FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 28, 2008
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 000-50662
AMISH NATURALS, INC.
--------------------
(Exact Name of registrant as specified in its Charter)
Nevada 98-0377768
------ ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
6399 State Road 83, Holmesville, OH 44633
-----------------------------------------
(Address and telephone number of Principal Executive Offices)
(330) 674-0998
--------------
(Issuer's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
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 preceding 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 [CX] No [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [_]No [_]
As of February 17, 2009, the Registrant had 47,263,253 Shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
Amish Naturals, Inc. and Subsidiary
Index to the Consolidated Financial Statements
As of December 28, 2008 and September 28, 2008
For the Three-Month periods Ended December 28, 2008 and December 30, 2007
________________________________________________________________________________
Item 1. FINANCIAL INFORMATION
Financial Statements of Amish Naturals, Inc.
Balance Sheets as of December 28, 2008 and September
28, 2008............................................................ 2
Statement of Operations for the Three-Month periods Ended December
28, 2008 and December 30, 2007 ......................................3
Statement of Cash Flows for the Three-Month periods
Ended December 28, 2008 and December 30, 2007 .......................4
Notes to the Financial Statements............................................6
1
Amish Naturals, Inc. and Subsidiary
Consolidated Balance Sheet
As of December 28, 2008 and September 28, 2008
________________________________________________________________________________
As of As of
December 28, September 28,
2008 2008
------------ ------------
ASSETS
Current assets:
Cash $ 5,428 $ 32,586
Accounts receivable-trade 90,813 127,084
Inventories 683,991 689,994
Prepaid insurance 50 50
------------ ------------
Total current assets 780,282 849,714
Property and equipment, net of accumulated
depreciation of $576,006 and $477,772,
respectively 2,818,183 2,916,417
Deposits 138 138
------------ ------------
Total assets $ 3,598,603 $ 3,766,269
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Convertible notes payable - in default $ 9,618,750 $ 9,618,750
Accounts payable - trade 491,303 424,008
Accrued expenses 140,037 53,823
Capital lease obligations - current portion 8,967 8,967
Note payable - current portion 16,251 16,251
Accrued interest 329,302 126,802
------------ ------------
Total current liabilities 10,604,610 10,248,601
Capital lease obligations 24,716 26,881
Note payable 10,642 14,551
------------ ------------
Total liabilities 10,639,968 10,290,033
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Series A convertible preferred ,
$0.001 par value, 20,000,000 shares
authorized, none issued -- --
Common stock, $0.001 par value,
560,000,000 shares authorized, 45,773,779
shares issued and outstanding 45,774 45,774
Additional paid-in capital 16,350,559 16,350,559
Accumulated deficit (23,437,698) (22,920,097)
------------ ------------
Total shareholders' deficit (7,041,365) (6,523,764)
------------ ------------
Total liabilities and shareholders' equity $ 3,598,603 $ 3,766,269
============ ============
The accompanying notes are an integral part of the financial statements.
2
Amish Naturals, Inc. and Subsidiary
Consolidated Statement of Operations
For the Three-Month periods Ended December 28, 2008 and December 30, 2007
________________________________________________________________________________
For The For The
Three-Month Three-Month
Period Ended Period Ended
December 28, December 30,
2008 2007
----------------- -----------------
Gross sales $ 336,201 $ 205,172
Less: Slotting fees (243) --
Less: returns and allowances (57,140) (12,472)
----------------- -----------------
Net sales 278,818 192,700
Cost of sales (230,733) (280,059)
----------------- -----------------
Gross profit (loss) 48,085 (87,359)
----------------- -----------------
Operating expenses:
Marketing 36,942 191,972
General and administrative 292,450 939,837
Product development 655 29,508
Professional fees 31,454 82,048
Stock-based charges -- 312,031
----------------- -----------------
Total operating expenses 361,501 1,555,396
----------------- -----------------
Operating loss (313,416) (1,642,755)
----------------- -----------------
Other income (expense):
Interest income 16 18,056
Interest expense (204,200) (532,951)
----------------- -----------------
Total other expense (204,184) (514,895)
----------------- -----------------
Net loss $ (517,600) $ (2,157,650)
================= =================
Net loss per common share -
basic and diluted $ (0.01) $ (0.05)
================= =================
Weighted average number of shares
outstanding - basic and diluted 44,179,995 44,154,995
================= =================
The accompanying notes are an integral part of the financial statements.
3
Amish Naturals, Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the Three-Month periods Ended December 28, 2008 and December 30, 2007
________________________________________________________________________________
For The For The
Three-Month Three-Month
Period Ended Period Ended
December 28, December 30,
2008 2007
----------- -----------
Cash flows used in operating activities:
Net loss $ (517,600) $(2,157,650)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 98,234 91,497
Stock-based compensation -- 312,031
Accretion of debt discount -- 390,764
Accrued interest 202,500 138,750
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable-trade 36,271 (89,781)
Inventory 6,003 (350,319)
Other assets -- (50)
Increase (decrease) in:
Accounts payable - trade 67,295 61,380
Accrued liabilities 86,213 48,895
----------- -----------
Net cash used in operating activities (21,084) (1,554,483)
----------- -----------
Cash flows used in investing activities:
Acquisition of equipment -- (517,448)
Acquisition of intangible assets -- (203,975)
----------- -----------
Net cash used in investing activities -- (721,423)
----------- -----------
Cash flows provided by financing activities:
Proceeds from the sale of shares and exercise of
warrants and options -- 50,000
Repayment of loans and capital leases (6,074) (4,336)
----------- -----------
Net cash provided by (used in) financing activities (6,074) 45,664
----------- -----------
Net decrease in cash (27,158) (2,230,242)
Cash - beginning of period 32,586 3,770,542
----------- -----------
Cash - end of period $ 5,428 $ 1,540,300
=========== ===========
The accompanying notes are an integral part of the financial statements.
4
Amish Naturals, Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the Three-Month periods Ended December 28, 2008 and December 30, 2007
________________________________________________________________________________
Supplemental Disclosure of Cash Flow Information
For The For The
Three-Month Three-Month
December 28, December 30,
2008 2007
------------- -------------
Interest paid $ 1,700 $ --
Income taxes paid $ - $ --
The accompanying notes are an integral part of the financial statements.
5
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
As of December 28, 2008 and September 28, 2008 and
For the Three-Month periods Ended December 28, 2008 and December 30, 2007
________________________________________________________________________________
1. Description of Business
-----------------------
Amish Naturals, Inc., (the "Company") was incorporated in Nevada on
September 2, 2005, and commenced operations in January 2006. The Company
commenced sales of its products and is therefore no longer considered to be
in the development stage.
2. Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Amish
Naturals, Inc. and its wholly owned subsidiary. All significant
transactions among the consolidated entities have been eliminated upon
consolidation.
Definition of Fiscal Year
We report our results of operations on a 52- or 53-week fiscal year ending
on the last Sunday in September. Each fiscal three month period contains
thirteen weeks.
Basis of Presentation
These financial statements are presented in United States dollars and have
been prepared in accordance with accounting principles generally accepted
in the United States.
Use of Estimates
Preparing the Company's financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP")
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The financial statements include some amounts that are based on
management's best estimates and judgments. The most significant estimates
are the determination of the useful lives of property and equipment, the
valuation of the discount on the convertible note payable and the
determination of the valuation reserve of the United States income tax
assets. These estimates may be adjusted as more current information becomes
available, and any adjustment could be significant.
6
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures
About Fair Value of Financial Instruments, requires management to disclose
the estimated fair value of certain assets and liabilities defined by SFAS
No. 107 as financial instruments. Financial instruments are generally
defined by SFAS No. 107 as cash and cash equivalents, evidence of ownership
interest in equity, or a contractual obligation that both conveys to one
entity a right to receive cash or other financial instruments from another
entity and imposes on the other entity the obligation to deliver cash or
other financial instruments to the first entity.
At December 28, 2008, the Company's financial instruments are cash and cash
equivalents, accounts receivable-trade, accounts payable-trade, accrued
liabilities, note payable and a convertible note payable. The recorded
values of cash and cash equivalents, accounts receivable-trade, accounts
payable-trade, and accrued liabilities approximate their fair values based
on their short-term nature. The recorded value of the convertible note
payable before discount approximates the fair value as interest
approximates market rates.
Cash
The Company considers deposits that can be redeemed on demand and
investments that have original maturities of less than three months, when
purchased, to be cash equivalents. As of December 28, 2008, the Company's
cash and cash equivalents were deposited primarily in one financial
institution.
At December 28, 2008, the Company had no cash on deposit that exceeded the
United States (FDIC) federally insurance limit.
Inventories
The Company uses the lower of cost (determined using the first-in,
first-out method) or market for valuing inventories. Transportation costs
are charged to cost of sales when incurred.
Identifiable Intangible Assets
Identifiable intangible assets with definite lives are amortized over their
estimated useful lives and tested for impairment whenever events or changes
in circumstances indicate the carrying amount of the asset may be impaired.
Identifiable intangible assets that are subject to amortization are
evaluated for impairment using a process similar to that used in evaluating
elements of property, plant and equipment. If impaired, the intangible
asset is written down to its fair value. All intangible assets at September
28, 2008, which consisted of customer lists, acquired recipes and trade
names acquired in September and October 2007, were deemed to be fully
impaired and written off.
7
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Impairment or Disposal of Long-Lived Assets
The Company accounts for its long-lived assets under SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. SFAS No. 144 requires companies
to separately report discontinued operations and extends that reporting to
a component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for
sale. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Revenue Recognition and Accounts Receivable-Trade
Revenue is recognized when title and risk of loss are transferred to
customers upon delivery based on terms of sale and collectibility is
reasonably assured. Revenue is recognized as the net amount to be received
after deducting estimated amounts for discounts, trade allowances, and
returns of damaged and out-of-date products. Collectibility is estimated
considering the credit conditions of its customers and the payment history
of each customer. Accounts receivable-trade that are considered to be
uncollectible will be written off against the allowance for doubtful
accounts. No allowance for doubtful accounts was considered necessary at
December 28, 2008.
Marketing Costs
The Company incurs various types of marketing costs in order to promote its
products, including retailer incentives and consumer incentives. The
Company recognizes the cost for each of these types of marketing activities
as a reduction of net sales or as selling, general and administrative
expense in accordance with generally accepted accounting principles.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, and minor replacements,
maintenance, and repairs are charged to expense as incurred. When property
and equipment are retired or otherwise disposed of, the cost and the
related accumulated depreciation are removed from the Company's accounts
and any resulting gain or loss is included in the results of operations for
the respective period. Depreciation is provided over the estimated useful
lives of the related assets using the straight-line method for financial
statement purposes. The Company uses other depreciation methods (generally
accelerated) for tax purposes where appropriate. The estimated useful lives
for significant property and equipment categories are as follows:
8
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Vehicles 3 years
Office equipment 3 to 5 years
Machinery and equipment 5 to 15 years
Buildings and improvements 20 years
Property and equipment were placed in service on March 1, 2007, and
therefore began recording depreciation on that date.
Share Based Payment
The Company accounts for employee stock-based payments using the fair value
method provided in Statement of Financial Accounting Standards ("SFAS") No.
123R, Share-Based Payment. The fair value of options granted will be
recognized as compensation expense over the vesting period of the options.
The Company accounts for non-employee stock-based payments using the fair
value method provided by SFAS No. 123R. When stock options are granted to
non-employees, the Company will estimate the fair value of the award and
recognize related expenses over the performance period as prescribed by
EITF 96-18: Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
No share based payments have been granted at September 28, 2008.
Basic and Diluted Loss Per Share
Basic loss per common share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares
outstanding. Diluted loss per common share is computed in the same way as
basic loss per common share except that the denominator is increased to
include the number of additional common shares that would be outstanding if
all potential common shares had been issued and if the additional common
shares were dilutive. As of December 28, 2008, the Company had outstanding
stock options that can be converted into 4,765,000 shares of common stock,
warrants to purchase 1,261,999,845 shares of common stock, and a note
payable that can be converted into 568,333,333 shares of common stock. As
the Company has recorded a loss in each period since it commenced
operations, the options, warrants and conversion feature would have an
anti-dilutive effect, and therefore, are not included in diluted loss per
share.
9
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Income Tax
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets, including tax loss and credit
carryforwards, and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax assets and
deferred tax liabilities. The components of the deferred tax assets and
liabilities are individually classified as current and non-current based on
their characteristics.
Deferred tax assets are reduced by a valuation allowance when in the
opinion of management it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Realization of the
deferred income tax asset is dependent on generating sufficient taxable
income in future years.
The Company has recorded a 100% valuation allowance against net deferred
tax assets due to uncertainty of their ultimate realization.
Advertising Costs
Advertising costs will be expensed when they are incurred. Advertising
expense totaled $4,212 and $1,624 for the three-month periods ended
December 28, 2008 and December 30, 2007, respectively.
Product Development
The Company's product development activities principally involve product
name selection, product shape determination, artistic design of the product
packaging, arrangement for the related manufacturing extrusion tools and
dies, selection of seasonings, grains and other ingredients considered as
recipe development, taste and market testing. The costs of these activities
are expensed as incurred.
10
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Contingencies
Certain conditions may exist as of the date the financial statements are
issued, which may result in a loss to the Company but which will only be
resolved when one or more future events occur or fail to occur. The
Company's management and its legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings that
are pending against the Company or unasserted claims that may result in
such proceedings, the Company's legal counsel evaluates the perceived
merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought
therein.
If the assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can be
estimated, then the estimated liability would be accrued in the Company's
financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is
probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if
determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the guarantees would be disclosed.
Comprehensive Income or Loss
The Company has no items of other comprehensive income or loss in the three
month period ended December 28, 2008 and December 30, 2007. Therefore, net
loss as presented in the Company's Statement of Operations equals the
comprehensive loss.
New Accounting Pronouncements
In June 2006, Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109 ("FIN 48"), which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS No. 109, Accounting for Income
Taxes. The interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 requires recognition of tax benefits that satisfy a greater
than 50% probability threshold. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 is effective for the
Company beginning January 1, 2008 (Note 10). The Company believes that
adoption of FIN 48 will not have a material effect on its financial
position, results of operations or cash flows.
11
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
In September 2006 the FASB issued SFAS No. 157, Fair Value Measurements.
This Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value
measurements. This Statement does not require any new fair value
measurements. The Company does not expect the adoption of this statement to
have a material impact on its financial position, results of operations or
cash flows.
In September 2006, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements ("SAB 108"), to address diversity in practice in quantifying
financial statement misstatements. SAB 108 requires that the Company
quantify misstatements based on their impact on each of the Company's
financial statements and related disclosures. The Company adopted SAB 108
effective as of January 1, 2007. The adoption of SAB 108 did not impact the
Company's financial statements.
In December 2007, FASB issued SFAS No. 141 (Revised 2007), Business
Combinations. Under SFAS 141R, the acquiring entity is required to
recognize all the assets acquired and liabilities assumed in a transaction
at the acquisition-date fair value with limited exceptions.
Statement 141R will change the accounting treatment for certain specific
items, including: Noncontrolling interests (formerly known as "minority
interests" -- see SFAS 160 discussion below) are valued at fair value as of
the acquisition date; Acquired contingent liabilities will be recorded at
fair value at the acquisition date and subsequently measured at either the
higher of such amount or the amount determined under existing guidance for
non-acquired contingencies; In-process research and development will be
recorded at fair value as an indefinite-lived intangible asset at the
acquisition date.
3. Inventories
-----------
The inventories as of December 28, 2008 are as follows:
Raw materials and packaging $425,175
Finished goods 257,418
Supplies and other 1,399
--------
Total $683,992
========
12
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
4. Property and Equipment
The following is a summary of property and equipment, at cost as of
December 28, 2008:
Buildings and improvements $ 974,437
Plant equipment 2,181,999
Office equipment 189,858
Assets under capital lease 47,895
-----------
Total property and equipment 3,394,189
Less: accumulated depreciation (576,006)
Land --
-----------
Property and equipment, net $ 2,818,183
===========
Property and equipment was placed in service during March 2007.
Depreciation expense for the three-month periods ended December 28, 2008
and December 30, 2007 was $98,234 and $85,806, respectively.
5. Debt
----
Convertible Notes Payable in Default
In September 2007, the Company entered into a convertible note payable with
a principal balance of $6 million. The note now bears interest at the
default rate of 15% per annum and is callable at any time. Interest is
payable in arrears quarterly in shares of the company's common stock with
the first interest date being October 1, 2007. The note is convertible into
shares of the Company's common stock at any time at an adjusted amount of
$0.015, for a total of 360,000,000 shares on the remaining principal
balance. In March 2008, $600,000 of the principal was converted into
685,682 shares of common stock. As part of the financing transaction, the
Company issued warrants which are adjustable given the current stock price,
and allow for the purchase of an adjusted aggregate of 892,833,178 shares
of the Company's common stock at an exercise price of $0.015 per share. The
warrants may be exercised at any time and expire on September 10, 2014. The
Company has pledged all of its assets as collateral on this note and is
precluded from declaring dividends until the note is repaid. The Company
incurred a placement fee and incurred legal and other costs totaling
$530,000 related to this loan.
The Company was required to achieve certain financial milestones during the
term on this note. The Company has not achieved the milestone requirements
for any period. Therefore, the conversion price of this note and the
exercise price of the warrants was changed to $0.015 per share.
This note is in default and the Company does not believe it has the ability
to cure the debt.
13
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
The values of the imbedded conversion feature of the note and the warrants
together with the costs associated with the loan have been recorded as a
discount on the note and as the note is in default, have been fully charged
to interest expense at September 28, 2008.
In February 2008, the Company entered into a second convertible note with
$4,218,750 due at maturity. The note bears interest at 10%, which was
prepaid, is convertible into shares of the Company's common stock at $0.015
per share, which would convert into a total of 208,333,333, and is callable
at any time. In connection with this note, the Company issued warrants, as
adjusted, to purchase 369,166,667 million shares of its common stock with
an exercise price of $0.015 per share and warrants to purchase 2,500,000
shares with an exercise price of $0.001 per share. The warrants have a life
of 9 years.
This note is also in default and the Company does not believe it has the
ability to cure the debt.
Note Payable
Note payable, with interest at 10.25%
per annum, payable in monthly installments
of $1,599 per month with the final payment
due November 1, 2010, and collateralized
by software $26,893
Less: amount due within one year 16,251
-------
Note payable, due after one year $10,642
=======
Capital Lease Obligations
Capital lease obligations, due in sixty
monthly installments of $992 with the
final payment due April 2012, and
collateralized by equipment $33,683
Less: amount due within one year 8,967
-------
Capital lease obligations, due after one year $24,716
=======
14
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Long-term debt, excluding unamortized discount and capital lease
obligations mature in each of the following years ending December 28:
Capital
Long-Term Lease
Debt Obligations
2009 $ 16,251 $ 11,909
2010 10,642 11,909
2011 - 11,909
2012 - 3,473
------------- -----------
Total $ 26,893 39,200
=============
Less: amount representing interest
on capital lease payments 5,517
-----------
Present value of minimum capital
lease payments $ 33,683
===========
6. Contingencies, Risks, Uncertainties, Managements Plan and Concentrations
------------------------------------------------------------------------
Financial Results, Liquidity and Management's Plan
At December 28, 2008, the Company has incurred losses for the three-month
period ended December 28, 2008 and for the year ended September 28, 2008 of
$517,600 and $18,368,014, respectively. Despite its negative cash flows
from operations of $21,084 and $5,372,820 for the three-month period ended
December 28, 2008 and the year ended September 28, 2008, respectively, the
Company has not been able to obtain operating capital through private
equity and debt funding sources. Management's plans include the continued
development and eventual implementation of its business plan. The Company
has relied upon equity and debt funding since inception.
No assurances can be given that the Company can obtain sufficient working
capital through the sale of the Company's common stock and borrowing or
that the continued implementation of its business plan will generate
sufficient revenues in the future to sustain ongoing operations. These
factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
15
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Operating Leases
The Company leases the property on which its facilities are located. The
lease is for 5 years with a 5 year renewal option and annual evergreen
renewals thereafter. The Company has the option to purchase the property
for $280,000. The lease was entered into by the shareholders of the Company
and was assigned to the Company in October 2006. Future minimum lease
payments are as follows for the years ending December 28:
2009 $ 16,200
2010 16,200
2011 16,200
2012 9,450
-------------
Total minimum lease payments $ 58,050
=============
Concentration of Suppliers
The Company purchases its raw materials from producers of organic produce
and grains. There is a regionally limited supply of these products. If the
Company is unable to obtain these products from the supplier, the Company
believes that the impact on its financial statements from such an
uncertainty could be substantial.
Litigation
The Company, on an ongoing basis, will be subject to various claims and
legal proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. Management believes that any
liability that may ultimately result from the resolution of these matters
will not have a material adverse effect on the financial condition or
results of operations of the Company.
7. Equity Transactions
-------------------
Common Stock
Sale of Common Stock
--------------------
In February 2007, the Company sold in a private placement 664,745 shares of
its common stock for cash at $2.10 per share to 26 investors. The net
proceeds of this placement were $1,395,965.
In November 2007, the Company issued 50,000 shares of its common stock upon
exercise of stock options at $1.00 per share.
16
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Issuance of Common Stock
------------------------
In February 2008 and April 2008 the Company issued 193,818 and 135,397,
respectively, shares of its common stock in payment of interest accrued on
its convertible note
In March and April 2008, the Company issued 685,682 and 822,819,
respectively, shares of its common stock upon conversion of a total of
$600,000 of its convertible note payable.
Options Activity
----------------
A summary of the option activity as of September 28, 2008, and changes
during the year then ended is presented below:
Weighted Remaining Average
Average Contractual Aggregate
Number of Exercise Term Intrinsic
Options Price (Years) Value
---------- ---------- ------------ -----------
Outstanding at
September 28, 2008 4,765,000 $ 1.47 $ 3.25 $ --
Granted -- -- -- --
Exercised -- -- -- --
Forfeited -- -- -- --
Expired -- -- -- --
---------- ---------- ------------ -----------
Outstanding at
December 28, 2008 4,765,000 $ 1.47 3.00 $ --
========== ========== ============ ===========
Exercisable at
December 28, 2008 4,765,000 $ 1.47 3.00 $ --
========== ========== ============ ===========
The Company recognizes compensation expense using the straight-line method
over the requisite service period.
In September 2008, the Board of Directors passed a resolution that resulted
in all outstanding options vesting immediately. As a result, the Company
fully recognized all outstanding stock option compensation expense for the
year ending September 28, 2008 and none remains.
Exercise of Warrants
--------------------
In December 2006, the Company issued 388,889 shares of its common stock
upon exercise of warrants at a price of $0.90 per share. The net proceeds
of this exercise were $350,000.
In February 2007, warrants to purchase 500,000 shares of the Company's
common stock were exercised. The exercise price of $0.90 per share resulted
in net proceeds to the Company of $449,980.
In June 2007, warrants to purchase 561,111 shares of the Company's common
stock were exercised. The exercise price of $0.90 per share resulted in net
proceeds to the Company of $504,880.
17
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Warrants Outstanding
--------------------
Weighted
Average
Number of Warrants
Warrants Price
------------- ----------
Outstanding, September 28, 2008 1,261,999,845 $ 0.015
Issued upon note payable provision based
on current stock price -- --
Exercised -- --
------------- ----------
Outstanding, December 28, 2008 1,261,999,845 $ 0.015
============= ==========
Exercisable, December 28, 2008 1,261,999,845 $ 0.015
============= ==========
Shares Reserved for Future Issuance
-----------------------------------
The Company does not have sufficient authorized shares reserved for future
issuance upon exercise of outstanding options, shares to meet the needs of
the outstanding options, warrants, and conversion of the convertible note
payable at December 28, 2008. However, despite this fact, the convertible
note holder may not own 5% or more of the Company's common stock at any one
time.
8. Share Based Payment
-------------------
There were no stock options issued during the three-month period ended
December 28, 2008. The weighted average estimated fair value of the stock
options granted for the three-month period ended December 30, 2007 was
$1.32. The exercise price of these options ranged from $1.14 to $1.32 per
share, which equaled the market price on the effective date of grant. The
options originally vested at various rates over periods ranging from one to
four years after the effective date of the grant, and have a life of 5
years. However, the Board resolved to immediately vest all options in
September 2008.
The assumptions used in the Black-Scholes option pricing model for the
stock options granted during the three-month period ended September 30,
2007 were as follows:
For the
Three-Month
Period Ended
December 30,
2007
------------
Risk-free interest rate 3.81%
Expected volatility of common stock 88%
Dividend yield $0.00
Expected life of options 5
Weighted average fair market value of options granted $1.32
17
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
9. Earnings Per Share
------------------
In accordance with FASB Statement No. 128, Earnings Per Share, the Company
calculates basic and diluted net loss per share using the weighted average
number of common shares outstanding during the periods presented and adjust
the amount of net loss, used in this calculation, for preferred stock
dividends declared during the period.
The Company incurred a net loss in each period presented, and as such, did
not include the effect of potentially dilutive common stock equivalents in
the diluted net loss per share calculation, as their effect would be
anti-dilutive for all periods. Potentially dilutive common stock
equivalents would include the common stock issuable upon the conversion of
the convertible note payable and the exercise of warrants and stock options
that have conversion or exercise prices below the market value of the
Company's common stock at the measurement date. As of September 28, 2008,
all potentially dilutive common stock equivalents amounted to more shares
than are authorized. The following table illustrates the computation of
basic and diluted net loss per share:
For the For the
Three-Month Three-Month
Period Ended Period Ended
December 28, December 30,
2008 2007
------------ ------------
Numerator:
Net loss $ (517,600) $ (2,157,650)
Denominator:
Denominator for basic and diluted net
loss per share-weighted average number
of common shares outstanding 44,179,995 44,154,995
------------ ------------
Basic and diluted net loss per share $ (0.01) $ (0.05)
============ ============
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share because to do so would be
anti-dilutive since the Company reported net losses in all the reporting
periods:
For the For the
Three-Month Three-Month
Period Ended Period Ended
December 28, December 30,
2008 2007
------------- -------------
Options to purchase shares of common stock 4,765,000 4,585,000
Warrants to purchase shares of common stock 1,261,999,845 6,389,322
Convertible note payable 568,333,333 3,194,718
------------- -------------
Total 1,835,098,178 14,169,040
============= =============
19
Amish Naturals, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
________________________________________________________________________________
10. Business Combinations
---------------------
In October 2007, the Company acquired substantially all of the assets of
two entities; Prima Pasta, Inc. and Schlabach Amish Wholesale Bakery, LLC.
The combined purchase price of the assets of the two entities was $750,000
and consisted of cash and the repayment of an existing note receivable. The
assets acquired consisted of inventory, equipment, customer lists, trade
names and other intellectual properties.
The Company allocated the purchase price of the assets acquired as follows:
Land and building $ 50,000
Inventory 50,000
Equipment 350,000
Intangible assets 300,000
---------
Less: impairment of intangible assets (300,000)
---------
Total $ 450,000
=========
The combined revenue of the two entities was approximately $350,000 during
their last fiscal years and each recorded a small profit or loss.
The acquisition of Prima Pasta, Inc. provides the Company with additional
equipment and a second brand name that has shelf space and existing
customers. The Company believes that the additional brand will enhance its
market presence and the equipment will provide additional productive
capacity.
The acquisition of Schlabach Amish Wholesale Bakery, LLC provides the
Company with a complimentary line of products.
19
Item 2. Management's Discussion and Analysis or Plan of Operation.
Management's Discussion and Analysis or Plan of Operation.
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
related notes included elsewhere in this report. Certain statements in this
discussion and elsewhere in this report constitute forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934.
See "Forward Looking Statements" elsewhere in this report. Because this
discussion involves risk and uncertainties, our actual results may differ
materially from those anticipated in these forward-looking statements.
Overview of Amish Naturals
Amish Naturals, Inc. is a young company and although we have made the first
sales of our products, we have not yet generated or realized any significant
revenues from our business operations. During the period from January 1, 2006
(commencement of operations) to September 30, 2007, Amish Naturals raised
capital in the form of short-term notes payable, the sale of shares of our
common stock, the exercise of warrants to purchase shares of our common stock,
and through the issuance of long term convertible debt. The proceeds of the
notes payable were used to acquire a production facility site and the equipment
management believes is necessary for Amish Naturals to commence operations. The
proceeds of the sale of shares of our common stock were used to retire one of
the short-term notes payable and acquire additional production equipment. The
proceeds for the exercise of warrants were used for working capital. The
proceeds from the long term convertible debt were used to retire short term debt
and will be used for working capital, expansion of distribution and production
facilities and product development. Management's plan is to produce a line of
natural organic, kosher pasta products and related items to be sold through food
product distributors.
On October 27, 2006 we completed a merger with FII, Inc. As the now-former
stockholders of the former private company hold the majority of our outstanding
common stock after the merger, the transaction has been accounted for as a
"reverse merger" and the financial statements are those of the former private
company. In connection with the merger, we raised $2,628,022 through the sale of
2.9 million equity units. Each unit includes one share of our common stock and a
warrant to purchase 1/2 share of our common stock. Each unit sold for $.90.
Neither the shares nor the warrants have any registration rights. We used a
portion of the proceeds of this private placement to repay the note payable in
full and to redeem shares of FII held by the former majority stockholder of FII.
During the year ended September 30, 2007 all of the warrants were exercised with
net proceeds of $1,301,814. In February 2007, we raised $1,395,965 through the
sale of 664,745 shares of our common stock and obtained $300,000 from a
short-term note payable. In July and August 2007 we obtained an additional
$600,000 from short term notes payable. In September 2007 we closed on the sale
of a senior secured convertible note in the principal amount of $6,000,000. The
$900,000 of short term notes payable were repaid with a portion of the proceeds
of the convertible note payable.
In February 2008 we closed on the sale of a senior secured convertible note in
the principal amount of $3,125,000. The proceeds of this financing were used for
working capital.
In March 2007, we commenced producing product for sale. During the years ended
September 28, 2008 and September 30, 2007, we shipped products with total gross
sales price of $1,616,229 and $134,688, respectively. At September 28, 2008 we
had inventories of finished goods and raw materials with total cost of $689,994
and accounts receivable from our customers of $127,084.
There is no historical financial information about us upon which to base an
evaluation of our performance. We are a development stage company and have not
generated any significant revenues from our operations. We cannot guarantee we
will be successful in our core business, or in any business operations. Our
business is subject to risks inherent in the establishment of a new business
enterprise, including limited capital resources.
Results of Operations for the three month periods ended December 30, 2008 and
December 30, 2007
On August 5, 2008 David C. Skinner, Sr., CEO of the company stepped down and
assumed the duties of Director of Manufacturing of the Pasta and Bakery
divisions and Martin Silver, then Chairman of the Board assumed the duties of
interim CEO. On September 2, 2008 the company closed its production facilities'
attempting to have the products co-packed by third party manufacturers so the
company could focus primarily on marketing. Soon thereafter, the company was
advised that the investment bank was no longer going to fund the company
operations and on September 9, 2008 Mr. Silver, interim CEO resigned as Chief
Executive Officer, Board Chairman and Director of the company. Alexander Ngan
and Carlo Varesco also resigned as Directors. The remaining Board, David Skinner
and Kenneth Troyer reappointed Mr. Skinner in the Chief Executive Officer
position and appointed Kenneth Troyer as the Board Chairman.
20
On September 12, 2008 the position of the Executive Vice President and Chief
Operations Officer was eliminated. The CEO implemented additional cost savings
measures and reorganization of the company sales division. On September 14, 2008
the company re-opened their pasta production and bakery facility in Holmesville,
Ohio and restructured the pasta and bakery production divisions to have all
production of their organic and natural pastas, granolas, cereals and bakery
products under one roof to conserve overhead and maximize the company production
efforts.
We did not comply with certain requirements of our convertible debt obligations
and they are in default. The lender has not demanded payment, but if they do, we
do not have the resources available to repay the obligations.
During the three month periods ended December 28, 2008 and December 30, 2007, we
had a loss of $517,600, and $2,157,650, respectively. We have reduced our
operating and administrative costs substantially during the three month period
in 2008.
During the three month period ended December 30, 2007 our Board of Directors
authorized the grant of options to purchase 1,835,000 shares of our common stock
to officers, directors, employees, and consultants. The exercise price of these
options was $1.14 to $1.32 per share and are all fully vested. We determined the
value of these options using the Black Scholes Merton option valuation model to
be $2,426,421. We initially amortized this amount over the vesting period of
each option. We charged $622,777 to expense during the three month period ended
December 30, 2007 related to these options. In July 2008, our Board of Directors
accelerated the vesting of all options and therefore we charged the remaining
balance of $3,874,064 to expense at that time.
We recorded the value of the warrants granted and the value of the imbedded
conversion feature of the convertible notes as debt discount and were accreting
those amounts as interest expense over the terms of the notes. As stated above,
we are in default on our convertible debt obligations. We therefore expensed the
remaining discount of $7,992,368 as interest expense as of September 28, 2008.
The warrants issued as part of the convertible debt transactions and the
conversion features of the notes provide for continued decreases in the exercise
prices and conversions prices. These changes have resulted in the number of
warrants outstanding to increase to 1,261,999,845 shares and the conversion into
568,333,333 shares. We do not currently have sufficient authorized shares to
allow us to issue if exercise or conversion occurs. The terms of the convertible
debt instruments preclude the holder of the notes to own more than 4.99% of our
common stock at any one time.
The net sales prices we have realized from the sale of our products exceeded our
cost to produce these products for the first time during the three month period
in 2008. We believe that when and if our sales increase to the level that we can
produce our products in economic quantities, our costs will be less than our net
sales prices and that we will be able to earn a gross profit on the sales of our
products.
We incurred marketing expenses of $36,942 in the current three month period
compared to $191,972 in the same period in the prior year. These costs relate to
our efforts to make our customers, both current and future, of our products. We
have substantially reduced our marketing efforts, and are concentrating our
efforts on our existing customers.
Our general and administrative costs were $292,450 in the three month period in
2008 compared to $939,837 during the same period in the prior year. This
decrease is primarily due to a reduction in our work force and related travel
costs.
In October 2007 we acquired substantially all of the assets of two entities;
Prima Pasta, Inc. and Schlabach Amish Wholesale Bakery, LLC. The combined
purchase prices of the assets of the two entities was $750,000 and consisted of
cash and the repayment of an existing note receivable. The assets acquired
consisted of inventory, equipment, customer lists, trade names and other
intellectual properties.
We allocated the purchase price of the assets acquired as follows:
Land and Building $ 50,000
Accounts receivable 25,000
Inventory 50,000
Equipment 350,000
Intangible assets 275,000
--------
Total $750,000
========
21
In September 2008, as a result of less than expected sales and profits from
these two entities, we provided an impairment loss on the intangible assets.
The combined revenue of the two entities approximately $350,000 during their
last fiscal years and each recorded a small profit or loss.
The acquisition of Prima Pasta, Inc. provides us with additional equipment and a
second brand name that has shelf space and existing customers. We believe that
the additional brand will enhance its market presence and the equipment will
provide additional productive capacity.
The acquisition of Schlabach Amish Wholesale Bakery, LLC provides us with a
complementary line of products.
As a result of our inability to generate the level of sales and profitability
from these brands, we have concluded that the intangible assets that we acquired
have been impaired and we have written the unamortized balances of all of our
intangible assets off.
Liquidity and Capital Resources
At December 28, 2008, our total assets were $3,598,603, which included cash
balances of $5,428. We invested $2,708,982 in property and equipment, which was
placed in service on March 1, 2007. Our total liabilities were $10,290,033,
which includes our convertible debt obligations that are in default. No demand
has been made by the lender, and we do not have the ability to repay these debts
if demand is made.
In September 2007, we obtained funding in the form of long term convertible debt
payable in the amount of $6 million. In February 2008 we closed on the sale of a
senior secured convertible note in the principal amount of $3,125,000. The
proceeds of this financing were used for working capital. Both of the
convertible notes are in default.
Despite our negative cash flows from operations of $27,157 and $5,372,820 for
the three month period ended December 28, 2008 and the year ended September 28,
2008, respectively, we have not been able to obtain operating capital through
private debt funding sources, the sale of shares of our common stock and the
exercise of warrants to purchase shares of our common stock. We do not currently
have sufficient resources to continue our operations. We require a combination
of additional capital, either debt of equity, and forbearance of our creditors.
As of the date of this report, we have begun to generate revenues from our
business operations. However, revenues that we are realizing are not sufficient
to sustain our operations.
Plan of Operation for the Next 12 Months
During the next 12 months, we plan to continue producing and commence sales of
our line of pasta products. We have executed distribution agreements for our
products with national food product distributors and will continue our
development of products that are complementary to our pasta lines. We commenced
sales to our distributors and retail stores in May 2007.
Since inception, we have funded our operations from the proceeds of short-term
borrowings, some of which were repaid in October 2006 from the proceeds of
private placements of common stock, and of common stock and warrants. Although
we expect that, during the next 12 months, our operating capital needs will be
met by our current economic resources and, if required, by additional private
capital stock transactions, there can be no assurance that funds required will
be available on terms acceptable to us or at all. If we are unable to raise
sufficient funds on terms acceptable to us or on a timely basis, we may be
unable to continue with our business plan. If equity, or convertible debt,
financing is available to us on acceptable terms, it could result in additional
dilution to our stockholders.
Off-Balance Sheet Arrangements
We have no off balance sheet arrangements at December 28, 2008.
22
ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified under the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to our management, including our Principal
Executive Officer and our Principal Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures. Our management, including our
Principal Executive Officer and our Principal Financial Officer, does not expect
that our disclosure controls or procedures will prevent all error and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute assurance that the objectives of the control system are
met. Further, the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within us have been detected.
As of December 28, 2008, the end of the period of this report, due to the
Company's lack of capital, the Company was unable to carry out an evaluation of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer were not able to conclude that the Company's
disclosure controls and procedures were effective.
There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II OTHER INFORMATION
Item 1 . Legal Proceedings: The Company is party to the following pending or
threatened litigation.
ALLAM M. KARKAFI, VS. AMISH NATURALS, INC ., ET AL, in the Court of Common
Pleas, Holmes County, Ohio, August 2008. Plaintiff alleges breach of contract
and other causes of action arising from plaintiff's termination as director of
the Prima Pasta manufacturing facility. The Company disputes the allegations and
has filed its answer and other motions. The matter is currently in the discovery
phase of litigation. The company intends to seek a settlement.
A.P. YAJNIK & SHOBHANA YAJNIK, TRUSTEES OF THE YAJNIK LIVING TRUST, VS. AMISH
NATURALS, INC. in the Court of Common Pleas, Summit County, Ohio, December,
2008. Plaintiff alleges breach of contract on a lease of Canton, Ohio office
space used by the Company's former Executive Vice President and Chief Operating
Officer. The company disputes the allegations and is defending the action and
seeking a settlement.
THE AD SHOP, INC. D/BA/ JOSEPH JACOBS ADVERTISING, VS. AMISH NATURALS, INC.
Civil Court of the City of New York, County of New York, January 2009. Plaintiff
alleges breach of contract in failure to pay $14,000 for advertising and
promotion material contracted for by the company's former executive
vice-president and chief operating officer. The company intends to defend the
action and seek a settlement.
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds: None
Item 3. - Default Upon Senior Securities: There are no defaults to report.
Item 4. - Submission of Matters to a Vote of Security Holders: None.
Item 5. - Other Information: None
Item 6. Exhibits
Exhibit
Number 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 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1** Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**Filed with this report.
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Amish Naturals, Inc.
(Registrant)
February 17, 2009 /s/ David C. Skinner, Sr.
-------------------------
David C. Skinner, Sr.
Chief Executive Officer, and Director
24