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STVF > SEC Filings for STVF > Form 10-K on 20-May-2013All Recent SEC Filings

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Form 10-K for STEVIA FIRST CORP.


20-May-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as "expects," "anticipates," "intends," "plans," "likely," "will," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described under the heading "Risk Factors" and elsewhere in this annual report.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this annual report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements and the accompanying notes for the years ended March 31, 2012 and 2013.

Company Overview

We were incorporated in the State of Nevada on June 29, 2007 and commenced operations as a development stage exploration company. On October 10, 2011, we completed a merger with our wholly-owned subsidiary, Stevia First Corp., whereby we changed our name from "Legend Mining Inc." to "Stevia First Corp." As a result of our management change, the addition of key personnel, and the lease of property for laboratory and office space and agricultural land in California, we are pursuing our new business as an agricultural biotechnology company engaged in the cultivation and harvest of stevia leaf and the development of stevia products. We are in the early stages of establishing a vertically-integrated enterprise that controls the process of stevia extract production using biotechnological methods including fermentation, or using traditional farming, cultivation, and extraction from the stevia plant, and which also develops, markets, and sells stevia consumer products.

Our common stock is currently quoted on the OTC Markets Group's OTCQB tier under the symbol "STVF." No shares of our common stock traded until March 5, 2012 and there is only a limited trading market for our common stock.

Plan of Operations

We have not yet generated or realized any revenues from our business operations. In their report on the annual financial statements for the fiscal year ended March 31, 2013, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an on-going business unless we obtain additional capital or generate sufficient cash from our operations. We do not expect to generate cash from our operations for the foreseeable future. The continuation of our business is dependent upon our ability to obtain loans or sell securities to new and existing investors.

As described further under the heading "Liquidity and Capital Resources" below,
(i) on January 31, 2012, we issued a $250,000 convertible debenture to an investor in a private placement (the "January Private Placement") and (ii) on February 7, 2012, we entered into a subscription agreement (the "February Subscription Agreement") with one investor, pursuant to which such investor irrevocably agreed to pay us $1,250,000 over a 12 month period beginning on March 1, 2012, in consideration for our issuance of 625,000 shares of common stock and convertible debentures with an aggregate principal amount of $625,000 (which amount was fully paid and all shares and convertible debentures issued by May 22, 2012 as a result of an advanced payment by the investor on that date for all remaining amounts owed), and (iii) on November 1, 2012, we issued and sold to two purchasers an aggregate of $500,000 in convertible debentures and warrants to purchase 1,000,000 shares of common stock pursuant to a securities purchase agreement entered on October 29, 2012 (the "November 2012 Financing").

Our current strategy is to build a vertically integrated stevia enterprise in North America through our internal research and development, cultivation of stevia in California's Central Valley, product development activities combined with acquiring rights to additional intellectual property and land suitable for stevia production, and forming alliances with leading California growers, current manufacturers and distributors of high-grade but low-cost stevia extracts with superior taste profiles. We are focused on the production of stevia extract through use of fermentation technologies, the production of stevia extract through California stevia leaf production, the development of consumer stevia products such as a tabletop sweetener, and more broadly at building a vertically-integrated stevia enterprise in the United States.

We have begun development of a stevia consumer product utilizing stevia extract purchased from other suppliers until we are able to produce our own stevia extract. Operations related to stevia product development include the formulation and testing of a stevia tabletop sweetener. We initiated consumer product testing in the first half of 2013. Assuming favorable results from our consumer product testing efforts, we would expect to release our planned tabletop sweetener product later in 2013 and generate revenues from this proposed product as soon as the second half of 2013. We expect additional expenses related to this development work to be approximately $30,000, costs for initial manufacturing runs and distribution of the product to be approximately $20,000, and that each of these activities would be funded internally.

Our present operations primarily consist of research and development related to stevia extract production through use of biotechnology or fermentation, including the directed conversion of steviol, undesirable steviol glycosides, or low-cost substrates to high-value and desirable steviol glycosides such as Rebaudioside A ("Reb A") that are sweet and normally present within the stevia leaf. Operations related to production of stevia extract through fermentation include microbial strain development and characterization work. Prior to the launch of California-produced stevia extract, we will need to achieve certain operational milestones, including but not limited to further microbial strain development, fermentation process development and optimization, work which we currently estimate to cost $250,000. Assuming our research and development efforts are successful, we would seek manufacturing capacity with contract manufacturers and regulatory approvals for products developed using these methods, which we currently estimate would cost $750,000. Assuming our research and development and regulatory approval efforts are successful, we expect the first revenues on sales of products resulting from use of our biotechnological or fermentation work could occur in 2014. However, we will require additional investment obtained through additional funding from our stockholders and other qualified investors in order to complete these milestones, and for initial commercialization as described will also require the availability of contract manufacturing capacity on desirable terms from outside companies. We may be unsuccessful in our development and commercialization of stevia extracts using biotechnology or fermentation methods, and may never commercialize any related product, generate revenue, or become profitable.

To a lesser extent, our present operations also consist of pursuing traditional industry means of stevia extract production, including stevia crop cultivation, harvest, and extraction of steviol glycosides from the stevia leaf., Operations related to production of stevia extract through traditional means include establishing stevia field trial production outputs, and development and scale-up of stevia leaf extraction and processing methods, work which we currently estimate will cost $250,000 and which we expect to complete in the second half of 2013. Provided research and development is successful, and we still plan to pursue traditional industry means of stevia extract production, we would seek to expand stevia leaf production through contract stevia growers, seek contract processing capacity with operators of extraction facilities, and obtain any necessary regulatory approvals for these stevia extracts and processing facilities, work which we currently estimate to cost $250,000. If these efforts prove successful, we expect the first revenues on sales of California stevia extract could occur in 2014. However, we will require additional investment obtained through additional funding from our stockholders and other qualified investors in order to complete these milestones, and for initial commercialization of California stevia extract as described will require the participation of local growers and the availability of contract extraction facilities on desirable terms. We may be unsuccessful in our development and commercialization of stevia extracts using traditional industry means, and may never commercialize any related product, generate revenue, or become profitable.

Over the 12 months following the date of this report, we expect to continue to review potential acquisitions and alliances, and to increase the scale of research and development operations. As of May 17, 2013, we had 4 full-time employees and 2 part-time employees. Total expenditures over the 12 months following March 31, 2013, are expected to be approximately $1,500,000. After giving effect to the funds raised in the January Private Placement, the February Subscription Agreement, and the November 2012 Financing, as of May 17, 2013, we expect to have sufficient funds to operate our business for at least 6 months. However, our estimate of total expenditures could increase if we encounter unanticipated difficulties. In addition, our estimates of the amount of cash necessary to fund our business may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail. We expect to continue to seek funding from our stockholders and other qualified investors in order to pursue our business plan. We do not have any arrangements in place for any future financing. Sources of additional funds may not be available on acceptable terms or at all.

As further discussed in "Liquidity and Capital Resources" below, we will need to raise additional funds in order to continue operating our business.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in U.S. dollars.

Development Stage Company

The Company is a development stage enterprise pursuant to applicable guidance of the Financial Accounting Standards Board ("FASB"), and is devoting substantially all of its present efforts to establishing a new business and has not produced any revenues from its operations.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 period. Actual results could differ from those estimates. The more significant estimates and assumption by management include, among others, the fair value of shares issued for services, fair value of warrants issued in conjunction with convertible debentures, and assumptions used in the valuation of conversion features and derivative liabilities.

Stock-Based Compensation

We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the FASB whereas the value of the award is measured on the date of grant and recognized over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The fair value of our common stock option and warrant grant is estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton option pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricing model could materially affect compensation expense recorded in future periods.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the probability weighted average Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the March 31, 2013 reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Recent Accounting Pronouncements

Management has evaluated the recently issued accounting pronouncements through the date of this report and has determined that their adoption will not have a material impact on the financial position, results of operations, or cash flows of the Company.

Results of Operations

Fiscal Years Ended March 31, 2013 and March 31, 2012

The following table sets forth our results of operations for the years ended March 31, 2013 and 2012.

                                                                                           From July 1,
                                                                                               2007
                                                            Twelve Months Ended           (Inception) to
                                                                 March 31,                  March 31,
                                                           2013             2012               2013

Revenues                                               $          -     $          -     $              -

Operating Expenses:

General and Administrative                                2,145,497        1,285,930            3,530,916
Rent and other related party costs                          148,750           14,500              168,250
Research & development                                      254,722                -              254,722
Loss from operations                                     (2,548,969 )     (1,300,430 )         (3,953,887 )

Other expenses
Foreign currency translation                                    (42 )         (2,523 )             (2,565 )
Interest expense                                           (346,912 )        (18,300 )           (370,985 )
Change in fair value of derivative liability                124,855                -              124,855
Financing cost                                              (78,458 )              -              (78,458 )
Gain on settlement of debt                                  107,004                -              107,004

Net loss                                               $ (2,742,522 )   $ (1,321,253 )   $     (4,174,037 )

Loss per share - Basic and diluted                     $      (0.05 )   $      (0.03 )
Weighted average number of common shares outstanding     53,370,064       51,451,096

Our net loss during the fiscal year ended March 31, 2013 was $2,742,522 compared to a net loss of $1,321,253 for the fiscal year ended March 31, 2012 (an increase in net loss of $1,421,269). During the fiscal years ended March 31, 2013 and 2012, respectively, we did not generate any revenue.

During the fiscal year ended March 31, 2013, we incurred general and administrative expenses in the aggregate amount of $2,145,497 compared to $1,285,930 incurred during the fiscal year ended March 31, 2012 (an increase of $859,567). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. A significant portion of these costs are related to the development of our organizational capabilities as an agricultural biotechnology company engaged in the development of stevia products, including costs such as legal and advisory fees related to intellectual property development. In addition, during the fiscal year ended March 31, 2013, we incurred research and development costs of $254,722 compared to $0 incurred during the fiscal year ended March 31, 2012. During the fiscal year ended March 31, 2013, we incurred related party rent and other costs totaling $148,750 compared to $14,500 incurred during the fiscal year ended March 31, 2012 (an increase of $134,250). Also during the fiscal year ended March 31, 2013, we incurred stock-based compensation totaling $833,143 compared to $979,880 incurred during the fiscal year ended March 31, 2012.

This resulted in a loss from operations of $2,548,968 during the fiscal year ended March 31, 2013 compared to a loss from operations of $1,300,430 during the fiscal year ended March 31, 2012.

During the fiscal year ended March 31, 2013, we recorded total other expenses in the amount of $193,553, compared to total other expenses recorded during the fiscal year ended March 31, 2012 in the amount of $20,823. During the fiscal year ended March 31, 2013, we incurred interest expense of $346,912 compared to $18,300 incurred during the fiscal year ended March 31, 2012 (an increase of $328,612).We also recorded a gain related to the change in fair value of derivatives of $124,855, a gain related to settlement of debt of $107,004 and expenses related to the cost of offering of $78,458 during the fiscal year ended March 31, 2013. No such items were recorded during the fiscal year ended March 31, 2012. This resulted in a net loss of $2,742,522 during the fiscal year ended March 31, 2013 compared to a net loss of $1,321,253 during the fiscal year ended March 31, 2012.

The increase in net loss during the fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012 is attributable primarily to higher general and administrative expenses incurred in the development of our business as an agricultural biotechnology company engaged in the development of stevia products. The Company had no revenues during the fiscal years ended March 31, 2013 or 2012.

Liquidity and Capital Resources

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

As of March 31, 2013, we had total current assets of $529,056. Our total current assets as of March 31, 2013 were comprised of cash in the amount of $392,483, security deposits of $2,500, prepaid expenses in the amount of $9,074, and the current portion of an advance payment on related party lease of $125,000. Our total current liabilities as of March 31, 2013 were $527,171 represented primarily by accounts payable and accrued liabilities of $112,263, accounts payable to related party of $6,930, accrued interest of $9,375 and derivative liability of $398,603. The derivative liability is a non-cash item related to our outstanding warrants as described in Note 4 to our financial statements. As a result, on March 31, 2013, we had a working capital of $(1,885).

As of March 31, 2013, our long term liabilities were $580,408, which consisted of convertible notes payable in the amount of $955,000, net of a discount of $374,592.

Recent Financings

On January 31, 2012, we issued a $250,000 convertible debenture to a single investor in the January Private Placement. The debenture bears interest at the rate of 6.0% per annum, payable semi-annually in arrears on June 30 and December 31 of each year beginning on June 30, 2012. The debenture is convertible at the holder's option into our common stock at an initial conversion price of $0.50 per share. We may elect to make interest payments in common stock valued at the conversion price. The entire principal balance of the debenture is due and payable three years following its issuance unless earlier redeemed by us in accordance with its terms. We may repay the principal and interest owing under the debenture in common stock at maturity or upon redemption of the debenture. The debenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the debenture to become or to be declared due and payable.

On February 7, 2012, we entered into the February Subscription Agreement pursuant to which, beginning on March 1, 2012, the investor thereunder irrevocably agreed to pay $1,250,000 in consideration for our issuance of 625,000 shares of our common stock and convertible debentures with an aggregate principal amount of $625,000.

Pursuant to the terms of the February Subscription Agreement, the investor agreed to purchase such shares and such convertible debentures in five tranches, for proceeds to us of $250,000 per tranche, under the following schedule: (i) on March 1, 2012, 125,000 shares of common stock and a $125,000 debenture convertible into shares of our common stock at a conversion price of $0.65; (ii) on June 1, 2012, 125,000 shares of common stock and a $125,000 debenture convertible into shares of our common stock at a conversion price of $0.80;
(iii) on September 1, 2012, 125,000 shares of common stock and a $125,000 note convertible into shares of our common stock at a conversion price of $0.95; (iv) on December 1, 2012, 125,000 shares of common stock and a $125,000 note convertible into shares of our common stock at a conversion price of $1.10; and
(v) on March 1, 2013, 125,000 shares of common stock and a $125,000 note convertible into shares of our common stock at a conversion price of $1.25. The conversion price of the common stock underlying each of the convertible debentures is subject to adjustment upon a reclassification or other change in our outstanding common stock and certain distributions to all holders of our common stock, and the conversion prices for all tranches may be set to $1.50 in the event that funding does not occur pursuant to the defined schedule. On May 22, 2012, we received an advance payment of $850,000 from the investor under the February Subscription Agreement, which represented all remaining amounts owed by the investor under the February Subscription Agreement. After our receipt of the investor's advance payment of $850,000, the investor has purchased common stock and convertible debentures under the February Subscription Agreement for total proceeds to us of $1,250,000.

Each convertible debenture issued pursuant to the February Subscription Agreement bears interest at the rate of 6.0% per annum, payable semi-annually in arrears on June 30 and December 31 of each year, and is convertible at the holder's option into our common stock at the applicable conversion price. We may elect to make interest payments in common stock valued at the conversion price. The entire principal balance of each debenture is due and payable three years following its date of issuance unless earlier redeemed by us in accordance with its terms. We may repay the principal and interest owing under each of the debentures in common stock at maturity or upon redemption of the debenture. The debenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the debenture to become or to be declared due and payable.

On October 29, 2012, we entered into a Securities Purchase Agreement with two purchasers providing for the issuance and sale of an aggregate of $500,000 in convertible debentures and warrants to purchase 1,000,000 shares of common . . .

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