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NNRX > SEC Filings for NNRX > Form 10-Q on 24-Mar-2014All Recent SEC Filings

Show all filings for NUTRANOMICS, INC.

Form 10-Q for NUTRANOMICS, INC.


24-Mar-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS

The following summary of our results of operations should be read in conjunction
with our financial statements for the three and six-month periods ended January
31, 2014 and 2013.

Our operating results for the three and six-month periods ended January 31, 2014
and 2013 are summarized as follows:

                                                   Three Months Ended                Six Months Ended
                                                       January 31,                      January 31,
                                                   2014            2013            2014             2013

Revenues                                       $    433,483     $  525,552     $  1,226,979     $  1,751,462
Cost of Sales                                  $   (262,857 )   $ (459,684 )   $   (899,397 )   $ (1,411,617 )
Operating Expenses                             $ (1,100,826 )   $ (216,615 )   $ (1,477,973 )   $   (422,226 )
Loss on settlement                             $    (37,300 )   $        -     $    (37,300 )   $          -
Change in fair value of derivative liability   $        617     $        -     $        617     $          -
Interest Expense                               $    (30,396 )   $   (2,836 )   $    (38,901 )   $     (9,499 )
Net Loss                                       $   (997,279 )   $ (153,583 )   $ (1,225,975 )   $    (91,880 )

Revenues and Cost of Sales

Our business model currently generates revenues from two primary sources:
1) Product sales: 99.40% and 99.42% and 99.07% and 99.66% for the three and six months ended January 31, 2014 and 2013, respectively; and
2) Nutritional Blood Analysis (NBA) services: .60% and .58% and .93% and .34% for the three and six months ended January 31, 2014 and 2013, respectively.

Our revenues from product sales decreased from $552,509 and $1,745,514 in the three and six months ended January 31, 2013, to $430,879 and $1,215,590 in the three and six months ended January 31, 2014, a decrease of 22.01% and 30.36% totaling $21,630 and $529,924, respectively. The decrease was due to a decrease in product sales with our larger customers. The revenues from NBA services decreased and increased from $3,043 and $5,948 in the three and six months ended January 31, 2013 to $2,604 and $11,389 in the three and six months ended January 31, 2014, a decrease and increase of $439 and $5,441, respectively. The decrease is due to the Company attending fewer trade shows to generate fewer NBA services in the three month period. The increase was due to the Company implementing the NBA program at the end of the October 2012, a portion of that quarter and a full quarter, compared to a full six months' worth of NBA activity in the six months ended January 31, 2014.

Revenues derived from sales in the Americas totaled $293,025 and $983,778, or 67.60% and 80.18%, in the three and six months ended January 31, 2014, as compared to $341,915 and $1,330,092, or 65.06% and 75.94%, in the three and six months ended January 31, 2013, respectively. Revenues derived from sales outside of the Americas totaled $140,458 and $243,201, or 32.40% and 19.82%, in the three and six months ended January 31, 2014, as compared to $183,638 and $421,370, or 34.94% and 24.06%, in the three and six months ended January 31, 2013, respectively.

Revenues derived from product sales totaled $430,879 and $1,215,590, or 99.40% and 99.07%, in the three and six months ended January 31, 2014, as compared to $552,509 and $1,745,514, or 99.42% and 99.66%, in the comparable period in 2013, respectively. The company also derived revenue from NBA services in the amount of $2,604 and $11,389, or .60% and .93%, in the three and six months ended January 31, 2014 as compared to $3,043 and $5,948, or .58% and .34%, in the three and six months ended January 31, 2013, respectively. The company did not derive revenues from educational services in 2014 or 2013.


Our cost of sales decreased from $459,684 and $1,411,617 in the three and six months ended January 31, 2013 to $262,857 and $899,397 in the three and six months ended January 31, 2014, a decrease of 42.82% and 36.29% totaling $196,827 and $512,220. The decrease directly relates to the decrease in product sales in 2014 as well as a change in the mix of products sold as the Company has sold fewer low margin products.

Interest expense increased from $2,836 and $9,499 in the three and six months ended January 31, 2013 to $30,396 and $38,901 in the three and six months ended January 31, 2014, an increase of 971.79% and 309.53% totaling $27,560 and $29,402, respectively. The increase is due to the Company taking out four convertible notes in the current six month period.

Expenses

Our operating expenses for the three and six-month periods ended January 31,
2014 and 2013 are outlined in the table below:

                               Three Months Ended           Six Months Ended
                                   January 31,                 January 31,
                                2014          2013         2014          2013

General and administrative   $  127,074     $ 73,110     $ 240,097     $ 180,418
Professional fees            $  454,221     $  3,584     $ 592,153     $   4,305
Research and development     $        -     $ 43,456     $  31,617     $  43,456
Salaries and wages           $  519,531     $ 96,465     $ 614,106     $ 194,047

Our total operating expenses for the three and six months ended January 31, 2014 were $1,100,826 and $1,477,973, as compared to $216,615 and $422,226 for the comparable periods in 2013, an increase of 408.19% and 250.04% totaling $884,211 and $1,055,747. The increase in operating expenses during the three and six months ended January 31, 2014 as compared to the same periods in 2013 was due to an increase in salaries and wages, and in general and administrative and professional expenses, partially offset by a decrease in research and development.

General and administrative expense increased from $73,110 and $180,418 in the three and six months ended January 31, 2013 to $127,074 and $240,097 in the comparable period in 2014, an increase of 73.81% and 33.08% totaling $53,964 and $59,679, respectively. The increase is due mostly to an increase in advertising and marketing and travel expenses in the three months ended January 31, 2014 compared to the same period in 2013.

Research and development expense decreased as a result of the Company funding a large clinical study on the effects of the patented AES™, which decreased research and development expense from $43,456 and $43,456 in the three and six months ended January 31, 2013 to $0 and $31,617 in the same period in 2014.

Professional fees increased from $3,584 and $4,305 in the three and six months ended January 31, 2013 to $454,221 and $592,153 in the three and six months ended January 31, 2014, an increase of 12,573.58% and 13,655.01% totaling $450,637 and $587,848, respectively. The increase is due to the Company, in the current periods, engaging outside consultants to provide sales and management services, engaging outside accountants to provide accounting services, engaging auditors to review and audit its financial statements, incurring increased legal expenses, and issuing stock for services as a result of becoming a public company.

Salaries and wages expenses increased from $94,465 and $194,047 in the three and six months ended January 31, 2013 to $519,531 and $614,106 during the same periods in 2014, an increase of 449.97% and 216.47% totaling $425,066 and $420,059, respectively. The increase is due to the Company issuing stock bonuses of 1 million and 3,334 shares of common stock to the president and a director during the current quarter.

Equity Compensation

The Company issued stock bonuses of 1 million and 3,334 shares of common stock to the Company's president and director and the Company's general manager respectively during the current quarter.

Liquidity and Financial Condition

Working Capital
                             January 31,       July 31,
                                2014             2013

Current Assets              $     872,643     $  450,137
Current Liabilities         $     761,785     $  688,339
Working Capital (deficit)   $     110,858     $ (238,202 )


Cash Flows
                                                         Six Months Ended
                                                           January 31,
                                                         2014         2013

Net Cash Provided by (Used in) Operating Activities   $ (484,509 )   $  22,043
Net Cash Provided by (Used in) Financing Activities   $  602,163     $ (23,870 )
Net Cash Used in Investing Activities                 $        -     $  (1,663 )
Increase (Decrease) in Cash during the Period         $  117,654     $  (3,490 )
Cash and Cash Equivalents, End of Period              $  128,783     $  28,532

The Company had current assets of $872,643 as of January 31, 2014, as compared to $450,137 as of January 31, 2013; the increase is mostly due to the Company's increase in cash and cash equivalents due to the Company entering into four convertible notes totaling $603,500, an increase in prepaid expenses related to a stock issuance for future consulting services, and an increase in advances on royalties, related party, during the current period. The Company had current liabilities of $761,785 as of January 31, 2014, as compared to $688,339 January 31, 2013. The increase is mainly due to an increase in a derivative liability, an increase in unearned revenues, and an increase in accounts payable and accrued expenses due to a decrease in sales. The change is partially offset by the conversion of a line of credit into a long-term note. The Company has incurred cumulative losses since inception of $3,811,366. As of January 31, 2014, the Company had working capital of $110,858 due to an influx of cash from an increase in borrowing during the six months ended January 31, 2014 as compared to a working deficit the same period in 2013 of $238,202.

Cash from operating activities decreased to ($484,509) during the six months ended January 31, 2014 as compared to $22,043 in the comparable period in 2013. The decrease was mostly due to changes in net loss, accounts receivable, inventory, unearned revenue, advances on royalties, and accounts payable.

Cash from financing activities increased to $602,163 during the six months ended January 31, 2014 as compared to ($23,870) in the comparable period in 2013. The increase was mostly due to an increase in borrowing under convertible notes as well as proceeds from related party notes payable and lines of credit, partially offset by a decrease in payments of related party notes payable.

Cash used in investing activities increased from ($1,663) during the six months ended January 31, 2014 to $0 in the same period in 2013. The increase is due to purchasing equipment in 2013, which did not occur during the same period in 2014.

The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions and/or financing as may be required to sustain its operations. Management's plan to address these issues includes an increased exercise of cost controls to conserve cash and obtaining additional debt and/or equity financing.

As we continue our business operations, we will continue to experience net negative cash flows from operations, pending receipt of significant revenues that generate a positive sales margin.

The Company expects that additional operating losses will occur until net margins gained from sales revenue are sufficient to offset the costs incurred for marketing, sales and product development. Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining or be competitive in the areas in which it intends to operate.

The Company's management team believes that its success depends on the Company's ability to raise additional capital and increase product sales. The Company is currently expanding into Southeast Asia and the European Union. By selling in multiple international markets, the Company believes that it will be able to successfully implement its business plan and achieve profitability.

As of January 31, 2014, the existing capital and anticipated funds from operations were not sufficient to sustain Company operations or the business plan over the next twelve months. We anticipate substantial increases in our cash requirements which will require additional capital to be generated from the sale of Common Stock, the sale of Preferred Stock, equipment financing, debt financing and bank borrowings, to the extent available, or other forms of financing to the extent necessary to augment our working capital. In the event we cannot obtain the necessary capital to pursue our strategic business plan, we may have to significantly curtail our operations. Failure to obtain additional financing would have a material adverse effect on our business operations. There is no assurance that the Company will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to the Company.


Recent global events, as well as domestic economic factors, have limited the access of many companies to both debt and equity financing. As such, no assurance can be made that financing will be available or available on terms acceptable to the Company, and, if available, it may take the form of debt or equity. In either case, any financing will have a negative impact on our financial condition and may result in an immediate and substantial dilution to our existing stockholders.

Although the Company intends to engage in a subsequent equity offering of its securities to raise additional working capital for operations, the Company has no firm commitments for any additional equity funding at the present time. However, during the six months ended January 31, 2014, the Company obtained total proceeds of $603,500 by issuing four debt instruments for $250,000, $125,000, $150,000, and $78,500 in principal. Insufficient financial resources may require the Company to delay or eliminate all or some of its development, marketing, and sales plans, which could have a material adverse effect on the Company's business, financial condition, and results of operations. There is no certainty that the expenditures to be made by the Company will result in a profitable business proposed by the Company.

Subsequent Events

On March 20, 2014, the Company's subsidiary, Health Education Corporation ("Health Education"), was served a copy of a complaint filed by EpicEra Incorporated ("Epic") in the Utah Third Judicial District Court for the return of a $100,000 deposit paid by Epic to Health Education for the supply of nutritional products. Health Education intends to answer the Complaint and file a counterclaim against Epic and third-party claims against eCosway USA, Inc. ("eCosway," which is Epic's owner), and its principals, for breach of a non-disclosure and non-circumvention agreement, fraud, fraudulent inducement, and conversion. Health Education's claims will allege that (1) eCosway and its principals have defrauded Health Education and engaged in a scheme of corporate espionage to misappropriate Health Education's proprietary information and trade secrets to launch their new multilevel marketing company, Epic; (2) under the fraudulent guise of partnering with Health Education to have Health Education formulate and produce the health products to be sold by Epic's distributors, eCosway and its principals signed a non-disclosure and non-circumvention agreement that they had no intention of honoring in order to gain access to Health Education's proprietary information so that they could steal that information and use it for their own benefit; (3) Health Education relied upon the non-disclosure and non-circumvention agreement and misrepresentations of Epic, eCosway, and its principals, and disclosed the proprietary information and formulations, which Epic then appropriated as its own. Health Education's claims will request injunctive relief as well as damages for the theft of Health Education's proprietary information.

Critical Accounting Policies

Our financial statements 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, revenue, 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 financial statements included in both of the Company's Current Reports on Form 8-K and Form 8-K/A filed on September 24, 2013 and December 12, 2013 respectively. 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 a material effect on our results of operations, financial position, or liquidity for the periods presented in this report.

Revenue Recognition

Our revenue is derived from the service revenue from Nutritional Blood Analysis, sale of retail products, and revenue derived from educational services.

The Company's revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition ("SAB 104"), and other applicable revenue recognition guidance under US GAAP. Sales revenue is recognized for our retail and wholesale customers when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectibility is reasonably assured - generally when products are shipped to the customer and services are rendered, except in situations in which title passes upon receipt of the products by the customer. In this case, revenues are recognized upon notification that customer receipt has occurred. The Company accrues an estimated amount for sales returns and allowances related to defective or returned products at the time of sale based on its ability to estimate sales returns and allowances using historical information. Shipping and handling fees and related freight costs and supplies associated with shipping products to customers are included as a component of cost of sales. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.


The Company also recognizes revenues from the distribution of its product through trade partners. Related revenues consist of product costs, distribution fees, testing and labeling costs, as well as any associated administrative fees. The Company recognizes these revenues after the product has been shipped from the outsource manufacturer to the trade partner. The Company has contractual obligation to pay the outsource manufacturers, and as a principal in these arrangements the Company includes the total product price as revenue in accordance with applicable accounting guidance. The Company has separately negotiated contractual relationships with its trade partners, and under contracts with these trade partners the Company assumes the credit risk of product produced by the outsource manufacturer and dispensed to the trade partner.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company's consolidated financial statements.

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