Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify forward-looking statements, including statements regarding our ability to continue to create innovative technology products, our ability to continue to generate new business based on our sales and marketing efforts, referrals and existing relationships, our financing strategy and ability to access the capital markets and other risks discussed in our Risk Factor section included in our Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission.
Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the “SEC”). We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
OVERVIEW
Operating through NXT Nutritionals, we are engaged in developing and marketing of a proprietary, patent-pending, all–natural, healthy sweetener sold under the brand name SUSTA™ and other food and beverage products. SUSTA™ is being sold as a stand-alone product and it is the common ingredient for all of our products. We also market and sell a line of yogurt smoothies sold under the brand name Healthy Dairy® which is enhanced by the revolutionary taste and nutritious ingredients contained in SUSTA™. Our mission is to provide consumers with unique, healthy, delicious products that promote a healthier lifestyle and combat obesity and diabetes.
We have previously been focused on expanding the distribution of SUSTA™ to the retail marketplace nationwide, and expanding the Healthy Diary® product line from the east coast to nationwide reach,. Eventually, the Company plans on expanding the Healthy Dairy® brand to include product lines such as cup yogurt and ice cream. Currently we have changed our business focus of Healthy Dairy away from selling to the grocery chains and to focus on the food service category.
With regard to Susta, we have undertaken traditional levers in the retail sales channel. The Company has employed advertising, internet communications, trade incentives, price promotions, and couponing. We are targeting consumer food and beverage companies to incorporate SUSTA™ into their products to provide a healthy alternative to sugar, artificial sweeteners and other natural sweeteners that do not provide the nutritional and health benefits of SUSTA™.
With regard to the sale of Healthy Dairy, the Company has received approval from the United States Navy to be on the Navy’s standard daily core menu. The Company has also been approved to sell its Healthy Dairy smoothies to the United States Naval Academy at Annapolis, Maryland and the United States Air Force Academy. The Company plans on expanding its sale of Healthy Dairy to all branches of the United States Military and the other United States Military Academies. To date, sales of Healthy Dairy are at an early stage and will need to increase dramatically to meet the Company’s expectations and business plans. The Company has retained the services of business owned and operated by retired U.S. Military veterans to support the Company’s growth objectives in the United States Military. In order to satisfy future expected orders from the various Military branches and academies, the Company will need additional financing, including a working capital line of credit. Any such financing is subject to the consent from third parties, such as holders of the 2010 Notes (see below).
In the future we also plan to utilize celebrity spokespersons, including Dara Torres, to help drive awareness of SUSTA™ and Healthy Dairy by appearing in commercials, making public appearances, heading our cause marketing campaign and appearing on popular television shows.
We have funded our operations to date through private placement offerings of our securities. On August 27, 2009, we completed a private offering of an aggregate subscription amount of $3,173,000 through the issuance of investment units to certain accredited investors. Each investment unit had a purchase price of $50,000 and consisted of (i) a three year Debentures in the amount of $65,000 convertible into shares of our common stock at a conversion price of $0.40 per share, (ii) five year Series A Warrants to purchase 100% of the common stock underlying the Debenture at an exercise price of $0.40 per share, and (iii) five year Series B Warrants to purchase 100% of the common stock underlying the Debenture at an exercise price of $0.60 per share.
On February 26, 2010, we closed on a private placement offering by raising total gross proceeds of $5,667,743, through the sale of (i) 0% Original Issue Discount Senior Secured Convertible Notes convertible into shares of our common stock at a conversion price of $1.00 per share, and (ii) a number of five-year Warrants exercisable into a number of shares of common stock equal to 100% of the number of common shares underlying the Notes at an exercise price of $1.25 per share to certain accredited investors (the “2010 Notes”). The principal amount of each of the 2010 Notes is 115% of the subscription proceeds received.
On September 1, 2010, we entered into a modification and amendment agreement (the “Modification Agreement”) with purchasers holding approximately 87% of the aggregate number of (1) the 2010 Notes, (2) the Warrants, and (3) the shares of common stock underlying the Notes and the Warrants, pursuant to which the commencement of monthly redemption date of the 2010 Notes is extended to December 1, 2010 and the holders of the Notes and the Warrants, we may now pay the monthly redemption of the Notes in common stock even if the monthly redemption price described in the Notes is less than $0.40. In addition, pursuant to the Modification Agreement, the conversion price of the Notes and the exercise price of the Warrants are both reduced to $0.40 per share.
On December 6, 2010 we entered into a second modification and amendment agreement (the “Second Modification Agreement”) with the Purchasers (the “Purchasers”) holding approximately 91% of the aggregate number of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Pursuant to the Amendment, the commencement of monthly redemption date of the Notes is extended to September 1, 2011, the maturity date of the Notes is extended to December 31, 2011 and the original issue discount is amended such that the principal amount equals each investor’s subscription amount multiplied by 1.60. In addition the conversion price can be adjusted on the following events:
(i) First Quarter 2011 Form 10-Q. If the Company’s filing of its March 31, 2011 Form 10-Q with the Securities and Exchange Commission does not disclose revenue of at least $5 million for the first three months of 2011, then the Conversion Price of the Notes will decrease by $.03 on the fifth (5th) trading day after the Company files its March 31, 2011 Form 10-Q. Notwithstanding the foregoing, if, during the five (5) trading days following the filing of the March 31, 2011 Form 10-Q, the average closing bid price is $.60 or better, the aggregate trading volume of Company common stock is at least 1.5 million shares and all of the shares underlying the Notes may be sold pursuant to an effective registration statement or Rule 144 (and the Company is then in compliance with the current public information required under Rule 144), then no adjustment to the Conversion Price will be made hereunder. As of March 31, 2011, the Conversion Price of the note was modified from $0.40 to $0.37.
(ii) Second Quarter 2011 Form 10-Q. If the Company’s filing of its June 30, 2011 Form 10-Q with the Securities and Exchange Commission does not disclose revenue of at least $8 million for the first six months of 2011, then the Conversion Price of the Notes will be adjusted to equal the lesser of (i) the then effective Conversion Price and (ii) ninety (90%) percent of the average closing bid price during the five (5) trading Days following the filing of the June 30, 2011 Form 10-Q, such adjustment, if any, to occur on the fifth (5th) trading day following the Company’s filing of its June 30, 2011 Form 10-Q. Notwithstanding the foregoing, if, during the five (5) trading Days following the filing of the June 30, 2011 Form 10-Q, the average closing bid price is $.60 or better, the aggregate trading volume of Company common stock is at least 1.5 million shares and all of the shares underlying the Notes may be sold pursuant to an effective registration statement or Rule 144 (and the Company is then in compliance with the current public information required under Rule 144), then no adjustment to the Conversion Price will be made hereunder.
On September 6, 2011, the Company entered into a Third Modification and Amendment Agreement (the “Third Modification Agreement”) with the Purchasers holding more than sixty-seven (67%) percent of the aggregate number of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Pursuant to the Amendment, the commencement of monthly redemption date of the 2010 Notes is extended to October 1, 2011, In addition, the Third Modification Agreement provides that the holders of the 2010 Notes will forebear and take no action to enforce the terms of the 2010 Notes for a period of sixty (60) days following the effectiveness of the Third Modification Agreement, including any reduction of the Conversion Price of the 2010 Notes or reduction in the exercise price of the Warrants as provided in the Second Modification Agreement. The sixty (60) day time period is intended to allow the Company to acquire additional financing on terms and conditions acceptable to the Company and subject to the consent of the Purchasers
On November 21, 2011, the Company and NXT Investment Partners, LLC, a Delaware limited liability company (“NIP”) executed a Securities Purchase Agreement (the “SPA”) pursuant to which NIP agreed to make investments (the “Investment”) in the Company in the form of a senior secured loan to the Company in the aggregate principal amount of at least $1,000,000 and up to $1,500,000 (the amount loaned shall be referred to as the “Principal Amount of the 2011 Note”), bearing interest at 13% per annum, in exchange for a four-year 13% Senior Secured promissory note (“2011 Note”). Additionally, on November 21, 2011, pursuant to the SPA, the Company received an initial investment of $1,000,000 and issued the 2011 Note in the original principal amount of $1,000,000 along with 13,075,468 shares of Series A Convertible Preferred Stock (“Preferred Stock”) of the Company to NXT. Pursuant to the terms of the SPA, the Company and NXT may agree to an additional investment of up to $500,000 on or prior to January 20, 2012. The Preferred Stock was issued by the Company pursuant to an exemption under Section 4(2) of the Securities Act of 1933 (the “Securities Act”) due to the fact that it did not involve a public offering of securities and Rule 506 of Regulation D promulgated thereunder. The shares of Preferred Stock are “restricted securities” as such term is defined in the Securities Act. The Preferred Stock issued under the SPA carries an annual dividend equal to the greater of: (a) 10% of the then outstanding Principal Amount of the 2011 Note as of December 31st of the applicable fiscal year for which the annual dividend is being paid; or (b) 10% of the Net Income (as defined in the 2011 Note) of the Company in excess of $500,000 for the applicable fiscal year of the Company and is convertible at the option of NIP into an equal number of shares of common stock of the Company representing 20% of the Company’s fully diluted capital stock
at
the
time of conversion
. The term of the SPA additionally required the holders of at least 65% of the outstanding principal amount of the 2009 Debentures to agree to and execute the First Amendment (as described below) and the holders of at least 67% of the outstanding principal amount of the 2010 Notes to agree to and executed the Fourth Modification Agreement (as described below).
On November 4, 2011, the Company entered into a Fourth Modification and Amendment Agreement (the “Fourth Modification Agreement”) with the holders holding approximately 93.5% percent of the
outstanding principal amount
of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Pursuant to the Fourth Modification Agreement, the holders, upon closing of the Investment, among other things, have agreed to waived their right to monthly redemptions of the Notes and extend the maturity date of the Notes to the date that is 48-months from the Closing Date (as defined in the SPA) of the Investment. In addition
,
the holders have agreed (i) that the conversion price will be lowered to $0.25, (ii) to a waiver of the anti-dilution provisions and future participation rights set forth in the Notes and Series C Warrants waived registration rights penalties of $246,387 and (iii) to subordinate their security interests securing the 2010 Notes to the senior security interests to be granted by the Company to secure the Investment and to third parties that provide financing for accounts receivables, inventory and raw materials of the Company.
Also on November 4, 2011,
the holders of
approximately 70% of the
outstanding principal amount
of the Company’s 2009 convertible debentures (the “2009 Debentures”) and five year Series A and Series B warrants (collectively, the “2009 Warrants” and together with the 2009 Debentures are referred to as the “2009 Securities”) entered into a First Modification and Amendment Agreement (the “First Amendment”) pursuant to which upon closing of the Investment the 2009 Debentures and the 2009 Warrants of the approving holders were amended and modified, among other things, (i) to reduce the Conversion Price (as defined in the 2009 Debentures) and the Exercise Price (as defined in the 2009 Warrants) to $0.25 per share of common stock, (ii) to waive the anti-dilution provisions of the 2009 Debentures and the 2009 Warrants and (iii) and extend the Maturity Date under the 2009 Debentures to the date that is 48-months from the Closing Date (as defined in the SPA) of the Investment. As a result of the closing of Investment, those holders of the 2009 Securities who did not execute the First Amendment will incur a reduction of the Conversion Price (as defined in the 2009 Debentures) and the Exercise Price (as defined in the 2009 Warrants) of their 2009 Debentures and 2009 Warrants to $0.09 per share of common stock. The Maturity Date under the 2009 Debentures remains unmodified for those holders of the 2009 Securities who did not execute the First Amendment.
RESULTS OF OPERATIONS
Results of Operations
Summary of Statement of Operations for the Three Months Ended September 30, 2011 and 2010 (unaudited):
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Three months ended
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September 30, 2011
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September 30, 2010
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Sales – net of slotting fees and discounts
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General and Administrative Expenses
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Other Income (Expense) - Net
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Net Income per Common Share – Basic
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For the three months ended September 30, 2011 and 2010, the Company reported a net loss of $464,368 or $(0.01) per share and a net loss of $9,072,306 or $(0.19) per share, respectively. The change in net loss between the three months ended September 30, 2011 and 2010 was primarily attributable to the following:
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The Company has shifted its Healthy Dairy sales focus from sales to grocery chains to the food service category. We have only recorded a limited number of Healthy Dairy sales since this shift in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company has experienced limited sales on the SUSTA product.
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Gross sales for the three months ended September 30, 2011 and the three months ended September 30, 2010 reflected a slight increase, primarily due to an increase in yogurt smoothie sales. The Company is yet to significantly execute upon the shift in focus from grocery chains to the food service category.
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General and administrative expenses decreased by approximately 17% during the three months ended September 30, 2011 as compared to the corresponding three months ended September 30, 2010. The decrease is primarily attributable to a decline in both stock base compensation and professional fees.
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Other income (expense) - net increased significantly during the three months ended September 30, 2011 as compared to the corresponding three months ended September 30, 2010. The increase is primarily attributable to a decrease in interest expense. The Company fully accreted the debt discount recorded on the 2010 convertible note offering during 2010. The Company also recorded significant debt extinguishment expenses during the three months ended September 30, 2010. The increases were offset by a major decrease in the change in fair market value of the derivative liability during the three months ended September 30, 2011 as compared to the corresponding three months ended September 30, 2010.
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Summary of Statement of Operations for the Nine Months Ended September 30, 2011 and 2010 (unaudited):
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Nine months ended
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September 30, 2011
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September 30, 2010
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Sales – net of slotting fees and discounts
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General and Administrative Expenses
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Other Income (Expense) - Net
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Net Income (Loss) per Common Share – Basic
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For the nine months ended September 30, 2011 and 2010, the Company reported a net income of $360,883 or $0.01 per share and a net loss of $(9,974,067) or $(0.22) per share, respectively. The change in net income (loss) between the nine months ended September 30, 2011 and 2010 was primarily attributable to the following:
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The Company has shifted its Healthy Dairy sales focus from sales to grocery chains to the food service category. We have only recorded a limited number of Healthy Dairy sales since this shift in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company has experienced limited sales on the SUSTA product.
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Sales for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 decreased by 6%. The Company is yet to significantly execute upon the shift in focus from grocery chains to the food service category.
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General and administrative expenses increased by approximately 1% during the nine months ended September 30, 2011 as compared to the corresponding nine months ended September 30, 2010. The increase is primarily attributable to the Company’s development and roll out the 4 ounce yogurt cup, and increased marketing efforts to build brand and product awareness. The increase is offset by a decrease in both stock base compensation and professional fees. ·
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Other income (expense) - net decreased significantly during the nine months ended September 30, 2011 as compared to the corresponding nine months ended September 30, 2010. The decrease is primarily attributable to a decrease in interest expense. The Company fully accreted the debt discount recorded on the 2010 convertible note offering during 2010. The Company also recorded significant debt extinguishment expenses during the nine months ended September 30, 2010. The decreases were offset by a major decrease in the change in fair market value of the derivative liability during the nine months ended September 30, 2011 as compared to the corresponding nine months ended September 30, 2010.
Liquidity and Capital Resources
Going Concern: As reflected in the accompanying unaudited interim consolidated financial statements, the Company has a loss from operations of $2,319,640 and net cash used in operations of $1,662,130 for the nine months ended September 30, 2011; and has a working capital deficit of $1,666,656 and a stockholders’ deficit of $10,245,584.
The ability of the Company to continue its operations is dependent on management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company also believes that it will be required to restructure the terms of its existing indebtedness in order to attract additional capital and to avoid a default under the terms of this indebtedness. The Company is currently engaged in discussions with various third parties concerning a possible investment in the Company and with the current holders of the Company’s indebtedness regarding the modification of the terms of the indebtedness. These discussions are all preliminary in nature and there can be no assurance that any of them will result in an additional funding or the successful restructuring of the Company’s debt.
The Company will require additional funding to meet its working capital obligations and to finance the growth of its current and expected future operations. The Company believes its current available cash along with anticipated revenues are insufficient to meet its working capital needs unless the Company’s obtains additional funding in the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The ability of the Company to continue as a going concern is dependent on its ability to do all or most of the above listed steps. In the event that the Company were unable to obtain additional financing, it is likely that the Company would be required to discontinue operations.
The following table summarizes total current assets, liabilities and working capital at September 30, 2011 compared to December 31, 2010.
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September 30,
2011
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December 31,
2010
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Increase/
Decrease
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(unaudited)
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)
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Working Capital (Deficit)
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As of September 30, 2011, we had a working capital deficit of $1,666,656 as compared to a working capital deficit of 11,076,205 as of December 31, 2010, a decrease of $9,409,549.
The decrease is primarily a result of a decrease in current liabilities, specifically a decrease in derivative liabilities and a decrease in convertible notes, primarily due to the restructure of the 2010 Notes and 2009 Debentures, which extended the maturity dates to 4 years on a significant portion of those instruments, as well as convertible holders of those instruments converting to common stock during the nine months ended September 30, 2011. These decreases in current liabilities were partially offset by a decrease in current assets, specifically a decrease in cash by approximately $1,662,000.
Net cash used for operating activities for the nine months ended September 30, 2011 and 2010 was $(1,662,130) and $(2,235,171), respectively. During the nine months ended September 30, 2011, the Company used cash to build inventories and to further develop the 4 ounce yogurt cup and to market and build brand awareness of the product line.
Net cash obtained through all financing activities for the nine months ended September 30, 2011 was $0 as compared to $4,722,755 for the nine months ended September 30, 2010, specifically attributable to the 2010 Convertible Note Offering.
The Company continues to explore potential expansion opportunities in the industry in order to boost sales, while leveraging distribution systems to effect lower costs.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 2 of our unaudited interim consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Use of Estimates, Going Concern Consideration – The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Among the estimates we have made in the preparation of the financial statements is an estimate of our projected revenues, expenses and cash flows in making the disclosures about our liquidity in this report. As an early stage company, many variables may affect our estimates of cash flows that could materially alter our view of our liquidity and capital requirements as our business develops. Our consolidated financial statements have been prepared assuming we are a “going concern”. No adjustment has been made in the consolidated financial statements which could result should we be unable to continue as a going concern.
Share-Based Compensation - US GAAP requires public companies to expense employee share-based payments (including options, warrants, restricted stock units and performance stock units) based on fair value. We must use our judgment to determine key factors in determining the fair value of the share-based payment, such as volatility, forfeiture rates and the expected term in which the award will be outstanding.
Derivative Financial Instruments - Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Binomial Lattice Model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the binomial option-pricing model.
Debt Issue Costs and Debt Discount -These items are amortized over the life of the debt to interest expense. If a conversion, extinguishment or repayment of the underlying debt occurs, a proportionate share of these amounts is immediately expensed.
Beneficial Conversion Feature - For convertible debt issued in 2009, the convertible feature of the convertible notes (See Note 4 to our consolidated financial statements) indicated a rate of conversion that was below market value. As a result, the Company recorded a "beneficial conversion feature" ("BCF") and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount from the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt. Upon issuance, the convertible debt instruments had an effective conversion rate per share in excess of the market price per share.
Revenue recognition - The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition and records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured. There is no stated right of return for products.
Sales are recognized upon shipment of products to customers. The Company allows deductions in the form of credits for products unsold during its shelf life which is on average 3 to 4 months. The Company’s reserve for accounts receivable takes these potential future credits into consideration. Expenses such as slotting fees, sales discounts, and reclamation are accounted for as a direct reduction to revenues.
OFF-BALANCE SHEET ARRANGEMENTS:
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable because we are a smaller reporting company.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer (“CEO”), who also serves as the Company’s Principal Financial Officer (“PFO”), to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.
We carried out an evaluation, under the supervision and with the participation of our management, including our CEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There is no pending litigation against NXT Nutritionals Holdings, Inc., or any of the subsidiaries of NXT Nutritionals Holdings, Inc.
Item 1A. Risk Factors
In addition to the other information set forth in this report, information regarding risks affecting the Company appears in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. These are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that management currently considers to be non-material may in the future adversely affect the Company’s business, financial condition and operating results.
OUR ABILITY TO CONTINUE AS A GOING CONCERN IS DEPENDENT UPON OUR EXECUTION OF A NUMBER OF ACTIVITIES.
Although management of the Company has raised additional working capital through the Investment (See Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview) our current liabilities continue to exceed our current assets resulting in a working capital deficit. Consequently, notwithstanding the closing of the Investment, ability of the Company to continue as a going concern depends on the Company’s execution of a number of activities including securing additional capital through convertible note offerings, securing favorable raw material and manufacturing rates with our vendors, and continuing to increase brand awareness for Healthy Dairy Yogurt Smoothies and the SUSTA Brand. The ability of the Company to continue as a going concern is dependent on its ability to do all or most of the above listed activities.
WE MAY BE UNABLE TO REFINANCE OUR OBLIGATIONS UNDER THE 2009 DEBENTURES OR RAISE ADDITIONAL FINANCING IN ADVANCE OF THE APPLICABLE MATURITY DATES OF THE 2009 DEBENTURES.
The holders of approximately 30% of the outstanding principal amount of the Company’s 2009 Securities (as defined below) did not execute the First Amendment in connection with the Investment and consequently the Maturity Date under their 2009 Debentures (as defined below) have remained unmodified. Unless the Company can refinance its obligations under those 2009 Debentures or raise additional financing in advance of the applicable maturity dates, the holders of such 2009 Debentures would have the right to declare all or any portion of the outstanding principal amount of such 2009 Debentures due and payable and institute proceedings Company for payment. Such action by those holders of the 2009 Debentures would have a material adverse impact on the Company.
Item 5. Other Information
Item 6. Exhibits
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Certification of Chief Executive Officer, pursuant to Rule 13a – 14(a).
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Certification of Chief Financial Officer, pursuant to Rule 13a – 14(a).
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Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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NXT NUTRITIONALS HOLDINGS, INC.
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Date:
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December 9, 2011
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By:
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/s/ Francis McCarthy
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Name:
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Francis McCarthy
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Title:
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Chief Executive Officer
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Date:
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December 9, 2011
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By:
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/s/ David Briones
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Name:
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David Briones
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Title:
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Chief Financial Officer
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Exhibit Index
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Exhibit
No.
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Description
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Certification of Chief Executive Officer, pursuant to Rule 13a – 14(a).
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|
|
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Certification of Chief Financial Officer, pursuant to Rule 13a – 14(a).
|
|
|
|
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Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|