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STVF > SEC Filings for STVF > Form 10-Q on 14-Aug-2014All Recent SEC Filings

Show all filings for STEVIA FIRST CORP.



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Financial Statements and the related notes thereto contained in Part I, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the fiscal year ended March 31, 2014 filed on June 30, 2014, and the related audited financial statements and notes included therein.

Certain statements made in this Quarterly Report on Form 10-Q constitute "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 (the "Exchange Act"). Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "intend," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include:
general economic and financial market conditions; our ability to obtain additional financing as necessary; our ability to continue operating as a going concern; any adverse occurrence with respect to our business or plan of operations; results of our research and development activities that are less positive than we expect; our ability to bring our intended products to market; market demand for our intended products; shifts in industry capacity; product development or other initiatives by our competitors; fluctuations in the availability of raw materials and costs associated with growing raw materials for our intended products; poor growing conditions for the stevia plant; other factors beyond our control; and the other risks described under the heading "Risk Factors" in our Annual Report on Form 10-K filed with the SEC on June 30, 2014.

Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those expressed by any forward-looking statements. As a result, readers should not place undue reliance on any of the forward-looking statements we make in this report. Forward-looking statements speak only as of the date on which they are made. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Company Overview

We were incorporated in the State of Nevada on June 29, 2007 under the name Legend Mining Inc. 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." Also on October 10, 2011, we effected a seven for one forward stock split of authorized, issued and outstanding common stock. As a result, our authorized capital was increased from 75,000,000 shares of common stock with a par value of $0.001 to 525,000,000 shares of common stock with a par value of $0.001, and issued and outstanding shares increased from 7,350,000 to 51,450,000. In February 2012, we substantially changed our management team, added other key personnel, and began leasing laboratory and office space and land in California and since then we have been pursuing our new business as an agricultural biotechnology company engaged primarily in developing novel methods and technologies for industrial production of stevia, using such methods and technologies to develop, obtain approval for and commercialize one or more stevia extract products, and exploring and commercializing additional research applications for such methods and technologies.

Plan of Operations

As of the date of this report, we have not yet generated or realized significant revenues from our business operations and we do not expect to generate significant amounts of cash from our operations for the foreseeable future. We had a net loss for the quarter ended June 30, 2014 of $655,797, and we had stockholders' deficit as of June 30, 2014 of $591,427. As described further under the heading "Liquidity and Capital Resources" below, we will need significant additional funding to support our operations and business plans and we have no commitments for future capital. The continuation of our business is dependent upon our ability to obtain loans or sell securities to new and existing investors or obtain capital from other alternative sources. In their report on our annual audited financial statements for the fiscal year ended March 31, 2014, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern, which means 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.

Our long-term strategy is to develop the following proprietary technologies related to stevia and beyond: 1) fermentation technologies for stevia, through enzymatic enhancement and microbial fermentation, 2) extraction and purification methods for stevia, including process control systems that could be implemented at facilities in California, 3) artificial intelligence and machine learning algorithms, which could enable us to improve and optimize multiple process variables simultaneously that are critical to our stevia production methods, and
4) agricultural drones, particularly for a unique stevia application involving the interruption of its photoperiod by overnight illumination with LED lights, which has been shown in a laboratory setting to more than double the yield of stevia plants. In furtherance of these long-term goals, we expect to focus on the following activities during the remainder of calendar year 2014 and calendar year 2015, all as resources permit:

Conducting additional research and development activities to advance our proprietary technologies for stevia production and explore related uses of these technologies for product applications across diverse end markets;

Initiating our stevia fermentation process at industrial scale and as a commercial process, either through internal facilities, a contract manufacturer, or a strategic partner, and obtaining "generally recognized as safe" ("GRAS") status and any other necessary approvals from the U.S. Food and Drug Administration ("FDA") and other regulatory authorities in order to market and sell our first commercial product, a high purity stevia extract;

Acquiring rights to and beginning to integrate and grow a stevia sales and distribution business, including developing relationships with multinational customers and adding new marketing and sales support;

Designing, building and operating a stevia extraction and purification facility in California through our subsidiary,SF Pure, and forming a local stevia grower network to support stevia leaf production in California;

Building new sales channels and marketing capabilities, either internally or through partners, for stevia products and other commercial applications, such as research products, in order to help us fully leverage and capitalize upon our research and development efforts; and

Evaluating new business development opportunities and strategic partnerships, including opportunities to in-license new technologies and/or form strategic partnerships with third parties in order to fund our operations or increase our capabilities.

Our present operations consist of research and development efforts focused on harnessing breakthrough technologies for stevia production and additional applications, combined with business operations that seek to develop and commercialize stevia products and other commercial applications including research tools. Certain of our planned commercial operations will be pursued through a proposed relationship with Qualipride International ("Qualipride"), which relationship is presently in negotiations and non-binding in all respects and which operations will not be engaged in unless and until such relationship is finalized. The below descriptions of our planned operations include expected expenditures for various activities, some of which may depend on our ability to obtain additional funding, if available, and all of which are estimates based on current expectations and assumptions and could prove to be wrong.

Research and Development Operations

We currently employ four full-time Ph.D.-level scientists who conduct and manage our internal research and development activities and staff, and have retained five additional scientists and engineers who act as consultants and perform research and development work independently through their own laboratory facilities. Internal research and development work is primarily conducted at our headquarters in Yuba City, California, which contains more than 3,000 square feet of research and development space. These facilities include a laboratory, greenhouse, and workshop, and a diverse array of equipment, including bioreactors, laboratory automation setups, pilot processing units, and other equipment related to agriculture, molecular biology, bioinformatics, analytical chemistry, process engineering, and food science.

During the 12 months following the date of this report, we intend to devote the majority of our operational focus to our stevia-related research and development efforts. We are planning for total research and development expenditures of $1,000,000 or more in this period, however these plans are dependent on additional funding being available on acceptable terms. These activities include scale-up of our stevia fermentation process, demonstration of agricultural drone technology for enhanced stevia leaf yields, demonstration of microbial fermentation for production of stevia without the stevia leaf, and discovery and process development related to next-generation stevia sweeteners. As we advance technologies for stevia production we have discovered that these technologies have applications beyond stevia. As a result, during the 12 months following the date of this report we intend to direct some research and development resources, as a secondary focus, to artificial intelligence, machine learning, and exploring additional technologies and tools, such as cell media development, that could be used for our fermentation processing and additional applications, including, for instance, tissue engineering and 3-D bioprinting. We expect to develop more specific technical milestones and product applications resulting from this work in late 2014.

We believe that our long-term commercial success and profit potential depends in large part on our ability to develop, advance and apply novel technologies to stevia production and other applications more quickly, efficiently and effectively than our competitors, and also on our ability to obtain and enforce patents, maintain protection of trade secrets, and operate our business without infringing the proprietary rights of third parties. As a result, we are dedicated to the continued development and protection of our intellectual property portfolio.

Proposed Arrangements with Qualipride

Additionally, in 2014, we entered discussions regarding certain partnership and collaboration arrangements with Qualipride, a significant stevia supplier based in China with reported access to annual stevia supply greater than 2,000 metric tons, and whose management has acted in an advisory capacity to Stevia First since 2012. In May 2014, we entered into a non-binding term sheet with Qualipride for definitive agreements that are intended to result in our company substantially taking over Qualipride's stevia sales and distribution business, obtaining an exclusive license outside China to use their proprietary methods for stevia extraction and purification, and forming the SF Pure subsidiary to design and construct stevia processing facilities in California using Qualipride's proprietary designs. Certain commercial operations pursuant to this arrangement including the construction of stevia processing facilities will be managed by SF Pure, an operating subsidiary of Stevia First that will be 30% owned by Qualipride. Pursuant to the arrangement SF Pure must be financed with at least $2.55 million prior to July 2015. These funds would be used primarily to finance equipment for the facility's construction and we expect to obtain such fund primarily through debt financing. The definitive arrangements and structure for these operations have not been formalized yet, and as a result, there is not presently any binding relationship between us and Qualipride. Even upon entering into any necessary binding contracts, Qualipride and their affiliated suppliers and equipment providers are mostly private companies based in China, and so it may be difficult to enforce these contracts. In addition, there are other risk factors that apply to these proposed arrangements and commercial operations that may influence our ability to achieve expected milestones within the timeframes provided or at all which are discussed in the risk factors included in our Annual Report on Form 10-K filed with the SEC on June 30, 2014.

Commercial Operations

Our present business operations are primarily directed at industrial production of stevia and achieving sales of stevia products to multinational food, beverage, and ingredient companies. Although we previously planned to market our own stevia products directly to consumers, we have determined instead to focus our efforts and resources on commercialization through partnerships with multinational food and beverage and ingredient companies and other large commercial purchasers of stevia. We have also recently initiated a research products business, which we own and operate but which is branded as SF Biosciences, which will provide a sales channel for certain research products and tools that we have developed, as well as new commercialization opportunities related to new technologies and trends that are of strategic interest to us.

Our commercial operations include our pursuit of stevia extract production through our enzyme enhancement process that uses fermentation. We will need to achieve additional operational milestones in order to pursue this process at industrial scale, including, without limitation, additional process development and optimization, additional scale-up for commercial production, regulatory approvals for processing facilities, securing customer orders, securing adequate supply of low-grade stevia extract to use as starting material or feedstock, and regulatory approvals for our first stevia product, a high purity stevia extract. We currently estimate that completion of these milestones and initial commercialization of stevia extract using enzyme enhancement processes would require approximately $400,000 of additional investment if we commercialize the product through a contract manufacturer or strategic partner and more if we commercialize the product internally. We are currently targeting initial annual production capacity of 200 tons of high purity stevia extract using these processes, and we currently estimate these milestones could be achieved and required regulatory approvals could be obtained as early as late 2014.

We plan to launch a sales and distribution business pursuant to the proposed terms of our arrangements with Qualipride, where Qualipride would transfer to us its existing stevia customer relationships and we would integrate Qualipride's sales and distribution business with our current operations, including obtaining any necessary financing to adequately capitalize the business and to source inventory to fill customer orders. We intend to leverage this sales and distribution business with our current California operations to provide North American sales, marketing, quality control, and applications support and to provide a selling avenue for stevia products we make using our proprietary fermentation methods. We expect initial efforts to integrate the sales and distribution business and purchase inventory to fulfill initial customer orders may require initial capitalization by us of approximately $500,000, which will require additional debt or equity financing, and which may require the Company to manage and conduct certain operations in China, either directly or through a subsidiary.

We are planning to design and construct one or more stevia processing facilities in California that can produce at least 150 tons of stevia extract annually, and also have the flexibility to support additional production capacity that could be used to produce stevia using our proprietary fermentation methods, and to finance and build these facilities through our subsidiary, SF Pure. We plan to use the latest methods and equipment for stevia extraction and purification that have been developed by Qualipride. We expect to receive in an exclusive license to use these methods outside of China from Qualipride and to collaborate with their staff in order to procure necessary equipment. We intend to build upon these methods in order to construct a California facility that is technologically advanced and could lead the stevia industry in terms of energy efficiency, water conservation, and overall product quality. We have not yet finalized a site design for the facility, and we currently estimate design and construction will cost $4,000,000 or more and span 10-14 months. We do not plan to pursue construction plans unless we are able to obtain funding for these activities primarily or entirely through long-term debt financing or other similar means on favorable terms. Related to the construction of this facility, we also plan to pursue additional stevia field trials and field operations in California in fiscal 2015, in order to help build and coordinate a network of local growers who can provide adequate leaf supply to fill the capacity of the facility. We ultimately aim for this grower network to include 1,000 acres or more of local leaf production that will be managed and financed primarily by local growers in California's Central Valley.

Our commercial operations also include our research products business, which entails our commercialization of research products and tools that we develop and use in our stevia production activities. We initiated these operations in 2014 through the brand name SF Biosciences. In May 2014 we acquired certain assets and customer relationships and certain rights to molecular biology research products to facilitate the initiation of this research products business, and commenced operations with initial sales of research products. We expect to spend approximately $50,000 on additional sales and marketing efforts for these research products during the remainder of 2014.

We will need to raise additional funds in order to continue operating our business and pursue and execute our planned research and development and commercial operations. We expect that we will seek such funding through equity and debt financings with our existing stockholders and other qualified investors. We do not have any commitments for any future financing and sources of additional funds may not be available when needed, on acceptable terms, or at all.

Over the 12 months following the date of this report, we aim to increase the scale of our research and development and commercial operations. As of August 12, 2014, we had eight full-time employees. Total expenditures over the 12 months following June 30, 2014, are expected to be approximately $2,000,000. 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 operating and/or advance 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.

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

Results of Operations

Three Months Ended June 30, 2014 and June 30, 2013

Our net loss during the three months ended June 30, 2014 was $655,797 compared to a net loss of $899,305 for the three months ended June 30, 2013 (a decrease in net loss of $243,508). During the three months ended June 30, 2014, we generated $41,441 in revenue and $29,566 in gross profit from initial sales of oxidative biomarker test kits. We expect such sales to continue at approximately this rate. During the three months ended June 30, 2013, we did not generate any revenue.

During the three months ended June 30, 2014, we incurred general and administrative expenses in the aggregate amount of $566,666 compared to $726,196 incurred during the three months ended June 30, 2013 (a decrease of $159,530). 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. The majority of the increase in general and administrative costs in the period relates to stock based compensation costs which increased to $75,646 in the period ending June 30, 2014, as compared to $422,099 in the period ending June 30, 2013.

In addition, during the three months ended June 30, 2014, we incurred research and development costs of $245,980, compared to $123,239 during the three months ended June 30, 2013 (an increase of $122,741). These resulted from our increased research and development activities, including equipment costs related to prototype development.

During the three months ended June 30, 2014, we incurred related party rent and other costs totaling $20,317 compared to $41,150 incurred during the three months ended June 30, 2013 (a decrease of $20,833). This decrease resulted from the expiration of one of the related party leases in May 2014.

This resulted in a loss from operations of $803,397 during the three months ended June 30, 2014 compared to a loss from operations of $890,585 during the three months ended June 30, 2013.

During the three months ended June 30, 2014, we recorded total other (income) expenses in the amount of $(147,600), compared to total other expenses recorded during the three months ended June 30, 2013 in the amount of $8,720. During the three months ended June 30, 2014, we incurred interest expense of $657 compared to $193,741 incurred during the three months ended June 30, 2013 (a decrease of $193,084). The decrease in interest expense was directly related to the amortization of valuation discount on our convertible notes. We also recorded a gain related to the change in fair value of derivatives of $148,257 during the three months ended June 30, 2014, compared to a gain of $185,021 during the 2013 quarter. This resulted in a net loss of $682,200 during the three years ended June 30, 2014 compared to a net loss of $899,305 during the three months ended June 30, 2013.

The decrease in net loss during the three years ended June 30, 2014 compared to the three months ended June 30, 2013 is attributable primarily to lower general and administrative expenses incurred in the development of our business as an agricultural biotechnology company engaged in the development of stevia products and lower interest expense. The Company had no revenues during the three months ended June 30, 2013.

Liquidity and Capital Resources

We have not yet received significant revenues from sales of products or services, and have recurring losses from operations. Our financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $8,982,658 as at June 30, 2014, and further losses are anticipated in the development of its business. The Company also had a stockholders' deficit of $591,427 at June 30, 2014. These factors raise substantial doubt about the Company's ability to continue as a going concern.

As of June 30, 2014, we had total current assets of $883,384 which was comprised mainly of cash of $830,129, . Our total current liabilities as of June 30, 2014 were $1,474,811 represented primarily by accounts payable and accrued liabilities of $161,254, accounts payable to related party of $23,000, and derivative liability of $1,290,557. The derivative liability is a non-cash item related to our outstanding warrants as described in Note 6 to our financial statements. As a result, on June 30, 2014, we had a working capital deficiency of $591,427.

The continuation of our company as a going concern is dependent upon our company attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our company discontinue operations.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the year ended March 31, 2014, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors. After giving effect to the funds received in the recent equity and debt financings, we estimate as of June 30, 2014 we will have sufficient funds to operate the business for the next 6 months; however, based on our current operating expenses and working capital requirements, we do not currently believe our existing cash resources are sufficient to meet our anticipated needs during the next twelve months. We will require additional financing to fund our planned future operations, including the continuation of our ongoing research and development efforts, seeking to license or acquire new assets, and researching and developing any potential patents and any further intellectual property that we may acquire. Further, these estimates could differ if we encounter unanticipated difficulties, in which case our current funds may not be sufficient to operate our business for that period. In addition, our estimates of the amount of cash necessary to operate our business may prove to be wrong, and we could spend our available financial resources much faster than we currently expect.

We do not have any firm commitments for future capital. Significant additional financing will be required to fund our planned operations in the near term and in future periods, including research and development activities relating to our principal product candidate, seeking regulatory approval of that or any other product candidate we may choose to develop, commercializing any product . . .

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