corporate
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
3,968
|
|
$
|
10,138
|
|
NOTE
7 – RELATED PARTIES
OTG
and AHG
entered into a Consulting Agreement in October 2006 to provide corporate
guidance, financial and accounting services. As compensation, AHG received
$8,000 per month in 2006. Under this agreement AHG has the unilateral authority
to hire additional personnel required to perform investor relations, financial
administration, and executive oversight and request reimbursement from OTG
on a
reimbursable expense basis. The term of this agreement is for three years
with
one additional automatic three-year extension. AHG is a company primarily
owned
and controlled by Michael W. Hawkins. AHG is a significant shareholder of
the
Company.
In
the
transaction of OTG acquiring Zowy; 40% was acquired from AHG and 40% from
GAMI,
LLC (“GAMI”) with the remaining 20% being held by the former owner of Zowy
Media, Inc. Both AHG and GAMI are related parties, since the majority
shareholder of OTG controls these companies. Prior to the acquisition, AHG
had a
Consulting Agreement with Zowy to provide corporate guidance, financial and
accounting services. As compensation, AHG received $10,000 per month prior
to
the acquisition.
Effective
October 1, 2007, the date of the acquisition of Zowy by OTG, the Zowy Consulting
Agreement was terminated. The OTG Consulting Agreement was modified to increase
the monthly compensation from $8,000 to $10,000, the amount previously paid
by
Zowy.
On
October 5, 2005, a Settlement Agreement was made between OTG and AHG regarding
the $812,000 debt owed by OTG to AHG. In the Settlement Agreement, OTG issued
400,000,000 common shares of OTG at the current market value of $.001, or
$40,000, in lieu of the approximately $812,000 in debt. This transaction,
even
though not an arms length transaction; was at an exchange rate of $10 to
$1
therefore, it would be considered fair and reasonable.
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
7 – RELATED PARTIES -
continued
On
August
1, 2007
,
Avante
Leasing Corporation, a wholly-owned subsidiary of Avante, leased a laser
engraver to Epic Weapons, Inc. The terms of the agreement include a five year
term, 19.4% interest, with a 10% purchase price at the end of the period. This
transaction was completed as the acquisition and financing of the laser engraver
required the financial guarantee of Avante and Michael W. Hawkins. As of March
31, 2008, the balance due to Avante Leasing Corporation under this Agreement
was
$4,522.00.
On
June
1, 2007, the Company entered into a triple net lease agreement with GAMI, a
related party previously discussed in Note 5. Monthly rent will be $4,000 which
is at fair market value. GAMI is a company owned and controlled by Michael
W.
Hawkins, a majority shareholder of the Company, and his wife.
On
March
1, 2008, DCC entered into a triple net lease agreement with GAMI, a related
party previously discussed in Note 5. Monthly rent will be $3,000 which is
at
fair market value. DCC relocated to 2910 Bush Drive, Melbourne, Florida.
NOTE
8 – STOCKHOLDERS’ EQUITY
Common
Stock
On
January 1, 2004, the Company acquired all of the assets of IMC-FL in exchange
for 60,000,000 shares of its common stock.
In
January and February 2004, the Company completed a private placement of
11,500,000 shares of its common stock under Regulation D, Section
504.
The
Company learned in the Fall of 2006 that in April 2004, 250,000 shares of common
stock were issued in error by the Company’s then Transfer Agent to a shareholder
who had claimed to have lost its stock certificate, but had in fact sold the
shares. After an internal investigation and reconciliation, the Company
identified this error and reconciled the lost shares. The Company’s board of
directors determined that the cost associated with further action against the
shareholder and the transfer agent was greater than adjusting the books and
records to accept the erroneous shares. The Company dismissed its transfer
agent
after the improper issuance was discovered.
On
October 5, 2005, the Company amended its Articles of Incorporation to
900,000,000 common shares and 50,000,000 blank check preferred shares
authorized.
On
October 5, 2005, the Company entered into a Settlement Agreement with Avante
whereby all debt owed to Avante, of approximately $812,000, was converted into
400,000,000 common shares of IMC with a market value of $.0001 at the time
of
the conversion. The valuation of $40,000 was substantially lower than the
obligation to Avante. This transaction was not an arms length transaction as
the
directors of OTG are also officers and minority shareholders of Avante. This
transaction was completed as needed to facilitate the Company’s plans for future
transactions that would increase the Company’s revenue and profits.
On
April
11, 2006, the Company’s shareholders authorized an amendment to its Certificate
of Incorporation to effect a 1:100 reverse stock split. All share and per share
amounts have been adjusted for this reverse stock split. An additional 66 shares
were issued as part of the roundup of fractional shares.
On
July
1, 2006, the Company acquired Davinci’s Computer Corp. a Florida Corporation for
500,000 shares of the Company’s common stock valued at $.10 per share at the
time of the transaction.
On
September 10, 2007, the Company identified that during the conversion from
IMC
to OTG, 5,000 shares were erroneously issued and have been subsequently
cancelled.
On
October 1, 2006, the Company acquired 80% of Zowy Media, Incorporated, a Florida
Corporation, in exchange for 2,000,000 shares of its common stock. The minority
interest of Zowy is owned by Titus Blair.
On
October 15, 2007, the Company filed an amendment to its Articles of
Incorporation to authorize 100,000,000 shares of common stock, $0.0001 par
value
per share, 45,000,000 shares of blank check preferred stock, $0.0001 par value,
and 5,000,000 shares of series A preferred stock at $1.00 par value per
share.
On
November 1, 2007, the Company authorized a 1:4 forward split whereby total
issued shares will be 28,870,264.
ORGANA
TECHNOLOGIES GROUP, INC.
Notes
to Consolidated Financial Statements
March
31, 2008
NOTE
8 – STOCKHOLDERS’ EQUITY -
continued
Each
of
the stock issuances described above, with the exception of the 504 offering,
was
effected in private transaction exempt from registration under the Securities
Act of 1933, as amended, Section 4(2). No commissions were paid to anyone in
connection with these transactions and no solicitation was made by the Company
in connection therewith. All entities or persons receiving shares were believed
to be “accredited” investors as that term is defined under Regulation D. The
persons receiving the stock under the Rule 504 offering are
currently being investigated by the SEC, NASD, and U.S. Postal Services with
four associated individuals believed to have pled guilty to an illegal “pump and
dump” scheme. Management has cooperated fully with the authorities involved in
this ongoing investigation.
Current
management believes the initial Rule 504 offering was placed through Rim Rock,
LLC and Cold Springs, LLC. The offering is believed to have been made in full
compliance with the Rule.
On
March
1, 2008, the Company granted 3,185,000 stock options to eleven employees,
directors and related parties.
NOTE
9 – LEGAL PROCEEDINGS
On
July
19,
2006,
the
Company
filed
a
lawsuit
against New Millenium Entrepreneurs. Inc., and
Phocnixsurf.com,
LLC, and various other individuals and parties claiming libel, slander, and
conspiracy to
injure
business. The claim relates to consulting services provided by Organa Consulting
Group, Inc., a
wholly
owned subsidiary of Organa Technologies Group, Inc., to PhocnixSurf.com,
a
so-called
"websurfing"
business which ceased operations in July 2006. The Company also has asked
for
injunctive
relief,
compensatory and punitive damages in excess of $1,000,000. The law suit was
filed in the Circuit Court of the Eighteenth Judicial Circuit In and For
Brevard
County, Florida. On September 19, 2007, the
Company
released the individual defendants quid filed for a default judgment against
New
Millenium
Entrepreneurs,
LLC and Phoenixsurf.com, LLC which was granted on August 10, 2007. The Company
is
scheduled
to attend a pretrial hearing on May 22, 2008 in order to set a date for
determining the damages it
is
to be
granted. The Company has not yet determined how the award will be split between
the defendants.
On
October 2, 2006, the Company was named in a lawsuit captioned
New
Millennium Entrepreneurs, LLC
and
Phoenixsurf.com, LLC
v.
Michael
W. Hawkins, et. al.
U.S.
District Court, Middle District of Georgia,
3:
06-CV-84 (CDC). The lawsuit alleges violations of the Georgia Securities
Act,
Georgia Fair Business
Practices
Act, Federal Securities laws and certain other unspecified laws in connection
with the investment
by
Plaintiffs of $150,000 in Organa Technologies Group and seeks rescission
of this
investment. In
addition,
the lawsuit alleges contractual disputes and misappropriations of funds by
Organa Consulting
Group.
The Company has responded to the complaint, has entered into third party
claims
against the individual owners of New Millenittm Entrepreneurs, LLC and other
interested parties. The Company
believes
it has meritorious defenses to the claims made and intends to vigorously
defend
the lawsuit. On
July
24,
2007, the Securities and Exchange Commission filed charges in the United
States
District Court for the Central District of California in Los Angeles. California
against New Millenitun Entrepreneurs,
LLC,
Phoenixsurf.com, LLC, and two of its officers and managing members. On August
10, 2007, a Final Judgment and Permanent Injunction were entered against
these
parties, with damages to be assessed at a
future
date.
NOTE
10 – SUBSEQUENT EVENTS
On
April
4, 2008 the Company received its initial 105 Frostmourne Swords® and began
delivery of the more than 2,000 swords purchased on April 14, 2008.
ITEM
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE
THREE MONTHS ENDED MARCH 31, 2008
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements under federal
securities laws. Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties. Our actual results
could differ materially from those indicated by forward-looking statements
as a
result of various factors, including but not limited to those set forth under
this Item, as well as those discussed in Part II - Item 1A, “Risk Factors,” and
elsewhere in this document and those that may be identified from time to time
in
our reports and registration statements filed with the Securities and Exchange
Commission.
This
discussion should be read in conjunction with the Consolidated Financial
Statements and related Notes included in Part I – Item 1 of this Quarterly
Report on Form 10-Q and the Consolidated Financial Statements and related Notes
and the Management’s Discussion and Analysis of Financial Condition and Results
of Operations contained in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on April 14, 2008.
DESCRIPTION
OF COMPANY:
The
Company is a holding company that currently operates five wholly-owned
subsidiaries; Hurricane Host, Inc., an entity which provides Internet web
hosting and Voice over Internet Protocol (VOIP) services, Davinci’s Computer
Corp., an entity which provides hardware and software computer system solutions
and services, Gateway Internet Services Corporation, an entity which provides
on-line payment processing through ACH and other banking solutions, Game2Gear,
Inc., an entity that provides online product registration of replica weapons,
Epic Weapons, Inc, which manufactures, designs, and sells replica
weapons, and two majority-owned subsidiaries; Zowy Media,
Incorporated, doing business as Swordsonline and WeaponMasters,
which provide Internet purchasing of swords and weapon memorabilia, and
Organa Consulting Group, Inc., an entity which provides web design services,
hardware and software installation and training, and other Internet related
consulting services.
OVERVIEW:
The
Company, through its subsidiaries, provides technology-based solutions and
consulting, computer hardware and software solutions, Internet-based retail
sales, and other ancillary services.
The
Company currently evaluates financial performance in three segment; Retail
Sales, Internet Services, and Hardware and Software. The following diagram
identifies the company’s associated with the respective segment.
The
following Management Discussion and Analysis should be read in conjunction
with
the financial statements and accompanying notes included in this Form
10-Q.
COMPARISON
OF THE THREE MONTHS ENDED MARCH 31, 2007 TO THE THREE MONTHS ENDED MARCH 31,
2006
Overview
Total
revenues increased to $509,500 for the three months ended March 31, 2008 from
$234,618 for the three months ended March 31, 2007. The increase of $274,882
or
117.2% is a direct result of the increase in revenue by our Retail Sales
Division. The Company’s Internet Sales Division and Retail Sales Division
increased revenue by $43,081 and $231,754, respectively, while the Computer
Hardware and Software Division decreased revenue by $6,291.
|
|
|
Internet Sales Division
|
|
Retail Sales Division
|
|
Hardware and
Software Divison
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Revenue
|
|
|
127,167
|
|
|
84,086
|
|
|
327,946
|
|
|
98,695
|
|
|
54,387
|
|
|
51,837
|
|
|
|
|
|
|
|
|
509,500
|
|
|
234,618
|
|
|
Cost
of Sales
|
|
|
80,688
|
|
|
27,731
|
|
|
148,204
|
|
|
74,014
|
|
|
26,708
|
|
|
22,553
|
|
|
|
|
|
|
|
|
255,600
|
|
|
124,298
|
|
|
Gross
Profit
|
|
|
46,479
|
|
|
56,355
|
|
|
179,742
|
|
|
24,681
|
|
|
27,679
|
|
|
29,284
|
|
|
-
|
|
|
-
|
|
|
253,900
|
|
|
110,319
|
|
|
Operating
Expenses
|
|
|
29,476
|
|
|
41,311
|
|
|
49,465
|
|
|
18,689
|
|
|
25,762
|
|
|
22,456
|
|
|
133,371
|
|
|
11,146
|
|
|
238,226
|
|
|
93,602
|
|
|
Income
(Loss) from Operations
|
|
|
17,003
|
|
|
15,044
|
|
|
130,277
|
|
|
5,992
|
|
|
1,917
|
|
|
6,828
|
|
|
(
133,371
|
)
|
|
(11,146
|
)
|
|
15,674
|
|
|
16,718
|
|
Revenues
and the percent of consolidated revenue for the three months ended March 31,
2008, by segment, are as follows: Internet Sales Division, $127,167 (25.0%),
Retail Sales Division $327,946 (64.4%), and Computer Hardware and Software
Division $54,387 (10.6%).
Overall
cost of sales was $255,600 and $124,298 for the three months ended March 31,
2008 and 2007, respectively. As a percent of revenue, the cost of sales
decreased from 53.0% to 50.2%, for the three months ended March 31, 2007 as
compared to the three months ended March 31, 2008. This is primarily due
to overall increase in cost of sales by our Retail Sales Division directly
relating to the registration fees for the auction sale of the Frostmourne® Sword
and the increased internet traffic generated by the auction and interest in
the
launch of the sword.
The
cost
of sales and the percent of consolidated cost of sales for the three months
ended March 31, 2008, by segment, are as follows: Internet Sales Division,
$80,688 (31.6%), Internet Sales Division $148,204 (58.0%), and Computer Hardware
and Software Division $26,708 (10.4%).
Gross
profit was $253,900 and $110,319 for the three months ended March 31, 2008
and
2007, respectively. As a percent of revenue, gross profit was 49.8% and 47.0%
for the three months ended March 31, 2008 and 2007, respectively.
Total
operating expenses increased to $238,226 for the three months ended March 31,
2008 from $93,602 for the three months ended March 31, 2007. This $144,624
or
154.5% increase was primarily attributable to operating expenses associated
with
the Retail Sales Division ($49,465) with increasing corporate operating expenses
associated with the Company’s projected growth offset by a decrease in the
Internet Sales Division.
The
operating expenses and the percent of consolidated operating expenses for the
three months ended March 31, 2008, were contributed as follows: Internet Sales
Division, $29,476 (12.5%), Retail Sales Division, $49,465 (20.8%), Computer
Hardware and Software Division, $25,762 (10.8%), and Corporate, $133,371
(55.9%).
Internet
Sales Division
Revenue
attributed to the Internet Sales Division was $127,167 (25.3% of total
consolidated revenue) in 2008 as compared to $84,086 (35.8% of total
consolidated revenue) in 2007 (51.2% decrease in division
revenues).
The
Internet Sales Division includes Hurricane Host, Organa Consulting Group, and
Gateway Internet Services. HH accounted for $120,568 (24.0% of the Company’s
overall revenue) and $74,227 (31.6% of the Company’s overall revenue) in revenue
for 2008 and 2007, respectively. OCG accounted for less than 5% of the Company’s
revenue in both 2008 and 2007.
Cost
of
sales and the percent of consolidated cost of sales for the three months ended
March 31, 2007 and March 31, 2008, respectively, for HH was $23,985 (19.3%)
and
$76,582 (30.0%) of the overall cost of sales and 86.5% and 94.9% of the cost
of
sales of the Internet Sales Division segment. The cost of sales for the three
months ended March 31, 2008 for OCG was insignificant.
Operating
expenses and the percent of consolidated operating expenses for the three months
ended March 31, 2007 and March 31, 2008, respectively, for HH was $23,423
(25.0%) and $20,650 (8.9%) of the overall operating expenses and 56.7% and
70.1%
of the operating expenses of the Internet Sales Division segment. The operating
expenses and the percent of consolidated operating expenses for the three months
ended March 31, 2008 for OCG was insignificant.
Retail
Sales Division
Weaponmasters
(the only revenue generating activity in the Retail Sales Division for 2007)
was
complemented with the launch of sales for Epic in 2008. Revenue increased from
$98,695 to $327,946 (increase of $229,251) for the three months ended March
31,
2007 and 2008, respectively. The increase of 232.3% is related to the sales
(registration fees) associated with the Frostmourne® Sword in 2008.
Cost
of
sales increased from $74,014 to $148,204 (increase of $74,190) for the three
months ended March 31, 2007 and 2008 respectively. The increase of 100.2% is
related to the Company’s sales associated with the Frostmourne® Sword in
2008.
Operating
expenses increased from $18,689 to $49,465 (increase of $30,776) for the three
months ended March 31, 2007 and 2008, respectively. The increase of 164.7%
is
related to the Company only having Weaponmasters active in 2007 compared to
the
activity associated with Epic launching the sales of the Frostmourne® Sword in
2008.
Income
from operations increased from $5,992 to $130,277 for the three months ended
March 31, 2007 and 2008, respectively. The increase was due primarily to the
increase, as a percentage, of the cost of sales and the cost attributed to
Epic.
While revenues increased 232.3%, cost of sales increased 100.2%. The actual
percentage of cost of sales as compared to revenue decreased from 75.0% to
45.2%
for the three months ended March 31, 2007 and 2008, respectively. The Company
expensed $47,991 in work associated with the development of the Frostmourne®
Sword in 2007.
Computer
Hardware and Software Division
DCC
was
the only revenue generating activity in the Computer Hardware and Software
Sales
Division for 2007 and 2008. Revenue increased from $51,837 to $54,387 (increase
of $2,550) for the three months ended March 31, 2007 and 2008, respectively.
The
increase of 4.9% is related to the relocation of the corporate office and
business to a more central location.
Cost
of
sales increased from $22,553 to $26,708 (increase of $4,155) for the three
months ended March 31, 2007 and 2008 respectively. The increase of 18.4% is
related to increased hardware sales.
Operating
expenses increased from $22,456 to $25,762 (increase of $3,306) for the three
months ended March 31, 2007 and 2008, respectively. The increase of 14.7% is
related to management salaries and marketing services.
Income
from operations decreased from $6,828 to $1,917 for the three months ended
March
31, 2007and 2008, respectively. The decrease was due primarily to marketing
services, additional overheads related to the expansion of .services and
relocation costs.
Corporate
The
operating expenses and the percent of consolidated operating expenses for the
three months ended March 31, 2007 and March 31, 2008, respectively, for
corporate headquarters was $11,146 (11.9%) and $133,371 (56.0%) of the overall
operating expenses. The increase in operating expenses is primarily due to
the
increase of staff to support overall operations, and the research and
development of additional products and services.
Liquidity
and Capital Resources
As
of
March 31, 2008, the Company had a working capital surplus of $274,678. Net
income was $14,582 for the three months ended March 31, 2008. The Company
generated a positive cash flow from operations of $213,669 for the three months
ended March 31, 2008. The positive cash flow from operating activities for
the
period is primarily attributable to the Company's net income, increase in
accounts receivables, $101,279, receivable from related parties, $257,349,
inventory, $86,858, prepaid expenses and other assets, $20,225, deferred
revenue, $546,164, and accounts payable and accrued expenses,
$118,846.
Cash
flows used in investing activities for the three months ended March 31, 2008
consisted of the acquisition of $86,049 of equipment.
Cash
flows provided by financing activities for the three months ended March 31,
2008
was $193,412 primarily due to the issuance of preferred stock.
The
Company had a net increase in cash of $321,032 for the three months ended March
31, 2008 compared to an increase of $7,630 for the three months ended March
31,
2007.
By
adjusting its operations and development to work within the Company’s financing
and budget, management believes it has sufficient capital resources to meet
projected cash flow needs through the next twelve months. However, if
thereafter, the pricing of the products or services the Company sells increase
dramatically, sales grow rapidly, and we are not successful in generating
sufficient liquidity from operations or in raising sufficient capital resources,
on terms acceptable to us, this could have a material adverse effect on our
business, results of operations, liquidity and financial condition.
The
effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located primarily in the southeast
and
central United States and there are no seasonal aspects that would have a
material effect on the Company's financial condition or results of
operations.
For
the
next twelve months, the Company intends to fund its operations through private
debt and equity financing and revenues from operations. However, if the pricing
of commodities and other raw materials prices increase dramatically, sales
grow
rapidly, and we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable
to
us, this could have a material adverse effect on our business, results of
operations, liquidity and financial condition.
The
effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located in North America and there
are
no seasonal aspects that would have a material effect on the Company's financial
condition or results of operations.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There
have been no material changes in the Company’s market risk exposures from those
reported in our Annual Report on Form 10-K for the year ended December 31,
2007.
ITEM
4. CONTROLS AND PROCEDURES
The
Company’s management, under the supervision and with the participation of the
Company’s Chief Executive Officer (the “CEO”) and Interim Chief Financial
Officer (the “CFO”), performed an evaluation of the effectiveness of the design,
maintenance and operation of the Company’s disclosure controls and procedures of
March 31, 2008. Based on that evaluation, the CEO and CFO concluded that the
Company’s disclosure controls and procedures were effective. There have been no
significant changes in the Company’s internal controls or in other factors that
materially affected, or would reasonably be likely to materially affect, the
Company’s internal control over financial reporting.
PART
II.
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
July
19, 2006, the Company filed a lawsuit against New Millenium Entrepreneurs,
Inc.,
and Phoenixsurf.com, LLC, and various other individuals and parties claiming
libel, slander, and conspiracy to injure business. The claim relates to
consulting services provided by Organa Consulting Group, Inc., a wholly owned
subsidiary of Organa Technologies Group, Inc., to PhoenixSurf.com, a so-called
"websurfing" business which ceased operations in July 2006. The Company also
has
asked for injunctive relief, compensatory and punitive damages in excess of
$1,000,000. The law suit was filed in the Circuit Court of the Eighteenth
Judicial Circuit In and For Brevard County, Florida.
On
September 19, 2007, the Company released the individual defendants and filed
for
a default judgment against New Millenium Entrepreneurs, LLC and Phoenixsurf.com,
LLC which was granted on August 10, 2007. The Company is scheduled to attend
a
pretrail hearing on May 22, 2008 in order to set a date for determining the
damages it is to be granted. The Company has not yet determined how the award
will be split between the defendants.
On
October 2, 2006, the Company was named in a lawsuit captioned
New
Millennium Entrepreneurs, LLC and Phoenixsurf.com, LLC
v.
Michael
W. Hawkins, et. al.
U.S.
District Court, Middle District of Georgia, 3: 06-CV-84 (CDC). The lawsuit
alleges violations of the Georgia Securities Act, Georgia Fair Business
Practices Act, Federal Securities laws and certain other unspecified laws in
connection with the investment by Plaintiffs of $150,000 in Organa Technologies
Group and seeks rescission of this investment. In addition, the lawsuit alleges
contractual disputes and misappropriations of funds by Organa Consulting Group.
The Company has responded to the complaint, has entered into third party claims
against the individual owners of New Millenium Entrepreneurs, LLC and other
interested parties. The Company believes it has meritorious defenses to the
claims made and intends to vigorously defend the lawsuit. On July 24, 2007,
the
Securities and Exchange Commission filed charges in the United States District
Court for the Central District of California in Los Angeles, California against
New Millenium Entrepreneurs, LLC, Phoenixsurf.com, LLC, and two of its officers
and managing members. On August 10, 2007, a Final Judgment and Permanent
Injunction were entered against these parties, with damages to be assessed
at a
future date.
ITEM
1A. RISK FACTORS
You
should carefully consider the following discussion of various risks and
uncertainties. We believe these risk factors are the most relevant to our
business and could cause our results to differ materially from the
forward-looking statements made by us. The following risk factors are not the
only risk factors facing our Company. Additional risks that we do not consider
material, or of which we are not currently aware, may also have an adverse
impact on us. Our business, financial condition, and result of operations could
be seriously harmed if any of these risks or uncertainties actually occurs
or
materializes. In that event, the market price for our common stock could
decline, and you may lose all of part of your investment.
We
have a limited relevant operating history and we may not be able to maintain
profitability in the near term, which may result in raising additional capital
and diluting our shareholders.
Our
company and management team is newly formed and has limited experience working
together in this area. Such limits could adversely effect our near term
performance in the management of our assets. Our company has had a cumulative
net loss from inception of approximately $1,953,961 with only the year ended
December 31, 2006 being profitable. Our needs for continued expenditures for
product research and development and marketing, among other things, will make
it
difficult for us to reduce our operating expenses in order to deal with lack
of
sales growth or unanticipated reductions in existing sales. Our failure to
balance expenditures in any period with sales will create losses for the company
that would require additional financing to meet cash flow requirements. The
possibility of our future success must be considered relative to the problems,
challenges, complications and delays frequently encountered in connection with
the development and operation of a rapid growth business. The Company's
prospects must be evaluated with a view to the risks encountered by a company
in
an early stage of development. To the extent that such expenses are not
subsequently followed by commensurate revenues, the Company's business, results
of operations and financial condition will be materially adversely affected.
There can be no assurance that the Company will be able to generate sufficient
revenues from the sale of services and products. If cash generated by operations
is insufficient to satisfy the Company's liquidity requirements, the Company
may
be required to sell additional equity or debt securities. The sale of additional
equity or convertible debt securities would result in additional dilution to
the
Company's stockholders.
We
may compete with clients of the Administrative Consultant for access to key
personnel of the Administrative Consultant, which could reduce the amount of
time and effort they devote to us and thus negatively impact our financial
condition and results of operations.
Achieving
our business objectives will depend on our ability to acquire suitable business
and to monitor and administer those businesses, which will depend, in turn,
on
the abilities of our Administrative Consultant.
Achieving
this result on a cost-effective basis will be largely a function of the
Administrative Consultant’s structuring of the business process and its ability
to provide competent, attentive and efficient services to us. Our executive
officers and the business professionals of the Administrative Consultant will
have substantial responsibilities in connection with their respective roles
as
the Administrative Consultant and with the other business vehicles advised
by
the Administrative Consultant, as well as responsibilities to us under the
Consultant Services Agreement. They may also be called upon to provide
managerial assistance to our portfolio companies on our behalf. These demands
on
their time, which will increase as the number of business or other clients
increase, may distract them or slow the rate of growth. In order to grow, the
Administrative Consultant will need to hire, train, supervise and manage new
employees. However, we cannot assure you that any such employees will contribute
to the work of the Administrative Consultant on our behalf. Any failure to
manage our future growth effectively could have a material adverse effect on
our
business, financial condition and results of operations.
The
Administrative Consultant currently manages and may in the future manage
business vehicles with a business focus that partially overlaps with our focus,
which could result in increased competition for access to business
opportunities.
The
Administrative Consultant currently manages other companies with a business
focus that may partially overlap with our focus, and may in the future sponsor
or manage additional business opportunities or other clients with businesses
overlapping ours, which, in each case, could result in us competing for access
to business opportunities. The Company does not believe a current conflict
exists.
There
may be conflicts of interest in our relationship with the Administrative
Consultant, which could result in decisions that are not in the best interests
of our stockholders.
Under
the
terms of the Consultant Services Agreement, business professionals of the
Administrative Consultant serve or may serve as officers, directors or
principals of other entities, or may otherwise conduct any other business,
whether or not the entities or business compete with the Company. Such other
entities or business
may
have
business objectives or may implement business strategies similar or different
to
those of the Company. Accordingly, these individuals may have obligations to
investors in those entities or businesses, the fulfillment of which might not
be
in the best interests of the Company or its stockholders.
The
Company and its Administrative Consultant may determine that a business is
appropriate both for us and for one or more other business vehicles or clients.
In such event, depending on the availability of such business and other
appropriate factors, the Administrative Consultant may determine which business
vehicle makes the business or, in certain limited circumstances, whether we
would invest concurrently with one or more other business vehicles. We may
make
all such businesses subject to compliance with applicable regulations and
interpretations, and the Administrative Consultant’s allocation
protocol.
Our
Administrative Consultant’s liability will be limited under the Consultant
Services Agreement, and we will indemnify our Administrative Consultant against
certain liabilities, which may lead our Administrative Consultant to act in
a
riskier manner on our behalf than it would when acting for its own
account.
Our
Administrative Consultant has not assumed any responsibility to us other than
to
render the services described in the Consultant Services Agreement. The
Consultant Services Agreement provides that, absent willful misfeasance, bad
faith or gross negligence in the performance of the Administrative Consultant’s
duties or by reason of the reckless disregard of the Administrative Consultant’s
duties and obligations, the Administrative Consultant (and its officers,
managers, partners, agents, employees, controlling persons, members and any
other person or entity affiliated with the Administrative Consultant, including,
without limitation, its general partner and the Consultant), are entitled to
indemnification from the Company for any damages, loss, liabilities, costs
and
expenses (including, without limitation, judgments, fines, reasonable attorneys’
fees and expenses, and amounts reasonably paid or to be paid in settlement)
incurred by such persons in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including, without limitation,
an action or suit by or in the right of the Company or its security holders)
arising out of or otherwise based upon the performance of any of the
Administrative Consultant’s duties or obligations under the Consultant Services
Agreement or otherwise as an Administrative Consultant of the Company. These
protections may lead our Administrative Consultant to act in a riskier manner
when acting on our behalf than it would when acting for its own
account.
We
may experience fluctuations in our periodic results therefore results of
operations may not provide a clear picture in which investors could make a
determination of participation favorable to the
Company.
We
could
experience fluctuations in our operating results due to a number of factors,
including variations in and timing of recognition of realized and unrealized
capital gains or losses, the degree to which we encounter competition in our
markets, and general economic conditions. Specifically, the Company expects
to
see rapid growth spurts in Epic due to the sale of the Frostmourne™ Sword. In
addition, Weaponmasters traditionally experiences increased sales during the
holiday season between October and December each year. As a result of these
factors, results for any period should not be relied upon as being indicative
of
performance in future periods.
Our
financial condition and results of operation will depend on our ability to
manage future growth effectively.
Our
ability to achieve our business objectives will depend on our ability to acquire
suitable businesses and to monitor and administer those businesses, which will
depend, in turn, on our Administrative Consultant’s ability to identify, invest
in and monitor companies that meet our business criteria.
Accomplishing
this result on a cost-effective basis will be largely a function of our
Administrative Consultant’s structuring of the business process and its ability
to provide competent, attentive and efficient services to us. Our executive
officers and certain of the officers of our Administrative Consultant will
have
substantial responsibilities in connection with their roles at the Company,
as
well as responsibilities under the Business Management Agreement. They may
also
be called upon to provide managerial assistance to our portfolio companies
on
our behalf. These demands on their time, which will increase as the number
of
business grow, may distract them or slow the rate of business. In order to
grow,
we and our Administrative Consultant will need to hire, train, supervise and
manage new employees. However, we cannot assure you that any such employees
will
contribute to the work of the Administrative Consultant. Any failure to manage
our future growth effectively could have a material adverse effect on our
business, financial condition and results of operations.
We
may change our business strategy and asset allocation without stockholder
consent, which may result in our engaging in riskier
businesses.
We
may
change our business strategy or asset allocation at any time without the consent
of our stockholders. Any such change in our business strategy or asset
allocation could result in our engaging in businesses that are different from,
and possibly riskier than, the business described in this annual report. A
change in our business strategy may increase our exposure to interest rate
market fluctuations.
Risks
Relating to our Securities
Two
of our current stockholders currently have, and may continue to have, a
significant influence over our management and affairs and control over most
votes requiring stockholder approval.
The
majority of common stock is currently held by only two stockholders, Avante
(69.27%) and GAMI (13.85%), both of which are managed by one individual, Michael
W. Hawkins. As long as these two stockholders continue to hold a significant
percentage of our common stock following an offering, they will be able to
exert
influence over our management and policies and control most votes requiring
stockholder approval. This concentration of ownership may also have the effect
of delaying, preventing or deterring a change of control of the Company, could
deprive our stockholders of an opportunity to receive a premium for their common
stock as part of a sale of the Company and might ultimately affect the market
price of our common stock. The Administrative Consultant has the authority
to
vote securities held by our two controlling stockholders, including on matters
that may present a conflict of interest between the Administrative Consultant
and other stockholders.
Efforts
to comply with the Sarbanes-Oxley Act will involve significant expenditures,
and
non-compliance with the Sarbanes-Oxley Act may adversely affect
us.
Upon
effectiveness of this Registration Statement, we will be subject to certain
provisions of the Sarbanes-Oxley Act of 2002, and the related rules and
regulations promulgated by the SEC. Under current SEC rules, beginning with
our
fiscal year ending December 31, 2008, our management will be required to
report on our internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of
the SEC thereunder. We will be required to review on an annual basis our
internal controls over financial reporting, and on a quarterly and annual basis
to evaluate and disclose changes in our internal controls over financial
reporting. As a result, we expect to incur significant additional expenses
in
the near term, which may negatively impact our financial performance and our
ability to make distributions. This process also will result in a diversion
of
management’s time and attention. We cannot be certain as to the timing of
completion of our evaluation, testing and remediation actions or the impact
of
the same on our operations and may not be able to ensure that the process is
effective or that the internal controls are or will be effective in a timely
manner. There can be no assurance that we will successfully identify and resolve
all issues required to be disclosed prior to becoming a public company or that
our quarterly reviews will not identify additional material weaknesses. In
the
event that we are unable to maintain or achieve compliance with the
Sarbanes-Oxley Act and related rules, we may be adversely affected.
With
a limited public market of our securities, and no current market makers, the
Company may witness volatility and huge fluctuations in our stock price and
the
price may not be indicative of the Company’s performance and have a negative
effect on the Company’s ability to raise capital or make
acquisitions.
The
Company’s common stock is quoted and traded on the Markets under the ticker
symbol OGNT.PK and is thinly traded. Until such time that the Company receives
approval from the Financial Industry Regulatory Authority ( FINRA ) to trade
its
shares on another platform, the stock may be sold or bought at varying prices
that would make it difficult for potential investors and acquisition candidates
to make a fair assessment of the Company’s valuation. As such, the Company may
not be able to fairly negotiate acquisition transactions that are fair and
equitable.
ITEM
2.
UNREGISTERED
SALE OF EQUITY SECURITIES AND IN SECURITIES AND USE OF
PROCEEDS
The
Company sold 27 units of Series A Preferred under its Private Placement
Memorandum. Each unit consist of 10,000 shares of Series A Preferred Stock
that
converts to common stock on a 1-for-1 basis.
ITEM
3.
DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM
4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM
5.
OTHER
INFORMATION
John
S.
Wittler resigned as the Company's CFO on May 9, 2008. The Board appointed the
CEO, Gina L. Bennett, as the Interim CFO. Steves Rodriguez will serve as the
Interim CFO effective May 16, 2008.
Bruce
Harmon resigned as a member of the Board on May
9, 2008.
ITEM
6.
EXHIBITS
Exhibits
|
No.
|
|
Description
|
|
31.1
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
|
Organa
Technologies Group, Inc.
|
|
|
|
Date:
May 15, 2008
|
|
By:
|
/s/
Gina L. Bennett
|
|
|
Chief
Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
|
Date:
May 15, 2008
|
|
By:
|
/s/
Gina L. Bennett
|
|
|
Interim
Chief Financial Officer (Principal
|
|
Accounting
and Financial Officer)
|
Organa Technologies (CE) (USOTC:OGNT)
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