UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal quarter ended June 29, 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 Small Business Issuer 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)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Number of shares outstanding as of the close of business on August 12,
2008: 45,332,029
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
------------------------------ ----------------
Common Stock, $0.001 par value. ______
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
PART I. FINANCIAL INFORMATION
Amish Naturals, Inc.
Index to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
Consolidated Financial Statements of Amish Naturals, Inc.:
Consolidated Balance Sheet, June 29, 2008 2
Consolidated Statement of Operations For the Three-Month and
Nine-Month Periods Ended June 29, 2008 and June 30, 2007 3
Consolidated Statement of Cash Flows For the Nine-Month Periods
Ended June 29, 2008 and June 30, 2007 4
Notes to the Financial Statements 7
Amish Naturals, Inc.
Consolidated Balance Sheet
June 29, 2008
---------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 601,847
Accounts receivable-trade 338,292
Inventories 706,330
Prepaid insurance 50
------------
Total current assets 1,646,519
Property and equipment, net of accumulated depreciation of $384,223 3,025,712
Intangible assets, net of accumulated amortization of $22,140 306,835
Deposits 139
------------
Total assets $ 4,979,205
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 280,542
Accrued expenses 90,280
Capital lease obligations - current portion 8,563
Note payable - current portion 15,441
------------
Total current liabilities 394,826
Accrued interest 126,802
Convertible notes payable, net of discount of $6,298,314 3,320,436
Capital lease obligations 29,075
Note payable 24,038
------------
Total liabilities 3,895,177
------------
Commitments and contingencies
Shareholders' equity:
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, 45,332,029 shares issued and outstanding 45,332
Additional paid-in capital 13,489,707
Accumulated deficit (12,451,011)
------------
Total shareholders' equity 1,084,028
------------
Total liabilities and shareholders' equity $ 4,979,205
============
The accompanying notes are an integral part of the financial statements.
3
Amish Naturals, Inc.
Consolidated Statement of Operations
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
----------------------------------------------------------------------------------------------------
For the For the For the For the
Three-Month Three-Month Nine-Month Nine-Month
Period Ended Period Ended Period Ended Period Ended
June 29, 2008 June 30, 2007 June 29, 2008 June 30, 2007
------------- ------------- ------------- -------------
Sales
Gross sales $ 582,982 33,012 $ 1,295,677 33,012
Less: discounts and allowances (117,470) (4,316) (171,647) (4,316)
Less: slotting fees (165,653) (1,490) (287,164) (1,490)
------------ ------------ ------------ ------------
Net sales 299,859 27,206 836,866 27,206
Cost of sales (781,762) (16,533) (1,473,433) (16,533)
------------ ------------ ------------ ------------
Gross profit (481,903) 10,673 (636,567) 10,673
Operating expenses:
Marketing 177,640 207,000 576,867 $ 462,301
General and administrative 790,419 548,169 2,795,245 1,223,675
Product development 12,787 130,849 126,291 259,861
Professional fees 73,650 277,674 404,382 458,978
Stock based charges 405,686 206,397 1,112,571 433,216
------------ ------------ ------------ ------------
Total operating expenses 1,460,182 1,370,089 5,015,356 2,838,031
------------ ------------ ------------ ------------
Operating loss (1,942,085) (1,359,416) (5,651,923) (2,827,358)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 5,169 4,447 32,381 13,796
Interest expense (1,014,947) (7,674) (2,279,386) (12,813)
------------ ------------ ------------ ------------
Total other expense (1,009,778) (3,227) (2,247,005) 983
------------ ------------ ------------ ------------
Net loss $ (2,951,863) $ (1,362,643) $ (7,898,928) $ (2,826,375)
============ ============ ============ ============
Net loss per common share -
basic and diluted $ (0.07) $ (0.03) $ (0.18) $ (0.07)
============ ============ ============ ============
Weighted average number of
shares outstanding - basic
and diluted 45,295,517 42,622,153 44,638,460 41,966,834
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
4
Amish Naturals, Inc.
Consolidated Statement of Cash Flows
For the Nine-Month Periods Ended June 29, 2008 and June 30, 2007
------------------------------------------------------------------------------------------
For the For the
Nine-Month Nine-Month
Period Ended Period Ended
June 29, 2008 June 30, 2007
------------- -------------
Cash flows used in operating activities:
Net loss $(7,898,928) $(2,826,375)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 298,340 73,702
Stock-based compensation 1,112,531 433,216
Accretion of debt discount 1,855,380 --
Interest paid in stock -- --
Accrued interest cancelled in exchange for shares 205,500 29,835
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts receivable (262,215) (20,282)
Inventory (256,628) (502,412)
Increase (decrease) in:
Accounts payable - trade 255,728 179,139
Accrued liabilities 90,280 --
Accrued payroll taxes -- (9,101)
Accrued interest 126,802 201,101
----------- -----------
Net cash used in operating activities (4,473,210) (2,441,177)
----------- -----------
Cash flows used in investing activities:
Acquisition of equipment (700,954) (1,118,565)
Acquisition of intangible assets (203,975) --
Deposits -- (8,358)
----------- -----------
Net cash used in investing activities (904,929) (1,126,923)
----------- -----------
Cash flows provided by financing activities:
Proceeds from the sale of shares and exercise of
warrants and options 50,000 1,301,814
Proceeds from issuance of common stock -- 4,029,196
Proceeds from loans 2,175,000 --
Redemption of shares -- (249,782)
Repayment of loans and capital leases (15,556) (1,399,930)
----------- -----------
Net cash provided by financing activities 2,209,444 3,681,298
----------- -----------
Net increase in cash (3,168,695) 113,198
Cash - beginning of period 3,770,542 186,258
----------- -----------
Cash - end of period $ 601,847 $ 299,456
=========== ===========
The accompanying notes are an integral part of the financial statements.
5
Amish Naturals, Inc.
Consolidated Statement of Cash Flows
For the Nine-Month Periods Ended June 29, 2008 and June 30, 2007
-------------------------------------------------------------------------------------------
For the For the
Nine-Month Nine-Month
Period Ended Period Ended
June 29, 2008 June 30, 2007
Supplemental Disclosure of Cash Flow Information
Interest paid $ 4,413 $ --
Income taxes paid $ -- $ --
Non Cash Items
Shares issued upon conversion of debt $ 219,066 $ --
Warrants issued with imbedded conversion feature $ 8,122,280 $ --
The accompanying notes are an integral part of the financial statements.
6
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 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.
2. Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Amish
Naturals, Inc. and its wholly owned subsidiaries. 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 consolidated 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 consolidated 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 consolidated 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.
7
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
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 June 29, 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 June 29, 2008, the Company's cash
and cash equivalents were deposited primarily in one financial institution.
At June 29, 2008, the Company had $501,847 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.
8
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
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. Intangible assets at June 29, 2008
consist of customer lists, acquired recipes and trade names acquired in
September and October 2007. Amortization expense is recorded over the
estimated life of ten years and commenced in October 2007.
Future amortization of intangible assets is as follows for the years ending
June 29:
2009 $ 32,897
2010 32,897
2011 32,897
2012 32,897
2013 and beyond 175,247
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.
9
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
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
June 29, 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:
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.
10
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
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 June 29, 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 June 29, 2008, the Company had outstanding
stock options that can be converted into 4,790,000 shares of common stock,
warrants to purchase 49,022,000 shares of common stock, and a note payable
that can be converted into 20,961,397 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.
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.
11
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Income Tax, Continued
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 $5,850 and $17,840 for the three-month and nine-month
periods ended June 29, 2008, respectively. There were no advertising costs
in the comparable periods in the pior year.
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.
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
12
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Comprehensive Income or Loss
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.
The Company has no items of other comprehensive income or loss in the
nine-month periods ended June 29, 2008 or June 30, 2007. Therefore, net
loss as presented in the Company's Consolidated 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.
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
13
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
New Accounting Pronouncements, Continued
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 consolidated 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 June 29, 2008 are as follows:
Raw materials and packaging $434,203
Finished goods 270,167
Supplies and other 1,960
--------
Total $706,330
========
14
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
4. Property and Equipment
----------------------
The following is a summary of property and equipment, at cost as of June
29, 2008:
Buildings and improvements $ 1,007,276
Plant equipment 2,181,999
Office equipment 162,765
Assets under capital lease 47,895
-----------
Total property and equipment 3,399,935
Less: accumulated depreciation (384,223)
Land 10,000
-----------
Property and equipment, net $ 3,025,712
===========
Property and equipment was placed in service during March 2007.
Depreciation expense for the three and nine-month periods ended June 29,
2008 and June 30, 2007 was $86,648, $276,200, $56,004 and $73,702,
respectively.
5. Long Term Debt
--------------
Convertible Note Payable
In September 2007, the Company entered into a convertible note payable with
principal balance of $6 million. The note bears interest at 9.25% per annum
and is due September 10, 2010. 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 was initially convertible into 6,626,506 shares
of the Company's common stock at any time. In March and April 2008,
$600,000 of the principal was converted into 822,819 shares of common
stock. As part of the transaction, the Company issued warrants to purchase
an aggregate of 6,389,322 shares of the Company's common stock at initial
exercise prices ranging from $1.88 to $3.00 per share. The warrants may be
exercised at any time and expire on September 10, 2014. As a result of the
convertible note transaction in February 2008, the exercise price of these
warrants was reduced to $1.11 per share. 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 may repay without penalty up to one
third of the principal balance of the note on each anniversary date. The
Company incurred a placement fee and incurred legal and other costs
totaling $530,000 related to this loan.
15
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
5. Long Term Debt, Continued
-------------------------
The Company is required to achieve certain financial milestones during the
term on this note. The Company did not achieve the milestone requirements
for the periods ended December 31, 2007, March 30, 2008, and June 29, 2008.
Therefore the conversion price of this note and the exercise price of the
warrants was changed to $0.83 per share on February 24, 2008, and to $0.41
per share on May 24, 2008 and will be changed to the lower of the current
conversion price, the arithmetic weighted average price of the Company's
common shares for the fifteen consecutive trading days prior to August 24,
2008, or the arithmetic average of the weighted average price of the
Company's common shares for the three days with the lowest weighted average
price during the fifteen trading days ended August 24, 2008. As the price
of the Company's shares of common stock is currently less than the current
conversion and exercise price, the Company expects the conversion price of
the note and exercise price of the warrants will decrease and the number of
shares to be issued upon exercise and conversion will increase.
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 are being accreted as interest expense over the
life of the note.
Convertible Note Payable
In February 2008, the Company entered into 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 $1.75
per share and is due in two years. In connection with this note, the
Company issued warrants to purchase 5 million shares of its common stock
with an exercise price of $1.10 per share and warrants to purchase 2.5
million shares with an exercise price of $0.001 per share. The warrants
have a life of 9 years.
At June 29, 2008, the balances of the notes and discounts are:
Note payable $ 9,618,750
Note discount:
Imbedded conversion feature $ 1,301,575
Warrants 4,430,595
Costs 2,529,601
----------
Total 8,261,771
Accretion through June 29, 2008 1,963,457
------------
Unaccreted balance 6,298,314
-------------
Balance, June 29, 2008 $ 3,320,436
=============
16
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
5. Long Term Debt, Continued
-------------------------
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 $39,479
Less: amount due within one year 15,441
-------
Note payable, due after one year $24,038
=======
Capital Lease Obligations
Capital lease obligations, due in sixty monthly
installments of $992 with the final payment due
April 2012, and collateralized by equipment $37,638
Less: amount due within one year 8,563
-------
Capital lease obligations, due after one year $29,075
=======
Long-term debt, excluding unamortized discount and capital lease
obligations mature in each of the following years ending June 29:
Capital
Long-Term Lease
Debt Obligations
2009 $ 15,441 $ 11,909
2010 9,635,854 11,909
2011 6,934 11,909
2012 -- 9,428
Total $ 9,658,229 45,155
------------ ------------
Less: amount representing interest on
capital lease payments 7,517
------------
Present value of minimum capital lease payments $ 37,638
============
17
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
6. Contingencies, Risks, Uncertainties, Managements Plan and Concentrations
------------------------------------------------------------------------
Financial Results, Liquidity and Management's Plan
At June 29, 2008, the Company has incurred losses for the three and
nine-month periods ended June 29, 2008 of $2,951,863 and $7,898,928,
respectively. Despite its negative cash flows from operations of $4,473,210
and $2,441,177 for the nine-month periods ended June 29, 2008 and June 30,
2007, respectively, the Company has 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.
Financial Results, Liquidity and Management's Plan, Continued
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 consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as
a going concern.
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 at June 29, 2008:
2009 $ 16,200
2010 16,200
2011 16,200
2012 13,500
2013 and after -0-
-----------
Total minimum lease payments $ 66,150
===========
18
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
6. Contingencies, Risks, Uncertainties, Managements Plan and Concentrations,
-------------------------------------------------------------------------
Continued
---------
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 consolidated 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, Continued
-------------------------------
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.
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 137,137,
respectively, shares of its common stock upon conversion of a total of
$600,000 of its convertible note payable.
19
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
7. Equity Transactions, Continued
------------------------------
Options Activity
----------------
A summary of the option activity as of June 29, 2008, and changes during
the year then ended is presented below:
Average
Weighted Remaining Aggregate
Number of Average Contractual Intrinsic
Options Exercise Price Term (Years) Value
Outstanding at September 30, 2007 2,985,000 $ 1.12 2.5 $3,331,050
Granted 2,040,000 1.83 - -
Exercised (50,000) (1.00) - -
Forfeited (210,000) (1.00) - -
Expired - - - -
---------- ---------- ---------- ----------
Outstanding at June 29, 2008 4,765,000 $ 1.47 3.5 $ -
========== ========== ========== ==========
Exercisable at June 29, 2008 1,082,500 $ 1.04 3.2 $ -
========== ========== ========== ==========
The Company recognizes compensation expense using the straight-line method
over the requisite service period.
At June 29, 2007, the Company had $3,208,773 of unrecognized compensation
expense related to stock options that will be recognized over a weighted
average period of 39 months.
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.
20
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
7. Equity Transactions, Continued
------------------------------
Warrants Outstanding
Weighted
Average
Number of Warrants
Warrants Price
---------- --------
Outstanding, September 30, 2007 6,389,322 $ 0.41
Issued 7,500,000 0.41
Exercised -- --
Repricing adjustment 35,132,679 0.41
---------- --------
Outstanding, June 29, 2008 49,022,001 $ 0.41
========== ========
Exercisable, June 29, 2008 49,022,001 $ 0.41
========== ========
Shares Reserved for Future Issuance
The Company has reserved shares for future issuance upon exercise of
outstanding options, warrants and the conversion of the note payable as
follows:
Options 4,765,000
Warrants 49,022,001
Conversion feature 20,961,397
----------
Reserved shares at June 29, 2008 74,748,398
==========
8. Share-Based Payment
-------------------
The Company has granted options to purchase 4,765,000 shares of its common
stock to officers, directors, employees and consultants. The exercise price
of these options range from $1.00 per share to $2.30 per share, which
equaled the market price on the effective dates of grant. The options vest
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.
The assumptions used in the Black-Scholes option pricing model for the
stock options granted during the nine-month period endeds June 29, 2008 and
June 30, 2007 were as follows:
21
Amish Naturals, Inc.
Notes to the Consolidated Financial Statements
As of June 29, 2008 and
For the Three-Month and Nine-Month Periods Ended
June 29, 2008 and June 30, 2007
8. Share-Based Payment, Continued
------------------------------
For the For the
Nine-Month Nine-Month
Period Ended Period Ended
------------ ------------
June 29, 2008 June 30, 2007
Risk-free interest rate 2.14 to 3.50% 4.23% to 4.35%
Expected volatility of common stock 92% to 100% 68% to 98%
Dividend yield $0.00 $0.00
Expected life of options 5 years 5 years
Weighted average fair market value of options granted $1.30 $0.65
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 June 29, 2008, all potentially dilutive common
stock equivalents amounted to 44,638,460 shares.
The following table illustrates the computation of basic and diluted net
loss per share:
For the For the For the For the
Three-Month Three-Month Nine-Month Nine-Month
Period Ended Period Ended Period Ended Period Ended
June 29, 2008 June 30, 2007 June 29, 2008 June 30, 2007
------------- ------------- ------------- --------------
Numerator:
Net loss $ (2,951,863) $ (1,362,643) (7,898,928) (2,826,375)
Denominator:
Denominator for
basic and diluted
net loss per
share-weighted
average number of
common shares
outstanding 45,295,517 43,622,153 44,638,460 41,966,834
------------ ------------ ------------ -----------
Basic and
diluted net
loss per
share $ (0.07) $ (0.03) (0.18) (0.07)
============ ============ ============ ===========
22
9. Earnings Per Share, Continued
-----------------------------
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
antidilutive since the Company reported net losses in all the reporting
periods:
For the For the For the For the
Three-Month Three-Month Nine-Month Nine-Month
Period Ended Period Ended Period Ended Period Ended
June 29, 2008 June 30, 2007 June 29, 2008 June 30, 2007
------------- ------------- ------------- -------------
Options to
purchase
shares of
common stock 4,765,000 4,765,000 4,765,000 4,765,000
Warrants to
purchase
shares of
common stock 49,022,001 49,022,001 49,022,001 49,022,001
Convertible
note payable 20,961,397 -- 20,961,397 --
------------- ------------- ------------- -------------
Total 74,748,398 53,787,001 74,748,398 53,787,001
============= ============= ============= =============
10. Business Combinations
---------------------
In October 2007, the Company acquired substantially all of the assets of
two entities; Prima Pasta, Inc. and Schlabch 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.
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
--------
Total $750,000
========
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.
23
Item 2. 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. commenced sales of its products, and therefore is no longer
considered to be a development stage enterprise. During the period from January
1, 2006 (commencement of operations) to June 29, 2008, 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 two long term convertible debt instruments. The
proceeds of the notes payable were used to acquire a production facility site
and the equipment that 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 from 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 for working capital, expansion of distribution and
production facilities and product development. We produce a line of natural,
organic and kosher pasta products and related items that are 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 three and
nine month periods ended June 29, 2008, we shipped products with total gross
sales price of $582,982 and $1,295,677, respectively. At June 29, 2008 we had
inventories of finished goods and raw materials with total cost of $706,330 and
receivables related to the sales of our products to our customers of $338,292.
24
There is no historical financial information about us upon which to base an
evaluation of our performance. Although we have started to realize 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 and nine month periods ended June 29, 2008
and June 30, 2007
During the three and nine month periods ended June 29, 2008, we had a loss of
$2,951,863 and $7,898,928, respectively. Our loss during the same periods in the
prior year were $1,351,970 and $2,826,375, respectively. Our expenses relate to
the development of a sales and marketing plan, product development activities,
commercial production of inventory, costs associated with implementation of the
infrastructure necessary to support our operations as they mature, initial sales
and marketing activities and stock option expenses, as detailed below. In
addition, we incurred legal and accounting fees related to our reverse merger
transaction with FII in October 2006. Prior to May, 2007 our operations were
limited to the acquisition and installation of certain of our equipment and
introducing our products to distributors and retail organizations. We commenced
sales of our products in May 2007.
Our Board of Directors authorized the grant of options to purchase 4,765,000
shares of our common stock to officers, directors, employees, and consultants.
The exercise price of these options ranged from $1.00 per share to $3.09 per
share and vest at various times over four years. We determined the value of
these options using the Black Scholes Merton option valuation model to be
$4,750,404. We are amortizing this amount over the vesting period of each
option. We charged $405,686 and $1,112,571 to expense during the three and nine
month periods ended June 29, 2008 respectively and we recorded $206,397and
$433,216 during the same periods in the prior year. The current market price of
our shares is substantially less the exercise price of all of our outstanding
options, and therefore the options have no intrinsic value.
We entered into two convertible debt financing transactions. We calculated the
value of the embedded conversion features of these notes and the value of the
warrants to purchase shares of our common stock issued in connection with these
convertible notes payable using the Black Sholes Option Pricing Model. The total
value of these items and the cash costs associated with these financing
transactions, which total $8,261,771, have been recorded as debt discount. We
accrete this amount as interest expense over the term of the notes.
We recorded $1,014,947 and $2,279,386 as interest expense during the three and
nine month periods ended June 29, 2008, as follows:
Three Month Period Nine Month Period
------------------ -----------------
Accretion of debt discount $ 886,153 $1,855,380
Interest on convertible debt 126,802 398,842
There was no interest on convertible debt or accretion of debt discount during
the three and nine month periods in 2007.
The interest on convertible debt was paid through the issuance of shares of our
common stock.
We commenced sales of our products in May, 2007 and recorded gross sales of our
products totaling $582,982 and $1,295,677 during the three and nine month
periods ended June 29, 2008. We incur slotting fees with certain customers when
we commence sales to them. We record these amounts as a reduction of gross sales
when they are paid. We expect to continue to incur slotting fees in the future
and therefore net sales will be substantially less than gross sales.
25
Marketing expenses increased from $207,000 and $462,301 during the three and
nine month periods in 2007 to $177,640 and $576,867 during the same periods in
2008. This increase is consistent with our increasing sales, and we expect these
expenses to continue to increase as our sales increase.
Cost of sales during the three and nine month periods in 2008 were substantially
greater than gross sales. We believe that this is a result of our inability to
produce product in a cost effective and efficient manner.
Our cost of raw materials were higher than expected as commodity prices
have increased faster than we have been able to raise our prices and we
were not able to purchase economic quantities
Incoming freight costs were higher than we expected
We were not able to produce our products in economic quantities, therefore
incurring more labor and using more material than we expected.
Our outgoing freight costs were higher than expected due to the increased
energy costs and less than truckload shipments.
We have taken steps to lessen the impact of these factors. We have reduced
payroll by eliminating production and supervisory positions and have reduced our
occupancy costs by terminating leases on two facilities. We raised the prices of
our products about 10% effective September 1, 2008. Although we do not
believe that these steps will enable us to operate at a profit at our current
sales levels, we believe that these steps will reduce significantly our negative
operating cash requirements.
During the three month period ended June 29, 2008 general and administrative
expenses increased $242,250 to $790,419 from $548,169 in the same period in
2007. These expenses in 2008 increased $1,571,570 for the nine month period in
2008 compared to the same period in 2007. The following describes the increases
in these costs during the three and nine month period in 2008 compared to the
same period in 2007:
Administrative salary and related costs increased $455,203 and $810,888,
respectively, in the three and nine month periods in 2008 over the same periods
in 2007as a result of the increase in the number of employees required by our
increasing activities and the employment of our Chief Operating Officer in late
December 2006. Staff reductions in July 2008 will offset a portion of this
increase in the fourth quarter of our fiscal year. Employee insurance costs
increased $45,115 and $103,193 during the three and nine month periods in the
current year.
We started recording depreciation and amortization expenses in March 2007. These
costs were $94,872 and $298,340 in the three and nine month periods in 2008.
Travel and lodging costs increased $15,530 and $68,097 as we increased our
efforts to implement our business plan.
We incurred moving expenses of&141,142 in 2008 compared to $44,145 in 2007
related to the relocation of our administrative and shipping activities to a new
location.
The balance of the increase relates to general office expenses as a result of
our increase in administrative activities.
Product development costs increased in the three month period in 2008 compared
to 2007 as we commence development of our line of penne pasta.
26
Professional fees were increased in 2008 as a result of fees associated with the
filing of our registration statement in 2008 and our application for patent.
Stock based charges increased as a result of the increase in the number of
options that we have granted to employees.
The increase in interest expense resulted from the accretion of the debt
discount on our convertible notes entered into in September 2007 and February
2008.
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 property.
We 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
----------
Total $ 750,000
==========
The combined revenue of the two entities approximated $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 Amish's 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. In August 2008 we sold the bakery land and
building for net proceeds of $56,393.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 2008, our total assets were $4,979,205, which included cash balances
of $601,847. Our total liabilities were $3,895,177, which is net of discount on
our convertible notes payable of $6,298,314. Our working capital was
$1,251,693at June 29, 2008.
Despite our negative cash flows from operations of $4,473,210 and $2,441,177 for
the nine month period ended June 29, 2008 and the year ended September 30, 2007,
we have 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. In September 2007 we closed on the sale of
a senior secured convertible note in the principal amount of $6,000,000. We
received approximately $5,470,000 of net proceeds of which $900,000 was used to
repay debt. In February 2008 we closed on a senior secured convertible with face
amount of $3,125,000. Our net proceeds from this financing were $2,100,000.
27
We are required to achieve certain financial milestones during the term on these
notes. We did not achieve the milestone requirements for the periods ended
December 30, 2007, March 30, 2008 or June 29, 2008. Therefore the conversion
price of this note and the exercise price of the warrants was changed to $0.41
per share. The conversion price of the convertible notes and the exercise price
of the warrants will be changed on August 24, 2008 to the lower of the current
conversion price, the arithmetic weighted average price of our common shares for
the fifteen consecutive trading days prior to August 24, 2008, or the arithmetic
average of the weighted average price of our common shares for the three days
with the lowest weighted average price during the fifteen trading days ended
August 24, 2008. As the price of our shares of common stock is currently less
than the current conversion and exercise price, we expect the conversion price
of the note and exercise price of the warrants will decrease and the number of
shares to be issued upon exercise and conversion will increase.
The terms of the warrants issued in connection with the $6 million convertible
note will have their exercise price adjusted to the exercise price of the
warrants issued in connection with the new financing. 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.
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 the sale 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 June 29, 2008.
ITEM 3A(T). 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.
28
We carried out an evaluation, under the supervision and with the participation
of our management, including our Principal Executive Officer and our Principal
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report. Based on the foregoing, our Principal Executive Officer and our
Principal Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
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 6. Exhibits
Exhibit Description
Number
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.
**Filed with this report.
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)
August 13, 2008 /s/ Martin Silver
-------------------------------------
Martin Silver
Chief Executive Officer, and Director
29