UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-K





(Mark
One)





x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the fiscal year endedSeptember 30, 2010





 ̈TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
Transition Period from _______ to _______


Commission
file number 0-3338





ORGANIC SALES AND MARKETING,
INC.


(Exact
Name of small business issuer as specified in its Charter)





Delaware
              33-1069593(State
      or other Jurisdiction of Incorporation or Organization)
              (IRS
      Employer Identification No.)





114 Broadway, Raynham, MA
02767


(Address
of Principal Executive Office)





(508)
823-1117


(Registrant’s
telephone number including area code)





Securities
registered pursuant to Section 12(b) of the Act:





The
number of shares of outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date was 13,840,722 shares of common stock,
par value $.0001, issued and outstanding as of January 11, 2010.





Indicate by check mark whether
the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.


YesxNo ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller public
company.


x   Smaller
Reporting Company





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈ No
x





Organic
Sales and Marketing, Inc.


Form
10-K





Table of Contents





PagePart
      IItem
      1
                                                                            Description
      of Business
                                                                            3Item
      2
                                                                            Description
      of Property
                                                                            13Item
      3
                                                                            Legal
      Proceedings
                                                                            14Item
      4
                                                                            (Removed
      and Reserved)
                                                                            14Part
      IIItem
      5
                                                                            Market
      for Common Equity, Related Stockholder Matters and Issuer Purchasers of
      Equity Securities
                                                                            15Item
      6
                                                                            Selected
      Financial Data
                                                                            16Item
      7
                                                                            Management's
      Discussion and Analysis of Financial Condition and Results of Operations;
      Plan of Operations
                                                                            16Item
      7A
                                                                            Quantitative
      and Qualitative Disclosures about Market Risk
                                                                            28Item
      8
                                                                            Financial
      Statements and Supplementary Data
                                                                            30Item
      9
                                                                            Changes
      in and Disagreement With Accountants on Accounting and Financial
      Disclosure
                                                                            30Item
      9A
                                                                            Controls
      and Procedures
                                                                            30Item
      9B
                                                                            Other
      Information
                                                                            30Part
      IIIItem
      10
                                                                            Directors,
      Executive Officers and Corporate Governance
                                                                            31Item
      11
                                                                            Executive
      Compensation
                                                                            34Item
      12
                                                                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                                            34Item
      13
                                                                            Certain
      Relationships and Related Transactions, and Director
      Independence
                                                                            35Item
      14
                                                                            Principal
      Accounting Fees and Services
                                                                            36Part
      IVItem
      15
                                                                            Exhibits,
      Financial Statement Schedules
                                                                            37SignaturesSupplemental
      Information




2


PART
I




ITEM 1.
DESCRIPTION OF BUSINESS





(a)
            Business
      Development





1.
            Form
      and Year of Organization.





Organic
Sales and Marketing, Inc. (the "Company" or the "Registrant" or the "Issuer")
was incorporated in the State of Delaware as Garden Connections, Inc. on August
23, 2003. On April 20, 2005, Garden Connections, Inc. changed its name to
Organic Sales and Marketing, Inc. The Company purchased the assets of Garden
Connections LLC, a Massachusetts limited liability company in September 2003.
The acquisition of the assets of Garden Connections LLC took the form of an
exchange agreement whereby all of the outstanding common stock of the Company
was exchanged for all of the interests of the respective partners of Garden
Connections, LLC. The major reasons for the exchange were that the management of
Garden Connections, LLC was desirous of adopting a name that would better
describe the mission statement and that the Company could not function as an LLC
if its securities were to be publicly held. The exchange rate whereby the
partners of the LLC received shares of the Company's common stock was arbitrary
and not at arms length. It should be noted that the officers and directors of
the Company as a group beneficially own 31.3% of the Company's outstanding
common stock and as a result, control the operations of the
Company.




2.
            Any
      bankruptcy, Receivership or Similar Proceeding. Not
    Applicable





3.
            Any
      Material Reclassification, Merger, Consolidation, or Purchase/Sale of a
      Significant Amount of Assets not in the Ordinary Course of Business. Not
      Applicable





(b)
            Business
      of Issuer





Organic
Sales and Marketing, Inc. (“OSM” or the “Company”) specializes in the sales and
marketing of non-food natural and organically-certified products, including
fertilizers, horticultural products, cleaning agents and hand
sanitizers.  The Company has positioned itself in the rapidly-growing
non-food natural and organic marketplace to capitalize on the large-scale
movement away from synthetic non-food products, a movement which has been
sparked by widespread evidence concerning the harmful effects to the environment
and human health caused by the chemicals used in their
manufacture.  Just seven months ago, a report from the President’s
Cancer Panel identified agricultural chemical exposure as the third largest risk
factor for developing cancer.  OSM has received United States
Department of Agriculture (USDA) BioPreferred (federally-managed program
designed to increase the purchase and use of renewable, sustainable bio-based
products) status for its fertilizers, cleaners and hand sanitizer.





For the
past three years, OSM has focused the majority of its selling efforts on
federal, regional and local government agencies; military branches, colleges and
universities; and laboratories, with much success.  The Company is in
a joint marketing effort with industry giants Corning, Inc. and Thermo Fisher
Scientific to supply commercial cleaning products, The Company is a contracted
vendor for Thermo Fisher Scientific and industrial supply company, W.W.
Grainger, both of whom are government service account (GSA) vendors; OSM is also
a registered vendor/supplier for the Department of Defense as part of the DOD
EMALL.  Considering the distribution base of the latter three
channels, coupled with the growing concern of the use of synthetic fertilizers,
and the recently passed law in the state of New York, banning chemical
pesticides from all school lawns and turf in the state of New York, signed-off
by their governor in early 2010, the Company’s target market is potentially
thousands if not millions of tons.  That target market is guaranteed
to expand exponentially as more legislation aimed at protecting public areas and
water supplies is enacted which prohibits the use of chemical fertilizers and
pesticides. However, since the Company does not presently have any significant
contracts in place, there can be no guarantees that it will meet its goals or
projections.


3


OSM is
pursuing a $2.5 million line of credit to take its business to the next
level.  The Company will use these funds to:  fund a medley
of product marketing programs offered through W. W. Grainger and Thermo Fisher
Scientific;  obtain its own GSA account in order to sell directly to
the U.S. Department of Energy, U.S. Department of Agriculture and the National
Institutes of Health; obtain Green Seal product certification for its
fertilizers, horticultural products and cleaners; pursue exclusive contracts
with other large industrial giants who have the purchasing power; hire dedicated
sales staff for commercial and retail sales; relocate its corporate offices to
Rhode Island; and source another liquid EPA approved manufacturing facility in
Rhode Island.





OSM was
incorporated in Delaware as a C Corporation.  Its corporate
headquarters is located at 114 Broadway, Raynham, Massachusetts.  All
of its liquid products are manufactured by contract manufacturer, Webco, of
Dudley, Massachusetts.  Its non-liquid fertilizer products are
manufactured by Land O’Lakes Purina in St. Joseph, MO.





The
Company uses the services of well established and experienced sales
organizations and distributors to introduce, promote, and sell its line of
products on a commission basis. The Company continues to market and sell its
Nevr-Dull brand of all natural cleaners.  There is some potential
interest with one of Nevr-Dull's worldwide clients.





The
Company continues to sell its all natural cleaning products through UNFI (United
Natural Foods Inc), one of the leading organic products distributors in the
country, based in Providence, RI. Some of the major retail outlets that the
Company sell’s to via these distributors or direct are Stop &
Shop, Whole Foods, Tops and Giant.. In addition, the Company also sells to
Associated Buyers, Barrington, NH which may focus on many of the smaller,
independent grocery store chains, colleges, spa’s and health food stores
throughout the Northeast. There, of course, can be no absolute assurance that
meaningful orders from any of these outlets will continue or
increase.




The
Company continues to sell it own branded Mother Natures Cuisine fertilizers
through retail outlets such as Whole Foods, Aubuchon Hardware and independent
garden centers.  The Company purchases its proprietary organic
fertilizer products from Land O'Lakes Purina Feed Organization ("LOL"), a
division of Land O'Lakes, Inc. and labels it under the brand name, Mother
Natures Cuisine TM. The packaging contains bilingual instructions. Organic
fertilizer sales for the year were far lower than anticipated due to economic
pressures. The intrigue and attraction of these items is that they are derived
from plant based components, rather than animal or municipal waste.




The
Company's organically certified insecticide/fungicide product, Garden Guys
Garden NEEM, which was first introduced in the spring of 2007, is continually
shipping to many of the above named customers in conjunction with the fertilizer
products.


The
Company continues to maintain an e-commerce interest presence hosting five
different Websites; www.garden-guys.com; www.mothernaturescuisine.com; www.naturalnevrdull.com; www.osm-inc.com and www.dragonflyorganix.com.


4


The
Company has attained USDA BioPreferred status for many of its commercial
cleaning and hand sanitizer products. This distinction continues to open doors
for those distributors who sell the government through GSA and other related
contracts. The Company has shipped orders to the USDA, Ames, Iowa facility, and
the Post Office. The Company anticipates additional interest within various
government sectors in the near future. Furthermore, the Company is in
discussions with another major national and international distributor who sells
to the government.




The
Company plans to concentrate its marketing efforts solely in the rapidly growing
all natural non-food organic arena. The Company believes that consumers are
being drawn to organic products by a growing desire for fewer chemicals and
additives in their everyday lives. However, there can be no assurance that this
trend will translate into sales and profits for the Company.




The
Company believes that the organic industry, consisting of food and non-food
products continues to be one of the fastest growing segments of our economy and
that recent decisions by major corporations to make "going green" part of their
mission statements could accelerate that growth.




A 2009
Organic Industry Survey prepared by the Lieberman Research Group on behalf of
the Organic Trade Association showed that in 2008 $24.6 billion was spent on
organic food and non-food products, an increase of 17.1% over 2007. The organic
non-food segment of the survey showed sales of $1.6 billion or an increase of
39.4% over 2008. The survey projects that spending on organic food products
could increase from $22.9 billion in 2008 to $27.7 billion in 2010, a projected
two year increase of 20.9%.





The 2007
Organic Trade Association survey projected that organic non-food products could
grow anywhere from 16% - 40% each year through 2010 and that trend seems to be
holding, given growth rates of 26% in 2006 and 2007 and 39.4% in 2008. The
Company believes that these explosive growth rates of non-food organic products
will continue well into the next decade.




The
Company specializes in the more rapidly growing non-food organic areas, such as
private label premium fertilizers, insecticides and consumer and industrial
cleaners, where profit margins can be substantially greater. It understands,
however, that external factors such as economic conditions and climatic issues
can impact these trends in an unfavorable way and that there can be no assurance
that all of its products will follow the same overall upward trend currently
underway in the organic industry.




The
Company has also established important manufacturing relationships with Land
O'Lakes for its fertilizer products, secured a licensing agreement with a
British based company and has the rights to several proprietary formulas used in
its extensive line of cleaning products, outsourced its fulfillment operation to
Webco Chemical Co., located in Dudley, Massachusetts, which has the capacity to
handle any and all requirements that the Company may have and, as a backup to
Webco, the Company also has made arrangements with JNJ Industries, located in
Franklin, Massachusetts.




The
Company will continue to use the radio as the primary source for marketing and
creating brand awareness of our non-food, and natural product offerings. Sam
Jeffries, the Company's President, hosts a live, weekly three hour Sunday
morning garden talk radio show on Greater Media owned WTKK, 96.9FM in Boston,
MA. This also creates a medium for the Company to offset some of its radio
related expenses by selling air time to potential sponsors and/or advertisers of
the radio show.


5


It must
be emphasized that although the Company continues to be very excited about its
product lines and its prospects in a rapidly growing and explosive industry, the
purchase of the Company's securities carries a significant risk. The Company has
not had substantial revenues from operations and has not yet been profitable.
While it has built important, strategic relationships with customers and
vendors, the outlook remains uncertain in the absence of the receipt of
substantial orders or substantial funding. Although the Company believes its
overhead to be low, there can be no assurance that it will continue to find
sources of working capital to keep operations funded until and even after break
even volumes are achieved. It should also be noted that the Company's auditors
have included a "going concern" qualification in their opinion (see "Financial
Statements").




1.
            Principal
      Products and Services and Their
Markets





Currently
the major all natural products that the Company is selling are all natural
cleaners, which include stain remover, odor control, glass cleaner, floor
cleaner, degreaser, concrete cleaner, eyeglass cleaner, jewelry cleaner, surface
prep and glue cleaner, solely utilizing outside independent sales professionals,
as well as an all natural insecticide-fungicide, and organic fertilizers. Since
the Company sells non-food, all natural products, the shelf-life of its products
can be in excess of one year or more, depending upon storage and climatic
conditions. The Company uses a proprietary blend of compounds in its all natural
products which are non-toxic, biodegradable and safe for use around children and
pets.




The
Company receives revenues from sales of product on its various websites;
products are sold directly  or by independent reps to distributors who
then re-sell to retail stores; products sold to retail stores directly or by
independent reps, re-selling our organic products to other companies who wish to
private label or license our products and the sale of advertising inventory
(commercial spots) available to the Company through the radio station that
carries the Garden Guys radio talk show.




Organic
Fertilizer Market:




The
Company is focusing marketing efforts on organic fertilizers, a rapidly growing
segment of the fertilizer industry. In its opinion, nation-wide awareness and
the potential impacts of the use of synthetic fertilizers vs. organic
fertilizers will continue to have an impact in rising sales of organic
fertilizers.  Accordingly, the Company projects some of its greatest
growth over the next 3-5 years to potentially be in this arena.




By letter
dated November 8, 2010 the Company recently entered into an Agreement with Land
O’Lakes Purina Feed LLC (LOLPF) to act as its preferred sales agent to promote
sales to and solicit and process orders of Products from organic fertilizer
customers on behalf of LOLPF in the United States and
Canada.  Presently, it is not an exclusive relationship. Under the
arrangement, Land O'Lakes Purina Feed Organization will also assist in product
registration for each state, manufacturing, logistics, and distribution. They
will also provide sales and marketing support for the Company’s efforts as part
of the Agreement. The Company believes this will ultimately lead to major sales,
as it continues to be introduced into the 35 billion dollar lawn and garden
market as reported by the National Gardening Association in its Garden Market
Research newsletter. Ultimate product line acceptability will depend on customer
demand, so true assurances cannot be made as to the viability of this product
line at this point in time.


6


Organic
Based Household Cleaner Market:




Other
areas which the Company believes hold considerable promise are the residential
and commercial cleaner markets. We believe that the momentum in the rise in
organic food sales, due primarily to the growing education of how toxic
chemicals can have a direct or indirect impact on human health, is carrying over
to that of non-food organic products, which may pose similar health hazards and
risks. Its weekly radio show allows to, 1)educate consumers about the potential
hidden risks of chemical based products, 2)inform listeners about products that
offer healthy alternatives to chemical cleaners, including its own and 3)let
folks know where these products can be purchased either in store or
on-line.




Jewelry,
Modeling, and Bead Markets:




The
Company currently supplies one of the major industry distributors, Fire Mountain
Gems & Beads, Inc., in Grant Pass, Oregon. Fire Mountain does over 100
million dollars in annual sales and has an extensive customer base. Their
customers are some of the major retail jewelry and bead shops in the industry
and other distributors within the trade. There is no assurance, however, that
these markets will develop for these products.




Funeral
Industry & Medical Examiners Market:




The
Company is currently supplying its Funeral Organix product line to Funeral Homes
and churches. The Company still expects that this class of trade has strong
upside potential because there is a great need for cleaners and deodorizers in
this industry due to the large amounts of chemicals currently used by this
profession on a daily basis. Preliminary data indicates a strong willingness by
the industry to replace chemical products with those that are all natural,
chemical-free and environmentally friendly. There is no assurance that these
markets will develop significantly for these products. This depends entirely
upon product quality, the ability to reach the target market and consumer
acceptance.





Municipalities
and Waste Disposal Markets:





Due to
the various odor problems that these markets encounter on a daily basis, the
Company's Odor Eliminator product offers a solution. This and other products in
the Company’s portfolio of all natural products are positioned as having
numerous applications in multiple industries such as nursing homes, industrial
kitchens, waste management, fishing industry, daycare centers, Montessori
schools, kennels, hospice-home care, pet shops, and veterinarian locations.
There is no assurance that these markets will develop for these products. This
will depend upon product quality, the ability to reach the target market and
consumer acceptance.





The
Company is capitalizing on the growing interest and desire among consumers for
safe, environment-friendly products. To do this, it has developed strategic
marketing relationships with manufacturers that offer "green" alternatives to
some of the traditional, chemical-based products that are currently being used
in various industries. The Company hopes to be the dominant leader in the all
natural, non-food organic industry so it is aggressively working with several
manufacturing companies to further develop and perfect its growing line of all
natural, non-food product offerings. IDue to uncertainties with the safety of
rubber mulch, the Company has decided to discontinue its development, sales and
marketing of it Terra Rubber brand rubber tire mulch product that can be used in
playgrounds, flower beds and gardens.





The last
five plus years have been spent establishing what the Company believes to be a
strong, solid foundation needed to support the next phase of its business plan.
All natural, non-food organic products are growing in demand. The Company's
products are targeted to sophisticated, environmentally aware companies and
consumers in various markets. The Company believes that strategic affiliations
which have been developed with well-established corporations could eventually
pave the way for its all natural, non-food organic products to become ubiquitous
throughout the country.


7


2.
            Distribution





Our
sales, marketing and promotional efforts are accomplished through the
following:





o
            Radio
      Show





o
            Radio
      Advertising





o
            E-Commerce
      Websites





o
            Interactive
      Website with on-line forum room for
gardeners





o
            Industry-related
      Magazines and Newspapers





o
            Face-to-face
      Client and Prospect Meetings





o
            Sales
      Brochures and Product Samples





o
            Point-of-Sale
      and End Cap Displays





o
            Trade
      Shows





o
            Membership
      in Trade Organizations





o
            Garden
      Clubs





o
            E-mail
      and Direct Mailings





o
            Telemarketing





o
            Strategic
      Marketing Alliances





o
            Cooperative
      Advertising





The
Company is now able to bring its products from its contract manufacturer to
consumer with limited financial exposure. It has the added advantage of
being able to market these  products not only through its independent
marketing associates, but through its own radio show., What with a recognized
growing interest in organics, the Garden Guys ®   ensure that brand
awareness reaches the consumer through the radio,streaming, podcasting, RSS feed
and a weekly newsletter. This creates a multi-faceted, multi-revenue
channel model for the Company. Moreover, the Company hopes to add new
strategically selected radio personalities and stations to its Garden Guys ®
  radio network over the next several years with a reach that goes far
beyond the New England area. Because of the knowledge the Company has obtained
of how the communications industry works, as a result of the Garden Guys® radio
talk show, it believes that this is a very attainable goal. There is no set
schedule for this expansion at this time and there can be no assurance that
enrolling additional stations will be made easier due to the working
knowledge of radio internet or current radio relationships.


8


3.
            Status
      of Any Publicly Announced New Products or
  Services





Currently
the Company has a portfolio of approximately 100 items, all of which
are company branded products.  The Company will begin to
offer its new Egg Wipes under the new brand it developed, Healthier Homestead
positioned, but limited to, the farm and fleet trade. The Company will be able
to market its products not only through its distributors and independent sales
organizations but through the Garden Guys ® radio show which provides a viable
channel through the creation of brand awareness on the consumer’s part and a
growing interest in organics and natural products. Management believes its all
natural non-food products will attract both male and female consumers looking to
avoid the health risks and implications that have been found in non-organic or
synthetic compounds. Management believes this is a promising trend which is
supported by numerous independent articles and surveys which have been conducted
some of which have been referenced in other sections of this 10K.





All of
these products are manufactured for the Company to its own specifications
without any additional research and development costs being incurred. In some
cases, the Company will put a contract in place for existing technology already
developed by said manufacturer whereby it may see long-term benefits of their
research by finding niche markets for a particular product.  The
foregoing arrangements greatly limit the Company's financial
exposure:





o
            No
      research and development costs





o
            No
      manufacturing facilities and related
costs





o
            Lower
      inventory costs and warehousing
costs





o
            Limited
      employees and staff





4.
            Competition





Because
the organic and natural cleaner market is relatively small in comparison to the
total organic market, it is a fragmented market, ready for development. The
Company believes that Seventh Generation, Inc., Clorox, S.C. Johnson, Mrs.
Meyers and 3-M, are its major competitors in the cleaner market.





Competition
in lawn and garden organic product sales is equally as intense however few
companies have the ability to ship their products cost effectively across the
country.  The Company believes its distribution network of LOL/Purina
Feed, ThermoFisher Scientific and Grainger can satisfy these concerns. These
markets are large and can support many companies offering these and similar
organic products. The Company is unique in that it offers a service (the radio
program) in addition to a product. It does not know of another company that does
this. However, many of the companies that make up the competition in this market
are better financed, more experienced, have more recognizable or established
brand names, may have better control over their manufacturing and distribution
process, have a longer history of servicing the retail and commercial industries
and may be better positioned to control sales to large retail outlets and, as a
result, realize a dominant or substantial market share.  The Company
is in discussions with some large horticultural companies who may want to
private label its fertilizers.  These discussions are on-going and may
have a material impact on its sales however, since the Company does not
presently have any significant contracts in place, there can be no guarantees
that these discussions will materialize.





The
market for cleaning and garden products is highly competitive. Although these
products are natural and that some of which carry USDA BioPreferred designation
and therefore distinguishable from most other more established brands, which do
contain chemicals, it is possible that many consumers neither care about that
fact, nor understand its significance. There are a number of other established
providers that have greater resources, including more extensive research and
development, marketing and capital than we do and also have greater name
recognition and market presence. These competitors could reduce their prices and
thereby decrease the demand for the Compmany’s products and technologies. The
Company expects competition to intensify in the future, which could also result
in price reductions, fewer customers and lower gross profit
margins.


9








Access to
retail or commercial opportunities may be restricted due to pre-existing
agreements that prohibit these potential vendors from selling its products, or
certain retailers may require substantial payments (slotting fees) for shelf
space which is beyond the Company's financial capabilities. Such payments are
common in the retail industry, but historically, the Company has been successful
in mitigating these costs due to the uniqueness of its products.  In
the future some existing retailers may require such payments in order for the
Company to continue to sell them and new retail outlets may require payments to
sell our product.  The Company will treat each opportunity on a case
by case basis. It must be emphasized that lack of revenues and somewhat limited
financial resources may also have a serious impact on the ability to sell these
products in various venues.





5.
            The
      Sources and Availability of Raw
Materials





The
Company is not necessarily dependent on any one vendor for its raw materials.
All products which are sold and marketed by the Company are fulfilled by its
fulfillment companies. Although the Company believes it can secure other
suppliers should the need arise, it would expect that the deterioration or
cessation of any relationship would have a temporarily adverse effect, until new
relationships are satisfactorily in place.





The
Company may also run the risk of manufacturer price increases and component
shortages. Competition for products or materials in short supply can be intense,
and it may not be able to compete effectively against other purchasers who have
higher volume requirements or more established relationships. Even if
manufacturers have adequate supplies of components, they may be unreliable in
meeting delivery schedules, experience their own financial difficulties, provide
components of inadequate quality or provide them at prices which reduce our
profit. Any problems with our third-party suppliers can be expected to
temporarily have a material adverse effect on our financial condition, business,
results of operations and continued growth prospects. Our principal suppliers
are:





Abott-Action,
      Inc.
                  -
                  Shipping
      MaterialsEnzyme
      Solutions, Inc.
                  
                  Organic
      Liquid ConcentratesKey
      Container, Corp.
                  -
                  Shipping
      MaterialsLightning
      Labels Inc.
                  -
                  Bottle
      LabelsTursso
      Label, Inc.
                  -
                  Bottle
      LabelsMicrobial
      Technologies, Ltd.
                  -
                  Organic
      Liquid ConcentratesWebco
      Chemical Corp.
                  —
                  Liquid
      FulfillmentWebco
      Chemical Corp.
                  -
                  Bottles
      and SprayersOrganica
                  
                  Neem
      concentrateMcKernan
      Packaging
                  -
                  Bottles
      and Sprayers





6.
            Dependence
      on a Single or Few Customers




The
Company currently has several customers. It has developed and continues to
develop multiple strategic alliances with several distributors and independent
sales organizations. The Company does not anticipate that it will ultimately be
dependent on a single customer or small group of customers.




10


7.
            The
      Importance of Patents, Trademarks, Licenses, Franchises and Concessions
      Held





To
protect its rights to its intellectual property, the Company relies on a
combination of trademark and copyright law, patents, trade secret protection,
confidentiality agreements, and other contractual arrangements with its
employees, affiliates, clients, strategic partners, and others. The protective
steps it has taken may be inadequate to deter misappropriation of the Company's
proprietary information. The Company may be unable to detect the unauthorized
use of, or take appropriate steps to enforce its intellectual property rights.
The Company has registered certain of its trademarks in the United States and
has pending U.S. applications for other trademarks and patents.





Effective
trademark, copyright, patent, and trade secret protection may not be available
in every country in which it offers or intends to offer its products or
services. In addition, although The Company believes that its proprietary rights
do not infringe on the intellectual property rights of others, other parties may
assert infringement claims against the Company or claims that we have violated a
patent or infringed a copyright, trademark, or other proprietary right belonging
to them. Such claims, even if not meritorious, could result in the expenditure
of significant time and money on our part which could materially adversely
affect the Company's business, results of operations, and financial
condition.




The
Company incorporates certain licensed third-party technology in some if its
services. In these license agreements, the licensors have generally agreed to
defend, indemnify, and hold the Company harmless with respect to any claim by a
third party that the licensed software infringes any patent or other proprietary
right. The Company cannot assure that these provisions will be adequate to
protect it from infringement claims. The loss or inability to obtain or maintain
any of these technology licenses could result in delays in introduction of new
services.





The
Company has trademark protection for its "Garden Guys Down to Earth Up to
Date"(TM) trademark, for its "Dragonfly Organix from the Earth to the World"(TM)
brand-name trade mark,for " Mother
Natures Cuisine(TM) Feed your Land from Mother Nature" brand name trade mark,
and the picture of the "Plate with Garden Hand Fork and Hand Trowel with Gingham
Placemat" trade dress. Final action on these applications is pending subject to
publication in the Official Gazette.





8.
            Government
      Approval





Government
approval is required for some of the Company's current products. The initial
approval process is generally handled by the manufacturer.  Should a
manufacturer that registers a product with the Federal Government such as the
EPA and then sub-registers said product to the Company, and not meet proper
Government approval and not notify the Company of any such wrong doing, this
could have a material and financial effect on some of the Company’s products and
sales.  The Company has received official notification that it is a
participant in the United States Department of Agriculture’s (USDA) BioPreferred
program for some of its cleaners, hand sanitizers, and agricultural
products.  BioPreferred is a Federally managed program that aims to
increase the purchase and use of renewable, sustainable biobased
products.





9.
            Effect
      of Any Existing or Proposed Government
  Regulations





Other
than normal government regulation that any business encounters, the Company's
business is not significantly affected by any government regulations. As a
publicly held company, we do have extensive responsibilities and expenses to
assure compliance with federal and state securities regulation.


11


10.
            Research
      and Development Costs





The cost
of Research and Development is borne initially by the manufacturer and built
into our manufacturing expense. Since the Company began operations in August
2003 it has spent over one million dollars on market research and development of
its markets. The revenues of the Company will be primarily from strategic
alliances as described above. Revenues generated, while paying indirectly for
research and technology costs accrued to date, will fund the operations of the
Company, which includes funding any ongoing research and
development.





11.
            Cost
      and Effects of Compliance With Environmental Laws and
      Regulations





The
Company is not involved in a business which involves the use of materials in a
manufacturing stage where such materials are likely to result in the violation
of any potential environmental rules and/or regulations. Further, the Company
does not own any real property which would lead to potential liability as a land
owner. Therefore, the Company does not anticipate that there will be any costs
associated with compliance with environmental laws and regulations. The Company
does, however, pay registration fees to each state in which it sells its
fertilizers and insecticide/fungicide products.





12.
            Employees





As of the
date hereof, the Company employs 5 full-time employees and 2 part-time
employees. The Company hires independent contractors on an "as needed" basis
only. It has no collective bargaining agreements with its employees. The Company
believes that its employee relationships are satisfactory. In the long term, the
Company will hire additional employees, as needed, based on the growth of the
Company.





We will
be dependent on our current management team for the foreseeable future. The loss
of the services of any member of this management group could have a material
adverse effect on our operations and prospects. Our success will be dependent to
a substantial degree on Sam Jeffries and other key management personnel. CEO Sam
Jeffries' continued involvement is particularly critical. In the event he
becomes unavailable, it would have a material adverse effect on operations. At
this time, we have no employment agreements in place and we have a "key man"
insurance policy on Sam Jeffries, but no one else. The expansion of our business
may be hampered by our inability to attract and retain additional qualified
personnel, as needed, for the management team. There is no assurance that we can
find suitable management personnel or that we will have the financial resources
to hire or retain them once found.





13.
            Cautionary
      Statement on Forward Looking
Statements





Certain
statements in this Report constitute "forward — looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934. Management believes such statements to be
relevant to an assessment and understanding of our results of operations and
financial condition, which are based upon our financial statements prepared in
accordance with generally accepted accounting principles in the USA. The
discussion should be read in conjunction with our financial statements and notes
thereto, appearing in this report.





The
preparation of these financial statements requires us to make estimates and
judgments that may affect the reported amount of assets and liabilities,
revenues and expenses, and the related disclosure of such contingent assets and
liabilities at the date of our financial statements. Actual results may
substantially differ from these estimates under different assumptions and
conditions.


12


This
report also contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:





o
            Business
      strategy





o
            Expansion
      of our manufacturing capabilities





o
            Plans
      for entering into collaborative
agreements





o
            Anticipated
      sources of funds to finance our operations following the date of this
      report





The
Company is in the process of applying for a 2.5 million dollar loan through the
State of Rhode Island as part of the Rhode Island Economic Development Job
Creation Guaranty Program.





o
            Plans,
      objectives, expectations and intentions contained in this report that are
      not historical fact





The
following words and financial projections contain figures related to plans,
expectations, future hoped-for results, performance, events or other matters
that are "forward-looking statements". When used in the section describing our
Plan of Operations, words such as "estimate", "project", "intend", "expect",
"anticipate", and other similar expressions are intended to be forward-looking
statements. Such statements involve numerous risks and uncertainties, including,
but not limited to, the science of organics, the development of the Company's
products, markets for those products, timing and level of customer orders,
competitive products and pricing, changes in economic conditions and other risks
and uncertainties. Actual results, performance and events could likely differ
materially and adversely. Investors are cautioned not to place undue reliance on
these forward looking statements which are often no more than Management's
expression of its expectations. The Company undertakes no obligation to release
or deliver to investors, revisions to these forward-looking statements to
reflect events or circumstances after the date of this report, the occurrence of
unanticipated events or other matters that may occur in the future.





ITEM 2.
DESCRIPTION OF PROPERTY





The
Company is in a "tenant at will" agreement with Leo S. Arcand (Lessor) of 114
Broadway, Raynham, MA. The premises encompass the North side of a one story,
commercial, wood building with approximately 500 square feet of office space.
The monthly lease payment is $600 per month. It is located in an area that has
easy access to major highways. Products are received and shipped by contract
carriers.





The
Company also maintains storage space at two locations. The cleaning and
gardening products raw material and finished goods inventories are stored at our
fulfillment house, Webco Chemical in Dudley, Massachusetts. The storage and
picking is performed as a function of fulfillment and the Company is not
separately charged for storage. We utilize about 10,000 sq. ft. of space. We do
not have a warehouse agreement with Webco.





In
addition, the Company rents a small storage unit on a month-to-month basis with
Extra Space Storage located at 266 Broadway, Raynham, MA, The storage unit is
approximately 20' X 20' and is used for storing office records, sales support
materials and small amounts of corrugated materials used for shipping. The
monthly payment for this space is $129.





13


ITEM 3.
LEGAL PROCEEDINGS





Registrant
is the defendant in a lawsuit commenced by Entercom Boston LLC in Superior
Court, Suffolk, MA. (CA 10-1652E) on May 17, 2010. Plaintiff alleges that
Registrant owes approximately $64,000 for advertising and air time. 
OSM has asserted a counterclaim, asserting breach of contract and other
defenses.




Registrant
has also been sued in New Bedford, MA. Civil Court, Docket no. 201033CV001618,
by Saga Communications of New England, LLC. d/b/a WZAN-AM Radio for $4,233 in
alleged unpaid advertising and air time.  The suit was commenced
on October 20, 2010 and Registrant has counterclaimed for breach of
contract.





ITEM 4.
(Removed and Reserved)


14


PART
II





ITEM 5.
              MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASERS OF EQUITY
      SECURITIES





(a)            Market
Information. The Company's common stock has been listed on NASDAQ's Over The
Counter Bulletin Board since May 5, 2008 and is traded under the symbol
OGSM.





(b)            Holders.
As of December 15, 2010, there are 155 record holders of 13,840,722 shares of
the Company's common stock.





(c)            Dividends.
The Company has not paid any cash dividends to date and does not anticipate or
contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.





(d)            Recent
sales of unregistered securities.





On
December 16, 2009, the Company commenced a private stock offering, whereby it
authorized the issuance of 3,333,334 shares of its common stock for a total
raise of $500,000.  The offering was closed on March 31, 2010 and
$37,097 of the $500,000 was raised and 247,317 shares of common stock were
issued.





On
January 21, 2010, the Board of Directors approved the issuance of 1,773,333
shares of common stock in satisfaction of $260,000 in related party notes
payable and $6,000 in accrued interest to a director of the Company. As part of
the agreement, the remaining balance of the related party note of $100,000 (See
Note 11) will be due and payable over the next 7 years at an interest rate of 8%
per annum.





On
January 21, 2010, the Board of Directors approved the issuance of 680,000 shares
of common stock in satisfaction of $90,000 in related party notes payable and
$12,000 in accrued interest to a director of the Company. As part of the
agreement, the remaining balance of the related party note of $14,000 (See Note
11) will be due and payable over the next 2 years at an interest rate of 8% per
annum.





On May 1,
2010 the Company commenced a private stock offering, whereby it authorized the
issuance of 5,000,000 shares of its common stock for a total raise of
$500,000.  As of September 30, 2010 $92,005 of the $500,000 was raised
and 920,050 shares of common stock were issued.





For a
more complete list of previous sales of unregistered securities by the Company,
please refer to Part 5 of Form 10K for the year ended September 30, 2009, which
is incorporated by reference herein.





(e)
            Description
      of Securities.





(i)
            Common
      Stock





The
Company is authorized by its Certificate of Incorporation to issue an aggregate
of 100,000,000 shares of capital stock, of which 100,000,000 are shares of
Common Stock, par value $.0001 per share (the "Common Stock").


15


The
following is a summary description of our capital stock and certain provisions
of our certificate of incorporation and by-laws, copies of which have been
included as exhibits to this report. The following discussion is qualified in
its entirety by reference to such exhibits.





All
common shares are equal to each other with respect to voting; dividend rights
and liquidation rights. Special meetings may be called by the Board of Directors
or by any officer instructed by the directors to call the meeting. Shareholders
have no right to call special meetings. Holders of common shares are entitled to
one vote at any meeting of the shareholders for each common share they own as of
the record date fixed by the Board of Directors. At any meeting of shareholders,
a majority of the outstanding common shares represented at the meeting will
govern, even if this is substantially less than a majority of common shares
outstanding. Directors are elected by a plurality of votes. Holders of shares
are entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefore; and on liquidation are
entitled to participate pro rata in a distribution of assets available for such
a distribution to shareholders. Assets for conversion, pre-emptive or other
subscriptions are not available for such a distribution to shareholders. Shares
do not have cumulative voting rights which mean that the holders of more than
fifty percent of the common shares voting for election of directors may elect
all the directors, if they choose to do so. In such event, the holders of the
remaining shares aggregating less than fifty will not be able to elect
directors.




This
description of certain matters relating to the securities of the Company is a
summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Form 10-KSB for the year ended September 30, 2007, which is
incorporated by reference herein.





(ii)
            Debt
      Securities. None





(iii)
            Securities
      To Be Registered. None





ITEM 6.
SELECTED FINANCIAL DATA   Not Applicable





ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS; PLAN OF OPERATIONS





Results
of Operations




Year
Ended September 30, 2010, Compared to Year Ended September 30, 2009





Revenues
for FY 2010 totaled $224,680 compared to $224,999 for FY 2009. Stable sales
growth is mainly due to the company’s efforts to discontinue unprofitable
product lines while increasing sales in higher margin lines. The largest growth
came from self-branded cleaners using wider distribution networks in 2010, while
reducing lower-margin product sales to retail end users versus
2009.




Gross
profit was 41.7% in FY 2010 compared to 18.4% in FY 2009. The increase in
gross margin can be attributed mainly to a concerted effort toward
higher-margin, lower cost products via superior distribution
networks.





Operating
expenses decreased by almost 50% during FY 2010, primarily due to decreases in
staffing, advertising costs via radio show and professional
consulting.  These reductions were necessary to reduce overhead
costs


16


Other
Income/(Expense) was significantly lower in due to no warrants being issued in
FY 2010 versus FY 2009.  In FY 2009, warrants were granted to entice
investors to participate in our private placement, incurring a warrant expense
of $954,837. Interest expense increased 20.9% in FY 2010 when compared to FY
2009 primarily due to the Notes Payable - Related Party increases as discussed
in the footnotes to the Financial Statements included in this
filing.





Liquidity
and Capital Resources





Cash was
$46,237 at September 30, 2010 compared to $24,547 in FY 2009 or an increase of
$21,690. Net Cash Used in Operating Activities decreased by 50% or $394,085 from
the prior fiscal year.  The net loss of the Company of $693,761 is
offset, in part, by stock issuances for cash and options granted during the year
in the amount of $455,394, with an additional $367,755 in stock issuances for
conversion of debt.   Net Cash Provided by Financing Activities was
$416,296 in FY 2010 compared to $785,400 in FY 2009 or a decrease of $369,104 or
47% which was due to decreased proceeds from issuance of common stock, offset by
increased borrowing from a related party.





Significant
Accounting Policies





Financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States.





Significant accounting
policies are defined as those that are reflective of significant judgments and
uncertainties, and potentially result in materially different results under
different assumptions and conditions and are incorporated in these financial
statements. We believe that our significant accounting policies are limited
to those described below.





Principles
of Accounting


The
Company employs the accrual method of accounting for both financial statements
and tax purposes. Using the accrual method, revenues and related assets are
recognized when earned, and expenses and the related obligations are recognized
when incurred. The Company has elected a September 30th year end.





Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.





Revenue
Recognition


We earn
our revenues from the distribution of garden and cleaning products to retailers
and directly to consumers via our internet site and from advertising contracts.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services
rendered; (3) the fee is fixed and determinable; and (4) collectability is
reasonably assured.





Revenue
from garden and cleaning products is recognized upon shipment of the product.
The distribution of products is governed by purchase orders or direct sale
agreements which fix the price and delivery date.  In accordance with
ASC
605-45 “Accounting for Shipping and Handling Fees and Costs,”
distribution costs charged to customers are recognized as revenue when the
related product is shipped. Advance payments are recorded on the balance sheet
as deferred revenue until the revenue recognition criteria is
met.


17


Revenue
from radio advertising is derived from three sources, the sale of commercial
spots on the Garden Guys radio talk shows, the sponsorship of informative show
segments and hosting live remote broadcasts. Revenue from radio advertising is
recognized after the commercial has been aired and/or a remote broadcast has
taken place. Customers will prepay for radio spots or remote broadcasts at the
time they contract with the Company to air their commercials or host a remote
broadcast. The Company will carry this prepayment as a liability, until such
time as economic performance takes place. Money received is refundable prior to
the airing of commercials or the airing of the remote broadcast, adjusted by any
production or other direct costs incurred up to that point in time.





Cash
and Cash Equivalents


The
Company considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents. During the past twelve
months the Company maintained cash in bank accounts which, at times, exceeded
Federal Deposit Insurance Corporation insured limits. The Company has not
experienced, nor does it anticipate, any losses on these accounts and believes
their risk to be minimal.





Accounts
Receivable


The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. Periodically, the Company evaluates its accounts receivable and
establishes an allowance for doubtful accounts, based on a history of past
write-offs and collections and current credit conditions. The Company feels that
the entire balance of Accounts Receivable as of September 30, 2010 and September
30, 2009 are collectable and, therefore, no allowance has been taken. The full
value of accounts receivable is held as collateral for the Company’s
Line of Credit.





Inventory


The
inventory is stated at the lower of cost (first-in-first-out method) or market.
Inventory items consist of raw material and finished goods. Raw materials
consist of labels, bottles, sprayers, fertilizers and shipping materials.
Finished goods consist of fertilizer bags and bottles of organic cleaning
products ready for shipment. The inventory consists of newly purchased items;
therefore, there is currently no allowance for excess or obsolete inventory. The
full value of inventory is held as collateral for the Company’s Line of
Credit.





Prepaid
Expenses


Business
expenses, including consulting expenses, that are paid for in advance of
services being rendered are treated as prepaid expenses. On occasion, the
Company pays for prepaid expenses with common stock. When these transactions
occur, they are identified as negative components of stockholders’
equity.





Fixed
Assets


Fixed
assets are stated at cost less accumulated depreciation. The Company has elected
to capitalize and depreciate any fixed asset item costing in excess of $1,000.
 Expenditures for minor replacements, maintenance and repairs which do not
increase the useful lives of the property and equipment are charged to
operations as incurred. Major additions and improvements are capitalized.
Depreciation and amortization are computed using the straight-line method over
estimated useful lives of three to seven years. The full value of fixed assets
is held as collateral for the Company's Line of Credit.


18


Advertising


The
Company follows the policy of charging the costs of advertising to expense as
incurred. Advertising expense primarily consists of the Company’s three hour
weekly Garden Guys radio call in program with Greater Media and Citadel
Communications, slotting fee expense, display case costs, samples and trade show
participation. The total advertising expense for the radio show contracts was
$54,200 and $209,615 for the twelve months ended September 30, 2010 and
September 30, 2009, respectively. In addition, the Company advertises its
products on its own website and in numerous trade and industry publications.
Total advertising, including radio contracts for the years ended September 30,
2010 and 2009 was $69,790 and $311,362, respectively.





Income
Taxes


The
Company utilizes the liability method of accounting for income taxes.
 Under the liability method, deferred income tax assets and liabilities are
provided based on the difference between the financial statement and tax bases
of assets and liabilities measured by the currently enacted tax rates in effect
for the years in which these differences are expected to reverse.  Deferred
tax expense or benefit is the result of changes in deferred tax assets and
liabilities.





Fair
Value of Financial Instruments


On
January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value
Measurements.”  This guidance defines fair value, establishes a
three-level valuation hierarchy for disclosures of fair value measurement and
enhances disclosure requirements for fair value measures. The three levels are
defined as follows:





·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





·
            Level
      3 inputs to valuation methodology are unobservable and significant to the
      fair measurement.





The
carrying amounts reported in the balance sheets for the cash and cash
equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The carrying value of
related party notes payable approximates fair value because negotiated terms and
conditions are consistent with current market rates as of September 30, 2010 and
2009.





Stock-Based
Compensation


In
December 2004, FASB issued FASB ASC 718 (Prior authoritative
literature:  SFAS No. 123R, “Share-Based Payment”).  FASB
ASC 718 establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services.  It
also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of those equity
instruments.  FASB ASC 718 focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions.  FASB ASC 718 requires that the compensation cost
relating to share-based payment transactions be recognized in the financial
statements.  That cost will be measured based on the fair value of the
equity or liability instruments issued.


19


The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of FASB ASC
505-50 (Prior authoritative literature:  EITF 96-18, “Accounting for
Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting
Recognition for Certain Transactions Involving Equity Instruments Granted to
Other Than Employees”).   The measurement date for the fair value of
the equity instruments issued is determined at the earlier of (i) the date
at which a commitment for performance by the consultant or vendor is reached or
(ii) the date at which the consultant or vendor’s performance is complete.
In the case of equity instruments issued to consultants, the fair value of the
equity instrument is recognized over the term of the consulting
agreement.  Stock-based compensation related to non-employees is
accounted for based on the fair value of the related stock or options or the
fair value of the services, whichever is more readily determinable in accordance
with FASB ASC 718.




Recently
Issued Accounting Standards





In May
2009, FASB issued FASB ASC 855-10 (Prior authoritative literature: SFAS No. 165,
"Subsequent Events"). FASB ASC 855-10 establishes principles and requirements
for the reporting of events or transactions that occur after the balance sheet
date, but before financial statements are issued or are available to be issued.
FASB ASC 855-10 is effective for financial statements issued for fiscal years
and interim periods ending after June 15, 2009. As such, the Company adopted
these provisions at the beginning of the interim period ended June 30, 2009.
Adoption of FASB ASC 855-10 did not have a material effect on our financial
statements.





In June
2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166,
“Accounting for Transfers of Financial Assets, an Amendment of FASB Statement
No. 140”), which eliminates the concept of a qualifying special-purpose entity
(“QSPE”), clarifies and amends the de-recognition criteria for a transfer to be
accounted for as a sale, amends and clarifies the unit of account eligible for
sale accounting and requires that a transferor initially measure at fair value
and recognize all assets obtained and liabilities incurred as a result of a
transfer of an entire financial asset or group of financial assets accounted for
as a sale. This standard is effective for fiscal years beginning after November
15, 2009. The Company is currently evaluating the potential impact of this
standard on its financial statements, but does not expect it to have a material
effect.





In June
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS
No. 167, “Amendments to FASB Interpretation No. 46(R)”) which amends the
consolidation guidance applicable to a variable interest entity (“VIE”). This
standard also amends the guidance governing the determination of whether an
enterprise is the primary beneficiary of a VIE, and is therefore required to
consolidate an entity, by requiring a qualitative analysis rather than a
quantitative analysis. Previously, the standard required reconsideration of
whether an enterprise was the primary beneficiary of a VIE only when specific
events had occurred. This standard is effective for fiscal years beginning after
November 15, 2009, and for interim periods within those fiscal years. Early
adoption is prohibited. The Company is currently evaluating the potential impact
of the adoption of this standard on its financial statements, but does not
expect it to have a material effect.





In June
2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS No. 168, "The
FASB Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles - a replacement of FASB Statement No. 162").FASB
ASC 105-10 establishes the FASB Accounting Standards Codification TM
(Codification) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. FASB ASC 105-10 is effective for
financial statements issued for fiscal years and interim periods ending after
September 15, 2009. As such, the Company is required to adopt these provisions
at the beginning of the fiscal year ending September 30, 2009. Adoption of FASB
ASC 105-10 did not have a material effect on the Company’s financial
statements.


20


In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force (“ASU 2009-13”). ASU 2009-13 changes accounting for certain
multiple deliverable arrangements. ASU 2009-13 addresses the separation of
deliverables and how to measure and allocate the arrangement consideration to
one or more units of accounting in multiple deliverable arrangements. Currently,
under the residual method of allocation, we use objective and reliable evidence
of the fair value of the undelivered elements to separate deliverables in
multiple deliverable arrangements. ASU 2009-13 eliminates the residual method
and requires that consideration from the arrangement be allocated to all
deliverables using the relative selling price method. ASU 2009-13 requires
additional disclosures related to multiple deliverable revenue arrangements upon
adoption and is effective for fiscal years beginning after June 15, 2010. In
addition, ASU 2009-13 may be early adopted. It may be implemented with either
prospective or retrospective application; however, if early adoption is chosen,
the entity must either adopt at the beginning of its fiscal year, or adopt using
retrospective application. We are currently evaluating the impact ASU 2009-13
will have on our financial position and results of operations, whether to early
adopt and which implementation method to use upon adoption if not
prescribed.





In
October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue
Arrangements That Include Software Elements—a consensus of the FASB Emerging
Issues Task Force (“ASU 2009-14”). ASU 2009-14 changes the accounting for
revenue arrangements that include both tangible products and software elements.
Tangible products containing software components and non-software components
that function together to deliver the tangible product’s essential functionality
is no longer within the scope of the software revenue guidance. Under prior
guidance such arrangements were accounted for as software if the software was
determined to be more than incidental. ASU 2009-14 requires that any hardware
components of such arrangements be excluded from software revenue guidance and
that any essential software that is sold with or embedded within the product
also be excluded from software revenue guidance. This ASU is effective for
fiscal years beginning after June 15, 2010. In addition, ASU 2009-14 may be
early adopted. ASU 2009-14 may be implemented with either prospective or
retrospective application; however, if early adoption is chosen, the entity must
either adopt at the beginning of its fiscal year, or adopt using retrospective
application. Further, ASU 2009-14 must be adopted in the same period and with
the same implementation method as ASU 2009-13. We are currently evaluating the
impact ASU 2009-14 will have on our financial position and results of
operations, whether to early adopt and which implementation method to use upon
adoption if not prescribed.





In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value measurements.
This ASU requires  additional  disclosures regarding significant
transfers in and out of Levels 1 and 2 of fair value  measurements,
 including a description of  the  reasons  for  the
 transfers.  Further, this ASU requires additional disclosures for the
activity in Level 3 fair value measurements, requiring presentation of
information about purchases, sales, issuances,  and settlements  in
the  reconciliation  for  fair  value measurements. This ASU
is effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The adoption of ASU 2010-06 did not
have a material impact on the Company’s consolidated financial
statements.





In
February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU
2010-09”) as amendments to certain recognition and disclosure requirements. The
amendments remove the requirement for an SEC filer to disclose a date in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of U.S. GAAP. Those amendments remove potential
conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were
effective upon issuance for interim and annual periods. The adoption of ASU
2010-09 did not have a material impact on the Company’s consolidated
financial statements.


21


Forward
Looking Statements





The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of our results of operations and
financial condition, which are based upon our financial statements. The
discussion should be read in conjunction with our financial statements and notes
thereto, appearing in this Report.





The
preparation of these financial statements requires us to make estimates and
judgments that may affect the reported amount of assets and liabilities,
revenues and expenses, and the related disclosure of such contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions and conditions.





This
Report also contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:





·
            Business
      strategy





·
            Expansion
      of our manufacturing capabilities





·
            Plans
      for entering into collaborative
agreements





·
            Anticipated
      sources of funds to finance our operations following the date of this
      Report





·
            Plans,
      objectives, expectations and intentions contained in this prospectus that
      are not historical fact





The
following words and financial projections contain figures related to plans,
expectations, future results, performance, events or other matters that are
“forward-looking statements”. When used in the Plan of Operations, words such as
“estimate”, “project”, “intend”, “expect”, “anticipate”, and other similar
expressions are intended to identify forward-looking statements. Such statements
involve numerous risks and uncertainties, including, but not limited to, the
science of organics, the development of the Company’s products, markets for
those products, timing and level of customer orders, competitive products and
pricing, changes in economic conditions and other risks and uncertainties.
Actual results, performance and events are likely to differ and may differ
materially and adversely. Investors are cautioned not to place undue reliance on
these forward looking statements which speak only as of the date of the Plan of
Operations. The Company undertakes no obligation to release or deliver to
investors revisions to these forward-looking statements to reflect events or
circumstances after the date of the Plan of Operations, the occurrence of
unanticipated events or other matters that may occur.


22


PLAN
OF OPERATIONS





OSM,
Inc., is a sales and marketing company that specializes in the sales and
marketing of non-food natural and organically certified
products.  Primarily cleaners, hand sanitizers and fertilizers,
developed through much of its own licensed technology the Company uses a
contract manufacturer located in Massachusetts for much of its
production.  The Company is continuing to focus its efforts for sales
opportunities to Federal government agencies, military
branches,  small to mid-sized retail supermarkets, hotel and
hospitality facilities, colleges, universities, and laboratories, local and
regional government agencies, and lawn and garden centers. In addition, new
markets continue to be pursued that include on line retail operations, some of
whom carry their own inventory and others who may rely on the Company to fulfill
their orders. The Company also will continue to offer its products for private
label.  Essentially, OSM, Inc. has become a sales and marketing
company of branded certified organic and natural products which markets into
many different industries throughout the world.





The
Company continues to develop its operating history on which to evaluate its
prospects. The risks, expenses and difficulties encountered by an expanding
company must be considered when evaluating the Company’s prospects. Management
believes that minimum funds sought to be raised during 2010 and 2011 and
projected revenues from operations will be sufficient to reach self-sufficiency
by late 2011 or early 2012. Expansion of the business into 2011 and beyond will
require additional investment through private placement offers or the ability of
the Company to secure funding elsewhere. There can be no guarantee, however,
that the Company will be able to raise either the minimum capital it needs to
sustain its 2011 operations or the larger amount of capital it will need to
expand and grow the business well into 2011 and beyond. Failure to do so would
likely have an adverse effect on the Company’s ability to continue its
operations.  Most recently, the Company has been loaned money by its
President & CEO, Sam Jeffries.





The
Company believes it is equipped with the necessary products to go to market and
has developed strategic alliances with several distributors in various
industries, however given the existing economic climate, and lack of sales to
date, operating expenses cannot be predicted with any real degree of certainty.
They will depend on several factors, including, but not limited to, marketing
expenses, continued acceptance of the Company’s products, competition for such
products and the current economic environment.  In order to preserve
cash, the Company Officers have elected to not be compensated with cash and in
lieu thereof, will receive compensation in the form of stock, stock options, and
or warrants for any unpaid time.





Management
has no firm basis for projecting the increase in revenue required to sustain
operations, as anticipated above. Such assumptions are based almost entirely on
the strategic relationships the Company has forged which it believes will
ultimately translate into operating revenues. It is important to stress,
however, that these assumptions are not at all based on firm commitments from
customers or on other tangible evidence.





The
Company recently entered into an Agreement with Land O’Lakes Purina Feed LLC
(LOLPF) to act as its preferred sales agent to promote sales to and solicit and
process orders of Products from organic fertilizer customers on behalf of LOLPF
in the United States and Canada.  Presently, it is not an exclusive
relationship.


23


The
Company anticipates its sales will continue to grow with the addition of W.W.
Grainger as one of its leading distributors in the many sales sectors
aforementioned.  Since agreement finalization earlier in 2010, the
Company continues to be proactive in sales tool offerings to its
employees.  The Company will have some of its 11 total horticultural
items (fertilizers, insect and animal repellants), on display and showcased in
the ‘Sustainability booth’ at the upcoming Grainger trade show in late February
early March.  The plan is to further educate Grainger employees and
customers of the new products and product category. Moreover, the Grainger
Sourcing division will continue selling OSM cleaners & hand sanitizers.In addition, OSM
products will become available on the GSA contract schedule through
Grainger.  The OSM/Bradfield Organics fertilizers offered by Grainger
will be manufactured by LOLPF and distributed by Grainger.  As this
relationship continues to grow and mature, the Company anticipates sales growth
and a much larger joint opportunity and positive outlook going forward given the
positioning, timing, and USDA BioPreferred designation of these
products.





The
Garden Guys radio show is still looking to have a key GSA Administrator on the
radio show to discuss GSA’s “green initiatives” and how they relate to sales
with the US Government through GSA and its partners.  The Garden Guys
radio show recently interviewed a senior scientist from the United States
Department of Energy.





The
Company continues to work closely with the USDA (United Stated Department of
Agriculture) BioPreferred group by adding its products as new categories are
approved for USDA BioPreferred designation (www.biopreferred.gov
).  The Company anticipates that as new categories are added by
BioPreferred, any of the Company’s applicable items will be later
added.  In addition, should the Company attain additional funding, it
will look to have applicable products become certified by a third party
certification group.  It currently has a relationship with Green
Seal.





The
Company continues to work towards growing its business as a registered
vendor/supplier for the Department of Defense, as part of the DOD
EMALL.  The Company is in discussions with an independent sales agent
to the DOD and its affiliates. There have not been any orders received to
date.





The
Company is currently in discussions with a major world wide distributor of fire
safety equipment and apparatus about some of its products.  These may
be sold under the Company’s own OSM brand or a private label.  The
discussions are still in the developmental stages.





The
Company recently entered into a Supplier Service Agreement with IntraMalls LLC
of Hunt Valley, MD.  The Company will act as a supplier in the NIH
IntraMall e-commerce platforms offered to various government or commercial
buyers.  To date, there have not been any orders
received.





The
Company currently has in excess of 100 SKU’s in its product line
offering.  Should other opportunities present themselves whereby the
Company can capitalize on immediate sales growth then the Company will carefully
evaluate such opportunities provided it has the necessary funds to do
so.





In the
current market, consumers have become more discretionary in their disposable
income since the economic downturn. They have embraced "trading down" as well as
searching for better bargains online. This is especially true of the Millennial
generation's 70-80 million members (21-33 year olds) who are willing to
experiment and are bargain savvy, using electronic media to find the best
deals.  Since the Company started offering its e-mail newsletter, with
weekly coupons, on-line sales have increased by 54 %.  The Company
anticipates its on-line sales will continue to grow as its products become more
mainstream.


24


The
Company continues to develop relationships where there is an increasing demand
for consistent performance and safe environmental acceptability of
eco-products.  Should the present “green movement” continue, the
Company may be well positioned capitalize in these sales.  Together,
and in conjunction with its recent USDA BioPreferred status, the Company
believes that it could provide simple, safe solutions for the replacement of
harmful chemicals increasingly being found in the various work places
encountered daily by such entities as W.W. Grainger, Fisher Scientific and
others.





The
Company continues to maintain an e-commerce internet presence hosting five
different sites, www.garden-guys.com ,
www.mothernaturescuisine.com
, www.osm-inc.com ,
www.naturalnevrdull.com
, and www.dragonflyorganix.com
..





Since its
participation in the USDA BioPreferred program, this distinction continues to
open doors for the Company into those distributors who sell the national
government through GSA (General Services Administration), or state and local
contracts and other contracts where there may be an increased interest for USDA
BioPreferred approved products.  When or should additional resources
become available, the Company anticipates it will apply for its own GSA
number.  Until then, it will continue to rely upon distributors and or
brokers with whom it has relations.





The
Company’s average monthly sales for the  quarter ending 9/30/2010
increased by 5.8% over the average monthly sales for the same quarter of the
prior fiscal year and profit margins for the current fiscal year are have
steadily increased vs. the prior fiscal year. This is due in part to driving
down such costs as operational & freight costs, slotting fees, radio
expenditures, and salary cutbacks. The Company chose to maintain its largest
network station while eliminating all of its other stations, thereby eliminating
cost and redundancy.  In addition, the Company cut back the amount
paid out to its weekly radio talent.  The Company continually looks
for opportunities to cut costs that don’t impact customer service or product
quality.





In
2011, the Company projects a loss.  If, however, the Company is
unsuccessful in raising additional capital by the end of spring of 2011, the
probability of hitting its short term financial goals will be seriously
impacted.





The
Company will continue to use the radio as the primary source for marketing and
creating brand awareness of its non-food, and natural product
offerings.  The Company’s commercials are currently being aired weekly
on a Boston based FM talk station. Sam Jeffries, the Company’s President,
continues to host a live, weekly three hour Sunday morning garden talk radio
show which is currently heard on Greater Media radio 96.9 FM WTKK and also
available on the internet via streaming or Podcasts through one of the Company’s
websites, www.garden-guys.com
..  He shares the responsibility with two other hosts of his choosing
and therefore works on a rotating schedule.  Using this allows it to
keep listeners informed about the importance of considering natural, organic,
chemical-free alternatives, how they should use these products and where they
can buy them. This also forges relationships with key people in various scopes
of business, politics and the general public.  Since the Company pays
for the air time, it also receives an inventory of commercials which are used as
a follow up during the work week to educate consumers about its organic and
natural products, hand sanitizers, etc. and where they can purchase these
products. This also creates a medium for the Company to offset some of its radio
and related expenses by selling the air time to potential sponsors and or
advertisers of the radio show.  The Company has yet to sell all of the
inventory allotted or enough to cover the current costs of the
radio.  Owned by Greater Media, WTKK 96.9 FM is the base
station.  Based in Boston, MA, it is part to one of the largest
markets in the country.





As
previously noted, the Company has strategic relationships established with key
sales representative and distributor organizations in the markets that it
services and has developed very strong relationships with several vendors for
the fulfillment of its organic liquid and granular fertilizer product lines. The
Company plans to vigorously pursue all strategic relationships that enhance its
ability to deliver quality non-food, all natural products at reasonable
prices.


25


The
Company’s projected Plan of Operations for 2011 consist of the following: (000’s
omitted)





Year 2011Revenues
                    
                    $
                    4,140Margin
                    
                    
                    1,209Selling,
      General and Administrative Expense
                    
                    
                    1,198Net
      Profit from Operations
                    
                    $
                    11





The
Company continues to rely on invested capital and short-term debt. It also
continues to seek additional financing of $2,500,000 to maintain operations in
2011. Additional investor funds will still be needed to continue to expand in
2011 and beyond. On the other hand, if the Company is unable to raise the
minimum financing needed in 2011, it would likely exhaust its
resources.





1.
            Revenue
      Projections





Despite
its heavy financial commitment to continually advertise and promote its products
to enhance brand awareness, foster customer loyalty and encourage reorders,
there can be no guarantee that the products will sell as the Company believes
they will, or that the consumer will reorder the products once they have used
them.





Given the
most recent an unprecedented economic market, the Company did not reach and fell
well short of its 2010 projections.  Although the Company has been
able to strategically align itself with a multitude of distributors in various
retail, wholesale and commercial sectors, it did not anticipate the length of
time go to market.  The 2011 projections have been made on a product
category basis with 82% of projected revenues coming from a combination national
distributors in the Federal government, military, laboratory, commercial and
industrial sectors, grocery, farm & fleet, private label, hotel &
hospitality, and the remaining from a combination of website and radio ad
sales:





Retail
      Sales
                  
                  
                  11
                  %Commercial
      Sales
                  
                  
                  63
                  %Private
      Label Sales
                  
                  
                  19
                  %Other
                  
                  
                  7
                  %





In
preparing these projections customers were identified as those currently being
shipped, those to whom are about to start shipping and those who have indicated
a desire to carry the products at some point during 2011.  Based upon
these assumptions, estimates of how much product would be sold each month and
how much the projected dollar revenue would represent on a monthly, quarterly
and annual basis.





2.
            Expense
      Projections





Costs of
sales were projected based upon the amount of product being sold using the
extensive by product costs we had developed for each of our products. As volume
increases it is expected that costs will go down as a function of better
quantity purchases. Our projections do not, however, take all of these cost
reductions into consideration.





General
and Administrative costs were projected at 17.5% of revenues, in line with our
corporate objective of keeping G&A expenses level as sales
increase.


26


Selling
expenses were projected at 11.4% of revenues. If revenues are higher than
projected, more of the additional revenues will be reinvested in further
marketing and selling activities. If revenues come in lower than projected,
analysis will be done to determine why and, if appropriate, marketing and
selling expenses will be reduced or redirected. These expenses include, but are
not limited to, radio show costs, display cases, trade shows, commissions,
samples, payroll and advertising.





The
Company believes that it has developed a careful, well-thought out business plan
based upon educated assumptions using the most current data available. There is,
of course, no guarantee as to how much or how often existing or new customers
will buy.  The Company also believes that its business plan contains
enough flexibility to weather unforeseen delays in the generation of revenues by
being able to modify expenses and other spending, as required, assuming minimum
financing is obtained by the spring of 2011.





There can
be no assurance that the Company’s actual operations will reflect the above
projections. Market conditions, competition, supplier delays, the ability to
raise capital and all other risks associated with the operation of a business
could adversely impact the Company’s ability to reach the above
projections.





The
Company anticipates that in order to fulfill its plan of operations, it will
need to attract additional key markets to sell its natural cleaning and
gardening products, and continue to leverage its other business relationships.
The Company continues to receive orders and re-orders from the various outlets
in which it is positioned.  In addition, the recent emphasis on
Executive Order #13514 may create additional sales opportunities for the
Company’s products through existing distributor, broker and on-line
relationships.





To
fulfill orders in a timely fashion, the Company must have the capability of
producing and delivering its cleaning and gardening products in sufficient
volume and quantity to achieve its projections.  The Company will rely
on LOL/Purina Feed to fulfill its fertilizer requirements.  In
addition, it will continue to outsource its fulfillment of liquid products to
Webco Chemical Co., located in Dudley, Massachusetts and possibly others. It
believes that these contract manufacturers have the capacity and ability to
handle any and all requirements that the Company may have and more, over the
next five years.  As a backup, the Company also has made arrangements
with JNJ Industries, located in Franklin, MA.  The Company has also
made arrangements with LOL/Purina and RitePak of St. Joe, MO to fulfill its
distribution needs for potential orders that will require different sizes and
quantity of dry fertilizer products.





In
addition to the minimum financing needed by spring of 2011, the Company will
need to continue to seek financing from outside sources to expand the business
further into 2011 and beyond.  In order to provide this necessary
additional financing, the Company intends to offer private placement
opportunities to investors in an as yet undetermined amount.  The
Company has no basis, however, for predicting the success of such other
offerings.


27


ITEM
7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





 ̈
            Risks
      Related To Our Business and
Operations





 ̈
            Economic
      or industry-wide factors relevant to the
  Company:





Should
consumer interest in "organic" or "natural" products diminish or discontinue;
should there be a natural disaster that adversely impacts garden center product
sales such as extreme weather conditions throughout the United States; should
there be a shortage of suppliers in the enzyme technology that is used in some
of our products or should there be a slower than anticipated roll-out of
products to customers due to such external factors, the Company's ability to
realize a profit and yield a positive cash flow from operations as quickly as we
anticipate could be adversely impacted.




 ̈
            Material
      opportunities, challenges:




Should
our suppliers not be able to deliver in the quantities the Company needs at any
given time in order to fulfill orders; should our contract manufacturer not be
able to deliver finished goods in a timely manner or suffer any type of physical
plant disaster, labor strike or shortage, it would adversely impact the
Company's' business. Difficult challenges may be incurred as more competitors,
who are more heavily financed than we are, enter into the market and create
pricing issues which could adversely impact the Company's
operations.





 ̈
            Risks
      in short and long term and the actions we are taking to address
      them:




Undercapitalization
could impose growth restraints on the Company preventing us from entering other
markets and regions, as planned. The Company will continue to actively pursue
private placement investor funding as allowed by SEC regulations and to satisfy
debt and payables with stock, stock options and/or warrants as a means of
capitalizing the Company until operations are sufficient enough to be
self-sustaining, which could happen by the end of 2011. There can be no
assurance, however, that these activities will be successful.




If Sam
Jeffries were unable to host and produce the weekly talk show, this could have
an adverse impact on the show's educational and promotional programming which is
considered an essential part of our advertising and marketing plan. The present
co-hosts, Jim Zoppo and Layanee DeMerchant, could produce and conduct the show
in Sam Jeffries absence. In addition, Jim Zoppo, is a well respected, well known
horticulturist and radio talk show host in his own right.




Although
unlikely, interest in organics could diminish which would have an adverse effect
on the popularity of the radio show. To mitigate this possibility, "home
remedy", "how to" and "natural and organic health-care alternative” segments are
being added to the shows programming to expand listener interest and extend the
seasonality of the show. The Company also has plans to ultimately reach a
national audience by franchising the Garden Guys concept throughout the country
by having local talk shows discuss organics and lawn and gardening techniques
and problems indigenous to each of those regions.


28


 ̈
            Reliance
      on Investment Funds





Although
the Company has increased its cash flow from customer sales, we expect that for
the short term future, we will still rely on external funding sources, primarily
equity capital, to finance our operations. While we believe that increasing cash
flow from customer sales will ultimately provide adequate funds to permit us to
become self-sufficient, possibly by the end of 2011, until then we will continue
to require additional capital from investors. If we were unable to obtain such
funding from outside sources, we would likely be forced to reduce the level of
our operations and business failure could become a real
possibility.





 ̈
            Reliance
      on Management Team





As stated
above, the Company relies heavily upon a small team of full-time officers and
consultants. It has "key man" life insurance on the CEO, Samuel Jeffries that
would compensate us in the event of his demise. Sam Jeffries continued
involvement is deemed especially critical to our marketing efforts. The loss of
Sam Jeffries or one of several key officers or consultants could have an adverse
impact on the Company's chances for success. At present, "key man" insurance
coverage is not being pursued on the other full-time officers due to
cost.





o
            Risks
      Related to Ownership of Our Stock





 ̈
            Trading
      Market





Our stock
officially began trading on Monday, May 5, 2008 on the Over The Counter
Electronic Bulletin Board under the trading symbol; OGSM. Even with our shares
being traded publicly, there is a substantial "overhang" of outstanding shares
that would be eligible for sale under Rule 144. Such sales, if they were to
occur, could tend to suppress the market value of our shares for some
time.





 ̈
            No
      Dividends in Foreseeable Future





Our board
of directors determines whether to pay cash dividends on our issued and
outstanding shares. Such determination will depend upon our future earnings, our
capital requirements, our financial condition and other relevant factors. At
present, our board is not intending to declare any dividends in the foreseeable
future. Earnings, once achieved, are expected to be retained to help finance the
growth of our business and for general corporate purposes.





 ̈
            Provisions
      of our Certificate of Incorporation, By-laws and Delaware
    Law





Provisions
of our Certificate of Incorporation, By-laws and Delaware law may make it more
difficult for someone to acquire control of us or for our stockholders to remove
existing management, and might discourage a third party from offering to acquire
us, even if a change in control or in management would be beneficial to our
stockholders. For example, our Certificate of Incorporation allows us to issue
different series of shares of common stock without any vote or further action by
our stockholders and our Board of Directors has the authority to fix and
determine the relative rights and preferences of such series of common stock. As
a result, our Board of Directors could authorize the issuance of a series of
common stock that would grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before dividends are
distributed to the holders of other common stock and the right to the redemption
of the shares, together with a premium, prior to the redemption of other series
of our common stock.


29


ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





For the
Financial Statements required by Item 8 see the Financial Statements included at
the end of this Form 10-K.





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES.





The
Company changed audit firms for the fiscal year ended September 30, 2010 toMorrill  &
Associates.  There
have been no changes in or disagreements with accountants with respect to
accounting and/or financial disclosure.





ITEM 9A.
CONTROLS AND PROCEDURES.





We
maintain disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required financial
disclosures.  Because of inherent limitations, our disclosure controls
and procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of such disclosure
controls and procedures are met.





As of the
end of the period covered by this Report we conducted an evaluation, under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(b) and
15d-15(b).  Based on this evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures were ineffective as of September 30, 2010.





There
were no changes in our internal controls over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act) that occurred during
our year ended September 30, 2010, that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting. As such, because the Company maintains a small office staff it
maintains that the internal controls are ineffective.




ITEM
9B.  OTHER INFORMATION.





None.


30


PART
III





ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




A.
            Directors
      and Executive Officers





The
following table sets forth our current directors, officers and significant
employees, their ages, and all offices and positions with our
company.





NAME
              
              AGE
              
              POSITIONSamuel
      F.H. Jeffries
              
              48
              
              President,
      Chief Executive Officer and Chairman of the Board of
    DirectorsStephen
      B. Jeffries
              
              49
              
              Director
      and Audit Committee MemberLeonard
      B. Colt, Jr.
              
              73
              
              DirectorJerry
      Adelstein
              
              77
              
              DirectorJoanne
      L.H. Anderson
              
              52
              
              Director,
      Vice PresidentLaurie
      Basch-Levy
              
              56
              
              Director
      and Audit Committee MemberMichael
      Ernst.
              
              52
              
              Director,
      SecretaryKeith
      D. Lowey
              
              49
              
              Treasurer
      and Chief Financial Officer





The
following is a biographical summary of our directors and officers:





Samuel
F.H. Jeffries has been president, Chief Executive Officer, and Chairman of the
Board of Directors since inception. He is also a member of the Executive
Committee. Prior to such time, he was president and co-managing member of Garden
Connections, LLC, from its inception in 2002. From 1999 to 2001, Mr. Jeffries
was Eastern Regional Sales Manager and area manager for Etera Corporation, a
wholesale garden products distributor based in Mount Vernon, Washington. His
responsibilities included sales, management, forecasts, hiring, computer
training, new accounts, budgeting, advertising and promotions. From 1992 to
2000, Mr. Jeffries owned and operated Jeffries Horticultural Sales and Jeffries
Landscape and Design, based in Franklin, Massachusetts. In 1984, Mr. Jeffries
received his Bachelor of Science degree in environmental design from the
University of Massachusetts at Amherst. He minored in arboriculture. He was also
a certified Occupational Education instructor at the Norfolk County Agricultural
High School, Walpole, MA. He is the first cousin of Stephen B. Jeffries, a
director.




Joanne
L.H. Anderson, Director, Vice President and member of the Executive Committee.
She has been a director of the Company since May, 2005 and is utilizing her
artistic designing talents in creating our logos, labels, packaging and our
websites. She also oversees the Company's advertising and marketing. Since 1980,
Joanne has been employed as an artist, designer, and head of the art department
of North American Carrousel Company located in Minneapolis, Minnesota. She is
experienced in website design and graphic and commercial art. She is trained as
an artistic painter, sculptor and art conservationist. She apprenticed for four
years with leading portrait artist Jerome Ryan. She majored in art at Hamline
University in Saint Paul, Minnesota and has restored paintings and ceilings in
the Minnesota State Capital and St. Paul Courthouse.





Len Colt,
has been our director since the inception. Since 1993, he has been owner of
Pegasus Marketing & Sales based in Little Compton, Rhode Island. Pegasus is
in the packaging consultancy firm and sales representative for various packaging
manufacturers. In 1958, Mr. Colt received his bachelor of arts degree in history
from Middlebury College located in Middlebury, Vermont.


31


Jerry
Adelstein, has been a director since the inception and is a member of the Audit
Committee and the Executive Committee. Since 1968, he has been the president of
H&J Associates, a textile sales company, based in Long Island, New York. In
1953, he received a bachelor of science in economics from Alfred University, in
New York State. In 1957, he received a Masters degree in business administration
with a major in economics from New York University.





Stephen
B. Jeffries, has been a director since the inception. He is also on the Audit
Committee. He has been the owner of S.B. Jeffries Consultants since 1990. S.B.
Jeffries Consultants is based in Boston, Massachusetts, and is in the business
of equity analysis and financial portfolio and estate management. In 1983, he
received a Bachelor of Arts in Economics from the University of Chicago. He has
completed the C.F.A. Level 1 Examination and C.F.P. Level 1
Examination.





Laurie
Basch-Levy, Director and a member of the Audit Committee. She has been a textile
designer, creating designs widely used by major fashion designers in New York
City until 1982 when she became treasurer of The George Basch Co. In January
2001 she became President and CEO of The George Basch Co., a privately owned
manufacturer and global distributor of the product Nevr-Dull Metal Polish, which
was formed in and has operated since 1929. This may give rise to a potential
conflict inasmuch as the Company has a business relationship with Nevr-Dull and
has a licensing agreement with them (see "Business of the Company", above). Ms.
Basch-Levy and the Company will endeavor to avoid any such conflict by excluding
her from any decision making or Board votes referable to Nevr-Dull. She received
her degree from the Fashion Institute of Technology in New York
City.





Michael
Ernst, Director, since the inception. He has been Senior Energy Consultant,
Tetra Tech Ec Inc., an engineering and consulting firm since 2006; Vice
President of Permitting and Siting for TransEnergie U.S. Ltd. 2001-2006
specializing in environmental engineering; Associate Attorney, Rubin &
Rudman, Boston, specializing in environmental law; General Counsel and
Legislative Director of the Massachusetts Department of Telecommunications and
Energy, 1992-2001; Hearing Officer for the Massachusetts Energy Facilities
Siting Board, 1990-1992; Counsel to the Joint Committee on Energy of the
Massachusetts Legislature, 1984-1990; Safe Energy Advocate, MASSPIRG, 1981-1983.
He received his degrees from Northeastern University School of Law, J.D., and
Davidson College, B.S.





Keith D.
Lowey  was elected Treasurer and Chief Financial Officer on May 6,
2010. He has been in public and private practice in the accounting field for 24
years.  He joined his current firm as a Principal in
1990.  He has wide-ranging expertise in accounting, consulting and
business advisory services across many industries.





B.            Significant
Employees.





We intend
to enter into employment agreements with our officers and significant employees,
but we have not yet done so.





C.            Family
Relationships. Samuel F.H. Jeffries and Stephen B. Jeffries are first
cousins.





D.           Involvement
in Certain Legal Proceedings. None




E.
            The
      Executive Committee and the Audit Committee of the Board are separate
      committees.


32


The
Executive Committee consists of our independent directors. Its principal
functions are to advise and make recommendations to our Board of Directors
regarding matters relating to the compensation of officers and senior
management.





The Audit
Committee consists of Stephen B. Jeffries, Jerry Adelstein and Laurie
Basch-Levy. The Board of Directors has determined that all three members are
independent directors as (1) defined in Rule 10A-3(b)(i)(ii) under the
Securities Exchange Act of 1934 (the "Exchange Act") and (ii) under Section 121
B(2)(a) of the AMEX Company Guide (although our securities are not listed on the
American Stock Exchange or any other national exchange). Stephen B. Jeffries
serves as the financial expert as defined in Securities and Exchange Commission
rules relating to the Audit Committee.




We
believe Messrs. Adelstein and Jeffries and Ms. Basch-Levy to be independent of
management and free of any relationship that would interfere with their exercise
of independent judgment as members of this committee. The principal functions of
the Audit Committee are to (i) assist the Board in fulfilling its oversight
responsibility relating to the annual independent audit of our consolidated
financial statements, the engagement of the independent registered public
accounting firm and the evaluation of the independent registered public
accounting firm's qualifications, independence and performance (ii) review the
reports or statements as may be required by the securities laws, (iii) assist
the Board in fulfilling its oversight responsibility relating to the integrity
of our financial statements and financial reporting process and our system of
internal accounting and financial controls, (iv) discuss the financial
statements and reports with management, including any significant adjustments,
management judgments and estimates, new accounting policies and disagreements
with management, and (v) review disclosures by independent accountants
concerning relationships with us and the performance of our independent
accountants.




F.
            Meetings
      of the Board and Committees.





Our Board
of Directors is responsible for the management and direction of our company and
for establishing broad corporate policies. A primary responsibility of the Board
is to provide effective governance over our affairs for the benefit of our
stockholders. In all actions taken by the Board, the Directors are expected to
exercise their business judgment in what they reasonably believe to be the best
interests of our company. In discharging that obligation, Directors may rely on
the honest and integrity of our senior executives and our outside advisors and
auditors.





The Board
of Directors and the Audit Committee of the board meet periodically throughout
the year to receive and discuss operating and financial reports presented by our
executive officers as reports by experts and other advisors.




The Board
held meetings during the fiscal year ended September 30, 2010 in person and
telephonically and acted by unanimous written consent on one occasion. In fiscal
2010, the Audit Committee met telephonically on May 6, 2010.





G.
            Compliance
      with Section 16(a) of The Securities Exchange Act of
  1934.





To our
knowledge, during the fiscal year ended September 30, 2010, based solely on a
review of such materials as are required by the Securities and Exchange
Commission, no officer, director or beneficial holder of more than ten percent
of our issued and outstanding shares of Common Stock failed to timely file with
the Securities and Exchange Commission any form or report required to be so
filed pursuant to Section 16(a) of the Securities Exchange Act of
1934.


33


ITEM 11.
              EXECUTIVE
      COMPENSATION.





The
following table sets forth the aggregated compensation awarded to, earned by or
paid to our Chief Executive Officer and our other executive officers as a group,
or to directors for all services rendered in all capacities.





SUMMARY
COMPENSATION TABLE




Name
      and
                          Principal
                        
                        
                        
                        Salary
                        
                        
                        Bonus
                        
                        
                        Stock
                          Awards
                        
                        
                        Option
                          Awards
                        
                        
                        Non-Equity
                          Incentive
      plan
                          Compensation
                        
                        
                        Change
      in
                          Pension
      Value
                          andNonqualified
                          Deferred
                          Compensation
                          Earnings
                        
                        
                        All
      Other
                          Compensation
                        
                        
                        TotalPosition
                        
                        Year
                        
                        ($)
                        
                        
                        ($)
                        
                        
                        ($)
                        
                        
                        ($)
                        
                        
                        ($)
                        
                        
                        ($)
                        
                        
                        ($)
                        
                        
                        ($)(a)
                        
                        (b)
                        
                        (c)
                        
                        
                        (d)
                        
                        
                        (e)
                        
                        
                        (f)
                        
                        
                        (g)
                        
                        
                        (h)
                        
                        
                        (i)
                        
                        
                        (j)SamJeffries
                        
                        2010
                        
                        
                        14,107
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        14,107Sam
      Jeffries
                        
                        2009
                        
                        
                        51,108
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        -0-
                        
                        
                        
                        6,000
                        
                        
                        
                        57,108





All
officers and directors as a group were paid in the aggregate $51,276 for the
fiscal year ended September 30, 2010.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





The
following table sets forth, as of December 2, 2010 certain information with
respect to the beneficial ownership of the common stock by (1) each person known
by us to beneficially own more than 5% of our outstanding shares, (2) each of
our directors, (3) each named executive officer and (4) all of our executive
officers and directors as a group. Except as otherwise indicated, each person
listed below has sole voting and investment power with respect to the shares of
common stock set forth opposite such person's name.





Name
                  
                  Shares
                  
                  
                  % of O/S StockSamuel
      F.H. Jeffries
                  
                  
                  1,390,500
                  
                  
                  
                  10.0
                  %Stephen
      B. Jeffries
                  
                  
                  732,203
                  
                  
                  
                  5.3
                  %Leonard
      B. Colt, Jr.
                  
                  
                  171,938
                  
                  
                  
                  1.2
                  %Jerry
      Adelstein
                  
                  
                  1,158,565
                  
                  
                  
                  8.4
                  %Joanne
      L.H. Anderson
                  
                  
                  256,940
                  
                  
                  
                  1.9
                  %Laurie
      Basch-Levy
                  
                  
                  355,000
                  
                  
                  
                  2.6
                  %Michael
      Ernst.
                  
                  
                  62,000
                  
                  
                  
                  0.4
                  %Keith
      D. Lowey
                  
                  
                  200,000
                  
                  
                  
                  1.4
                  %All
      Executive Officers and Directors as a Group (8 persons)
                  
                  
                  4,327,146
                  
                  
                  
                  31.3
                  %




34


(1)     Beneficial
ownership so determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated, this column reflects amounts as
to which the beneficial owner has sole voting power and sole investment
power.





Applicable
percentage of ownership is based on 13,840,722 shares of our common stock
outstanding on December 31, 2010.





The
address of each of the executive officers and directors is care of Organic Sales
and Marketing, Inc. 114 Broadway, Raynham, MA 02767.





The
Company has not granted any of the following during or after its fiscal year
ended September 30, 2010:





Grants of
Plan-Based Awards




Equity
Awards




Nonqualified
Deferred Compensation





The
Company anticipates that its Executive Committee will develop and establish
clear compensation policies and procedures for disclosing these policies.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





Jerry
Adelstein, a director of the company, held a demand note dated March 1, 2007
with a principal balance due as of January 21, 2010 of $116,197. On January 21,
2010, the Company’s Board authorized the conversion of $102,000 of principal and
accrued interest to common stock and issued a new promissory note for balance in
the amount of $14,197. The new promissory note of $14,197 carries an interest
rate of 8% per annum, is payable monthly at $1,000 per month beginning February
21, 2010, matures March, 2012 and is unsecured. Monthly payments on the note
were not made through September 30, 2010.  Total principal payments
during the period were $300.  As of September 30, 2010, accrued
interest owed on the new promissory note was $809. As of September 30, 2010,
accrued interest and principal owed on the Note was $14,706.





Leonard
Colt, a director of the company, holds a demand note dated March 15, 2008 with a
principal balance due as of September 30, 2010 of $10,855. This note is payable
monthly by the Company in the amount of $1,020 with interest at the rate of 6%
per annum. As of September 30, 2009, interest and principal owed on the Note was
$12,544.





Laurie
Basch-Levy, a director of the company, holds a 12 month promissory note dated
December 1, 2007 with a principal balance due as of September 30, 2010 of
$175,000. Interest accrues at 12% per annum. Accrued interest and principal was
due at maturity, December 1, 2009, however, the note holder has agreed to extend
the maturity date given the same terms and conditions as the original note.
Early indications are that the maturity date will be extended for an
additional twelve months subject to Board approval in January 2011. As of
September 30, 2010 interest and principal owed on the note was
$250,900.





Samuel Jeffries, CEO and Chairman of
the Board of Directors of the company, held a demand note dated January 1, 2009
with a principal balance due as of January 21, 2010 of $363,356. On January
21, 2010, the Company’s Board authorized the conversion of $266,000 of principal
and accrued interest to common stock and issued a new promissory note for the
balance in the amount of $97,356. The new promissory note of $97,356 carries an
interest rate of 8% per annum, is payable monthly at $1,558 per month beginning
February 21, 2010, matures January, 2017 and is unsecured.As of September 30, 2010, interest and
principal owed on the Note was $246,436.


35


ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.




All audit
and professional services provided by Certified Public Accountants will be
approved in advance by the Audit Committee to assure such services do not impair
the auditor's independence from us. The aggregate fees billed by
Morrill  & Associates were $29,332 for the fiscal year ended
September 30, 2010 and by the previous audit firm of $31,632 for the fiscal year
ended September 30, 2009.





Description of Fees
                  
                  2010
                  
                  
                  2009Audit
      Fees
                  
                  $
                  29,332
                  
                  
                  $
                  31,632Audit-Related
      Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  -All
      Other Fees
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  29,332
                  
                  
                  $
                  31,632





Audit
Fees


Represent
fees for professional services provided for the audit of our annual financial
statements, services that are performed to comply with generally accepted
auditing standards, and review of our financial statements included in our
quarterly reports and services in connection with statutory and regulatory
filings.





Audit-Related
Fees


Represent
the fees for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements.




Tax Fees


This
represents professional services rendered for tax compliance, tax advice and tax
planning.





All Other
Fees


Morrill  &
Associates was paid no other fees for professional services during the fiscal
years September 30, 2010 and 2009.





The Audit
Committee will pre-approve all auditing services and the terms thereof {which
may include providing comfort letters in connection with securities
underwriting) and non-audit services (other than non-audit services prohibited
under Section 10A{g) of the Exchange Act or the applicable rules of the SEC or
the Public Company Accounting Oversight Board) to be provided to us by the
independent auditor; provided, however, the pre-approval requirement is waived
with respect to the provisions of non-audit services for us if the "de minimus"
provisions of Section 10A(i) (1)(B) of the Exchange Act are satisfied. This
authority to pre-approve non-audit services may be delegated to one or more
members of the Audit Committee, who shall present all decisions to pre-approve
an activity to the full Audit Committee at its first meeting following such
decision. The Audit Committee may review and approve the scope and staffing of
the independent auditors' annual audit plan.


36


PART
IV





ITEM 15.
EXHIBITS





1.1
              Certificate
      of Incorporation of Garden Connections, Inc.2.2
              Amendment
      of Certificate of Incorporation Changing name from Garden Connections,
      Inc. to Organic Sales and Marketing, Inc.2.3
              Amended
      and Restated By-Laws3.2
              2008
      Stock Option Plan3.3
              Microbial
      Technologies Licensing Agreement10.16
              Nu
      Vision Holdings Consulting Agreement10.17
              EC
      Desmond Sales Representation Agreement10.18
              CA
      Fortune Specialty Foods Brokerage Agreement10.19
              WHYN
      Radio Contract (Springfield, MA)10.20
              WBAE
      Radio Contract (Portland, ME)10.21
              WGIR
      Radio Contract (Manchester, NH)10.22
              Kehe
      Foods Vendor Buying AgreementExhibit
      1.1- 10.22 referred to above may be found attached to the September 30,
      2008 Form 10KSB which is incorporated by reference
  herein.





10.29
              Consulting
      Agreement (LOI) - Sadler10.30
              Sales
      Agent Agreement – Land O’Lakes Purina Feed31.1
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the
      Company's Chief Executive Officer.31.2
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the
      Company's Chief Financial Officer.32.1
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the
      Company's Chief Executive Officer.32.2
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the
      Company's Chief Financial
Officer.




37


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





ORGANIC SALES AND MARKETING,
      INC.(Registrant)February
      11, 2011
              /s/ Samuel
      F.H. JeffriesDate
              SAMUEL
      F.H. JEFFRIESCEO
      AND CHAIRMANFebruary
      11, 2011
              /s/_Keith D.
      LoweyDate
              KEITH
      D. LOWEYCHIEF
      FINANCIAL OFFICER




38


Organic
Sales and Marketing, Inc.





Financial
Statements for the Years Ended


September
30, 2010 and 2009


And
Reports of Independent Registered


Public
Accounting Firms


F-1


CONTENTS





Reports
      of Independent Registered Public Accounting Firms
                F-3Balance
      Sheets
                F-5Statements
      of Operations
                F-7Statements
      of Stockholders’ (Deficit)
                F-8Statements
      of Cash Flows
                F-9Notes
      to the Financial Statements
                F-10


F-2


Morrill
& Associates, LLC


Certified
Public Accountants


563 West
500 South, Suite 425


Bountiful,
Utah 8401


801-292-8756
Phone; 801-292-3558 Fax





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To The
Audit Committee


Organic
Sales and Marketing, Inc.


Raynham,
Massachusetts 02767





We have
audited the accompanying balance sheet of Organic Sales and Marketing,
Inc.  as of
September  30,  2010,  and  the related
statements of operations, stockholders' deficit, and cash flows for the year
then ended.  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 audit 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 audit 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 audit 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 Organic Sales and Marketing, Inc.
as of September 30, 2010, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 14 to the
financial statements, the Company has incurred recurring substantial losses from
operations, recurring negative working capital, negative cash flows from
operations, and has limited sales of its products which raises substantial doubt
about its ability to continue as a going concern.  Management's plans
in regard to these matters are also described in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





/s/
      Morrill & AssociatesMorrill
      & Associates, LLCBountiful,
      UtahFebruary
      11, 2011


F-3


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To The
Audit Committee
 Organic
Sales and Marketing, Inc.
 Raynham,
Massachusetts 02767
 
 We have
audited the accompanying balance sheets of Organic Sales and Marketing, Inc. as
of September 30, 2009 and 2008, and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. 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 audits 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 provide 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 Organic Sales and Marketing, Inc.
as of September 30, 2009 and 2008, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 14 to the financial
statements, the Company has incurred recurring substantial losses from
operations, recurring negative working capital, negative cash flows from
operations and has limited sales of its products which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 14. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 /s/
      Chisholm, Bierwolf, Nilson & Morrill, LLCChisholm,
      Bierwolf, Nilson & Morrill, LLCBountiful,
      UtahJanuary
      13, 2010


F-4


ORGANIC
SALES AND MARKETING, INC.


Balance
Sheets





ASSETS





September 30,
                  
                  
                  September 30,2010
                  
                  
                  2009CURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  46,237
                  
                  
                  $
                  24,547Accounts
      receivable, net
                  
                  
                  22,939
                  
                  
                  
                  8,090Inventories
                  
                  
                  90,797
                  
                  
                  
                  109,581Prepaid
      expense
                  
                  
                  16,160
                  
                  
                  
                  7,479Total
      Current Assets
                  
                  
                  176,133
                  
                  
                  
                  149,697PROPERTY
      AND EQUIPMENT, NET
                  
                  
                  4,481
                  
                  
                  
                  9,383OTHER
      ASSETSDeposits
                  
                  
                  200
                  
                  
                  
                  200Total
      Other Assets
                  
                  
                  200
                  
                  
                  
                  200TOTAL
      ASSETS
                  
                  $
                  180,814
                  
                  
                  $
                  159,280





The
accompanying notes are an integral part of these financial
statements.


F-5





ORGANIC
SALES AND MARKETING, INC.


Balance
Sheets (Continued)





LIABILITIES AND
STOCKHOLDERS' (DEFICIT)





September 30,
                  
                  
                  September 30,2010
                  
                  
                  2009CURRENT
      LIABILITIESAccounts
      payable-trade
                  
                  $
                  523,598
                  
                  
                  $
                  581,215Accounts
      payable-related party
                  
                  
                  19,098
                  
                  
                  
                  3,986Accrued
      expenses
                  
                  
                  5,444
                  
                  
                  
                  33,807Accrued
      interest payable
                  
                  
                  85,347
                  
                  
                  
                  61,620Line
      of credit
                  
                  
                  67,387
                  
                  
                  
                  72,054Notes
      payable - related parties
                  
                  
                  439,334
                  
                  
                  
                  495,736Total
      Current Liabilities
                  
                  
                  1,140,208
                  
                  
                  
                  1,248,418Total
      Liabilities
                  
                  
                  1,140,208
                  
                  
                  
                  1,248,418COMMITMENTS
                  
                  
                  -
                  
                  
                  
                  -STOCKHOLDERS'
      (DEFICIT)Common
      stock, $0.0001 par value; 100,000,000 shares authorized, 13,709,494 and
      10,088,794 shares issued and outstanding, respectively
                  
                  
                  1,371
                  
                  
                  
                  1,009Additional
      paid-in capital
                  
                  
                  6,493,112
                  
                  
                  
                  5,669,969Accumulated
      (Deficit)
                  
                  
                  (7,453,877
                  )
                  
                  
                  (6,760,116
                  )Total
      Stockholders' (Deficit)
                  
                  
                  (959,394
                  )
                  
                  
                  (1,089,138
                  )TOTAL
      LIABILITIES ANDSTOCKHOLDERS'
      (DEFICIT)
                  
                  $
                  180,814
                  
                  
                  $
                  159,280





The
accompanying notes are an integral part of these financial
statements.


F-6


ORGANIC
SALES AND MARKETING, INC.


Statements
of Operations





For the Years EndedSeptember 30,2010
                
                
                2009REVENUESProduct
      sales, net
                
                $
                197,375
                
                
                $
                184,789Radio
      advertising
                
                
                27,305
                
                
                
                40,210Total
      Revenues
                
                
                224,680
                
                
                
                224,999COST
      OF SALES
                
                
                131,086
                
                
                
                183,511GROSS
      PROFIT
                
                
                93,594
                
                
                
                41,488OPERATING
      EXPENSESAdvertising
      expense
                
                
                69,790
                
                
                
                311,362Payroll
      and compensation expense
                
                
                254,751
                
                
                
                332,121Selling
      expense
                
                
                62,688
                
                
                
                115,428General
      and administrative
                
                
                168,958
                
                
                
                500,474Legal
      and accounting
                
                
                172,634
                
                
                
                187,488Total
      Operating Expenses
                
                
                728,821
                
                
                
                1,446,873LOSS
      FROM OPERATIONS
                
                
                (635,227
                )
                
                
                (1,405,385
                )OTHER
      INCOME (EXPENSE)Interest  income
                
                
                -
                
                
                
                1,311Interest
      expense
                
                
                (58,534
                )
                
                
                (48,416
                )Valuation
      of warrants granted for financing costs
                
                
                -
                
                
                
                (954,837
                )Total
      Other Income (Expense)
                
                
                (58,534
                )
                
                
                (1,001,942
                )NET
      LOSS BEFORE INCOME TAXES
                
                
                (693,761
                )
                
                
                (2,407,327
                )INCOME
      TAX EXPENSE
                
                
                -
                
                
                
                -NET
      LOSS
                
                $
                (693,761
                )
                
                $
                (2,407,327
                )LOSS
      PER SHARE-Basic
      and Diluted
                
                $
                (0.06
                )
                
                $
                (0.26
                )WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING-Basic
      and Diluted
                
                
                12,159,856
                
                
                
                9,124,777





The
accompanying notes are an integral part of these financial
statements.


F-7


ORGANIC
SALES AND MARKETING, INC.


Statements
of Stockholders' (Deficit)


For
the period October 1, 2008 through Septmeber 30, 2010





TotalAdditional
                          
                          
                          
                          
                          
                          Stockholders'Common
      Stock
                          
                          
                          Paid-In
                          
                          
                          Accumulated
                          
                          
                          EquityShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          (Deficit)
                          
                          
                          (Deficit)Balance,
      September 30, 2008
                          
                          
                          6,799,494
                          
                          
                          $
                          680
                          
                          
                          $
                          3,738,959
                          
                          
                          $
                          (4,352,789
                          )
                          
                          $
                          (613,150
                          )Shares
      issued for cash at $.25/share
                          
                          
                          1,440,000
                          
                          
                          
                          144
                          
                          
                          
                          359,856
                          
                          
                          
                          -
                          
                          
                          
                          360,000Shares
      issued for cash at $.15/share
                          
                          
                          1,296,800
                          
                          
                          
                          130
                          
                          
                          
                          194,390
                          
                          
                          
                          -
                          
                          
                          
                          194,520Shares
      issued for services rendered at $.40/share
                          
                          
                          450,000
                          
                          
                          
                          45
                          
                          
                          
                          179,955
                          
                          
                          
                          -
                          
                          
                          
                          180,000Shares
      issued for services rendered at $.10/share
                          
                          
                          50,000
                          
                          
                          
                          5
                          
                          
                          
                          4,995
                          
                          
                          
                          -
                          
                          
                          
                          5,000Shares
      issued for services rendered at $.18/share
                          
                          
                          50,000
                          
                          
                          
                          5
                          
                          
                          
                          8,995
                          
                          
                          
                          -
                          
                          
                          
                          9,000Shares
      issued for services rendered at $.14/share
                          
                          
                          2,500
                          
                          
                          
                          -
                          
                          
                          
                          350
                          
                          
                          
                          -
                          
                          
                          
                          350Valuation
      of options and warrants granted
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,182,469
                          
                          
                          
                          -
                          
                          
                          
                          1,182,469Net
      loss for the year ended September 30, 2009
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,407,327
                          )
                          
                          
                          (2,407,327
                          )Balance,
      September 30, 2009
                          
                          
                          10,088,794
                          
                          
                          $
                          1,009
                          
                          
                          $
                          5,669,969
                          
                          
                          $
                          (6,760,116
                          )
                          
                          $
                          (1,089,138
                          )Shares
      issued for cash at $.15/share
                          
                          
                          247,317
                          
                          
                          
                          25
                          
                          
                          
                          37,071
                          
                          
                          
                          -
                          
                          
                          
                          37,096Shares
      issued for cash at $.10/share
                          
                          
                          920,050
                          
                          
                          
                          92
                          
                          
                          
                          91,911
                          
                          
                          
                          -
                          
                          
                          
                          92,003Shares
      issued for conversion of debt at $.15/share
                          
                          
                          2,453,333
                          
                          
                          
                          245
                          
                          
                          
                          367,753
                          
                          
                          
                          -
                          
                          
                          
                          367,998Valuation
      of options and warrants granted
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          326,408
                          
                          
                          
                          -
                          
                          
                          
                          326,408Net
      loss for the year ended September 30, 2010
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (693,761
                          )
                          
                          
                          (693,761
                          )Balance,
      September 30, 2010
                          
                          
                          13,709,494
                          
                          
                          $
                          1,371
                          
                          
                          $
                          6,493,112
                          
                          
                          $
                          (7,453,877
                          )
                          
                          $
                          (959,394
                          )





The
accompanying notes are an integral part of these financial
statements.


F-8


ORGANIC
SALES AND MARKETING, INC.


Statements
of Cash Flows





For the Years EndedSeptember 30,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                  
                  $
                  (693,761
                  )
                  
                  $
                  (2,407,327
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      expense
                  
                  
                  4,902
                  
                  
                  
                  4,901Shares
      issued for services rendered
                  
                  
                  -
                  
                  
                  
                  194,350Valuation
      of options and warrants granted
                  
                  
                  326,408
                  
                  
                  
                  1,182,470Stock
      issued for accrued interest
                  
                  
                  19,732
                  
                  
                  
                  -Change in operating assets and
      liabilities:Accounts
      receivable-trade
                  
                  
                  (14,849
                  )
                  
                  
                  18,620Inventories
                  
                  
                  18,784
                  
                  
                  
                  39,805Prepaid
      expense
                  
                  
                  (8,681
                  )
                  
                  
                  46,453Accounts
      payable-trade
                  
                  
                  (57,617
                  )
                  
                  
                  100,732Accounts
      payable-related party
                  
                  
                  15,112
                  
                  
                  
                  3,986Accrued
      expenses
                  
                  
                  (28,363
                  )
                  
                  
                  (7,378
                  )Accrued
      interest payable
                  
                  
                  23,727
                  
                  
                  
                  34,697Net
      Cash Used in Operating Activities
                  
                  
                  (394,606
                  )
                  
                  
                  (788,691
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES
                  
                  
                  -
                  
                  
                  
                  -CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
                  
                  
                  129,099
                  
                  
                  
                  554,520Proceeds
      from line of credit
                  
                  
                  10,000
                  
                  
                  
                  15,827Payments
      on line of credit
                  
                  
                  (14,667
                  )
                  
                  
                  (18,580
                  )Proceeds
      from notes payable - related party
                  
                  
                  304,800
                  
                  
                  
                  233,633Payments
      on notes payable - related party
                  
                  
                  (12,940
                  )
                  
                  
                  -Net
      Cash Provided by Financing Activities
                  
                  
                  416,292
                  
                  
                  
                  785,400NET
      INCREASE (DECREASE) IN CASH
                  
                  
                  21,686
                  
                  
                  
                  (3,291
                  )CASH,
      BEGINNING OF PERIOD
                  
                  
                  24,547
                  
                  
                  
                  27,838CASH,
      END OF PERIOD
                  
                  $
                  46,233
                  
                  
                  $
                  24,547SUPPLEMENTAL
      DISCLOSURES:Cash
      paid for interest
                  
                  $
                  7,776
                  
                  
                  $
                  13,524Cash
      paid for taxes
                  
                  $
                  -
                  
                  
                  $
                  -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Shares
      issued for conversion of notes payable and accrued
interest
                  
                  $
                  368,000
                  
                  
                  $
                  -Shares
      issued for services rendered
                  
                  $
                  -
                  
                  
                  $
                  194,350Valuation
      of options and warrants granted
                  
                  $
                  326,408
                  
                  
                  $
                  1,182,470





The
accompanying notes are an integral part of these financial
statements.


F-9


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 1 – Organization and
Principle Activities of the Company





Business
Description


Organic
Sales and Marketing, Inc. was incorporated in the state of Delaware on August
23, 2003.  On September 8, 2003, a security exchange agreement was
entered into with Garden Connections, LLC.  Garden Connections, LLC
partners received all of the issued and outstanding common stock of Organic
Sales and Marketing, Inc. in exchange for their interests in Garden Connections,
LLC.





The
Company is located in Raynham, Massachusetts and is engaged in the sale and
marketing of a wide variety of all natural, non-food products for distribution
and sale to major distributors and retail outlets throughout the United States.
The Company continues to expand their market penetration by acquiring or
developing consumer products that have organic origins that can be private
labeled. The Company currently has private label all natural, non-food products
that have been modified to meet applications in other industries including
costume jewelry, sporting goods, grocery, optical, health and beauty, footwear,
museum stores, historical preservation groups, funeral homes, quilting and
boating.





Note 2 – Summary
of Significant Accounting Policies





Financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States.





Significant accounting
policies are defined as those that are reflective of significant judgments and
uncertainties, and potentially result in materially different results under
different assumptions and conditions and are incorporated in these financial
statements. We believe that our significant accounting policies are limited
to those described below.





Principles
of Accounting


The
Company employs the accrual method of accounting for both financial statements
and tax purposes. Using the accrual method, revenues and related assets are
recognized when earned, and expenses and the related obligations are recognized
when incurred. The Company has elected a September 30th year end.





Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.


F-10


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 2 – Summary
of Significant Accounting Policies (Continued)





Revenue
Recognition


We earn
our revenues from the distribution of garden and cleaning products to retailers
and directly to consumers via our internet site and from advertising contracts.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services
rendered; (3) the fee is fixed and determinable; and (4) collectability is
reasonably assured.





Revenue
from garden and cleaning products is recognized upon shipment of the product.
The distribution of products is governed by purchase orders or direct sale
agreements which fix the price and delivery date.  In accordance with
ASC 605-45 “Accounting for Shipping and Handling Fees and Costs,”
distribution costs charged to customers are recognized as revenue when the
related product is shipped. Advance payments are recorded on the balance sheet
as deferred revenue until the revenue recognition criteria is met.





Revenue
from radio advertising is derived from three sources, the sale of commercial
spots on the Garden Guys radio talk shows, the sponsorship of informative show
segments and hosting live remote broadcasts. Revenue from radio advertising is
recognized after the commercial has been aired and/or a remote broadcast has
taken place. Customers will prepay for radio spots or remote broadcasts at the
time they contract with the Company to air their commercials or host a remote
broadcast. The Company will carry this prepayment as a liability, until such
time as economic performance takes place. Money received is refundable prior to
the airing of commercials or the airing of the remote broadcast, adjusted by any
production or other direct costs incurred up to that point in time.





Cash
and Cash Equivalents


The
Company considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents. During the past twelve
months the Company maintained cash in bank accounts which, at times, exceeded
Federal Deposit Insurance Corporation insured limits. The Company has not
experienced, nor does it anticipate, any losses on these accounts and believes
their risk to be minimal.





Accounts
Receivable


The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. Periodically, the Company evaluates its accounts receivable and
establishes an allowance for doubtful accounts, based on a history of past
write-offs and collections and current credit conditions. The Company feels that
the entire balance of Accounts Receivable as of September 30, 2010 and September
30, 2009 are collectable and, therefore, no allowance has been taken. The full
value of accounts receivable is held as collateral for the Company’s
Line of Credit.





Inventory


The
inventory is stated at the lower of cost (first-in-first-out method) or market.
Inventory items consist of raw material and finished goods. Raw materials
consist of labels, bottles, sprayers, fertilizers and shipping materials.
Finished goods consist of fertilizer bags and bottles of organic cleaning
products ready for shipment. The inventory consists of newly purchased items;
therefore, there is currently no allowance for excess or obsolete inventory. The
full value of inventory is held as collateral for the Company’s Line of
Credit.





Prepaid
Expenses


Business
expenses, including consulting expenses, that are paid for in advance of
services being rendered are treated as prepaid expenses. On occasion, the
Company pays for prepaid expenses with common stock. When these transactions
occur, they are identified as negative components of stockholders’
equity.


F-11


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 2 – Summary
of Significant Accounting Policies (Continued)





Fixed
Assets


Fixed
assets are stated at cost less accumulated depreciation. The Company has elected
to capitalize and depreciate any fixed asset item costing in excess of $1,000.
 Expenditures for minor replacements, maintenance and repairs which do not
increase the useful lives of the property and equipment are charged to
operations as incurred. Major additions and improvements are capitalized.
Depreciation and amortization are computed using the straight-line method over
estimated useful lives of three to seven years. The full value of fixed assets
is held as collateral for the Company's Line of Credit.





Advertising


The
Company follows the policy of charging the costs of advertising to expense as
incurred. Advertising expense primarily consists of the Company’s three hour
weekly Garden Guys radio call in program with Greater Media and Citadel
Communications, slotting fee expense, display case costs, samples and trade show
participation. The total advertising expense for the radio show contracts was
$54,200 and $209,615 for the twelve months ended September 30, 2010 and
September 30, 2009, respectively. In addition, the Company advertises its
products on its own website and in numerous trade and industry publications.
Total advertising, including radio contracts for the years ended September 30,
2010 and 2009 was $69,790 and $311,362, respectively.





Income
Taxes


The
Company utilizes the liability method of accounting for income taxes.
 Under the liability method, deferred income tax assets and liabilities are
provided based on the difference between the financial statement and tax bases
of assets and liabilities measured by the currently enacted tax rates in effect
for the years in which these differences are expected to reverse.  Deferred
tax expense or benefit is the result of changes in deferred tax assets and
liabilities.





Fair
Value of Financial Instruments


On
January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value
Measurements.”  This guidance defines fair value, establishes a
three-level valuation hierarchy for disclosures of fair value measurement and
enhances disclosure requirements for fair value measures. The three levels are
defined as follows:





·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





·
            Level
      3 inputs to valuation methodology are unobservable and significant to the
      fair measurement.





The
carrying amounts reported in the balance sheets for the cash and cash
equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The carrying value of
related party notes payable approximates fair value because negotiated terms and
conditions are consistent with current market rates as of September 30, 2010 and
2009.


F-12


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 2 – Summary
of Significant Accounting Policies (Continued)





Stock-Based
Compensation


In
December 2004, FASB issued FASB ASC 718 (Prior authoritative
literature:  SFAS No. 123R, “Share-Based
Payment”).  FASB ASC 718 establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services.  It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on
the fair value of the entity’s equity instruments or that may be settled by the
issuance of those equity instruments.  FASB ASC 718 focuses primarily
on accounting for transactions in which an entity obtains employee services in
share-based payment transactions.  FASB ASC 718 requires that the
compensation cost relating to share-based payment transactions be recognized in
the financial statements.  That cost will be measured based on the
fair value of the equity or liability instruments issued.





The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of FASB ASC
505-50 (Prior authoritative literature:  EITF 96-18, “Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for
Certain Transactions Involving Equity Instruments Granted to Other Than
Employees”).   The measurement date for the fair value of the
equity instruments issued is determined at the earlier of (i) the date at
which a commitment for performance by the consultant or vendor is reached or
(ii) the date at which the consultant or vendor’s performance is complete.
In the case of equity instruments issued to consultants, the fair value of the
equity instrument is recognized over the term of the consulting
agreement.  Stock-based compensation related to non-employees is
accounted for based on the fair value of the related stock or options or the
fair value of the services, whichever is more readily determinable in accordance
with FASB ASC 718.




Recently
Issued Accounting Standards


In May
2009, FASB issued FASB ASC 855-10 (Prior authoritative literature: SFAS No. 165,
"Subsequent Events"). FASB ASC 855-10 establishes principles and requirements
for the reporting of events or transactions that occur after the balance sheet
date, but before financial statements are issued or are available to be issued.
FASB ASC 855-10 is effective for financial statements issued for fiscal years
and interim periods ending after June 15, 2009. As such, the Company adopted
these provisions at the beginning of the interim period ended June 30, 2009.
Adoption of FASB ASC 855-10 did not have a material effect on our financial
statements.





In June
2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166,
“Accounting for Transfers of Financial Assets, an Amendment of FASB Statement
No. 140”), which eliminates the concept of a qualifying special-purpose entity
(“QSPE”), clarifies and amends the de-recognition criteria for a transfer to be
accounted for as a sale, amends and clarifies the unit of account eligible for
sale accounting and requires that a transferor initially measure at fair value
and recognize all assets obtained and liabilities incurred as a result of a
transfer of an entire financial asset or group of financial assets accounted for
as a sale. This standard is effective for fiscal years beginning after November
15, 2009. The Company is currently evaluating the potential impact of this
standard on its financial statements, but does not expect it to have a material
effect.





In June 2009, the FASB
issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R)”) which amends the consolidation
guidance applicable to a variable interest entity (“VIE”). This standard also
amends the guidance governing the determination of whether an enterprise is the
primary beneficiary of a VIE, and is therefore required to consolidate an
entity, by requiring a qualitative analysis rather than a quantitative analysis.
Previously, the standard required reconsideration of whether an enterprise was
the primary beneficiary of a VIE only when specific events had occurred. This
standard is effective for fiscal years beginning after November 15, 2009, and
for interim periods within those fiscal
years. Early adoption is prohibited. The Company is currently evaluating the
potential impact of the adoption of this standard on its financial statements,
but does not expect it to have a material
effect.


F-13


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 2 – Summary
of Significant Accounting Policies (Continued)





Recently
Issued Accounting Standards (Continued)





In June
2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS No. 168, "The
FASB Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles - a replacement of FASB Statement No. 162").FASB
ASC 105-10 establishes the FASB Accounting Standards Codification TM
(Codification) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. FASB ASC 105-10 is effective for
financial statements issued for fiscal years and interim periods ending after
September 15, 2009. As such, the Company is required to adopt these provisions
at the beginning of the fiscal year ending September 30, 2009. Adoption of FASB
ASC 105-10 did not have a material effect on the Company’s financial
statements.





In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force (“ASU 2009-13”). ASU 2009-13 changes accounting for certain
multiple deliverable arrangements. ASU 2009-13 addresses the separation of
deliverables and how to measure and allocate the arrangement consideration to
one or more units of accounting in multiple deliverable arrangements. Currently,
under the residual method of allocation, we use objective and reliable evidence
of the fair value of the undelivered elements to separate deliverables in
multiple deliverable arrangements. ASU 2009-13 eliminates the residual method
and requires that consideration from the arrangement be allocated to all
deliverables using the relative selling price method. ASU 2009-13 requires
additional disclosures related to multiple deliverable revenue arrangements upon
adoption and is effective for fiscal years beginning after June 15, 2010. In
addition, ASU 2009-13 may be early adopted. It may be implemented with either
prospective or retrospective application; however, if early adoption is chosen,
the entity must either adopt at the beginning of its fiscal year, or adopt using
retrospective application. We are currently evaluating the impact ASU 2009-13
will have on our financial position and results of operations, whether to early
adopt and which implementation method to use upon adoption if not
prescribed.





In
October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue
Arrangements That Include Software Elements—a consensus of the FASB Emerging
Issues Task Force (“ASU 2009-14”). ASU 2009-14 changes the accounting for
revenue arrangements that include both tangible products and software elements.
Tangible products containing software components and non-software components
that function together to deliver the tangible product’s essential functionality
is no longer within the scope of the software revenue guidance. Under prior
guidance such arrangements were accounted for as software if the software was
determined to be more than incidental. ASU 2009-14 requires that any hardware
components of such arrangements be excluded from software revenue guidance and
that any essential software that is sold with or embedded within the product
also be excluded from software revenue guidance. This ASU is effective for
fiscal years beginning after June 15, 2010. In addition, ASU 2009-14 may be
early adopted. ASU 2009-14 may be implemented with either prospective or
retrospective application; however, if early adoption is chosen, the entity must
either adopt at the beginning of its fiscal year, or adopt using retrospective
application. Further, ASU 2009-14 must be adopted in the same period and with
the same implementation method as ASU 2009-13. We are currently evaluating the
impact ASU 2009-14 will have on our financial position and results of
operations, whether to early adopt and which implementation method to use upon
adoption if not prescribed.


F-14


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 2 – Summary
of Significant Accounting Policies (Continued)





Recently
Issued Accounting Standards (Continued)





In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value measurements.
This ASU  requires additional  disclosures regarding significant
transfers in and out of Levels 1 and 2 of fair value measurements,
 including a description of  the  reasons  for  the
 transfers.  Further, this ASU requires additional disclosures for the
activity in Level 3 fair value measurements, requiring presentation of
information about purchases, sales, issuances,  and settlements  in
the  reconciliation  for  fair  value measurements. This ASU
is effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The adoption of ASU 2010-06 did not
have a material impact on the Company’s consolidated financial
statements.





In
February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU
2010-09”) as amendments to certain recognition and disclosure requirements. The
amendments remove the requirement for an SEC filer to disclose a date in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of U.S. GAAP. Those amendments remove potential
conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were
effective upon issuance for interim and annual periods. The adoption of ASU
2010-09 did not have a material impact on the Company’s consolidated
financial statements.


F-15


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 3 – Net Income/(Loss)
per Share





Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding.  Diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and dilutive potential
common shares, which includes the dilutive effect of stock options and warrants
granted. Dilutive potential common shares for all periods presented are computed
utilizing the treasury stock method. Common stock options of 2,355,145 were
considered, but not included in the computation of loss per share because their
effect is anti-dilutive. Common stock warrants of 2,920,920 were considered, but
not included in the computation of loss per share because their effect is also
anti-dilutive.





For the Years EndedSeptember 30,2010
                      
                      
                      2009Basic and DilutedNet
      Loss - Numerator
                      
                      $
                      (693,761
                      )
                      
                      $
                      (2,407,327
                      )Weighted
      Average Shares - Denominator
                      
                      
                      12,159,856
                      
                      
                      
                      9,124,777Per
      Share Amount
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.26
                      )





Note 4 – Income
Taxes





The
Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior
authoritative literature: Financial Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN
48)).  FASB ASC 740-10 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with
prior literature FASB Statement No. 109, Accounting for Income Taxes.  This
standard requires a company to determine whether it is more likely than not that
a tax position will be sustained will be sustained upon examination based upon
the technical merits of the position. If the more-likely-than- not threshold is
met, a company must measure the tax position to determine the amount to
recognize in the financial statements.  As a result of the implementation
of this standard, the Company performed a review of its material tax positions
in accordance with recognition and measurement standards established by FASB ASC
740-10.





Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences.  Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax
basis.  Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.


F-16


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 4 – Income Taxes
(Continued)





Deferred
tax assets and the valuation account are as follows:





For the Years EndedSeptember 30,2010
                  
                  
                  2009Deferred
      tax asset:Net
      operating loss carryforward
                  
                  $
                  1,777,092
                  
                  
                  $
                  1,633,824Valuation
      allowance
                  
                  
                  (1,777,092
                  )
                  
                  
                  (1,633,824
                  )$
                  -
                  
                  
                  $
                  -





The
components of income tax expense are as follows:





For the Years EndedSeptember 30,2010
                  
                  
                  2009Current
      Federal tax
                  
                  $
                  -
                  
                  
                  $
                  -Current
      State tax
                  
                  
                  -
                  
                  
                  
                  -Change
      in NOL benefit
                  
                  
                  143,268
                  
                  
                  
                  477,695Change
      in valuation allowance
                  
                  
                  (143,268
                  )
                  
                  
                  (477,695
                  )$
                  -
                  
                  
                  $
                  -





The
Company has adopted FASB ASC 740-10 to account for income taxes. The Company
currently has no issues creating timing differences that would mandate deferred
tax expense. Net operating losses would create possible tax assets in future
years. Due to the uncertainty of the utilization of net operating loss carry
forwards, an evaluation allowance has been made to the extent of any tax benefit
that net operating losses may generate.  A provision for income taxes
has not been made due to net operating loss carry-forwards of $4,556,645 and
$4,189,293 as of September 30, 20010 and September 30, 2009, respectively, which
may be offset against future taxable income through 2029. No tax benefit has
been reported in the financial statements.





A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:


For the Years EndedSeptember 30,2010
                          
                          
                          2009Beginning
      Balance
                          
                          $
                          -
                          
                          
                          $
                          -Additions
      based on tax positions related to current year
                          
                          
                          -
                          
                          
                          
                          -Additions
      for tax positions of prior years
                          
                          
                          -
                          
                          
                          
                          -Reductions
      for tax positions of prior years
                          
                          
                          -
                          
                          
                          
                          -Reductions
      in benefit due to income tax expense
                          
                          
                          -
                          
                          
                          
                          -Ending
      Balance
                          
                          $
                          -
                          
                          
                          $
                          -


F-17


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 4 – Income Taxes
(Continued)





The
Company did not have any tax positions for which it is reasonably possible that
the total amount of unrecognized tax benefits will significantly increase or
decrease within the next 12 months.





The
Company includes interest and penalties arising from the underpayment of income
taxes in the consolidated statements of operations in the provision for income
taxes.  As of September 30, 2010 and 2009, the Company had no accrued
interest or penalties related to uncertain tax positions.




The tax
years that remain subject to examination by major taxing jurisdictions are for
the years ended December 31, 2009, 2008 and 2007.





Note 5 –
Inventories





Inventories
consisted of the following as of:





September 30,
                    
                    
                    September 30,2010
                    
                    
                    2009Raw
      materials
                    
                    $
                    78,182
                    
                    
                    $
                    70,179Finished
      goods
                    
                    
                    12,615
                    
                    
                    
                    39,402Totals
                    
                    $
                    90,797
                    
                    
                    $
                    109,581




At
September 30, 2010 and September 30, 2009, no provision for obsolete inventory
was recorded by the Company.





Note  6 – Property and
Equipment





Property
and Equipment consisted of the following as of:





September 30,
                    
                    
                    September 30,2010
                    
                    
                    2009Property
      and equipment
                    
                    $
                    21,900
                    
                    
                    $
                    21,900Less:
      accumulated depreciation
                    
                    
                    (17,419
                    )
                    
                    
                    (12,517
                    )Property
      and equipment, net
                    
                    $
                    4,481
                    
                    
                    $
                    9,383




Depreciation
expense on property and equipment was $4,902 and $4,901 for the years ended
September 30, 2010 and September 30, 2009, respectively.


F-18


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009


Note 7 – Stock
Options





On
February 28, 2008, our Board of Directors approved the 2008 Stock Option and
Purchase Plan. Under the terms of this plan, options may be granted to officers,
directors, employees, consultants and independent contractors to purchase up to
an aggregate of 1,350,000 shares of common stock at an exercise price of $1.00
per share. Options are exercisable and vest over a four year period at a rate of
25% per year.





On
January 21, 2010, the Board of Directors approved the granting of 1,155,000
common stock option shares to officers, directors, employees and independent
contractors. Under the terms of the grants approved, shares carry an exercise
price of $.15 per share, vest over a four year period at a rate of 25% per year
and only vested options can be exercised over a ten year period.





On May 6,
2010, the Board of Directors approved the granting of 60,000 common stock option
shares to employees and independent contractors. Under the terms of the grants
approved, shares carry an exercise price of $.15 per share, vesting 100% in one
year and only vested options can be exercised over a four year
period.





As of
September 30, 2010, under this plan, there were 1,140,145 options outstanding at
the exercise price of $1.00 per share and 1,215,000 options outstanding at the
exercise price of $.15 per share. The issuance of these options was approved by
holders of the majority of the Company’s outstanding common stock. The total
amount of option expense recorded for the Twelve Months ended September 30, 2010
was $326,408, of which, $193,431 was recorded as payroll and compensation
expense and $132,977 was recorded as legal and accounting expense. The amount of
option expense to be charged over the remainder of the exercise period is
$380,014.





The
Company has determined the estimated value of the stock options granted by using
the Black-Scholes pricing model with the following assumptions: expected life of
4 or 10 years, a risk free interest rate of 2.46-3.71%, a dividend yield of 0%
and volatility ranging from 75% in 2008, 154% to 192% in 2009 and 190% in
2010.





Outstanding
common stock options as of September 30, 2010 are summarized below:


Number of Shares
                  
                  
                  Weighted
                    Average Exercise
                    PriceStock
      Options Outstanding, October 1, 2007
                  
                  
                  -
                  
                  
                  $
                  -Options
      Granted
                  
                  
                  1,126,250
                  
                  
                  $
                  1.00Options
      Exercised
                  
                  
                  -
                  
                  
                  $
                  -Options
      Canceled
                  
                  
                  -
                  
                  
                  $
                  -Stock
      Options Outstanding, September 30, 2008
                  
                  
                  1,126,250
                  
                  
                  $
                  1.00Stock
      Options Exercisable, September 30, 2008
                  
                  
                  148,619
                  
                  
                  $
                  1.00Options
      Granted
                  
                  
                  29,000
                  
                  
                  $
                  1.00Options
      Exercised
                  
                  
                  -
                  
                  
                  $
                  -Options
      Canceled
                  
                  
                  (15,105
                  )
                  
                  $
                  1.00Stock
      Options Outstanding, September 30, 2009
                  
                  
                  1,140,145
                  
                  
                  $
                  1.00Stock
      Options Exercisable, September 30, 2009
                  
                  
                  438,057
                  
                  
                  $
                  1.00Options
      Granted
                  
                  
                  1,215,000
                  
                  
                  $
                  0.15Options
      Exercised
                  
                  
                  -
                  
                  
                  
                  .Options
      Canceled
                  
                  
                  -
                  
                  
                  $
                  -Stock
      Options Outstanding, September 30, 2010
                  
                  
                  2,355,145
                  
                  
                  $
                  0.56Stock
      Options Exercisable, September 30, 2010
                  
                  
                  1,517,627
                  
                  
                  $
                  0.58


F-19


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 7 – Stock Options
(Continued)





The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock options issued to both
employees and non-employees of the Company.





Options Outstanding
                      
                      
                      Options ExercisableNumber
                      
                      
                      Average
                      
                      
                      
                      
                      
                      WeightedExercise
                      
                      
                      Shares
                      
                      
                      Contractual
                      
                      
                      Number
                      
                      
                      AverageYear
                      
                      Price
                      
                      
                      Outstanding
                      
                      
                      Life (Years)
                      
                      
                      Exercisable
                      
                      
                      Exercise PriceFebruary-08
                      
                      $
                      1.00
                      
                      
                      
                      861,145
                      
                      
                      
                      7.41
                      
                      
                      
                      583,230
                      
                      
                      $
                      1.00May-08
                      
                      $
                      1.00
                      
                      
                      
                      250,000
                      
                      
                      
                      7.67
                      
                      
                      
                      151,042
                      
                      
                      $
                      1.00January-09
                      
                      $
                      1.00
                      
                      
                      
                      5,000
                      
                      
                      
                      8.34
                      
                      
                      
                      2,188
                      
                      
                      $
                      1.00April-09
                      
                      $
                      1.00
                      
                      
                      
                      10,000
                      
                      
                      
                      8.58
                      
                      
                      
                      3,750
                      
                      
                      $
                      1.00August-09
                      
                      $
                      1.00
                      
                      
                      
                      14,000
                      
                      
                      
                      8.92
                      
                      
                      
                      4,083
                      
                      
                      $
                      1.00January-10
                      
                      $
                      0.15
                      
                      
                      
                      1,155,000
                      
                      
                      
                      9.34
                      
                      
                      
                      756,667
                      
                      
                      $
                      0.15May-10
                      
                      $
                      0.15
                      
                      
                      
                      60,000
                      
                      
                      
                      9.60
                      
                      
                      
                      16,667
                      
                      
                      $
                      0.152,355,145
                      
                      
                      
                      
                      
                      
                      
                      1,517,627





The
aggregate intrinsic value of stock options outstanding and exercisable at
September 30, 2010 and 2009 totaled $-0- and $-0- and $-0- and $-0-,
respectively. The weighted average grant date fair value of options granted
during the period ended September 30, 2010 and 2009 is $0.13 and $0.27,
respectively. The fair value of vested options as of the periods ended September
30, 2010 and 2009 totaled $151,763 and $122,656, respectively.





Note 8 – Common Stock
Purchase Warrants





On
October 3, 2008, the Company commenced a private stock offering, whereby it
authorized the issuance of 1,440,000 units consisting of one share of its common
stock and one common stock purchase warrant for a total raise of $360,000. The
common stock purchase warrants are exercisable at $1.00 per share and carrying a
five year exercise period. The offering was closed as of November 30, 2008. All
1,440,000 units were issued and $360,000 in cash was received.  The
amount of warrant expense related to this offering for the Twelve Months ending
September 30, 2009 was $593,484.





On
January 28, 2009, the Company commenced a private stock offering, whereby it
authorized the issuance of 1,750,000 units, each consisting of one share of its
common stock and one common stock purchase warrant for a total raise of
$262,500. The common stock purchase warrants are exercisable at $1.00 per share
and carry a five year exercise period. The offering was closed on March 31,
2009, at which time 1,296,800 unit shares were issued and $194,520 in cash was
received. The amount of warrant expense related to this offering for the Twelve
Months ending September 30, 2009 was $361,353.





Total
warrant expense charged as financing costs for the Twelve Months ended September
30, 2010 and 2009 was $-0- and $954,837, respectively.


F-20


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 8 – Common Stock
Purchase Warrants (Continued)





The
Company has determined the estimated value of warrants granted during the Twelve
Months ending September 30, 2009 using the Black-Scholes pricing model with the
following assumptions:  expected life of 5 years; a risk free interest
rate of 1.66%-2.71%; a dividend yield of 0% and volatility of
149.62%-172.61%.





Outstanding
common stock purchase warrants as of September 30, 2010 are summarized
below:


Number of
                    Warrants
                  
                  
                  Weighted
                    Average
                    ExercisePriceWarrants
      Outstanding, October 1, 2007
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Granted
                  
                  
                  184,120
                  
                  
                  $
                  2.00Warrants
      Exercised
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Canceled
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Outstanding and Exercisable, September 30, 2008
                  
                  
                  184,120
                  
                  
                  $
                  2.00Warrants
      Granted
                  
                  
                  2,736,800
                  
                  
                  $
                  1.00Warrants
      Exercised
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Canceled
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Outstanding and Exercisable, September 30, 2009
                  
                  
                  2,920,920
                  
                  
                  $
                  1.06Warrants
      Granted
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Exercised
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Canceled
                  
                  
                  -
                  
                  
                  $
                  -Warrants
      Outstanding and Exercisable, September 30, 2010
                  
                  
                  2,920,920
                  
                  
                  $
                  1.06





The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company’s common stock issued to the note holders
referenced above.


Warrants Outstanding
                      
                      
                      Warrants ExercisableWeightedNumber
                      
                      
                      Average
                      
                      
                      
                      
                      
                      WeightedExercise
                      
                      
                      Shares
                      
                      
                      Contractual
                      
                      
                      Number
                      
                      
                      AverageYear
                      
                      Price
                      
                      
                      Outstanding
                      
                      
                      Life (Years)
                      
                      
                      Exercisable
                      
                      
                      Exercise PriceJun-08
                      
                      $
                      2.00
                      
                      
                      
                      184,120
                      
                      
                      
                      1.75
                      
                      
                      
                      184,120
                      
                      
                      $
                      2.00Oct-08
                      
                      $
                      1.00
                      
                      
                      
                      40,000
                      
                      
                      
                      3.08
                      
                      
                      
                      40,000
                      
                      
                      $
                      1.00Nov-08
                      
                      $
                      1.00
                      
                      
                      
                      1,400,000
                      
                      
                      
                      3.17
                      
                      
                      
                      1,400,000
                      
                      
                      $
                      1.00Feb-09
                      
                      $
                      1.00
                      
                      
                      
                      666,667
                      
                      
                      
                      3.41
                      
                      
                      
                      666,667
                      
                      
                      $
                      1.00Mar-09
                      
                      $
                      1.00
                      
                      
                      
                      630,133
                      
                      
                      
                      3.50
                      
                      
                      
                      630,133
                      
                      
                      $
                      1.002,920,920
                      
                      
                      
                      
                      
                      
                      
                      2,920,920





The
aggregate intrinsic value of stock warrants outstanding and exercisable at
September 30, 2010 and 2009 totaled $-0- and $-0- and $-0- and $-0-,
respectively. The weighted average grant date fair value of stock warrants
granted during the period ended September 30, 2010 and 2009 is $0 and $0.35,
respectively. The fair value of stock warrants vested during the period
ended September 30, 2010 and 2009 totaled $0 and $766,304,
respectively.


F-21


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 9 – Line of
Credit





In August
2006, the Company entered into a Line of Credit / Overdraft Protection Agreement
(“LOC Agreement”) with a financial institution to borrow up to $75,000. Interest
accrues at the Wall Street Journal Prime Rate (“WSJ Prime Rate”) less 1% for the
first six months and at the WSJ Prime Rate, thereafter. All amounts due on the
line of credit are due on demand. The balance outstanding at September 30, 2010
and September 30, 2009 was $67,387 and $72,054 respectively. Accrued interest
payable at September 30, 2010 and September 30, 2009 was $180 and $322,
respectively. The LOC Agreement is guaranteed by an officer of the Company and
is secured by all assets of the Company.




Note 10 – Equity
Transactions





On
December 16, 2009, the Company commenced a private stock offering, whereby it
authorized the issuance of 3,333,334 shares of its common stock for a total
raise of $500,000.  The offering was closed on March 31, 2010 and
$37,097 of the $500,000 was raised and 247,317 shares of common stock were
issued.





On
January 21, 2010, the Board of Directors approved the issuance of 1,773,333
shares of common stock in satisfaction of $260,000 in related party notes
payable and $6,000 in accrued interest to a director of the Company. As part of
the agreement, the remaining balance of the related party note of $100,000 (See
Note 11) will be due and payable over the next 7 years at an interest rate of 8%
per annum.





On
January 21, 2010, the Board of Directors approved the issuance of 680,000 shares
of common stock in satisfaction of $90,000 in related party notes payable and
$12,000 in accrued interest to a director of the Company. As part of the
agreement, the remaining balance of the related party note of $14,000 (See Note
11) will be due and payable over the next 2 years at an interest rate of 8% per
annum.





On May 1,
2010 the Company commenced a private stock offering, whereby it authorized the
issuance of 5,000,000 shares of its common stock for a total raise of
$500,000.  As of September 30, 2010 $92,005 of the $500,000 was raised
and 920,050 shares of common stock were issued.





Note 11 – Notes Payable-
Related Parties





Through
September 30, 2007, a director of the company loaned the Company a total of
$32,026 at an interest rate of 6% per annum. During the fiscal year ended
September 30, 2008 the Company issued 30,779 shares of common stock in relief of
$30,779 in debt. This director advanced $75,000 during fiscal year 2008. During
the fiscal year ended September 30, 2009, the director advanced the Company an
additional $27,499, bringing the total principal balance due as of January 20,
2010 to $103,747. This note was payable monthly in the amount of $1,000 plus
interest, however, no scheduled payments were made through January 20, 2010 by
the Company. On January 21, 2010, the Company’s Board authorized the conversion
of $102,000 of principal and accrued interest to common stock and issued a new
promissory note for balance in the amount of $14,197. The new promissory note of
$14,197 carries an interest rate of 8% per annum, is payable monthly at $1,000
per month beginning February 21, 2010, matures March, 2012 and is
unsecured.  Total principal payments during the period were
$300.  Monthly payments on the note were not made through September
30, 2010 and the note was considered in default. As of September 30, 2010,
accrued interest owed on the new promissory note was $510.


F-22


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 11 – Notes Payable-
Related Parties (Continued)





Through
September 30, 2007, the CEO and Chairman of the Board of the Company advanced
the Company $20,000. During the fiscal year ended September 30, 2008 the Company
issued a total of 20,000 shares of common stock in satisfaction of $20,000 in
debt. As of January 20, 2010 total principal owed on the note was $356,068.
Monthly payments were not required and interest accrued at 6% per annum. On
January 21, 2010, the Company’s Board authorized the conversion of $266,000 of
principal and accrued interest to common stock and issued a new promissory note
for the balance in the amount of $97,356. The new promissory note of $97,356
carries an interest rate of 8% per annum, is payable monthly at $1,558 per month
beginning February 21, 2010, matures January, 2017 and is unsecured. Scheduled
payments were made on the new note through September 30, 2010, including
principal payments of $4,694. Since January 21, 2010, additional funds of
$136,800 have been advanced by the CEO to the Company and added to the
promissory note.  As of September 30, 2010 total principal owed on the
note was $239,582 and accrued interest owed was $6,854.





Through
September 30, 2008, a director of the company advanced a total of $12,772 in the
form of a demand note dated March 15, 2008.  During the 2008 fiscal
year end 1,917 shares of common stock were issued in satisfaction of $1,917 in
debt, resulting in a principal balance due as of September 30, 2010 and 2009, of
$10,855. This note is payable monthly by the Company in the amount of $1,020
with interest at the rate of 6% per annum. During the Twelve Months ending
September 30, 2010, no scheduled payments were made and the note was considered
in default. As of September 30, 2010, accrued interest owed on the Note was
$1,503.





Through
September 30, 2008, a director of the company, advanced $175,000 to the Company.
Interest accrues at 12% per annum. Accrued interest and principal was due at
maturity, December 1, 2008, however, the note holder agreed to extend the
maturity date for an additional twelve months given the same terms and
conditions as the original note. Through the period September 30, 2010, no
payments were made and the note was considered in default. As of September 30,
2010, accrued interest owed on the Note was $68,426.


F-23


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 11 – Notes Payable-
Related Parties (Continued)





Notes
payable-related parties consisted of the following at:





September
      30,
                      
                      
                      September
      30,2010
                      
                      
                      2009Note
      payable with a director of the Company, interest at 8% per annum, payments
      of $1,000 is due monthly beginning February 21, 2010, matures January,
      2012, unsecured
                      
                      $
                      13,897
                      
                      
                      $
                      103,747Note
      payable with a director of the Company, interest at 8% per annum, payments
      of $1,558.62 is due monthly beginning January 21, 2010, matures January,
      2017, unsecured
                      
                      
                      239,582
                      
                      
                      
                      206,134Note
      payable with a director of the Company, interest at 6% per annum, payments
      of $1,020 due monthly beginning April 15, 2008, matures April, 2009,
      unsecured, in default
                      
                      
                      10,855
                      
                      
                      
                      10,855Note
      payable with a director of the Company, interest at 12% per annum. No
      monthly payments are required. All accrued interest and principal wasdue at maturity, December 1, 2009, in default
                      
                      
                      175,000
                      
                      
                      
                      175,000Total
      Notes Payable - Related Parties
                      
                      $
                      439,334
                      
                      
                      $
                      495,736Less:
      Current Portion
                      
                      
                      (439,334
                      )
                      
                      
                      (495,736
                      )Long-Term
      Notes Payable - Related Parties
                      
                      $
                      -
                      
                      
                      $
                      -





Total
accrued interest at September 30, 2010 and September 30, 2009 was $73,813 and
$61,620, respectively.


F-24


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 12 – Commitments and
Contingencies





Leases





The
Company leases facilities for its corporate offices at $600 per month. The lease
expired in fiscal 2007 and was then converted to a month-to-month basis. Rental
expense for fiscal 2010 and 2009 was $7,200 and $9,087, respectively. The
Company also has a 60 month equipment lease on its office copier machine that
costs $240 per month and expires on August 30, 2011 and rents a small
storage unit on a month to month basis for $147 per month.





The
future minimum annual lease commitments as of September 30, 2010 are as
follows:





Years Ending September 30,
                      
                      Amount2011
                      
                      
                      2,6402012
                      
                      
                      -2013
                      
                      
                      -2014
                      
                      
                      -2015
                      
                      
                      -Thereafter
                      
                      
                      -





Agreements





As of
September 30, 2010, the Company had one active radio station syndication
agreement under which the company owed $4,700. The agreement expires in one year
and the Company intends to renew it at the end of the term. As of September 30,
2010, the monthly cost of our radio show is $5,500 a month.





On May 3,
2008, the Company entered into a ten year licensing agreement with Microbial
Technologies Ltd. (“MTL”) for the purposes of obtaining the right to use the
proprietary formulations owned by MTL. The cost of the licensing agreement will
be $100,000 per year, which will be billed quarterly to the Company, and a 5%
royalty on net sales of any MTL product formulations sold. If the Company does
not use MTL formulations, the licensing fee and royalties are not required to be
paid. The total amount owed under this agreement at September 30, 2010, is
$142,905 from the use of the MTL technology, and has been included in accounts
payable.





Note 12 – Commitments and
Contingencies (Continued)





The
future minimum annual contractual obligations as of September 30, 2010 are as
follows:





Years Ending September
      30,
                  
                  Amount2011
                  
                  
                  16,5002012
                  
                  
                  -2013
                  
                  
                  -2014
                  
                  
                  -2015
                  
                  
                  -Thereafter
                  
                  
                  -$
                  16,500


F-25


ORGANIC
SALES AND MARKETING, INC.


Notes
to the Financial Statements


September
30, 2010 and 2009





Note 13 – Concentration of
Credit Risk





Major
Customers





The
Company had one customer who represented 10% or more of total sales for the year
ended September 30, 2010 at 19.1% of total sales.





As of
September 30, 2010 the Company’s accounts receivable was due from this customer
was $2,798. The loss of this customer, although not anticipated, could have a
material impact on the Company’s present and future operations.





Major
Suppliers





The
Company had two vendors who represented 10% or more of the total material
purchases for the year ended September 30, 2010 at 64.7% and 13.1%
respectively.





Due to
capabilities, pricing and geographic location, these vendors are considered sole
source vendors by the Company. The loss of these sole source vendors could have
a temporary impact on operations; however, alternate suppliers are readily
available that the Company feels could quickly fill the void, should it ever
need to.





Note 14 – Going
Concern





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company is poorly capitalized and has had
recurring operating losses, negative cash flows from operations and recurring
negative working capital for the past several years and is dependent upon
financing to continue operations.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.  It is management's plan to continue to implement their
strategy of acquiring new customers and accepting reorders from existing
customers. As the Company's revenues become more established, management expects
to report net income. With the expansion of sales, management believes that the
Company will eventually generate positive cash flow from operations. In the
interim, management believes that shortfalls in cash flow will be satisfied with
funds raised from bridge loans, convertible debt and additional private stock
offerings that are in compliance with Securities and Exchange Commission rules
and regulations governing the same.





Note 15 – Subsequent
Events





Subsequent
to September 30, 2010 and through the date its financial statements were issued,
the Company issued an additional 130,000 shares of common stock as part of the
ongoing private stock offering, for an additional $13,000 of the $500,000
discussed in Note 10.





Organic
Sales and Marketing, Inc. has evaluated subsequent events for the period
September 30, 2010 through the date its financial statements were issued, and
concluded there were no other events or transactions occurring during this
period that required recognition of disclosure in its financial
statements.


F-26