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| FRHV.OB > SEC Filings for FRHV.OB > Form 10-Q on 22-Sep-2008 | All Recent SEC Filings |
22-Sep-2008
Quarterly Report
Overview
We are an early stage company and have generated only nominal revenues from our organic food business operations since inception on November 26, 2003 through July 31, 2008 ($645,259). We only began having revenues from operations during the quarter ending July 31, 2006. Our net loss from inception until July 31, 2008 is $3,428,717 and to date, we have been dependent upon equity and debt financing. Since our inception through July 31, 2008, we have been funded through capital contributions of $68,803 from Michael Jordan Friedman, our President and Chief Executive Officer; from the sale of common stock between November 2005 through July 31, 2008 for gross proceeds of $123,969 to 11 investors; from convertible loans totaling $388,000 from 15 individuals; and one private loan of $7,500. $95,000 of those convertible loans were issued during the quarter ended July 31, 2007. In addition, Arthur Friedman, the father of the Company's President and CEO, has made advances to Fresh Harvest and after conversion of a portion of his debt to equity, through the period ending July 31, 2008 his advances were $549,910. Illuminate, Inc., a principal shareholder, has made advances of $13,000 to Fresh Harvest. Such advances do not have written terms and are not convertible and neither is the previously mentioned $7,500 private loan. In the last quarter which ended April 30, 2008, $432,000 due to Illuminati, Inc. per the Merger Agreement was converted into equity of the Company. Arthur Friedman converted $250,000 of his debt into equity of the Company and three convertible Note Holders converted debt to equity, thus decreasing the Company's debt by $318,925. Thus, for the quarter ending April 30, 2008 the Company decreased its total debt to Noteholders by $750,925.
We were formed in New Jersey as a blank check company on April 21, 2005, under the name Serino 1, Corp. with no operations, assets or purpose other than the purpose of seeking a privately held operating company as an acquisition or merger candidate. On December 16, 2005, we acquired Fresh Harvest Products, Inc., a New York corporation, a development stage company in the organic food business, and absorbed its operations into our business. As a result of the acquisition, we are no longer a blank check company, and the controlling shareholders of the acquired company became the controlling shareholders of our company. The acquisition was considered a reverse acquisition for accounting and financial reporting purposes. The unaudited consolidated financial statements that are a part of this quarterly report include the accounts of our company since the acquisition (December 16, 2005) and the historical accounts of Fresh Harvest Products, Inc. the New York corporation since the date of its inception, November 26, 2003. All significant intercompany balances and transfers have been eliminated in consolidation.
After the acquisition, our business plan has been to market and distribute (both domestic and imported) a line of organic food products. We intend to focus on finding quality organic and artisan food products throughout the world. We plan that our Fresh Harvest branded organic food products will be produced by artisan farms, co-ops and families who have historically grown organic products. We initially plan to offer products that include: olive oils from Italy and Spain; coffee from South America, USA and Africa and Fresh Harvest Health Bars that have no sugar added, are cholesterol free, trans fat free, low in sodium and gluten free. Our goal is to bring healthy, great tasting organic food products at affordable prices to the mass markets. All packaging has been previously designed and approved. We also plan to market and distribute a line of Fresh Harvest Health Bars once that product can be produced. We are now selling the product line to select supermarkets chains in the eastern part of the United States. We have one trade name (Wings of Nature™).
Our unaudited financial statements contained in this quarterly report have been prepared on a going concern basis, which assumes that we will be able to realize our assets and discharge our obligations in the normal course of business. Our financial statements indicate that we incurred net losses for the period from inception of November 26, 2003 to July 31, 2008 of $3,428,717.
In the audited financial statements contained in our Annual Report on Form 10KSB for the year ended October 31, 2007, our auditors had provided an explanatory note that indicated that we are an early stage company and our ability to continue as a going concern is dependent on raising additional capital to fund future operations and ultimately to attain profitable operations. We believe that nothing has happened in our business operation since then that would change our auditor's opinion about this.
During the next 12 months, we have no material commitments for capital including but not limited to the purchase or sale of a plant or significant equipment. In addition, we do not expect to incur research and development costs within the next 12 months or have any significant changes in the number of our employees.
Recent Developments
On August 18, 2008 our Board of Directors approved a resolution to seek shareholder approval to amend its Certificate of Incorporation to affect a forward stock split of its common stock at the rate of 11 shares for every 10 shares outstanding. The stock split is designed to attract additional individual stockholders, increase the liquidity of the stock and diversify the stockholder base, all of which are in line with our overall growth strategy and shareholder interest. Also, on August 18, 2008 the resolution was approved by consent in lieu of a meeting of five principal shareholders holding a majority of its shares of common stock outstanding on that date. The timing of the forward split will be determined by the Board of Directors at a future date based upon completion of certain required filings with the SEC and the State of New Jersey.
Plan of Operation for the Next Twelve Months
Our plan of operation for the twelve months following the date of this quarterly report is to continue to develop and expand our business operations to have sustainable cash flow. This plan remains virtually the same since July 31, 2007 because to date we have not had sufficient capital to implement it. We will continue to be delayed in initiating our business plan if and until we have at least an additional approximate $1,000,000 of capital. If we are not successful in raising this capital, we will have to reassess our plan or our chances of being profitable. The plan of operation over the next 12 months may include, but not exclusively, activities such as:
·
Capitalization, including obtaining financing through equity and/or debt financing. Currently, we do not have sufficient financial resources to implement or complete our business plan. We anticipate that we will need a minimum of an additional approximate $1,000,000 to satisfy our cash requirements over the next 12 months. We cannot be assured that revenue from operations, if any, will be sufficient to fund our activities during the next 12 months. Accordingly, we will have to seek alternates sources of capital-including private placements, a future public offering, and/or loans from officers and/or third party lenders. We are not experienced in selling equity. We can offer no assurance that we will be able to raise additional funds if needed, on acceptable terms to us or otherwise. If we are unsuccessful in our attempts to raise sufficient capital, we may have to cease operations or postpone our plans to initiate or complete our business plan. In that case, you may lose your entire investment in our company.
·Sales and Distribution through our customer base will consist principally of Natural Food Distributors, Mass-Market Retailers, Supermarkets, Drug Store Chains, Club Stores and Grocery Wholesalers. Our products are sold through a Specialty Food Distributor Network of sales professionals, supported where necessary by third-party Food Brokers to minimize costs and maximize efficiencies. Estimated cost: $350,000.
·
Commence and establish marketing, advertising and promotion programs to increase
brand equity and awareness through the targeting of specific consumer groups
through targeted retail outlets utilizing specialty food distributors.
Estimated cost: $250,000.
·
Salaries, including for present employees and possible new hiring of additional
management personnel and appropriate operating and sales staff. Estimated cost:
$400,000.
These are only estimates and no assurance can be given regarding either statement as to timing or actual eventuality. If we can raise more than the minimum amounts indicated above, we anticipate spending increased amounts on establishing and expanding our distribution network, marketing, advertising and promotions.
We commenced operations and first had revenues from operations during our third quarter ended July 31, 2006. It is our plan that our business operations will generate sufficient revenues to sustain our operations and cash flow by October 31, 2009. We have been purchasing a minimum number of products (coffee, health and coffee and salsa), and anticipates sales that will provide revenues for operations. The revenue generated from these sales will be used to make additional product purchases and minimally fund our operations.
We estimate that our cash and other current assets as of July 31, 2008, of approximately $190,798 will only be sufficient to meet our short term needs for approximately four months. If we are unable to raise the required financing, we will be delayed in commencing our business plan. Currently, because we are considered a new business with limited credit history with vendors, suppliers, manufacturers, packagers and food producers, we must pay for our purchases "up front" and are not granted credit terms. This will continue until we have established a satisfactory credit history. We cannot estimate, with any certainty, how long this may take, or if it will occur at all. Our inability to obtain credit from such providers has a significant impact upon our liquidity and our ability to utilize funds for other purposes. Similarly, if and when we hire salesmen and /or additional personnel, including management and sales personnel, the cost related to such hirings will have a significant impact on our liquidity and deployment of funds.
Financial Information from Comparative Quarters
We first began to have revenues during the quarter ending July 31, 2006. Prior to that we did not have revenues and only had losses. We are presently in the early stages of our business. In that regard, we can provide no assurance that we will ever be profitable in our operations.
For the three months ended July 31, 2008, we recorded revenues of $57,363 versus revenues of $128,411 in the same period of 2007. The decrease in revenues is attributed to the Company's selling down its inventory.
Gross profit, defined as revenues less cost of goods sold, was $24,122 for the three months ended July 31, 2008, compared to $33,788 for the three months ended July 31, 2007. The difference is attributed to the fact there was a decrease in revenue.
Cost of goods sold was $33,241 for the three months ended July 31, 2008 compared to $94,623 for the three months ended July 31, 2007. The difference can be attributed to the decrease in products sold.
We incurred operating expenses in the amount of $432,306 for the three months ended July 31, 2008, and $372,896 for the three months ended July 31, 2007.
Our net loss increased from $339,108 for three months ended July 31, 2007 to $408,184 for the three months ended July 31, 2008. The increase was primarily a result of an increase sales and salary expenses.
Results of Operations for the Nine Month Ending July 31, 2008 and July 31, 2007.
Financial Information from Comparative Nine Month Periods
For the nine months ended July 31, 2008, we recorded revenues of $193,191 versus revenues of $217,359 in the same period of 2007. The decrease in revenues is attributed to the decrease in inventory.
Gross profit, defined as revenues less cost of goods sold, was $45,900 for the nine months ended July 31, 2008, compared to $40,802 for the nine months ended July 31, 2007. The difference is attributed to the fact that there we increased our online sales.
Cost of goods sold was $147, 291 for the nine months ended July 31, 2008 compared to $176,557 for the nine months ended July 31, 2007. The decrease is attributed to a decrease in products sold.
We incurred operating expenses in the amount of $1,143,977 for the nine months ended July 31, 2008, and $740,512 for the nine months ended July 31, 2007.
Our net loss increased from $1,098,077 for nine months ended July 31, 2008 to $699,710 for the nine months ended July 31, 2007. The increase was primarily a result of an increase in marketing, sales and salary expenses.
Since inception, we have not been able to finance our business from cash flows from operations and have been reliant upon loans and proceeds from the sale of equity which may not be available to us in the future, or if available, on reasonable terms. Accordingly, if we are unable to obtain funding from loans and the sale of our equity, it is unlikely that we will be able to continue as a going concern.
At July 31, 2008, we had current assets of $190,798 including cash in the amount of $3,015, inventory of $129,829 and accounts receivable of $57,954. We had net fixed assets of $39,235.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, it is likely that materially different amounts would be reported under different conditions or using assumptions different from those that we have consistently applied. The accounting policies that have been identified as critical to our business operations and understanding the results of our operations pertain to revenue recognition and sales incentives, valuation of accounts and chargebacks receivable, inventories and plant and equipment.
Seasonality
While our snack food product lines are stronger in the warmer months, our coffee product line primarily markets hot coffee products and, as a result, its quarterly results of operations reflect seasonal trends resulting from increased demand for its hot coffee products in the cooler months of the year. In years where there are warm winter seasons, our sales of cooler weather products, which typically increase in our second and third fiscal quarters, may be negatively impacted.
Quarterly fluctuations in our sales volume and operating results are due to a number of factors relating to our business, including the timing of trade promotions, advertising and consumer promotions and other factors, such as seasonality, inclement weather and unanticipated increases in labor, commodity, energy, insurance or other operating costs. The impact on sales volume and operating results due to the timing and extent of these factors can significantly impact our business. For these reasons, you should not rely on our quarterly operating results as indications of future performance.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented.
Note Regarding Forward Looking Information
Certain statements contained in this Quarterly Report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1934 and Sections 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and
Such factors include, among others, the following: general economic and business conditions; our ability to implement our business and acquisition strategy; the ability to effectively integrate our acquisitions; competition; availability of key personnel; changes in, or the failure to comply with government regulations; and other risks detailed from time-to-time in the Company's reports filed with the Securities and Exchange Commission, including the report on Form 10-K, and any amendments thereto, for the fiscal year ended October 31, 2007. As a result of the foregoing and other factors, no assurance can be given as to future results, levels of activity and achievements and neither the Company nor any person assumes responsibility for the accuracy and completeness of these statements.
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