ITEM 1. BUSINESS GENERAL
The following should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Our Company, Organa Gardens International Inc., was formed under the laws of the State of Nevada on November 29, 1983 under the name Venture Group, Inc. On February 11, 1986, an amendment to the Articles of Incorporation was filed changing the corporate name to Asdar Corporation. On December 10, 1987, another amendment to the Articles of Incorporation was filed changing the corporate name to Asdar Group. On February 18, 2001, Asdar Group filed a Certificate of Reinstatement with the Secretary of State of Nevada. On April 30, 2002, another amendment to the Articles of Incorporation was filed changing the corporate name to Precise Life Sciences Ltd. Additional amendments to the Articles of Incorporation were filed changing the corporate name as follows:
February 18, 2003 - Iceberg Brands Corporation
August 28, 2003 - Avalon Gold Corporation
March 22, 2005 - Avalon Energy Corporation
September 25, 2007 - Shotgun Energy Corporation
April 7, 2009 - Organa Gardens International Inc.
Our Company holds (1) an undivided Eighty-Five Percent (85%) working interest and an undivided Sixty-Eight (68%) net revenue interest in 13,189 acres located in Wasatch County, Utah, known as the "Uinta Basin" and (2) a 0.7% gross overriding royalty interest on 6,360 acres of oil and natural gas rights located in the Powder River Basin of eastern Wyoming.
Our Company is undertaking a new venture as of March, 2009. Organa Gardens International Inc.has a vertical hydroponics farming system built to make the most efficient use of light, energy, water, land, temperature and production cycle while growing the highest quality and healthiest plants in an optimum, consistent environment unaffected by weather. The Organa Garden Systems (OGS) provide a means for food production and consumption change to global environmental and ecological sustainability through vertical hydroponics rotary farming.
There are two OGS models; the Discovery (OGS-D) and the Enterprise (OGS-E)
Both the OGS-D and OGS-E are rotary hydroponics vertical farming systems designed with serviceability, ease-of-use and maximum harvest in mind. Both models are modular, allowing them to be expanded by stacking them. Its specially designed waterwheel technology allows the fully automated system to recycle and reuse 95% of the water used while requiring a negligible amount of energy to run.
The Discovery is a strong, low cost ABS plastic model for the home gardener and the Enterprise is a powder-coated steel version for the commercial grower. Both models are modular and can be expanded by stacking them. "The more you stack the more you grow"
Both the OGS-D and OGS-E are rotary hydroponics vertical farming systems designed with serviceability, ease-of-use and maximum harvest in mind. Both models are modular, allowing them to be expanded by stacking them. Its specially designed waterwheel technology allows the fully automated system to recycle and reuse 95% of the water used while requiring a negligible amount of energy to run.
Benefits of the Organa Garden Systems:
- Fresh, nutritious and abundant produce all year-round
- Localized year-round farming possible, eliminating costly transportation,
spoilage and pollution.
- Reduces the use of pesticides and preservatives.
- Urban renewal and sustainable community building.
- Energy and water conservation.
- More frequent harvest.
- Fully automated and easy to operate.
- Business opportunity for the entrepreneurial businessman or established farmer
In addition, please refer to the Subsequent Events section below for important corporate developments that have occurred subsequent to December 31, 2008.
Our Oil and Gas Properties
The Wyoming Property.
The Company owns a 0.7% gross overriding royalty interest on 6,360 acres of oil and natural gas rights located in the Powder River Basin of eastern Wyoming carried at a nominal value of $1 due to the uncertainty of realization.
Derek Oil and Gas Corporation, a public company and the operator, now holds a 95% working interest in the LAK Ranch project and is the project operator. The LAK Ranch Project is a strong fit for Derek's corporate focus of using enhanced oil recovery (EOR) techniques to develop new production from reservoirs in North America. Derek and its partner, SEC Oil and Gas Partnership are confident in the ability of Derek's management to drive this project forward as promptly as possible in 2007.
Based on Shotgun’s ongoing agreement with respect to the LAK Ranch, if Derek sells any or all of its interest in the LAK Ranch Property, it will pay to Shotgun, subject to adjustments, 7.5% of the net sales proceeds on the first USD $7,500,000 and 1% on any balance over and above USD$7,500,000.
The LAK Ranch field, originally discovered in the 1920s, covers approximately 7,500 acres in the Powder River basin. Historically, oil production has been sporadic from a limited number of wells completed in the Newcastle Sand due to the abnormally low reservoir temperature in this part of the basin. However, the oil contains high levels of naphtha and the viscosity should respond dramatically to the application of heat through steam injection. To date, Derek has completed SAGD test well pair that was drilled to a depth of 1,000 feet and 1,800 feet horizontally into the Newcastle sand formation. More than 5,000 barrels of oil were recovered in limited preliminary testing. Shotgun, through its predecessor Asdar has received royalty payments from the sale of every barrel of oil sold to date.
The Company has received $3,361 in oil royalties for the year ended December 31, 2008 (2007 - $Nil).
Derek Oil and Gas Corporation has the following plans for the Property over the next twelve months:
* Increase overall production as reservoir heats up from the 12 well program.
* Purchase, permit and install another steam generator to provide more steam into the reservoir.
* Conduct another drilling program in 2008 to increase production, earnings, and cash flow per share, thereby increasing shareholder value
Derek Oil & Gas Corporation currently has secured from a U.S.A. governmental agency the use of twelve beam pumping units that will aid the advancement towards the goal of achieving commercial petroleum production at the Wyoming based LAK Ranch Project.
Six of these beam pumping units will be deployed on the Company's existing pilot vertical steam drive production wells. Management believes that this equipment change will improve productivity, lifting efficiencies, steam drive response and enable higher bottom-hole temperatures. The remaining six beam pumping units will be utilized later in 2009. Previous artificial lift in our pilot project consisted of progressive cavity pumping units that could not withstand the reservoir temperatures reached during a thermal recovery project.
2. The California Property.
The Company owns a 2% royalty interest in the Harvester Property carried at a nominal value of $1 due to the uncertainty of realization.
3. The Utah Property.
On October 26, 2004, the Company entered into a letter of intent with Pioneer Oil and Gas ("Pioneer"), a Utah Corporation for the exclusive right to enter into a Participation agreement with Pioneer on or before January 18, 2005. The Company advanced Pioneer a $50,000 non-refundable deposit and in return was pledged an exclusivity period to carry out its due diligence with respect to acquiring certain overpressured gas leases in the Uinta Basin, Utah. On January 18, 2005, the Company entered into a Participation Agreement with Pioneer to acquire an undivided Eighty-Five Percent (85%) working interest and an undivided Sixty-Eight (68%) net revenue interest in 13,189 acres located in Wasatch County, Utah, known as the "Uinta Basin".
The Company had an independent title search conducted on the acreage involved in the Participation Agreement and determined that Pioneer had good and marketable title to the leases. As such, on January 18, 2005, the Participation Agreement was duly signed and the balance of $656,279 was delivered to Pioneer to complete the closing. The total consideration paid to Pioneer to acquire the 13,189 acres was $706,279.
In addition, certain non-related parties were responsible for tabling the Uinta Basin Over-pressured Gas Project to the Company. The Company issued 1,200,000 restricted common shares valued at $264,000 on February 7, 2005 to these parties for their efforts resulting in the acquisition of 13,189 acres in Wasatch County, Utah.
The Company has spent a total of $970,279 in acquisition costs and $604,442 in development costs on the Uinta property to date. On January 4, 2007, the USDA Forest Service decided to allow Shotgun Energy to conduct their first proposed seismic exploration project. Shotgun’s project would consist of approximately 7 miles of 2D seismic exploration in the Strawberry Peak and Shotgun Draw area of the South Unit of the Ashley National Forest.
Due to seasonal access constraints, it is expected that the project would not begin until summer of 2007. Recording sensors would be placed along the seismic lines every 22 feet, with surface cables connecting the sensors to a central recording station (large truck). Recording sensors consist of a small microphone, attached to a metal stake. Shot-holes would also be drilled along the seismic line, every 330 feet, to a depth of about 60 feet. Drill holes would be loaded with a small explosive charge, backfilled with cuttings and swelling clays, and then shot to produce seismic energy. Drilling of the shot holes would be conducted using small portable drilling rigs, transported from site to site by either buggy or helicopter. Along existing roads, buggy drills would be used, whereas helicopter drills would be used on steep topography away from existing roads. Access to the seismic line off of existing roads would be by helicopter, by foot, or by ATV. No new roads would be required, and no vegetation would need to be cleared or removed. After completion, all recording sensors and surface cables would be removed. The entire operation is expected to last about 10 days. The Company is currently accepting bids to complete the first seismic line. The Company has accepted a bid from CGG Veritas of Houston to complete the first seismic line. Preparations for the Vibrator Seismic Shoot continue on schedule with the surveying work having been completed the week of August 6, 2007. The vibrator seismic line will be shot under the direction of Veritas DGC Land Inc of Denver covering eight miles along the forest road. The line travels in an east west direction over the southwestern edge of the property and after cutting the north-west regional fault, swings north-north-east along Twelve Hundred Dollar Ridge spanning the property in that direction and crossing two of the three well locations. This ridge is sub-parallel to the north-south regional fault which also represents possible stratigraphic closure for shallower target horizons. In October, 2007, we confirm the completion of the 2D Seismic Shoot despite inconsistent weather conditions.
The cost of the seismic program was approximately $350,000. The results of the 2D Seismic program will be processed along with available data from a previous Texaco Seismic shoot which will add to the confidence in the interpretation of the data. In addition, the Company is starting to work on public scoping for the second proposed seismic line (with vibrator trucks).
As part of the agreement, Pioneer has agreed to provide the Company with 2-D seismic data crossing the acreage, on a confidential basis. Any additional seismic that Pioneer or the Company may mutually agree to acquire over the acreage shall be paid entirely by the Company with the parties owning the data in the same proportion as their working interest in the acreage. In addition, the Company will be required to drill an initial test well at a location
on the acreage mutually agreed upon by Pioneer and the Company. The Company will serve as the Operator in drilling the acreage and must drill the initial well prior to November 1, 2010.
The Company shall pay One Hundred Percent (100%) of all costs of drilling the first two wells drilled on the acreage along with 100% of all costs of logging or testing the wells. If either of the first two test wells is deemed a dry hole, the Company shall pay One Hundred Percent (100%) of all costs of plugging and abandoning such well(s) and restoration of the surface upon which the well(s) reached its authorized depth and completion of all tests deemed necessary by the Operator.
If the Company elects to complete either or both of the first two wells drilled on the acreage, the Company shall pay One Hundred Percent (100%) of all completion costs through the tanks along with any costs associated to hook up the well(s) to pipeline for the well(s) to be capable of producing into a commercial pipeline for sale. If the Company does not wish to participate in an attempted completion of a well, the Company shall so notify Pioneer within Twenty-Four (24) hours (excluding Saturday, Sunday and legal holidays) after reaching Casing Point and all electric logs have been received, at which time the provisions of Article VI of the Operating Agreement shall govern such completion attempt.
After the first two wells are drilled and if productive are hooked-up to a pipeline and capable of producing oil and gas in commercial quantities, the Company shall pay 85% of all costs of operating the first two wells and Pioneer shall pay 15% of the operation costs of such wells as reflected in their working interest ownership in such wells.
Subsequent wells drilled after the first two wells on the Contract Acreage shall require Pioneer to either farm out its interest on a well by well basis under Article VI herein or participate or not participate for its interest in the well pursuant to the provisions contained in the Operating Agreement.
During 2004, the Company received 111,111 restricted Rule 144 shares of Golden Spirit Enterprises Ltd. (“Golden Spirit”), a public company with directors and significant shareholders in common. The restricted shares were received as non-refundable consideration pursuant to agreements with Golden Spirit dated November 10, 2004 and December 10, 2004 to acquire certain mineral property interests from the Company. These agreements were subsequently terminated.
The Company is required to drill a well on the acreage before November 1, 2010, or the acreage acquired will revert back to Pioneer. During the year ended December 31, 2008 the Company incurred $Nil (2007 -$508,435) on exploration of the property. The Company was seeking joint venture drilling partners during 2008 in order to meet its 2010 drilling commitment. The Company was unable to secure a joint venture drilling partner or raise any capital to satisfy an approximate $12,000,000 drilling cost for a 15,000 ft. initial well. Due to this inability to find funding, the Uinta property is being carried at a nominal value of $1 due to the uncertainty of realization. The Company will continue to seek joint venture drilling partners and funding until the 2010 drilling deadline expires.
Available for Sale Securities - related parties.
Golden Spirit
During 2004, the Company received 111,111 restricted Rule 144 shares of Golden Spirit Enterprises Ltd. (“Golden Spirit”), a public company with directors and significant shareholders in common. The restricted shares were received as non-refundable consideration pursuant to agreements with Golden Spirit dated November 10, 2004 and December 10, 2004 to acquire certain mineral property interests from the Company. These agreements were subsequently terminated.
Effective December 31, 2004 the Company recorded, as other comprehensive loss for the year, a $10,000 unrealized loss in the carrying value of its shares of Golden Spirit. During the years ended December 31, 2005 and 2006 the Company recorded additional unrealized losses in the carrying value of its shares of Golden Spirit totalling $90,000 and $8,889 respectively, which were recorded as other comprehensive loss for those years. During the year ended December 31, 2007, the Company sold 2,500 shares resulting in a realized gain of $165 and recorded an additional unrealized loss of $473 in 2007. As a result, the carrying value of the available for sale shares of Golden Spirit is $20,638 as at December 31, 2007 ($21,111 - 2006). During the year ended December 31, 2008, the Company sold 10,000 shares resulting in a realized loss of $800 and recorded an additional unrealized loss of $15,026 to December 31, 2008. As a result, the carrying value of the available for sale shares of Golden Spirit is $2,712 as at December 31, 2008 ($20,638 - December 31, 2007).
Legacy
During 2003 the Company settled an outstanding debt receivable of $122,988 from Legacy Wine & Spirits International Ltd. (“Legacy”) for the issue of 1,229,880 restricted shares of Legacy representing a then 9.8% interest in Legacy. During 2004, the Company wrote this investment down to $1 because management determined that it was not recoverable within a reasonable period of time.
Effective December 31, 2007 the Company recorded, as other comprehensive income for the year, a $604,440 unrealized gain in the carrying value of its shares of Legacy. As a result, the carrying value of the available for sale shares of Legacy is $614,940 as at December 31, 2007 ($1 - 2006).
During the year ended December 31, 2008, the Company sold 150,000 shares resulting in a realized gain of $26,100 and recorded an additional unrealized gain of $270,562 to December 31, 2008. As a result, the carrying value of the available for sale shares of Legacy is $888,502 as at December 31, 2008 ($614,940 - December 31, 2007).
Employees. At December 31, 2008, Organa Gardens International Inc. had 3 full time employees other than its Officers and Directors.
The Following are Material Subsequent Events (Occurring after December 31, 2008).
Name Change On February 20, 2009, that a majority of the shareholders entitled to vote on such matters approved a change of name from Shotgun Energy Corporation to “Organa Gardens International Inc.” On February 26, 2009, a Certificate of Amendment to its Articles of Incorporation was filed with the State of Nevada changing the name to Organa Gardens International Inc. The Company also took the necessary steps to change its symbol and CUSIP Number. Therefore, the CUSIP Number has changed from 825358 10 4 to 68618Y 10 6. Effective at the opening of business on April 7, 2009, the symbol will change from SGNE to “OGNG”. The name change did not involve any change in the issued or authorized capital of the Company.
Private Placement On February 26, 2009, the Company began to offer a private placement of its securities in order to finance the new hydroponic vertical farming project (See below). Subsequent to December 31, 2008, the Company has received subscriptions in the amount of 450,000 restricted Rule 144 shares for total cash proceeds received totaling $32,000.
Acquisition On March 6, 2009, the Company has signed an agreement to acquire all of the assets of Organa Gardens Inc.(OGI), a Nevada Corporation in the business of hydroponics vertical farming. These assets include, but are not limited to all proprietary designs, engineering, technology, business models, plans and intellectual properties pertaining to the Organa Garden System-Discovery (OGS-D) and the Organa Garden System-Enterprise (OGS-E). Both the OGS-D and OGS-E are a rotary hydroponics vertical farming system designed with serviceability, ease-of-use and maximum harvest in mind. Both models are modular, allowing them to be expanded by stacking them. Its specially designed waterwheel technology allows the fully automated system to recycle and reuse 95% of the water used while requiring a negligible amount of energy to run.
The Company will issue up to 25,000,000 Rule 144 shares of its common stock to OGI, to be held in trust and released based on the following terms and gross revenue requirements:
(a) Release of 10,000,000 shares of the Company upon signing this Agreement.
(b) Release of 5,000,000 shares of the Company upon attaining $1,000,000 US in gross revenue.
(c) Release of 5,000,000 shares of the Company upon attaining $2,500,000 US in gross revenue.
(d) Release of 5,000,000 shares of the Company upon attaining $4,000,000 US in gross revenue.
None of these shares have been issued to date and the agreement has not yet been finalized.
The Company will raise up to $500,000 US to market and fulfill the required obligations of OGI as outlined in the supplemental agreement(s) to follow.The Company and Organa Gardens Inc.agree to allow the shares to sit in trust for a period of 5 years in order for OGI to meet its sales goals. Should the requirements not be met in all or part, then all of the remaining shares will be returned back to the treasury of the Company.
ITEM 1A.
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
As of the dates specified in the following table, Organa Gardens International Inc. held the following property in the following amounts:
Property
December 31, 2008
December 31, 2007
-----------------------------------------------------------------------------------------------------------------
Cash and equivalents
US $ 2,723
US $ 25,682
Organa Gardens International Inc. defines cash equivalents as all highly liquid investments with a maturity of 3 months or less when purchased. Organa Gardens International Inc. does not presently own any interests in real estate. Organa Gardens International Inc. does not presently own any inventory or equipment.
Facilities. Organa Gardens International Inc. does not own any real or personal property. Prior to August 1, 2000, Organa Gardens International Inc.'s President provided office space. However, as of August 1, 2000, Organa Gardens International Inc. has leased 1250 sq. ft of office space from Holm Investments Ltd. at $2,050 per month for a period of 3 years and has been renewed for an additional 3 years at $2,050 per month. The current tenancy agreement began August 1, 2008 for a period of 3 years at $2,200 per month. Organa Gardens International Inc.'s principal corporate offices are located at 719 30th Avenue, Pointe Calumet, Quebec, Canada, J0N 1G1.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
1. On February 21, 2002, the Company issued 350,000 shares valued at $119,000 to Empire Sterling Corporation for services to be rendered with respect to the acquisition of ACGT Corporation. The shares were to be held in trust and not sold until all necessary financing was in place to complete the ACGT acquisition. Empire Sterling Corporation breached the trust agreement and the Company placed a stop transfer on these shares and requested they be returned to the Company. Empire Sterling Corporation failed to return the share certificate and as such, the Company commenced court proceedings against the principals of Empire Sterling Corporation. The Company argued for an interim injunction against all parties and was successful. On May 9, 2002, the Court ordered Empire Sterling Corporation to deposit the shares with the Court pending judicial disposition. The Company continued to file legal process claiming ownership of the shares and breach of trust inter alia. The Company was successful and has now applied to have the share certificate released and subsequently cancelled. As of December 31, 2008, the Company is still in the legal process of having the certificate released.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
See subsequent events section above.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
As at December 31, 2008 there were approximately 2,000 holders of the outstanding shares of the Organa Gardens International Inc.'s $0.001 par value common stock. Organa Gardens International Inc. participates in the OTC Bulletin Board Electronic Quotation System maintained by the National Association of Securities Dealers, Inc., under the most recent trading symbol "OGNG". According to quotes provided by stockhouse.com, the Organa Gardens International Inc.'s common stock has closed at:
Quarter
High
Low
2006 First Quarter
$0.09
$0.06
2006 Second Quarter
$0.08
$0.06
2006 Third Quarter
$0.14
$0.12
2006 Fourth Quarter
$0.20
$0.19
2007 First Quarter
$0.33
$0.20
2007 Second Quarter
$0.26
$0.21
2007 Third Quarter
$0.30
$0.18
2007 Fourth Quarter
$0.27
$0.16
2008 First Quarter
$0.16
$0.07
2008 Second Quarter
$0.14
$0.10
2008 Third Quarter
$0.13
$0.08
2008 Fourth Quarter
$0.10
$0.02
Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street NW, Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
Common Stock. Organa Gardens International Inc. is authorized to issue 200,000,000 shares of common stock, $.001 par value, each share of common stock having equal rights and preferences, including voting privileges. The shares of $.001 par value common stock of Organa Gardens International Inc. constitute equity interests in Organa Gardens International Inc. entitling each shareholder to a pro rata share of cash distributions made to shareholders, including dividend payments. As of December 31, 2008, 17,867,133 shares of the Organa Gardens International Inc.'s common stock were issued and outstanding.
The holders of Organa Gardens International Inc.'s common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors of Organa Gardens International Inc. or any other matter, with the result that the holders of more than 50% of the shares voted for the election of those directors can elect all of the Directors.
The holders of Organa Gardens International Inc.'s common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to Organa Gardens International Inc.'s common stock. All of the outstanding shares of Organa Gardens International Inc.'s common stock are duly authorized, validly issued, fully paid and non-assessable.
Dividends. The holders of the Organa Gardens International Inc.'s common stock are entitled to receive dividends when, as and if declared by Organa Gardens International Inc.'s Board of Directors from funds legally available therefore; provided, however, that cash dividends are at the sole discretion of Organa Gardens International Inc.'s Board of Directors. In the event of liquidation, dissolution or winding up of Organa Gardens International Inc., the shareholders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities of Organa Gardens International Inc. and after provision has been made for each class of stock, if any, having preference in relation to Organa Gardens International Inc.'s common stock.
Organa Gardens International Inc. has never declared or paid any dividends on its common stock. Organa Gardens International Inc. does not intend to declare or pay any dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
Fiscal Year Ended December 30
Revenue
$ Nil
$ Nil
$ Nil
$ Nil
$ Nil
Operating Loss
(342,795)
(557,266)
(770,863)
(1,950,963)
(1,679,768)
Net Loss
(1,871,917)
(518,789)
(738,090)
(1,950,963)
(1,678,056)
Basic net loss per share
0.11
0.03
0.02
0.06
0.09
Cash dividends declared per share
-
-
-
-
-
Cash, cash equivalents, and short-term investments
4,830
34,577
372,579
41,891
4,628
Total assets
1,042,425
2,430,015
1,675,031
1,254,942
220,443
Long-term obligations
-
-
-
-
-
Stockholders’ equity (deficit)
495,655
1,922,877
1,527,927
1,171,469
174,710
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may", "shall", "will", "could", "expect", "estimate","anticipate", "predict", "probable", "possible", "should", "continue", or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Liquidity and Capital Resources.
For the year ended December 31, 2008, we had total assets of $1,042,425, compared to total assets in 2007 of $2,430,015. This includes a cash balance of $2,723, compared to $25,682 in 2007. We also have taxes recoverable of $2,107. We have $3 invested in oil and gas properties, which is represented by $1 for 13,189 acres of gas leases located in Utah, $1 for an oil and gas interest located in Wyoming and $1 for an oil and gas interest located in San Joaquin, California. We have available for sale securities with a fair value of $888,214 as at December 31, 2008 and a long-term receivables from Golden Spirit Enterprises Ltd. of $32,747 and Legacy Wine & Spirits International Ltd. of $116,631. The decrease in assets was primarily due to the write down of the Uinta Basin Property.
At December 31, 2008, we had current liabilities of $546,770, which was represented by accounts payable and accrued liabilities of $479,332 and $67,438 due to related parties. At December 31, 2007 we had current liabilities of $507,138. The increase in liabilities was due to an increase in amounts due to related parties. At December 31, 2008, we had a working capital deficiency of $(541,940) (2007 - $(472,561).
We do not believe that our current cash resources will be able to maintain our current operations for an extended period of time. We will be required to raise additional funds or arrange for additional financing over the next 12 months to adhere to our development schedule. No assurance can be given, however, that we will have access to additional cash in the future, or that funds will be available on acceptable terms to satisfy our working capital requirements. If we are not able to arrange for additional funding or if our officers, directors and shareholders stop advancing funds to us, we may be forced to make other arrangements for financing such as loans or entering into strategic alliances. We have not identified any alternative sources of financing.
Results of Operations
We realized interest and royalty income in 2008 of $11,068 (2007- $38,477), which represents all of our income from operations to date. During the year ended December 31, 2008 the loss from operations is $1,871,917 (2007 - $518,789). This increase in loss was due to the write down of the Uinta property.
From inception to December 31, 2008 Organa Gardens International Inc. has incurred cumulative net losses of $19,599,119 resulting primarily from the write-down of $3,815,655 in its interests in oil and gas properties, write-down of $1,406,000 in its interest in ACGT Corporation, write-down of its investment in Legacy Wine & Spirits International Ltd. and also as a result of selling, general and administrative expenses including a litigation settlement of $2,291,070; management and consulting fees of $4,841,999, office and general expenses of $2,595,155; professional fees of $1,084,705; interest expense of $98,282 and software development costs of $737,300. In addition, we received $130,000 in property option income as a recorded value of certain restricted shares in Golden Spirit Enterprises Ltd. (See Part I, Item 3 - Utah property).
The cash and equivalents constitute our present internal sources of liquidity.Because we are not generating any significant revenues, our only external source of liquidity is the sale of our capital stock and any advances from officers, directors or shareholders.
Our Plan of Operation for the Next Twelve Months
We do anticipate that we will need to raise additional capital within the next 12 months in order to continue as a going concern. We will need to fund the next phase of the Shotgun Draw, Uinta basin Overpressured Gas Project which include an environmental study and permitting and preparation costs to initiate drilling of a gas well. To date we have been unable to secure joint venture partners or any other funding to be able to drill the first well. In 2008, we impaire the asset to a nominal value of $1 because of these factors. To the extent that additional capital is raised through the sale of equity or equity- related securities, the issuance of such securities could result in dilution of our stockholders. There can be no assurance that additional funding will be available on favorable terms, if at all. If adequate funds are not available within the next 12 months, we may be required to curtail our operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our assets that we would not otherwise relinquish.
Organa Gardens International Inc. does not anticipate some expenditures within the next 12 months for its Uinta Basin Property as explained above.The Company may elect to raise funds for potential drilling through equity financing or possible joint venture partnerships. Organa Gardens International Inc. does not anticipate any significant exploration costs within the next 12 months, nor does the Organa Gardens International Inc. anticipate that it will lease or purchase any significant equipment within the next 12 months. Organa Gardens International Inc. does not anticipate a significant change in the number of its employees within the next 12 months. However, Organa Gardens International Inc.will be required to raise $500,000 for its new hydroponic vertical farming project - See above.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Securities held in our equity and other investments portfolio and equity derivatives are subject to price risk, and generally are not hedged.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Organa Gardens International, Inc.
Quebec, Canada
We have audited the accompanying balance sheets of Organa Gardens International, Inc. (formerly Shotgun Energy Corporation) (a development stage company) as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2008 and 2007 and for the cumulative period from January 1, 1996 (inception of development stage) through to December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Organa Gardens International as of December 31, 2008 and 2007, and the results of its activities and cash flows for the years ended December 31, 2008 and 2007 and for the cumulative period from January 1, 1996 (inception) to December 31, 2008 in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s current liabilities exceed current assets, has incurred significant losses since inception and further losses are anticipated in the exploration and development of its resource properties, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
L.L. Bradford & Company, LLC
April 15, 2009
Las Vegas, Nevada
ORGANA GARDENS INTERNATIONAL INC.
(formerly Shotgun Energy Corporation)
A Development Stage Company
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements
ORGANA GARDENS INTERNATIONAL INC.
(formerly Shotgun Energy Corporation)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Year ended December 31, 2008
Year ended December 31, 2007
Cumulative from January 1, 1996 (inception of development stage)
to December 31, 2008
GENERAL AND ADMINISTRATIVE EXPENSES
Litigation settlement
$ -
$ -
$ 2,291,070
Management and consulting fees
182,217
317,184
4,841,999
Consulting fees - stock based compensation
16,579
52,150
1,919,869
Exploration Costs
-
-
113,678
Loss on settlement of debt
-
-
718,784
General and administrative
97,378
127,107
2,595,155
Professional fees
46,621
60,825
1,084,705
Interest expense
-
-
98,282
Software development costs
-
-
737,300
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES
342,795
557,266
14,400,842
OTHER (INCOME) EXPENSES
Interest, Royalty and other Income
(11,068)
(38,477)
(82,138)
Gain on sale of securities - related party
(24,528)
-
(24,528)
Property Option Income
-
-
(130,000)
Write-down of investment in Legacy Wine & Spirits International
-
-
128,288
Write-down of interest in ACGT Corporation
-
-
1,406,000
Write-down of interest in oil and gas properties
1,564,718
-
3,815,655
Loss on Iceberg Drive Inn Investment
-
-
85,000
TOTAL OTHER (INCOME) EXPENSES
1,529,122
(38,477)
5,198,277
Loss before Income Taxes
(1871,917)
(518,789)
(19,599,119)
Income Tax Provision
-
-
-
NET LOSS
$(1,871,917)
$ (518,789)
$ (19,599,119)
BASIC AND DILUTED NET LOSS PER SHARE
$ (0.11)
$ (0.03)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
17,717,221
17,421,790
The accompanying notes are an integral part of these financial statements
ORGANA GARDENS INTERNATIONAL INC.
(formerly Shotgun Energy Coroporation.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 (INCEPTION OF EXPLORATION STAGE) TO DECEMBER 31, 2008
The accompanying notes are an integral part of these financial statements
ORGANA GARDENS INTERNATIONAL INC.
(formerly Shotgun Energy Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOW
The accompanying notes are an integral part of these financial statements
ORGANA GARDENS INTERNATIONAL INC.
(formerly Shotgun Energy Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated as Venture Investments Inc. under the Laws of the State of Nevada on November 29, 1983. The Company underwent a name change to Asdar Group on December 10, 1987, a name change to Precise Life Sciences Ltd. on April 30, 2002, a name change to Iceberg Brands Corporation on February 18, 2003, a name change to Avalon Gold Corporation on August 28, 2003, a name change to Avalon Energy Corporation on March 22, 2005, a name change to Organa Gardens International Inc. on September 25, 2007 and a name change to Organa Gardens International on April 7, 2009. The Company was dormant from 1991 to 1996 and currently has no revenue generating operations. In accordance with SFAS #7, “Accounting and Reporting by Development Stage Enterprises “, the Company was considered a development stage company since January 1, 1996 and as a result of changing its business focus to vertical hydroponic farming is considered to be an development stage company. Expected operations will consist of growing fruits and vegetables using a rotary hydroponics vertical farming system designed with serviceability, ease-of-use and maximum harvest in mind.
Going Concern
The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or completed development of any commercially acceptable products or services to date and has incurred losses of $22,112,835 since inception, and further significant losses are expected to be incurred in the exploration and development of its mineral properties. The Company will depend almost exclusively on outside capital through the issuance of common shares to finance ongoing operating losses and to fund the acquisition, exploration and development of its mineral properties. The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements are presented in United States dollars and are prepared in accordance with accounting principles generally accepted in the United States.
Use of Estimates and Assumptions
Preparation of the Company’s financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Mineral property costs
Mineral property acquisition, exploration and development costs are expensed as incurred until such time as economic reserves are quantified. To date the Company has not established any proven or probable reserves on its mineral properties. The Company has adopted the provisions of SFAS No. 143 “Accounting for Asset Retirement Obligations” which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. The adoption of this standard has had no effect on the Company’s financial position or results of operations. As at December 31, 2008, any potential obligations relating to the retirement of the Company’s assets are not yet determinable.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
Oil and Gas Properties
The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. As at December 31, 2008, the Company has no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves.
Investments in unproved properties and major development projects including capitalized interest, if any, are not depleted until proved reserves associated with the projects can be determined. If the future exploration of unproved properties are determined uneconomical the amount of such properties are added to the capitalized cost to be depleted. As at December 31, 2008, all of the Company's oil and gas properties were unproved and were excluded from depletion. At December 31,2008, management believes that the Company’s unproved oil and gas properties were impaired and has recorded a write down of interest in oil and gas properties in the fourth quarter of 2008 in the amount of $1,564,718.
The capitalized costs included in the full cost pool are subject to a "ceiling test", which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions plus the lower of cost and estimated net realizable value of unproven properties.
Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
Concentration of Credit Risk
Cash in bank accounts is at risk to the extent that it exceeds U.S.Federal Deposit Insurance Corporation and Canadian Deposit Insurance Corporation insured amounts. To minimize risk, the Company places its cash with high credit quality institutions.All cash is deposited in one prominent Canadian financial institution.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107. Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities, including cash, notes receivable, accounts payable, and amounts due to related parties approximate their carrying value due to the short-term maturity of the instruments.
The Company adopted SFAS No. 157 for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.SFAS No. 157 defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
In addition to defining fair value, SFAS No. 157 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
· Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
· Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques
In general, and where applicable, we use quoted prices in an active market for identical derivative assets and liabilities that are traded on exchanges. These derivative assets and liabilities are included in Level 1.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with SFAS No. 52, “Foreign Currency Translation”, foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders’ equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.
Available For Sale Securities - related parties
The Company holds marketable equity securities which are available-for-sale and as such, their carrying value is adjusted to market at the end of each reporting period. As required by SFAS 130, unrealized gains and losses on these investments are recorded as a component of accumulated other comprehensive income (loss) and are recorded as a component of net income (loss) when realized. However, if there is a permanent decline in the market value of available-for-sale securities, this permanent market value adjustment is taken into income in the period.
Stock-Based Compensation
On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), Share-Based Payment, (“SFAS 123R”). Prior to January 1, 2006, the Company accounted for share-based payments under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). In accordance with APB 25, no compensation cost was required to be recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.
The Company adopted SFAS 123R using the modified-prospective-transition method. Under this method, compensation cost recognized for the year ended December 31, 2006 includes: a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123R. In addition, deferred stock compensation related to non-vested options is required to be eliminated against additional paid-in capital upon adoption of SFAS 123R. The results for the prior periods have not been restated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
The Company’s results of operations for the years ended December 31, 2008 and 2007 were no different than if the Company had not adopted SFAS 123R because (i) all previously granted stock options had fully vested as at December 31, 2005, (ii) all
stock options granted during the year ended December 31, 2006 were granted to consultants with the related fair value accounting consistent under SFAS 123 and SFAS 123R, and (iii) the Company did not modify any previously existing stock options. As a result, no pro forma disclosure of the impact of adopting SFAS 123R has been provided for the years ended December 31, 2008 and 2007.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force (“EITF”) in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.
Income Taxes
The Company follows the liability method of accounting for income taxes as set forth in SFAS No. 109 “Accounting for Income Taxes”. Under this method, 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 balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those 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 date of enactment or substantive enactment. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain.On January 1, 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN No. 48”), Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“SFAS No. 109”). This interpretation introduces a new approach that changes how enterprises recognize and measure tax benefits associated with tax positions and how enterprises disclose uncertainties related to income tax positions in their financial statements. See Note 8 for further discussion of the effect of adopting FIN No. 48 on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115.” The fair value option permits entities to choose to measure eligible financial instruments at fair value at specified election dates. The entity will report unrealized gains and losses on the items on which it has elected the fair value option in earnings. SFAS 159 is effective beginning in fiscal year 2008. The Company is currently evaluating the effect of adopting SFAS 159, but does not expect it to have a material impact on its results of operations or financial condition.
In December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) 110 Share-Based Payment. SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of the expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007. SAB 110 is effective January 1, 2008. The Company currently uses the “simplified” method to estimate the expected term for share option grants as it does not have enough historical experience to provide a reasonable estimate. The Company will continue to use the “simplified” method until it has enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. The Company does not expect SAB 110 will have a material impact on its balance sheets, statements of operations and cash flows.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement No. 141R, Business Combinations, and Statement No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. Statement No. 141R modifies the accounting and disclosure requirements for business combinations and broadens the scope of the previous standard to apply to all transactions in which one entity obtains control over another business. Statement No. 160 establishes new accounting and reporting standards for non-controlling interests in subsidiaries. The Company will be required, if applicable, to apply the provisions of the new standards in the first quarter of 2009. Early adoption is not permitted for these new standards.
In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60”. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
NOTE 3 - AVAILABLE FOR SALE SECURITIES - RELATED PARTIES
Golden Spirit
During 2004, the Company received 111,111 restricted Rule 144 shares of Golden Spirit Enterprises Ltd. (“Golden Spirit”), a public company with directors and significant shareholders in common. The restricted shares were received as non-refundable consideration pursuant to agreements with Golden Spirit dated November 10, 2004 and December 10, 2004 to acquire certain mineral property interests from the Company. These agreements were subsequently terminated.
Effective December 31, 2004 the Company recorded, as other comprehensive loss for the year, a $10,000 unrealized loss in the carrying value of its shares of Golden Spirit. During the years ended December 31, 2005 and 2006 the Company recorded additional unrealized losses in the carrying value of its shares of Golden Spirit totalling $90,000 and $8,889 respectively, which were recorded as other comprehensive loss for those years. During the year ended December 31, 2007, the Company sold 2,500 shares resulting in a realized gain of $165 and recorded an additional unrealized loss of $473 in 2007. As a result, the carrying value of the available for sale shares of Golden Spirit is $20,638 as at December 31, 2007 ($21,111 - 2006). During the year ended December 31, 2008, the Company sold 10,000 shares resulting in a realized loss of $800 and recorded an additional unrealized loss of $15,026 to December 31, 2008. As a result, the carrying value of the available for sale shares of Golden Spirit is $2,712 as at December 31, 2008 ($20,638 - December 31, 2007).
NOTE 3 - AVAILABLE FOR SALE SECURITIES - RELATED PARTIES (CON’T.)
Legacy
During 2003 the Company settled an outstanding debt receivable of $122,988 from Legacy Mining Ltd. (“Legacy”) for the issue of 1,229,880 restricted shares of Legacy representing a then 9.8% interest in Legacy. During 2004, the Company wrote this investment down to $1 because management determined that it was not recoverable within a reasonable period of time.
Effective December 31, 2007 the Company recorded, as other comprehensive income for the year, a $604,440 unrealized gain in the carrying value of its shares of Legacy. As a result, the carrying value of the available for sale shares of Legacy Mining is $614,940 as at December 31, 2007 ($1 - 2006).
During the year ended December 31, 2008, the Company sold 150,000 shares resulting in a realized gain of $26,100 and recorded an additional unrealized gain of $270,562 to December 31, 2008. As a result, the carrying value of the available for sale shares of Legacy Mining is $888,502 as at December 31, 2008 ($614,940 - December 31, 2007).
Available for sale securities - related parties include the following:
December 31,
December 31,
1,079,880 (2007-1,229,880) shares of Legacy Wine & Spirits Int’l. Ltd.
$885,502
$614,940
98,612 (2007- 111,111) shares of Golden Spirit Enterprises Ltd.
2,712
20,638
$888,214
$ 635,578
NOTE 4 - OIL AND GAS PROPERTIES
Oil and gas properties include the following:
December 31,
December 31,
Acquisition and exploration costs, unproved, not subject to depletion.
$3
$1,574,721
The Company's oil and gas activities are currently conducted in the United States. The following costs were incurred in oil and gas acquisition and exploration activities:
Harvester Property, California, USA:
The Company owns a 2% royalty interest carried at a nominal value of $1 due to the uncertainty of realization.
LAK Ranch Oil Project, Wyoming, USA:
The Company owns a 0.7% gross overriding royalty interest on 6,360 acres of oil and natural gas rights located in the Powder River Basin of eastern Wyoming carried at a nominal value of $1 due to the uncertainty of realization.
NOTE 4 - OIL AND GAS PROPERTIES - con’t
Uinta Basin Property, Utah:
On October 26, 2004, the Company entered into a Letter of Intent with Pioneer Oil and Gas (“Pioneer”), whereby the Company could acquire an undivided Eighty-Five Percent (85%) working interest and an undivided Sixty-Eight (68%) net revenue interest in 13,189 acres located in Wasatch County, Utah, known as the “Uinta Basin”. The Company paid Pioneer a deposit of $50,000 for the exclusive right to enter into a Participation Agreement with Pioneer on or before January 18, 2005.
On January 18, 2005, the Company entered into the Participation Agreement with Pioneer as described above. The total consideration paid to Pioneer, including the $50,000 deposit described above, was $706,279. In addition, the Company issued 1,200,000 restricted common shares valued at $264,000 on February 7, 2005 as finders’ fees to certain third parties who were responsible for tabling the Uinta Basin Overpressured Gas Project to the Company. The Company has also committed to paying a 1.5% gross royalty on all revenue received by it from the Uinta Basin Project. (Refer to Note 7(2)(a) (d)).
As part of the agreement, Pioneer has agreed to provide the Company with 2-D seismic data crossing the acreage. Any additional seismic that Pioneer or the Company may mutually agree to acquire over the acreage shall be paid for entirely by the Company with the parties owning the data in the same proportion as their working interest in the acreage. In addition, the Company will be required to drill an initial test well at a location on the acreage mutually agreed upon by Pioneer and the Company. The Company will serve as the Operator in drilling the acreage.
The Company shall pay One Hundred Percent (100%) of all costs of drilling the first two wells drilled on the acreage along with 100% of all costs of logging or testing the wells. If either of the first two test wells is deemed a dry hole, the Company shall pay One Hundred Percent (100%) of all costs of plugging and abandoning such well(s) and restoration of the surface upon which the well(s) reached its authorized depth and completion of all tests deemed necessary by the Operator. If the Company elects to complete either or both of the first two wells drilled on the acreage, the Company shall pay One Hundred Percent (100%) of all completion costs through the tanks along with any costs associated to hook up the well(s) to pipeline for the well(s) to be capable of producing into a commercial pipeline for sale. After the first two wells drilled, if productive, are hooked-up to a pipeline and capable of producing oil and gas in commercial quantities, the Company shall pay 85% of all costs of operating the first two wells and Pioneer shall pay 15% of the operation costs of such wells as reflected in their working interest ownership in such wells. The Company is required to drill a well on the acreage before November 1, 2010, or the acreage acquired will revert back to Pioneer. During the year ended December 31, 2008 the Company incurred $Nil (2007 -$508,435) on exploration of the property. The Company was seeking joint venture drilling partners during 2008 in order to meet its 2010 drilling commitment. The Company was unable to secure a joint venture drilling partner or raise any capital to satisfy an approximate $12,000,000 drilling cost for a 15,000 ft. initial well. Due to this inability to find funding, the Uinta property is being carried at a nominal value of $1 due to the uncertainty of realization. The Company will continue to seek joint venture drilling partners and funding until the 2010 drilling deadline expires.
NOTE 5 - DEFERRED COMPENSATION
On November 1, 2006, the Company entered into an agreement with 1063244 Alberta Ltd., (“1063244”), a private company owned by an individual who is in management of the Company, with a two year term, whereby the company will provide consulting services to the Company (valued at $48,000) in exchange for 160,000 restricted shares of the Company's common stock. The consultant will provide Corporate business development and strategy for the Company in connection with the Company's oil & gas exploration and development in the Uinta Basin, Utah.
On August 15, 2007, the Company entered into an agreement with Palisades Financial Ltd., (“Palisades”) a private company owned by a significant shareholder of the Company, for a four year term, whereby Palisades Financial Ltd. will provide investor relations services to the Company (valued at $32,000) in exchange for 133,333 restricted shares of the Company’s common stock. Palisades will provide such services as researching, editing and generating a company profile, relaying the Company’s business perspectives and distribution of corporate updates, including press releases.
The Company amortizes the costs of these services over the respective terms of the contracts. During 2008, the Company recorded amortization of deferred compensation totaling $32,000 (2007 - $39,798) and as at December 31, 2008 the unamortized portion of the deferred compensation totaled $17,000 (December 31, 2007 - $49,000).
NOTE 6 - STOCKHOLDERS’ EQUITY
(1)
2008 Stock Transactions
During the year ended December 31, 2008, the Company issued:
(a) On January 4, 2008 , the Company issued a total of 200,000 common shares pursuant to the Company’s 2007 Stock Incentive and Option Plan at $0.13 per share for total proceeds of $26,000.
(b) On February 27, 2008 the Company issued 50,000 restricted common shares valued at $5,500 to a director for his current services.
(c) On July 21, 2008 , the Company issued a total of 219,300 common shares pursuant to the Company’s 2007 Stock Incentive and Option Plan at $0.10 per share for total proceeds of $21,930.
(d) On September 16, 2008 the Company issued 25,000 restricted common shares valued at $1,750 to a director for his current services.
(2)
2007 Stock Transactions
During the year ended December 31, 2007, the Company issued:
(a) The Company issued 3,333 common shares valued at $900 pursuant to a Consulting Agreement with a memberof its Advisory Board to perform a minimum of two days consulting services during the period January 15, 2007 to February 15, 2007.
(b) The Company issued 133,333 restricted common shares valued at $32,000 pursuant to a Consulting Agreement with a non-related individual dated June 12, 2007, for ongoing consulting services provided to the Company.
(c) The Company issued a total of 266,667 common shares pursuant to the Company’s 2005 Stock Incentive and Option Plan at $0.30 per share for total proceeds of $80,000.
(d) The Company issued a total of 66,667 common shares pursuant to the Company’s 2006 Stock Incentive and Option Plan at $0.30 per share for total proceeds of $20,000.
(e) The Company issued 133,333 restricted common shares valued at $32,000 pursuant to a Investor Relations Agreement with related party dated August 15, 2007, for ongoing investor relation services provided to the Company.
(f) The Company issued a total of 16,667 common shares pursuant to the Company’s 2005 Stock Incentive and Option Plan at $0.30 per share for total proceeds of $5,000.
(g) The Company issued a total of 75,000 common shares pursuant to the Company’s 2007 Stock Incentive and Option Plan at $0.21 per share for total proceeds of $15,750.
(h) The Company issued a total of 460,000 common shares pursuant to the Company’s 2007 Stock Incentive and Option Plan at $0.17 per share for total proceeds of $78,200.
During the year, the Company placed on stop transfer on a total of 333,333 shares valued at $150,500 previously issued to three consultants until management is satisfied with the performance of the Consultants’ earning these shares. On December 31, 2007, the Company determined that these shares are to returned to the Company for cancellation and return to treasury.
NOTE 6 - STOCKHOLDERS’ EQUITY (continued)
(3)
2008 Stock Options
During the year ended ended December 31, 2008, the Company granted a total of 419,300, 5 year common stock options exercise prices between $0.10 and $0.13 per share. The Company recognized stock-based compensation of $16,579 in accordance with SFAS 123R which represented the fair value of stock options granted to consultants in exchange for services rendered to the Company.
(a)
The Company’s stock option activity is as follows:
Number of options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life
Balance, December 31, 2006
-
Granted during 2007
601,667
0.21
5 years
Exercised during 2007
(601,667)
-
Balance, December 31, 2007
-
Granted during 2008
419,300
0.13
5 years
Exercised during 2008
(419,300)
Balance, December 31, 2008
-
(b)
As of December 31, 2008, there were 1,141,667 stock options available for grant under the Company’s 2006 Stock Incentive and Option Plan.
(c)
As of December 31, 2008, there were 1,539,033 stock options available for grant under the Company’s 2007 Stock Incentive and Option Plan.
(4)
2007 Stock Options
(d)
The fair value of the common stock options granted during the year was measured at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
Expected dividend yield
0%
Risk-free interest rate
4.99%
Expected volatility
85.3%
Expected option life (in years)
(e)
During 2007, the Company granted a total of 551,667, 5 year common stock options at exercise prices of between $0.17 and $0.21 per share. The Company recognized stock-based compensation of $52,150 in accordance with SFAS 123R which represented the fair value of stock options granted to consultants in exchange for services rendered to the Company.
(f)
On October 2, 2006, the Company issued 1,925,000 common shares from the exercise of options pursuant to option grants under the Company’s 2005 Stock Option and Incentive Plan and 141,667 common shares from the exercise of options pursuant to option grants under the Company’s 2006 Stock Option and Incentive Plan. All shares were issued at an exercise price of $0.10 per share. As consideration, the Company issued promissory notes to the optionees totalling $620,000. As of December 31, 2007, the promissory notes were settled in full and the Company received $32,136 in interest during 2007.
NOTE 6 - STOCKHOLDERS’EQUITY (continued)
(g)
The Company’s stock option activity is as follows:
Number of options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life
Balance, December 31, 2005
-
-
-
Granted during 2006
2,266,667
0.30
5 years
Cancelled during 2006
-
-
Exercised during 2006
(2,266,667)
-
Balance, December 31, 2006
-
Granted during 2007
601,667
0.21
5 years
Exercised during 2007
(601,667)
-
Balance, December 31, 2007
-
$ -
-
NOTE 7- RELATED PARTY TRANSACTIONS
During 2008, the Company incurred $12,057 (2007 -$23,135) in management fees to directors. Of this amount, $7,250 represents the value of 75,000 restricted shares issued to two Directors. As at December 31, 2008 the Company owes $9,000 in management fees. (2007 - $9,000)
During 2008, the Company incurred $25,988 (2007 - $25,445) in rent and office expenses to a private company controlled by a shareholder. The Company has a three year tenancy agreement with a related party beginning August 1, 2008. Office rent payments are due in the amount of $26,400 for 2009.
During 2008, the Company incurred $47,724 (2007 - $132,399) in consulting fees to significant shareholders and $18,554 (2006 - $18,503) in professional fees to an employee. Included in the promissory notes receivable as described in Note 6(3)(c) is $Nil (2006 -$71,750) of principal and accrued interest owing from a significant shareholder.
During 2008, two companies controlled by significant shareholders earned $32,000 (2007 - $37,506) and a company controlled by a shareholder earned $Nil (2006 - $2,292) from the Company, pursuant to prepaid services agreements (refer to Note 5).
At December 31, 2008 $32,747 (2007 - $149,605) is receivable from Golden Spirit which is non-interest bearing and without specific terms of repayment.
At December 31, 2008 $116,631 (2007 - $35,534) is receivable from Legacy Wine & Spirits International Ltd. which is non-interest bearing and without specific terms of repayment.
At December 31, 2008, the following amounts are due to related parties:
Director
$
9,000
$
9,000
Significant shareholders
58,438
(1,705)
$
67,438
$
7,295
All related party transactions are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Year ended
December 31, 2008
Year ended
December 31, 2007
Cash paid during the year for:
Interest
$ -
$ -
Income taxes
$ -
$ -
During the year ended December 31, 2008 the Company issued:
§
419,300 common shares were issued at exercise prices between $0.10 and $0.13 per share for exercise of stock options
§
75,000 restricted common shares valued at $7,250 to two directors for their current services.
During the year ended December 31, 2007 the Company issued:
§
133,333 restricted common shares for prepaid services contract valued at $32,000 (refer to Note 5).
§
885,000 common shares were issued at exercise prices between $0.17 and $0.30 per share for exercise of stock options.
§
136,666 restricted common shares with a fair value of $32,900 in exchange for consulting and advisory board services.
§
1,699,999 common shares issued for promissory notes were returned to the Company and cancelled.
§
483,334 common shares with a fair value of $150,500 issued in exchange for current and prior years consulting services were returned to the Company and cancelled.
§
NOTE 9 - COMMITMENTS AND CONTINGENCIES
On February 21, 2002, the Company issued 350,000 shares valued at $119,000 to Empire Sterling Corporation for services to be rendered with respect to the acquisition of ACGT Corporation (“ACGT”). The shares were to be held in trust and not sold until all necessary financing was in place to complete the ACGT acquisition. Empire Sterling Corporation breached the trust agreement and the Company placed a stop transfer on these shares and requested they be returned to the Company. Empire Sterling Corporation failed to return the share certificate and as such, the Company commenced court proceedings against the principals of Empire Sterling Corporation. The Company argued for an interim injunction against all parties and was successful. On May 9, 2002, the Court ordered Empire Sterling Corporation to deposit the shares with the Court pending judicial disposition. The Company continued to file legal process claiming ownership of the shares and breach of trust inter alia. The Company was successful and has now applied to have the share certificates released and subsequently cancelled. As of December 31, 2008, the Company is still in the process of having the certificates released.
In February, 2008, the Company received a demand notice from CGG Veritas for failure to pay an outstanding balance of $317,380 pursuant to a Master Agreement and Job Supplement for the Shotgun Draw 2D Seismic Program in Utah. In accordance with Section 15.3 of the Master Agreement and Job Supplement dated March 21, 2007, CGG has demanded payment by April 25, 2008. If CGG Veritas is forced to proceed with litigation of this matter, it will seek reimbursement of its attorneys’ fees and expenses related to the litigation. The Company is currently examining various alternatives to resolve this matter. CGG Veritas has not proceeded with litigation as of December 31, 2008.
Since August 1, 2002, Organa Gardens International Inc. has leased 1250 sq. ft of office space from Holm Investments Ltd. at $2,050 per month for a period of 3 years and was renewed for an additional 3 years at $2,050 per month. The current tenancy agreement began August 1, 2008 for 3 additional years at $2,200 per month.
NOTE 10 - INCOME TAXES
Potential benefits of United States Federal income tax losses are not recognized in the accounts until realization is more likely than not. As of December 31, 2008, the Company has combined net operating losses carried forward totalling approximately $22,113,000 for tax purposes which expire through 2028. Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382 for 2002 and prior year’s losses. Pursuant to SFAS No. 109, the Company is required to compute tax asset benefits for net operating losses carried forward. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry forwards.
NOTE 10 - INCOME TAXES (con’t.)
A reconciliation of income tax computed at the federal and state statutory tax rates is as follows:
Year ended
December 31, 2008
Year ended
December 31, 2007
Federal income tax provision at statutory rate
(35.00)%
(35.00)%
State income tax provision at statutory rate, net of federal income tax effect
(0.00)
(0.00)
Total income tax provision rate
(35.00)%
(35.00)%
The actual income tax provisions differ from the expected amounts calculated by applying the federal income tax statutory rate to the Company’s loss before income taxes. The components of these differences are as follows:
The Company’s tax-effected deferred income tax assets and liabilities are estimated as follows:
Non-capital loss carry forwards
$
8,167,000
$
6,295,000
Valuation allowance
(8,167,000)
(6,295,000)
Net deferred tax asset
$
-
$
-
NOTE 11 - SUBSEQUENT EVENTS
Name Change
On February 20, 2009, that a majority of the shareholders entitled to vote on such matters approved a change of name from Organa Gardens International Inc. to “Organa Gardens International Inc.” On February 26, 2009, a Certificate of Amendment to its Articles of Incorporation was filed with the State of Nevada changing the name to Organa Gardens International Inc. The Company also took the necessary steps to change its symbol and CUSIP Number. Therefore, the CUSIP Number has changed from 825358 10 4 to 68618Y 10 6. Effective at the opening of business on April 7, 2009, the symbol will change from SGNE to “OGNG”. The name change did not involve any change in the issued or authorized capital of the Company.
Private Placement
On February 26, 2009, the Company began to offer a private placement of its securities in order to finance the new hydroponic vertical farming project (See below). Subsequent to December 31, 2008, the Company has received subscriptions in the amount of 450,000 restricted Rule 144 shares for total cash proceeds received totaling $39,000.
NOTE 11 - SUBSEQUENT EVENTS (con’t.)
Acquisition
On March 6, 2009, the Company has signed an agreement to acquire all of the assets of Organa Gardens Inc.(OGI), a Nevada Corporation in the business of hydroponics vertical farming. These assets include, but are not limited to all proprietary designs, engineering, technology, business models, plans and intellectual properties pertaining to the Organa Garden System-Discovery (OGS-D) and the Organa Garden System-Enterprise (OGS-E). Both the OGS-D and OGS-E are a rotary hydroponics vertical farming system designed with serviceability, ease-of-use and maximum harvest in mind. Both models are modular, allowing them to be expanded by stacking them. Its specially designed waterwheel technology allows the fully automated system to recycle and reuse 95% of the water used while requiring a negligible amount of energy to run.
The Company will issue up to 25,000,000 Rule 144 shares of its common stock to OGI, to be held in trust and released based on the following terms and gross revenue requirements:
(a) Release of 10,000,000 shares of the Company upon signing this Agreement.
(b) Release of 5,000,000 shares of the Company upon attaining $1,000,000 US in gross revenue.
(c) Release of 5,000,000 shares of the Company upon attaining $2,500,000 US in gross revenue.
(d) Release of 5,000,000 shares of the Company upon attaining $4,000,000 US in gross revenue.
None of these shares have been issued to date and the agreement has not yet been finalized.
The Company will raise up to $500,000 US to market and fulfill the required obligations of OGI as outlined in the supplemental agreement(s) to follow.The Company and Organa Gardens Inc.agree to allow the shares to sit in trust for a period of 5 years in order for OGI to meet its sales goals. Should the requirements not be met in all or part, then all of the remaining shares will be returned back to the treasury of the Company.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OFDISCLOSURE CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain a system of internal and disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer they have concluded that, as of the evaluation date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to us required to be included in our reports filed or submitted under the Exchange Act.
Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007. Further, this evaluation did not identify any significant changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes In Internal Controls
No changes in the Company's internal controls over financial reporting occurred during the period ending December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Code of Ethics
We intend to adopt a code of ethics in 2008 that applies to our principle executive officer, principal financial officer, principle accounting officer or controller, other persons performing similar functions. We intend to post the text of our code of ethics on our website in connection with our "Investor Relations" materials. In addition, we intend to promptly disclose (1) the
nature of any amendment to our code of ethics that applies to our principle executive officer principal financial officer, principle accounting officer or controller, other persons performing similar functions (2) the nature of any wavier, including an implicit wavier, from a provision of our code of ethics that is granted to one of these specific officers, the name of such person who
is granted the waiver and the date of the waiver on our web site in the future.
We do not currently have a code of ethics as this is a new regulatory requirement and we are examining the various form and contents of other companies written code of ethics, discussing the merits and meaning of a code of ethics to determine the best form for our Company.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
1. Officers and Directors of the Company.
DATE OF APPOINTMENT
NAME
AGE POSITION
TO BOARD OF DIRECTORS
- ----------------------------------------------------------------------------------------------------------------------------
Christopher Scheive 46
President & Director & CEO
November 18, 2008
Jaclyn Cruz 26
Secretary, Treasurer
August 18, 2008
& Director & CFO
The chart above specifies Organa Gardens International Inc.’s current officers and directors.
All directors of the Company hold office until the next annual meeting or until their successors have been elected and qualified. All officers serve at the discretion of the Board of Directors.
On January 24, 2008, the Registrant accepted the resignation of Carlton Parfitt as Secretary, Treasurer, Director and Chief Financial Officer of the Company. On November 18, 2008, the Registrant accepted the resignation of Robert Klein as Secretary, Treasurer, Director and Chief Financial Officer of the Company. On November 18, 2008, the Registrant accepted the resignation of Marc Scheive as Secretary, Treasurer, Director and Chief Financial Officer of the Company.None of these resignations was not motivated by a disagreement with the Company on any matter relating to the Company’'s operations, policies or practices.
Christopher Scheive is a business entrepreneur based in Quebec.
Jaclyn Cruz is a notary public based in New York.
There are no familial relationships between our officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance. We believe that our officers, directors, and principal shareholders have not filed all reports required to be filed on, respectively, a Form 3 (Initial Statement of Beneficial Ownership of Securities), a Form 4 (Statement of Changes of Beneficial Ownership of Securities), or a Form 5 (Annual Statement of Beneficial Ownership of Securities).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Name of Individual or Capacities in which
Aggregate Remuneration
Identity of Group Remuneration was received
For 2008
For 2007
For 2006
------------------------------ -----------------------------------------
---------------------------------------------------------
Christopher Scheive
Director, President & CEO
$ 3,000
$ -
$ -
Jaclyn Cruz
Director , Sec.,Treas.& CFO $ 4,250
$ -
$ -
Compensation of Directors. Currently, Mr. Scheive Director of Organa Gardens International Inc. receives a salary between $1,000 per month and Mrs. Cruz receives a salary of $500 per month. Ms. Cruz received 25,000 shares of the Company valued at $1,750 in 2008.
Stock Based Compensation. During the year ended December 31, 2008, $16,579 (2007-$52,150) in stock based compensation was recorded in our financial statements. Stock based compensation is an estimate of the intrinsic value placed in respect to stock options granted to officers, directors, employees and an estimate of the fair value of stock options granted to consultants using the Black-Scholes option pricing model We do expect further stock based compensation in 2009.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of December 31, 2008, with respect to the ownership of the Organa Gardens International Inc.'s common stock by each person known by Organa Gardens International Inc. to be the beneficial owner of more than five percent (5%) of Organa Gardens International Inc.'s common stock, by each director and officer and by all officers and directors as a group.
Name of
Beneficial Holder
Address of
Beneficial Holder
Amount of Shares
Beneficially Owned
% of Outstanding
Common Stock
Cede & Co.
The Depository Trust Co
PO Box 222 Bowling Green St’n.
New York, NY 10272
11,579,835(1)
64.81 %
Christopher Scheive
President/Director/CEO
400 Blvd. Thomas
Unit 400 Lachute, Quebec,
J8H 1V7
-
0.00
Jaclyn Cruz
Sec,Treas/.Director/CFO
P.O. Box 63
Farmingville, New York
25,000
0.0015 %
All directors and Officers as a group
25,000
0.0015 %
(1) The beneficial owners of these shares are not known to Organa Gardens International Inc.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionees. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them.
Changes in Control. Our management is not aware of any arrangements which may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-B.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During 2008, the Company incurred $12,057 (2007 -$23,135) in management fees to directors. Of this amount, $7,250 represents the value of 75,000 restricted shares issued to two Directors. As at December 31, 2008 the Company owes $9,000 in management fees. (23007 - $9,000)
During 2008, the Company incurred $25,988 (2007 - $25,445) in rent and office expenses to a private company controlled by a shareholder. The Company has a three year tenancy agreement with a related party beginning August 1, 2008. Office rent payments are due in the amount of $26,400 for 2009.
During 2008, the Company incurred $47,724 (2007 - $132,399) in consulting fees to significant shareholders and $18,554 (2006 - $18,503) in professional fees to an employee. Included in the promissory notes receivable as described in Note 6(3)(c) is $Nil (2006 -$71,750) of principal and accrued interest owing from a significant shareholder.
During 2008, two companies controlled by significant shareholders earned $32,000 (2007 - $37,506) and a company controlled by a shareholder earned $Nil (2006 - $2,292) from the Company, pursuant to prepaid services agreements (refer to Note 5).
At December 31, 2008 $32,747 (2007 - $149,605) is receivable from Golden Spirit which is non-interest bearing and without specific terms of repayment.
At December 31, 2008 $116,631 (2007 - $35,534) is receivable from Legacy Wine & Spirits International Ltd. which is non-interest bearing and without specific terms of repayment.
At December 31, 2008, the following amounts are due to related parties:
Director
$
9,000
$
9,000
Significant shareholders
58,438
(1,705)
$
67,438
$
7,295
All related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
1. Audit Fees: Aggregate fees billed for each of the last two (2) fiscal years for professional services rendered by the principal accountant for the audit of the annual financial statements and review of financial statements included on Form 10-Q:
2007: $28,500
2008: $27,500
2. Audit-Related Fees: Aggregate fees billed in each of the last two (2) fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the financial statements and are not reported previously.
2007: $250
2007: $0
3. Tax Fees: Aggregate fees billed in each of the last two (2) fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
2007: $0
2008: $0
4. All Other Fees: Aggregate fees billed in each of the last two (2) fiscal years for products and services provided by the principal accountant, other than the services previously reported.
2007: $0
2008: $0
5. Audit Committee Pre-Approval Procedures. The Board of Directors has not, to date, appointed an Audit Committee.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit 31.1 - Section 906 Certification of Periodic Report of the Chief
Executive Officer.
Exhibit 31.2 - Section 906 Certification of Periodic Report of the Chief
Financial Officer.
Exhibit 32.1 - Section 302 Certification of Periodic Report of the Chief
Executive Officer.
Exhibit 32.1 - Section 302 Certification of Periodic Report of the Chief
Financial Officer.
b) Form 8-K
8-K filed November 19, 2008 items 1.01 and 3.02: with respect to the change of directors
8-K filed August 22, 2008 items 1.01 and 3.02: with respect to the change of directors
8-K filed February 1, 2008 items 1.01 and 3.02: with respect to the change of address and directors
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused to be signed on its behalf by the undersigned, whereunto duly authorized.
ORGANA GARDENS INTERNATIONAL INC.
Date: April 15, 2009
By: /s/ Christopher Scheive
---------------------------
Christopher Scheive
Pursuant to the requirements of the Securities and Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates included.
By: /s/ Christopher Scheive
Date: April 15, 2009
- ----------------------------
Christopher Scheive, Director and President
By: /s/ Jaclyn Cruz
Date: April 15, 2009
- -------------------------
Jaclyn Cruz, Director , Secretary & Treasurer