Organic To Go Reports Third Quarter Results

Organic To GoTM (OTCBB:OTGOE), nation's first fast-casual café chain to be certified as an organic retailer by the USDA, reported financial results for the third quarter and nine-month period ended September 30, 2008.

Jason R. Brown, Founder, Chairman and Chief Executive Officer, said, 'While we are pleased with the third quarter sales increase of 70% over last year, operating results were below our expectations. However, year to date, we have made a number of substantial improvements to our business. Our revenue is up more than 56% over last year, while gross margin has improved to 58.3% from 51.8% last year. During this year of rapid growth, we have simultaneously improved the quality/presentation of our food along with our operations at every level, and followed through with our commitment to prove that Organic To Go is a bi-coastal brand.'

'In September and continuing into the fourth quarter, we recognized the significant challenges in our economy and began making meaningful cuts to our operations to become a more efficient and streamlined organization, while also being poised for future expansion when the timing is right. These are extraordinary times in our country's economic history and the reality that as the workforce surrounding us is being reduced, it has a direct effect on our business. To drive our operational and labor costs down in the fourth quarter, we have taken aggressive steps to insure that we focus on driving to profitability by cutting our overall expenses wherever and whenever possible, including our labor force by 30%. We have also curtailed capital investments in our future growth, excluding the three additional locations we plan to open in Washington, DC by early next year.'

Third Quarter Results

Revenue for the third quarter increased 70.0% to $6.3 million, as compared with revenues of $3.7 million in the same quarter last year. Gross profit increased 71% to $3.4 million, as compared with $2.0 million in the year-ago period. Gross profit margin improved to 53.3% for the third quarter, as compared with 52.9% in last year's third quarter, although was negatively affected by our launch in Washington, DC. Gross margin in existing operations was approximately 56% compared to almost 53% last year in the third quarter. The operating EBITDA loss for the third quarter was approximately $(3.2) million as compared with an operating EBITDA loss of $(2.5) million for the same period last year. This takes into consideration the $707,000 nonrecurring costs associated with launching on the east coast in Washington, DC. Net loss for the third quarter was approximately $(7.1) million, or $(0.19) per share, as compared with $(3.8) million, or $(0.15) per share, for the same quarter last year.

For the three-month period, retail sales, which include café, delivery, and catering sales, were approximately $5.5 million, an increase of 74% over the same period last year. Wholesale sales were approximately $800,000, an increase of 45% over the same period last year.

'While our third quarter sales have historically been our slowest period due to summer holidays for people at work and universities in summer session, our current performance underscores our rapid expansion and the acceptance of our business model over the past year in both core and newer markets. This also comes at a time when, like many other food service providers, we also experienced a material softening due to the current economic downturn, as consumers continue to limit their food consumption away from home. With regards to our operations, we experienced nonrecurring expenses associated with opening a new region in Washington, DC, in addition to operational inefficiencies that yielded lower gross margins and higher expenses than we had experienced in several quarters due to our initial launch into this market.'

Nine-Month Period Results

Revenue for the nine-month period increased 56.5% to $17.5 million, as compared with revenues of $11.2 million in the same period last year. Gross profit increased 76% to $10.2 million, as compared with $5.8 million in the year-ago period. Gross profit margin improved to 58.3% for the nine-month period, as compared with 51.8% in last year's comparable period. The operating EBITDA loss for the nine-month period was approximately $(5.0) million as compared with an operating EBITDA loss of $(5.6) million for the same period last year. Net loss for the nine-month period was approximately $(13.6) million, or $(0.39) per share, as compared with $(8.9) million, or $(0.47) per share, for the same period last year.

For the nine-month period, retail sales, which includes café, delivery, and catering sales, were approximately $15.1 million, an increase of 56% over the same period last year. Wholesale sales were $2.4 million, an increase of 60% over last year's comparable period.

'To drive operational effectiveness, we are currently examining the possibility of closing several underperforming locations in southern California which were opened in 2007, although no final determination has been made at this time. All this is being done while insuring that we can provide superior quality customer service experience in all three segments of our business and in fact continue to have solid customer repeat business both at retail and through our wholesale business. As an example, 65% of all of our catering orders this year have come from repeat customers that have purchased more than five times from us.'

'Year to date, we have served an estimated 3 million guests, many of whom are regular customers. Due to economic conditions and to stay focused on driving towards profitability, we have stopped our material expansion and now anticipate finishing 2008 with year over year 55% annual growth. In addition, our revenue is less than anticipated as we have been challenged in the Washington, DC metropolitan area due to unexpected delays in receiving our remodeling permits. We expect to have these issues resolved by year end and will open three additional locations as soon as possible to capitalize on our initial success in the area. For the first half of 2009, we will continue to work only on effective and efficient revenue and operational developments.'

'To further capitalize on our hub and spoke operations, we have begun exploring material third party alternative retail operations through partnering with several high quality food service providers so that we can help provide their customers with our Organic To Go branded fresh food experience. Through this approach, we benefit from the increased revenue and significant brand exposure along with greater economies of scale for our production facilities. While all consumers are focused on cutting back, it is important to note that our average retail ticket is currently approximately $6.00, and if a person appreciates pesticide-free ingredients grown under sustainable conditions, we are well positioned to reach them in the markets that we serve. Ultimately, I believe we are experiencing serious, but temporary setbacks to our business due to the economy and that we will be able to navigate the current environment, protect our shareholders, and come out a stronger company as the economy turns.'

Financing

The Company continues to fund its operations through financing activities consisting primarily of private placements of debt and equity securities. On December 2, 2008, the Company closed on the sale of a $3.0 million secured promissory note.

Brown concluded, 'We are pleased to have secured additional short-term financing to manage the working capital needs of our business in a difficult credit environment. We appreciate the confidence our investors have in our Company and are working hard to ensure that we can realize the full potential of Organic To Go over time.'

Management Resignation

The Company also announced that Andrew Jacobs, who had served as SVP of Operations, has resigned his position and is no longer with the Company.


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