Results of Operations
The
following discussion of the financial condition and results of operation of the
Company should be read in conjunction with the Financial Statements and the
related Notes included elsewhere in this report.
Fiscal Year Ended January 31, 2009 Compared
to Fiscal Year Ended January 31, 2008
Sales
for the fiscal year ended January 31, 2009 were $13,747,200 as compared with
$12,800,600 for the fiscal year ended January 31, 2008, an increase of
approximately 7%. This increase was primarily attributable to an increase in
branded product sales to approximately $12,438,000 from $10,978,900. Effective
March 1, 2008, the Company reduced the price of certain Pro-Stat® formulas by
approximately 12% on a weighted average basis. This decrease was implemented to
allow the Company to more aggressively increase its market share and to
strengthen its competitive position. The increase in branded sales can be
attributed to growing awareness of our products and the increase in the size of
the Company’s sales force. Almost all of the Company’s branded product sales
were from formulations of hydrolyzed collagen. Private label sales decreased to
approximately $1,309,200 from $1,822,700 for the comparable prior year period,
as the Company has focused on increasing its institutional branded sales.
Cost
of sales for the fiscal year ended January 31, 2009 was $6,474,200 or 47.1 % of
sales, as compared with $5,994,900 for the fiscal year ended January 31, 2008,
or 46.8% of sales. Gross profit percentage was approximately 53% for the
periods ended January 31, 2009 and 2008.
Selling,
general and administrative expenses (“SG&A”) for the fiscal year ended
January 31, 2009, increased by $2,158,000 to $7,921,700, from $5,763,700 for
the fiscal year ended January 31, 2008. This increase was primarily
attributable to an increase in selling and marketing expenses of $1,443,100 and
an increase in general and administrative expenses of $715,000. This increase
in selling and marketing is primarily due to an increase in the size of the
Company’s sales force, increased trade show and travel expenses and retail
markeeting development. The increase in general and administrative expenses is
primarily attributable to severance and recruitment costs of approximately
$225,000, higher bonus accruals of $107,000 and an increase in legal fees of
approximately $63,000.
Research
and development expenses for the fiscal year ended January 31, 2009 was $51,500
in comparison to $108,000 for the prior fiscal year. This decrease of $55,500
is primarily attributable to timing of the clinical trials.
For
the fiscal year ended January 31, 2009, the Company had an operating loss of
$700,200 as compared to an operating income of $934,000 for the fiscal year
ended January 31, 2008.
Interest
income for the fiscal year ended January 31, 2009 decreased to $237,800 in
comparison to $416,000 for the year ended January 31, 2008. This decrease is
due mainly to reduced interest rates and lower cash balances resulting from
cash used by the Company in repurchasing its own common stock under the stock
repurchase plan.
The
Company recorded a tax provision of $29,700 for the year ended January 31, 2009
at an effective rate of 6.4%. For tax purposes, certain expenses for stock
based compensation are not deductible. In fiscal year ended January 31, 2008,
the Company recorded a tax provision in the amount of $480,900, at an effective
tax rate of 35.6 %. For tax purposes, the Company’s income is calculated prior
to certain GAAP charges for stock-based compensation, which is non tax
deductible.
The
Company’s net loss for the fiscal year ended January 31, 2009 of $492,100 or $
(0.04) per share, compared to a net income for the fiscal year ended January
31, 2008 of $869,100 or $0.06 per share.
Liquidity and Capital Resources
At
January 31, 2009, the Company had cash and cash equivalents and short-term
investments of $9,654,300 as compared to $9,554,800 at January 31, 2008. At
January 31, 2009, approximately 95% of accounts receivable were less than 30
days past due. Cash provided by operations during the fiscal year ended January
31, 2009 was $1,217,900 as compared to $1,972,800 in the comparable prior
fiscal year. Cash provided by investing activities during the fiscal year ended
January 31, 2009 was $4,035,500 as compared to $4,487,000 cash used in the
comparable prior fiscal year. The
increase in cash provided by investing activities was primarily attributed to
redemption of the Company’s short term investments. Cash used in financing
activities during the fiscal year ended January 31, 2009 was $807,100 as
compared to $381,100 cash used in the comparable prior fiscal year. The
increase in cash used in financing activities was primarily attributed to
purchase of stock related to the Company’s stock repurchase plan.
The
Company’s future capital requirements will depend on many factors including:
costs of its sales and marketing activities and its education programs for its
markets, competing product and market developments, the costs of developing or
acquiring new products, the costs of expanding its operations, and its ability
to continue to generate positive cash flow from its sales.
If
the Company raises additional funds through the issuance of common stock or
convertible preferred stock, the percentage ownership of its then-current
stockholders will be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of its common stock.
If the Company raises additional funds through the issuance of additional debt
securities, these new securities could have certain rights, preferences and
privileges senior to those of the holders of its common stock, and the terms of
these debt securities could impose restrictions on its operations. Management
believes that cash generated from operations, along with its current cash
balances, will be sufficient to finance working capital and capital expenditure
requirements for at least the next twelve months.
Off -Balance Sheet Arrangements
As of January
31, 2009, we did not have any off-balance sheet financing arrangements or any
equity ownership interests in any variable entity or other minority owned
ventures.
Critical Accounting Policies:
Accounts Receivable
- The Company provides an
allowance for doubtful accounts equal to the estimated uncollectible amounts in
trade accounts receivable. The Company’s estimate is based on a review of the
current status of these accounts and historical trends. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts may
in the future change should historical trends of current account status
require.
Share Based Compensation
- We account for our
stock based employee compensation plans under the Statement of Financial
Accounting Standard (“SFAS”) No. 123 (revised 2004), “Shared-Based Payment”
(“SFAS No. 123R”). SFAS No. 123R addresses the accounting for shared based
payment transactions in which an enterprise receives employee services for
equity instruments of the enterprise or liabilities that are based on the fair
value of the enterprise’s equity instruments or that may be settled by the
issuance of such equity instruments. SFAS No. 123R requires that such
transactions be accounted for using a fair value based method.
Deferred Tax Valuation Allowance
- Deferred
taxes arise due to temporary differences in the bases of assets and liabilities
and from net operating losses and credit carry forwards. In general, deferred
tax assets represent future tax benefits to be received when certain expenses
previously recognized in the Company’s statement of operations become
deductible expenses under applicable income tax laws or loss or credit carry
forwards are utilized. Accordingly, realization of deferred tax assets is
dependent on future taxable income against which these deductions, losses and
credits can be utilized. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Management considers
historical operating losses, scheduled reversals of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this
assessment.
Recent Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which
clarifies the definition of fair value whenever another standard requires or
permits assets or liabilities to be measured at fair value. Specifically, the
standard clarifies that fair value should be based on the assumptions market
participants would use when pricing the asset or liability, and establishes a
fair value hierarchy that prioritizes the information used to develop those
assumptions. SFAS No. 157 does not expand the use of fair value to any new
circumstances, and must be applied on a prospective basis except in certain
cases. The standard also requires expanded financial statement disclosures
about fair value measurements, including disclosure of the methods used and the
effect on earnings. The adoption of this pronouncement did not have a material
impact on our financial statements.
In February
2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (“FAS 159”). FAS 159 permits companies to choose to
measure certain financial instruments and certain other items at fair value.
The standard requires that unrealized gains and losses on items for which the
fair value option has been elected be reported in earnings. FAS 159 is
effective as of the beginning of the entity’s fiscal year that begins after
November 15, 2007, which was our fiscal year beginning February 1, 2008. The
adoption of this pronouncement did not have a material impact on our financial
statements.
In
February 2008, FASB Staff Position (“FSP”) FAS No. 157-2, “Effective
Date of FASB Statement No. 157” (“FSP No. 157-2”) was issued. FSP
No. 157-2 defers the effective date of SFAS No. 157 to fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). Examples of items within the scope of FSP
No. 157-2 are non-financial assets and non-financial liabilities initially
measured at fair value in a business combination (but not measured at fair
value in subsequent periods), and long-lived assets, such as property, plant
and equipment and intangible assets measured at fair value for an impairment
assessment under SFAS No. 144. We are currently evaluating the potential
impact, if any, of the adoption of FSP No. 157-2 on our financial statements.
In December
2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”
(“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non controlling interest in the acquiree and the goodwill acquired. The
Statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. FAS 141R
is effective as of the beginning of an entity’s fiscal year that begins after
December 15, 2008, which will be our fiscal year beginning February 1, 2009.
In December
2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements - an amendment of Accounting Research Bulletin No. 51”
(“FAS 160”), which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
The Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. FAS 160 is effective as
of the beginning of an entity’s fiscal year that begins after December 15,
2008, which will be our fiscal year beginning February 1, 2009. We are
currently evaluating the potential impact, if any, of the adoption of FAS 160
on our financial statements.
In December
2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements.” EITF 07-1 provides guidance
concerning: determining whether an arrangement constitutes a collaborative
arrangement within the scope of the Issue; how costs incurred and revenue
generated on sales to third parties should be reported in the income statement;
how an entity should characterize payments on the income statement; and what
participants should disclose in the notes to the financial statements about a
collaborative arrangement. EITF 07-1 is effective as of the beginning of an
entity’s fiscal year that begins after December 15, 2008, which will be our
fiscal year beginning February 1, 2009. We are in the process of evaluating the
impact, if any, of adopting EITF 07 -1 on our financial statements.
In April 2008,
the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life
of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be
considered in developing assumptions about renewal or extension used in
estimating the useful life of a recognized intangible asset under FAS No. 142,
Goodwill and Other Intangible Assets. This standard is intended to improve the
consistency between the useful life of a recognized intangible asset under FAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
which will be our fiscal year beginning February 1, 2009. The measurement
provisions of this standard will apply only to intangible assets of the Company
acquired after the effective date. We are in the process of evaluating the
impact, if any, of adopting FSP 142-3 on our financial statements.
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting principles used in the
preparation of financial statements. SFAS No. 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles.” The implementation of this standard
will not have a material impact on the Company’s financial position or results
of operations.
In
June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging
Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that contain
rights to receive nonforfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, which will be our fiscal year beginning February 1,
2009. We are in the process of evaluating the impact, if any, of adopting EITF
03-6-1 on our financial statements.
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I
tem 8:
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
See
the Company’s Financial Statements, including the related notes thereto,
beginning on page F-1.
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|
I
tem 9:
|
CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None
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|
|
I
tem 9A(T):
|
CONTROLS AND
PROCEDURES
|
Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by Medical Nutrition USA, Inc.
in the reports it files or submits under the Securities Exchange Act of 1934
(the “Exchange Act”) is recorded, processed, summarized, and reported within
the time periods specified by the Commission’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to provide reasonable assurance that information required to be
disclosed by Medical Nutrition USA, Inc. in the reports it files or submits
under the Exchange Act is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
Under
the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, Medical Nutrition USA, Inc. has
evaluated the effectiveness of its disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of
January 31, 2009, and, based upon this evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these controls and procedures
are effective in providing reasonable assurance of compliance.
Changes in Internal Control over Financial
Reporting
Under
the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, Medical Nutrition USA, Inc. has
evaluated changes in internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the quarter ended January 31, 2009 and have concluded that no change has
materially affected, or is reasonably likely to materially affect, internal
control over financial reporting.
Management’s Annual Report On Internal
Control Over Financial Reporting
Medical
Nutrition USA, Inc.’s management is responsible for establishing and
maintaining an adequate system of internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a -15(f) and 15d-15(f). Our
internal control system was designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes, in accordance with accounting principles
generally accepted in the United States of America. Because of inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with
policies and procedures may deteriorate.
Medical
Nutrition USA, Inc.’s management, including the Chief Executive Officer and
Chief Financial Officer, has conducted an evaluation of the effectiveness of
its internal control over financial reporting as of January 31, 2009 based on
the framework in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, management concluded that our internal control over financial
reporting was effective as of January 31, 2009.
This
annual report does not include an attestation report of Amper, Politziner &
Mattia, LLP., Medical Nutrition USA, Inc.’s independent registered public
accounting firm, regarding internal control over financial reporting.
Management’s report was not subject to attestation by Amper, Politziner &
Mattia, LLP pursuant to temporary rules of the SEC that permit Medical
Nutrition USA, Inc. to provide only management’s report in this annual report.
Limitations on the Effectiveness of Controls
.
Our
management does not expect that our Disclosure Controls will prevent all error
and all fraud. A control system, no matter how well developed and operated, can
provide only reasonable, but not absolute assurance that the objectives of the
control system are met. Further, the design of the control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their design and monitoring costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of a
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated objectives under all potential future
conditions. Over time, control may become inadequate because of changes in
conditions, or because the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
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I
tem 9B.
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OTHER
INFORMATION
|
None
P
ART III
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It
em 10.
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DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|
Information
regarding the Company’s directors, officers and corporate governance is set
forth in “Proposal 1 - Election of Directors” in the Company’s proxy statement
for its 2009 Annual Meeting of Shareholders to be held June 3, 2009. Such
information is incorporated herein by reference. Information regarding
compliance by the Company’s directors and executive officers and owners of more
than ten percent of common stock with the reporting requirements of Section
16(a) of the Exchange Act is set forth in the proxy statement under the caption
“Section 16(a) Beneficial Ownership Reporting Compliance.” Such information is
incorporated herein by reference.
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I
tem 11.
|
EXECUTIVE
COMPENSATION
|
Information
regarding the compensation of the Company’s executive officers and directors is
set forth in under the caption “ Executive Compensation” and “Director
Compensation” in the proxy statement. Such information is incorporated herein
by reference.
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I
tem 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
Information
regarding ownership of the Company’s common stock by certain persons is set
forth under the caption “Security Ownership of Certain Beneficial Owners and
Management” in the proxy statement. Such information is incorporated herein by
reference.
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I
tem 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Information
regarding relationships or transactions between the Company and its affiliates
is set forth under the caption “Transactions with Related Persons, Promoters
and Certain Control Persons” in the proxy statement. Such information is
incorporated herein by reference
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I
tem 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SEVICES
|
Information
regarding the Company’s principal accountant fees and services is set forth in
“Proposal 2-Ratification of Selection of Independent Auditors” in the proxy
statement. Such information is incorporated herein by reference.
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I
tem 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
See
the Exhibit Index at the end of this report
S
IGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) 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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Dated: April
24, 2009
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MEDICAL
NUTRITION USA, INC.
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By: /s/
FRANCIS A. NEWMAN
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Francis A.
Newman, Chief Executive Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ FRANCIS
A. NEWMAN
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Chairman,
Chief Executive Officer
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April 24,
2009
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Francis A.
Newman
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and Director
(Principal Executive Officer)
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/s/ FRANK J.
KIMMERLING
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Chief
Financial Officer
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April 24, 2009
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Frank J. Kimmerling
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(Principal
Accounting and Financial Officer)
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/s/ BERNARD
KORMAN
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Director
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April 24,
2009
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Bernard
Korman
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/s/ ANDREW
HOROWITZ
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Director
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April 24,
2009
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Andrew
Horowitz
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/s/ MARK H.
ROSENBERG
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Director
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April 24,
2009
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Mark H.
Rosenberg
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17
|
MEDICAL NUTRITION USA, INC.
INDEX TO FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
Medical Nutrition USA, Inc.
We have
audited the accompanying balance sheets of Medical Nutrition USA, Inc. as of
January 31, 2009 and 2008, and the related statements of operations, cash
flows, and stockholders’ equity for the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of their internal control over
financial reporting. Our audits include consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Medical Nutrition USA, Inc. as
of January 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
As discussed
in Note 10 to the financial statements, effective February 1, 2007, the Company
adopted the provisions of Financial Interpretation (FIN) No. 48 “Accounting for
Uncertainty in Income Taxes - an interpretation of Statement of Financial
Accounting Standards No. 109.
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/s/ AMPER,
POLITZINER & MATTIA, LLP
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April 24,
2009
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Hackensack,
New Jersey
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F-2
|
MEDICAL NUTRITION USA, INC.
BALANCE
SHEETS
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January 31,
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2009
|
|
2008
|
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ASSETS
|
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Current Assets:
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|
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|
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Cash and cash equivalents
|
|
$
|
9,654,300
|
|
$
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5,208,000
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Short-term investments
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—
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4,336,800
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|
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Accounts receivable, net of allowance of
$65,600 and $45,000, respectively
|
|
|
1,377,400
|
|
|
1,054,500
|
|
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Inventories
|
|
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510,600
|
|
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401,800
|
|
|
Deferred income taxes
|
|
|
406,500
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|
|
877,700
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|
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Prepaid income taxes
|
|
|
8,300
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|
|
232,000
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|
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Other current assets
|
|
|
191,900
|
|
|
179,800
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Total current assets
|
|
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12,149,000
|
|
|
12,290,600
|
|
|
|
|
|
|
|
|
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Fixed assets, net of accumulated
depreciation and amortization of $345,400 and $248,500, respectively
|
|
|
318,800
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|
|
199,000
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
969,000
|
|
|
480,000
|
|
|
Security deposits
|
|
|
15,300
|
|
|
15,300
|
|
|
Investment in Organics Corporation of
America
|
|
|
125,000
|
|
|
125,000
|
|
|
Intangible assets, net of amortization
|
|
|
276,800
|
|
|
252,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,853,900
|
|
$
|
13,362,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
530,700
|
|
$
|
364,800
|
|
|
Accrued expenses
|
|
|
967,600
|
|
|
466,000
|
|
|
Accrued rebates
|
|
|
73,700
|
|
|
61,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,572,000
|
|
|
892,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.001 par value, 5,000,000
shares authorized; no shares issued and outstanding at January 31, 2009 and
2008
|
|
|
—
|
|
|
—
|
|
|
Common stock, $0.001 par value; 20,000,000
shares authorized, 14,128,614 shares issued as of January 31, 2009 and
14,045,483 shares issued as of January 31, 2008
|
|
|
14,100
|
|
|
14,000
|
|
|
Additional paid-in-capital
|
|
|
25,067,600
|
|
|
24,687,900
|
|
|
Accumulated deficit
|
|
|
(12,497,900
|
)
|
|
(12,005,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,583,800
|
|
|
12,696,100
|
|
|
Less: treasury stock, at cost; 98,080 and
52,562 shares, respectively
|
|
|
(301,900
|
)
|
|
(226,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
12,281,900
|
|
|
12,470,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,853,900
|
|
$
|
13,362,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the financial statements.
|
|
|
|
F-3
|
MEDICAL NUTRITION USA, INC.
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
13,747,200
|
|
$
|
12,800,600
|
|
|
Cost of
sales
|
|
|
6,474,200
|
|
|
5,994,900
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
7,273,000
|
|
|
6,805,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
7,921,700
|
|
|
5,763,700
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development expenses
|
|
|
51,500
|
|
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
|
(700,200
|
)
|
|
934,000
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
237,800
|
|
|
416,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income tax expense
|
|
|
(462,400
|
)
|
|
1,350,000
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
|
29,700
|
|
|
480,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
income
|
|
$
|
(492,100
|
)
|
$
|
869,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.04
|
)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,893,787
|
|
|
14,128,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
13,893,787
|
|
|
15,553,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the financial statements.
|
|
|
|
F-4
|
MEDICAL NUTRITION USA, INC.
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(492,100
|
)
|
$
|
869,100
|
|
|
Adjustments to reconcile (loss) income to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
157,100
|
|
|
101,900
|
|
|
Provision for losses on accounts
receivable
|
|
|
20,600
|
|
|
800
|
|
|
Deferred income taxes
|
|
|
(17,700
|
)
|
|
334,900
|
|
|
Stock based compensation
|
|
|
1,111,300
|
|
|
1,062,000
|
|
|
Changes in operating assets and
liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(343,600
|
)
|
|
(5,000
|
)
|
|
Inventories
|
|
|
(108,800
|
)
|
|
94,400
|
|
|
Prepaid income taxes
|
|
|
223,700
|
|
|
(232,000
|
)
|
|
Other current assets
|
|
|
(12,100
|
)
|
|
(122,000
|
)
|
|
Accounts payable
|
|
|
165,900
|
|
|
(288,400
|
)
|
|
Accrued expenses
|
|
|
501,600
|
|
|
189,400
|
|
|
Accrued rebates
|
|
|
12,000
|
|
|
(32,300
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,217,900
|
|
|
1,972,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets
|
|
|
(216,800
|
)
|
|
(95,600
|
)
|
|
Website development costs
|
|
|
(700
|
)
|
|
(1,700
|
)
|
|
Trademark costs
|
|
|
(51,300
|
)
|
|
(13,300
|
)
|
|
Capitalized patent costs
|
|
|
(32,500
|
)
|
|
(39,600
|
)
|
|
Purchase of short term investments
|
|
|
—
|
|
|
(4,336,800
|
)
|
|
Redemption of short term investments
|
|
|
4,336,800
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities
|
|
|
4,035,500
|
|
|
(4,487,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options
|
|
|
42,200
|
|
|
203,200
|
|
|
Income tax benefit from exercise of stock
options
|
|
|
40,800
|
|
|
133,700
|
|
|
Stock repurchase plan
|
|
|
(814,200
|
)
|
|
(595,400
|
)
|
|
Purchase of treasury stock
|
|
|
(75,900
|
)
|
|
(122,600
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
(807,100
|
)
|
|
(381,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase(decrease) in cash and cash
equivalents
|
|
|
4,446,300
|
|
|
(2,895,300
|
)
|
|
Cash and cash equivalents - beginning of
year
|
|
|
5,208,000
|
|
|
8,103,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of year
|
|
$
|
9,654,300
|
|
$
|
5,208,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Taxes paid during the year
|
|
$
|
4,000
|
|
$
|
258,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the financial statements.
|
|
|
|
F-5
|
MEDICAL NUTRITION USA, INC.
STATEMENTS OF STOCKHOLDERS’
EQUITY
YEARS ENDED JANUARY 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
Accumulated
|
|
Treasury Stock
|
|
Total Stockholders’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Paid-in-capital
|
|
Deficit
|
|
Shares
|
|
Stock
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2007
|
|
14,027,294
|
|
$
|
14,000
|
|
$
|
23,884,400
|
|
$
|
(12,874,900
|
)
|
(22,851
|
)
|
$
|
(103,400
|
)
|
$
|
10,920,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options
|
|
125,266
|
|
|
200
|
|
|
203,000
|
|
|
—
|
|
—
|
|
|
—
|
|
|
203,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
56,955
|
|
|
—
|
|
|
1,062,000
|
|
|
—
|
|
—
|
|
|
—
|
|
|
1,062,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from exercise of stock options
|
|
—
|
|
|
—
|
|
|
133,700
|
|
|
—
|
|
—
|
|
|
—
|
|
|
133,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchase plan
|
|
(186,000
|
)
|
|
(200
|
)
|
|
(595,200
|
)
|
|
—
|
|
—
|
|
|
—
|
|
|
(595,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
(30,594
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
(29,711
|
)
|
|
(122,600
|
)
|
|
(122,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
869,100
|
|
—
|
|
|
—
|
|
|
869,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2008
|
|
13,992,921
|
|
$
|
14,000
|
|
$
|
24,687,900
|
|
$
|
(12,005,800
|
)
|
(52,562
|
)
|
$
|
(226,000
|
)
|
$
|
12,470,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options
|
|
69,297
|
|
|
—
|
|
|
42,200
|
|
|
—
|
|
—
|
|
|
—
|
|
|
42,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
276,407
|
|
|
200
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
—
|
|
|
—
|
|
|
1,111,300
|
|
|
—
|
|
—
|
|
|
—
|
|
|
1,111,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury stock
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
|
—
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from exercise of stock options
|
|
—
|
|
|
—
|
|
|
40,800
|
|
|
—
|
|
—
|
|
|
—
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchase plan
|
|
(262,000
|
)
|
|
(100
|
)
|
|
(814,100
|
)
|
|
—
|
|
—
|
|
|
—
|
|
|
(814,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
(46,091
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
(45,518
|
)
|
|
(75,900
|
)
|
|
(75,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(492,100
|
)
|
—
|
|
|
—
|
|
|
(492,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
14,030,534
|
|
$
|
14,100
|
|
$
|
25,067,600
|
|
$
|
(12,497,900
|
)
|
(98,080
|
)
|
$
|
(301,900
|
)
|
$
|
12,281,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the financial statements
F-6
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 1.
Organization
and Business:
Medical
Nutrition USA, Inc. (a Delaware Corporation) (referred to herein as Medical
Nutrition or the Company), incorporated in 2003, is primarily engaged in the development and
distribution of nutritional and health products. The Company develops
nutritional supplements for sale to physicians, dispensing medical clinics,
nursing homes and network marketing companies. The Company’s products are sold
under its own brands and/or under private labels in the United States.
Note 2.
Significant
Accounting Policies:
Concentration of credit risk
– We are subject
to concentration of credit risk primarily from out cash investments. The Company
invests its excess cash in treasury backed money market funds, corporate bonds
and commercial paper. The diversification of the cash investments is intended
to secure safety and liquidity. The Company maintains the majority of its cash
and cash equivalents in bank accounts at two financial institutions. The
balances, at times, may exceed federally insured limits. At January 31, 2009,
the Company had approximately $9.2 million in excess of FDIC insured limits.
The Company’s operations are not subject to risks of material foreign currency
fluctuations, nor does it use derivative financial instruments in its
investment practices. The Company places its marketable investments in
instruments that meet high credit quality standards. The Company does not expect
material losses with respect to its investment portfolio or exposure to market
risks associated with interest rates. The impact on the Company’s
results of one percentage point change in short-term interest rates would
not have a material impact on the Company’s
future
earnings, fair value, or cash flows related to investments in cash equivalents
or interest-earning marketable securities.
The other
financial component, which principally subjects the Company to significant
concentrations of credit risk, is trade accounts receivable. For the fiscal
years ended January 31, 2009 and 2008, two distributors accounted for approximately
28% and 32% of total revenues respectively. The Company has no contractual
arrangements with these distributors, and if they were to discontinue
purchasing from the Company, it could have a material impact on the Company’s
sales unless end users were able to purchase the company’s products from
alternative distributors.
Cash and Cash Equivalents
– The Company
invests its excess cash in highly liquid short-term investments. The Company
considers short-term investments that are purchased with an original maturity
of three months or less to be cash equivalents. Cash and cash equivalents
consisted of cash and money market accounts at January 31, 2009 and 2008.
Short-term investments
– As of January 31, 2008
the Company’s investments consist of U.S Government backed securities,
corporate commercial paper and certificates of deposit. The Company’s
short-term investment policy requires investments to be rated AAA with a
maturity of six months or less.
The Company
accounts for short-term investments as held to maturity investments pursuant to
SFAS No. 115, “Accounting for Certain Investments in Debt and Equity
Securities.” Under this Statement, securities that the Company has the positive
intent and ability to hold to maturity are classified as held to maturity
securities and are carried at cost.
Accounts Receivable
– The Company provides an
allowance for doubtful accounts equal to the estimated uncollectible amounts in
trade accounts receivable. The Company’s estimate is based on a review of the
current status of these accounts and historical trends. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts may
in the future change should historical trends of current account status
require.
Inventories
– Inventories, which consist
primarily of purchased finished foods, are stated at the lower of cost or
market, using the “first-in, first-out” (FIFO) cost method.
Fixed Assets
– Furniture, fixtures and
equipment, and leasehold improvements are stated at cost and depreciated and
amortized over their estimated useful lives, which range from 3 to 7 years.
Leasehold improvements are amortized over the lesser of the useful lives or
lease terms. Depreciation and amortization are calculated using the
straight-line method for financial reporting purposes. Expenditures for repairs
and maintenance, which do not extend the useful life of the property, are
expensed as incurred.
F-7
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 2.
Significant
Accounting Policies (continued):
Intangible Assets
– Patent application costs
relate to the Company’s U.S. patent applications and consist primarily of legal
fees and other direct fees. The recoverability of the patent application costs
is dependent upon, among other factors, the success of the underlying clinical
studies used to support the patent and ultimately the resulting revenue. The
Company is amortizing the costs over the shorter of their useful lives or five
years. Trademarks costs are stated at cost and are amortized over the shorter
of their useful lives or seventeen years. Website costs are stated at cost and
are amortized over five years.
Research and Development
– The Company
utilizes independent third parties to design and test certain products and to
conduct clinical trials and studies on its products. These expenditures are
accounted for as research and development costs and are expensed as incurred.
Income Taxes
– The Company provides for income
taxes in accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 109, “Accounting for Income Taxes.” SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities. Additionally, the Company adopted
Financial Interpretation (“FIN”) No. 48, “Accounting
for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109.”
This interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The interpretation
contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109. The first step is to
evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position
will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as
the largest amount that has a greater than 50% likelihood of being realized
upon effective settlement. The interpretation also provides guidance on
derecognition, classification, interest and penalties, and other matters.
Fair Value of Financial Instruments
– The
estimated fair values for financial instruments under SFAS No. 107,
“Disclosures about Fair Value of Financial Instruments,” are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. Additionally,
the carrying value of all other monetary assets and liabilities is estimated to
be equal to their fair value due to the short-term nature of these instruments.
Revenue Recognition
– Revenue is recognized
when all four of the following conditions exist: persuasive evidence of an
arrangement exists; services have been rendered or delivery occurred; the price
is fixed or determinable; and collectibility is reasonably assured. Revenue
from product sales is recognized upon shipment of products to customers.
Share Based Compensation
– The Company
accounts for stock based employee compensation plans under SFAS No. 123
(revised 2004), “Shared-Based Payment” (“SFAS No. 123R”). SFAS No. 123R
addresses the accounting for shared based payment transactions in which an
enterprise receives employee services for equity instruments of the enterprise
or liabilities that are based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such equity instruments.
SFAS No. 123R requires that such transactions be accounted for using a fair
value based method.
F-8
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 2.
Significant Accounting Policies (continued)
:
Earnings Per Share
– The financial statement
are presented in accordance with Statement of Financial Accounting Standards
No. 128 (SFAS 128), “Earnings Per Share.” Basic (loss) earnings per common share are
computed using the weighted average number of common shares outstanding during
the period.
Diluted (loss)
earnings per common share utilizes the treasury stock method for calculating the
dilutive effect of employee stock options, and nonvested shares. These
instruments will have a dilutive effect under the treasury stock method only
when the respective period’s average market value of the underlying Company
common stock exceeds the actual proceeds. In applying the treasury stock
method, assumed proceeds include the amount, if any, the employee must pay upon
exercise, the amount of compensation cost for future services that the Company
has not yet recognized, and the amount of tax benefits, if any, that would be
credited to additional paid-in capital assuming exercise of the options and the
vesting of nonvested shares. In accordance with SFAS 128, diluted earnings per
share are not presented in periods during which the Company incurred a loss
from operations. For the year ended January 31, 2009 the potentially dilutive
commons stock equivalents, consisting of stock options and restricted stock,
which were excluded from the net (loss) per share calculations due to their
anti-dilutive effect amounted to 3,182,617. For the year ended January 31, 2008,
the potentially dilutive common stock equivalents, consisting of stock options,
which were excluded from the net income per share calculations due to their
anti-dilutive effect amounted to was 60,563.
Basic EPS is computed by
dividing net (loss) income by the weighted average number of shares outstanding
during the period. Diluted EPS is computed considering the potentially dilutive
effect of outstanding stock options and nonvested shares of restricted stock. A
reconciliation of the numerators and denominators of basic and diluted per
share computations follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
January 31,
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(492,100
|
)
|
|
869,100
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares (Basic)
|
|
|
13,893,787
|
|
|
14,128,601
|
|
|
Dilutive effect of outstanding options and
nonvested shares of restricted stock
|
|
|
—
|
|
|
1,425,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares including
assumed conversions (Diluted)
|
|
|
13,893,787
|
|
|
15,553,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share
|
|
$
|
(0.04
|
)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share
|
|
$
|
(0.04
|
)
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
F-9
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 2.
Significant Accounting Policies (continued)
:
Carrying Values of Long-lived Assets
- The
Company evaluates the carrying values of its long-lived assets to be held and
used in the business by reviewing undiscounted cash flows. Such evaluations are
performed whenever events and circumstances indicate that the carrying amount
of an asset may not be recoverable. If the sum of the projected undiscounted
cash flows over the remaining lives of the related assets does not exceed the
carrying values of the assets, the carrying values are adjusted for the
differences between the fair values and the carrying values.
Use of Estimates
- In preparing financial
statements in conformity with accounting principles generally accepted in the
United States of America, management is required to make estimates and
assumptions that affect the reported amounts of assets and the disclosures of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reported period. The Company uses estimates in
several accounts including accrued rebates and allowances for doubtful accounts
related to accounts receivable. Actual results could differ from those
estimates.
New Accounting Pronouncements
In September
2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,
“Fair Value Measurements” (“SFAS No. 157”), which clarifies the definition of
fair value whenever another standard requires or permits assets or liabilities
to be measured at fair value. Specifically, the standard clarifies that fair
value should be based on the assumptions market participants would use when
pricing the asset or liability, and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. SFAS No. 157
does not expand the use of fair value to any new circumstances, and must be
applied on a prospective basis except in certain cases. The standard also
requires expanded financial statement disclosures about fair value
measurements, including disclosure of the methods used and the effect on
earnings. The adoption of this pronouncement did not have a material impact on
our financial statements.
In February
2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (“FAS 159”). FAS 159 permits companies to choose to
measure certain financial instruments and certain other items at fair value.
The standard requires that unrealized gains and losses on items for which the
fair value option has been elected be reported in earnings. FAS 159 is
effective as of the beginning of the entity’s fiscal year that begins after
November 15, 2007, which was our fiscal year beginning February 1, 2008. The
adoption of this pronouncement did not have a material impact on our financial
statements.
In February
2008, FASB Staff Position (“FSP”) FAS No. 157-2, “Effective Date of FASB
Statement No. 157” (“FSP No. 157-2”) was issued. FSP No. 157-2 defers the
effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years, for all non- financial assets
and liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). Examples of
items within the scope of FSP No. 157-2 are non-financial assets and
non-financial liabilities initially measured at fair value in a business
combination (but not measured at fair value in subsequent periods), and
long-lived assets, such as property, plant and equipment and intangible assets
measured at fair value for an impairment assessment under SFAS No. 144. We are
currently evaluating the potential impact, if any, of the adoption of FSP No.
157-2 on our financial statements.
F-10
In December
2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”
(“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non controlling interest in the acquiree and the goodwill acquired. The
Statement also establishes disclosure requirements which will enable users to
evaluate the nature and financial effects of the business combination. FAS 141R
is effective as of the beginning of an entity’s fiscal year that begins after
December 15, 2008, which will be our fiscal year beginning February 1, 2009.
In December
2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements - an amendment of Accounting Research Bulletin No. 51”
(“FAS 160”), which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
The Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. FAS 160 is effective as
of the beginning of an entity’s fiscal year that begins after December 15,
2008, which will be our fiscal year beginning February 1, 2009. We are
currently evaluating the potential impact, if any, of the adoption of FAS 160
on our financial statements.
In December
2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements.” EITF 07-1 provides guidance
concerning: determining whether an arrangement constitutes a collaborative
arrangement within the scope of the Issue; how costs incurred and revenue
generated on sales to third parties should be reported in the income statement;
how an entity should characterize payments on the income statement; and what
participants should disclose in the notes to the financial statements about a
collaborative arrangement. EITF 07-1 is effective as of the beginning of an
entity’s fiscal year that begins after December 15, 2008, which will be our
fiscal year beginning February 1, 2009. We are in the process of evaluating the
impact, if any, of adopting EITF 07 -1 on our financial statements.
In April 2008,
the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life
of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be
considered in developing assumptions about renewal or extension used in
estimating the useful life of a recognized intangible asset under FAS No. 142,
Goodwill and Other Intangible Assets. This standard is intended to improve the
consistency between the useful life of a recognized intangible asset under FAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
which will be our fiscal year beginning February 1, 2009. The measurement
provisions of this standard will apply only to intangible assets of the Company
acquired after the effective date. We are in the process of evaluating the
impact, if any, of adopting FSP 142-3 on our financial statements.
In May 2008,
the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting principles used in the preparation
of financial statements. SFAS No. 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles”. The implementation of this standard will not
have a material impact on the Company’s financial position or results of
operations.
In June 2008,
the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)
No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.” Under the FSP, unvested share-based
payment awards that contain rights to receive nonforfeitable dividends (whether
paid or unpaid) are participating securities, and should be included in the
two-class method of computing EPS. The FSP is effective for fiscal years
beginning after December 15, 2008, which will be our fiscal year beginning
February 1, 2009. We are in the process of evaluating the impact, if any, of
adopting EITF 03-6-1 on our financial statements.
F-11
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 3.
Fixed Assets
:
Fixed
assets consisted of the following at January 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Furniture,
fixtures and equipment
|
|
$
|
613,800
|
|
$
|
397,100
|
|
|
Leasehold
improvements
|
|
|
50,400
|
|
|
50,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664,200
|
|
|
447,500
|
|
|
Less:
Accumulated depreciation and amortization
|
|
|
345,400
|
|
|
248,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
318,800
|
|
$
|
199,000
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense was $96,900 and $59,300 for the fiscal years ended
January 31, 2009 and 2008, respectively.
Note 4.
Intangible Assets
:
Intangible
assets consisted of the following at January 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
application costs
|
|
$
|
292,500
|
|
$
|
260,000
|
|
|
Trademarks
|
|
|
113,300
|
|
|
62,000
|
|
|
Website
development costs
|
|
|
20,900
|
|
|
20,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426,700
|
|
|
342,200
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated
amortization
|
|
|
149,900
|
|
|
89,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
276,800
|
|
$
|
252,700
|
|
|
|
|
|
|
|
|
|
|
Intangible
amortization expense was $60,200 and $42,600 for the fiscal years ended January
31, 2009 and 2008, respectively.
The future
estimated amortization charges are as follows:
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
62,400
|
|
|
2011
|
|
|
62,400
|
|
|
2012
|
|
|
60,700
|
|
|
2013
|
|
|
22,760
|
|
|
2014
|
|
|
6,600
|
|
|
Thereafter
|
|
|
61,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
276,800
|
|
|
|
|
|
|
|
F-12
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 5.
Investment in Organics Corporation of America
:
On
July 31, 2003, the Company entered into an agreement with Organics Corporation
of America (“Organics”) to purchase 5% of their issued and outstanding capital
stock for aggregate consideration of $125,000. In turn Organics agreed to
purchase 166,666 shares of the Company’s common stock at a purchase price of
$0.75 per share for aggregate consideration of $125,000. As of January 31,
2009, Organics owned approximately 1% of the Company’s common stock. In
addition, Organics agreed to assist the Company to (a) continue to develop and
improve products of the Company that have been developed or were in the process
of being developed and improved as of July 31, 2003; (b) design, develop,
implement, and provide merchantable and marketable products; and (c) maintain
the confidentiality of all proprietary product technology (see Note 10 -
“Commitments and Contingencies”). The Company is carrying this investment at cost.
For the years ended January 31, 2009 and 2008, purchases made from Organics
totaled $4,579,000 and $4,837,500, respectively. As of January 31, 2009 and
2008, the Company owed Organics $332,200 and $246,100, respectively. Such
amounts are included in the accounts payable of the accompanying Balance
Sheets.
F-13
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 6.
Major Customers and Major Vendor-Related Party:
Major Customers
For
the fiscal year ended January 31, 2009, two distributors accounted for
approximately 28% of total revenues, representing $4,038,098 of sales as
compared to 32% or $4,040,700 of sales in the prior year for the same
distributors. The Company has no contractual arrangements with these
distributors, and if they were to discontinue purchasing from the Company, it
could have a material impact on the Company’s sales unless end users were able
to purchase the company’s products from alternative distributors.
As
of January 31, 2009, these distributors had an open accounts receivable balance
of $538,400 which represented 37% of the Company’s total accounts receivable as
compared to $377,300 which represented 36% of the Company’s total accounts
receivable as of January 31, 2008.
Major Vendor-Related Party
During
the years ended January 31, 2009 and 2008, the Company purchased $4,579,000 and
$4,837,500, respectively, of finished goods from Organics Corporation of
America (“Organics”), an approximate 1% shareholder of the Company. As of
January 31, 2009 and 2008, the Company had an accounts payable balance with
Organics of $332,200 and $246,100, respectively. The Company owns approximately
5% of the outstanding stock of Organics.
Note 7.
Lease Commitments
:
The
Company leases an office and warehouse facility in New Jersey under a lease, which
expires in December 2009. Total rental expense for the year ended January 31,
2009 and 2008 was approximately $121,900 and $95,700, respectively.
F-14
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 7.
Lease Commitments (continued):
The
Company leases vehicles and equipment under various operating leases expiring
through 2012. During the years ended January 31, 2009 and 2008, the total
payments under such leases were $14,500 and $16,500, respectively.
The
future minimum lease payments are as follows:
|
|
|
|
|
|
|
Years Ended
January 31,
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
16,500
|
|
|
2011
|
|
|
8,700
|
|
|
2012
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,000
|
|
|
|
|
|
|
|
Note 8.
Stockholders’ Equity:
MNI Stock Repurchase Plan
In
December 2007, the Company’s Board of Directors approved the Medical Nutrition
USA, Inc. Stock Repurchase Plan (the “Plan”). The Plan allows for the purchase
of up to 500,000 shares of Company stock on the open market and from employees.
The Plan allows for a maximum weekly market purchase of 25,000 shares with no
more than 50,000 shares in any calendar month. Private transactions with
employees can not exceed 50% of the total shares to be purchased with no one
individual employee exceeding 25% of the total. As of January 31, 2009, the
Company had purchased 184,000 shares from employees of the Company and 264,000
shares on the open market. The Company purchased these shares for an aggregate
total of $1,409,600. These repurchased shares are deemed authorized and
unissued shares available for issuance. The Plan expired on July 31, 2008.
F-15
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8.
Stockholders’ Equity (continued)
:
2000 Long-Term Incentive Stock Plan
On
October 19, 2000, the stockholders approved the 2000 Long-Term Incentive Stock
Plan (the “2000 Plan”). Under the 2000 Plan, the Company may grant stock
options, stock appreciation rights (SAR’s) or stock awards. All employees of
the Company are eligible to participate in the 2000 Plan. The 2000 Plan
authorizes the issuance, in the aggregate, of up to 240,000 shares of common
stock. No stock option, SAR or other award, may be granted under the 2000 Plan
after October 27, 2009. The maximum number of shares for which awards may be
granted to any person in any fiscal year is 12,000. The purchase price per
share for each stock option may not be less than 100% of the fair market value
on the date of grant and may not be for more than ten years. In the case of
incentive stock options granted to an optionee who, at the time of grant, owns
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company, the exercise price per share may not be less
than 110% of the fair market value on the date of grant and the option may not
be exercisable for more than five years. As of January 31, 2009, no stock
option grants were outstanding under the 2000 Plan.
2003 Omnibus Equity Incentive Plan
Effective
as of April 22, 2003, the Board of Directors (the “Board”) board adopted the
2003 Omnibus Equity Incentive Plan (the 2003 Plan). The purpose of the 2003
Plan is to promote the long-term success of the Company and the creation of
stockholder value by (a) encouraging employees, outside directors and consultants
to focus on critical long-range objectives, (b) encouraging the attraction and
retention of employees, outside directors and consultants with exceptional
qualifications and (c) linking employees, outside directors and consultants
directly to stockholder interests through increased stock ownership. The 2003
Plan seeks to achieve this purpose by providing for awards in the form of
restricted shares, stock units, options (which may constitute incentive stock
options or non-statutory stock options) or stock appreciation rights.
Initially,
the 2003 Plan authorized the issuance, in the aggregate, of up to 1,000,000
shares of common stock, increased by 250,000 additional shares of common stock
as of January 1, 2004. At the 2004 Annual Meeting, the 2003 Plan was amended to
provide that as of January 31 of each year, commencing with January 31, 2005,
the aggregate number of Common Shares reserved for issuance under the 2003 Plan
would automatically increase in an amount equal to the number of Common Shares
issued by reason of awards being granted, exercised or settled, as applicable,
during the immediately preceding fiscal year. At January 31, 2009, 2,609,284
options were issued and outstanding under the 2003 Plan.
On
June 7, 2006, the Board approved amendments to the Company’s 2003 Plan to
increase the number of shares of common stock subject to the automatic
non-qualified stock option granted to each outside director on the date they
first join the Board pursuant to the Plan to 15,000 common shares, to increase
the number of shares of common stock subject to the automatic non-qualified
stock option granted annually to continuing outside directors pursuant to the
Plan to 15,000 common shares, and to increase the number of shares of common
stock subject to the automatic non-qualified stock option granted annually to
each chairman of a Board committee pursuant to the Plan to 5,000 common shares.
The Board also approved the restatement of the Plan to effect these changes. On
July 6, 2006 the Company executed the Amended and Restated 2003 Omnibus Equity
Incentive Plan, which includes the revisions set forth above (the “Amended and
Restated 2003 Plan”). No other provision of the Plan was changed.
In addition to
the options issued in connection with the plans described above, options
exercisable for an additional 200,000 shares remained outstanding as of January
31, 2009, which were issued prior to January 31, 2003 and not pursuant to any
formal plan.
F-16
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8.
Stockholders’ Equity (continued):
Stock Options
During
the year ended January 31, 2009, the Company granted options to purchase shares
of its common stock with a three year vesting schedule at exercise price of
$2.87 to employees as consideration for their efforts. Three of our Outside
Directors received annual option grants as per our Amended and Restated 2003
Omnibus Equity Incentive Plan of 20,000 shares each for serving on our Board of
Directors and for being Chairman of a Board committee. These Director options
become fully exercisable in one year from their grant date at an exercise price
of $1.98. All of these grants were priced at the fair market value of the
common stock on the date of grant.
The
following table summarizes the outstanding and exercisable options at January
31, 2009 (contractual life in years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of prices
|
|
Number
|
|
Weighted
average
remaining
life
|
|
Weighted
average
exercise
price
|
|
Average
intrinsic
value
|
|
Number
|
|
Weighted
average
exercise
price
|
|
Average
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.50-$3.00
|
|
|
2,456,800
|
|
5
|
|
|
$
|
2.15
|
|
|
|
|
|
2,376,800
|
|
$
|
2.14
|
|
|
|
|
|
$3.01-$5.96
|
|
|
352,484
|
|
8
|
|
|
|
4.14
|
|
|
|
|
|
281,934
|
|
|
4.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,809,284
|
|
7
|
|
|
$
|
2.39
|
|
$
|
1.21
|
|
|
2,658,734
|
|
$
|
2.35
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8.
Stockholders’ Equity (continued):
A
summary of option transactions for the two years ended January 31, 2009,
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
exercise
price
|
|
Options
Exercisable
|
|
Weighted
Average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31,
2007
|
|
2,884,697
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
107,500
|
|
|
4.83
|
|
|
|
|
|
|
|
Exercised
|
|
(125,266
|
)
|
|
1.62
|
|
|
|
|
|
|
|
Expired or Surrendered
|
|
(66,450
|
)
|
|
3.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31,
2008
|
|
2,800,481
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
83,100
|
|
|
2.23
|
|
|
|
|
|
|
|
Exercised
|
|
(69,297
|
)
|
|
0.61
|
|
|
|
|
|
|
|
Expired or Surrendered
|
|
(5,000
|
)
|
|
3.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31,
2009
|
|
2,809,284
|
|
$
|
2.39
|
|
2,658,734
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
future expense related to unvested stock options will be as follows:
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
154,600
|
|
|
2011
|
|
|
26,000
|
|
|
2012
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
184,100
|
|
|
|
|
|
|
|
SFAS
No. 123(R) requires the benefits of tax deductions in excess of those
recognized in conjunction with compensation expense, to be reported as a
financing cash flow, rather than as an operating cash flow. This requirement
has the effect of reducing net operating cash flows and increasing net
financing cash flows in periods in and after adoption.
The
income tax benefits derived from the exercise of non-qualified stock options
and disqualifying dispositions of incentive stock options in excess of any
amounts previously classified as a deferred tax asset, when realized, are
credited to additional paid -in capital. For the year ended January 31, 2009
the tax benefit realized on the tax deductions from option exercises under
stock-based compensation arrangements was approximately $40,800 and is recorded
as additional paid in capital.
For
the years ended January 31, 2009 and 2008, the Company has estimated the fair
value of each option award on the date of grant using the Black-Scholes model.
For the years ended January 31, 2009 and 2008, respectively, the expected
volatility was based on both historical volatility and implied volatility of
the Company’s stock. The expected term of options granted represents the period
of time that options granted are expected to be outstanding. The Company used
historical data to estimate expected option exercise and post-vesting employment
termination behavior. The Company utilized the risk-free interest rate for
periods equal to the expected term of the option based upon the U.S. treasury
yield curve in effect at the time of the grant. The Company has no intention of
declaring any dividends.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8.
Stockholders’ Equity (continued):
The
fair value of stock-based awards was estimated using the Black-Scholes model
with the following weighted-average assumptions for stock options granted in
the years ended January 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31,
2009
|
|
Year Ended
January 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term until exercised, years
|
|
|
6
|
|
|
6
|
|
|
Expected stock price volatility,
average
|
|
|
66
|
%
|
|
77
|
%
|
|
Risk-free interest rate
|
|
|
3.5
|
%
|
|
4
|
%
|
|
Expected Dividend yield
|
|
|
0
|
|
|
0
|
|
|
Weighted-average fair value per option
|
|
$
|
1.33
|
|
$
|
3.05
|
|
Restricted Stock Awards
During
the years ended January 31, 2009 and 2008, the Company granted restricted stock
awards totaling 185,000 and 142,500 shares of its common stock with a three
year vesting schedule to 10 and 9 employees, respectively, as consideration for
their services. The shares become vested yearly based upon continued employment.
The shares have been valued at $1.50 and $4.40 per share, respectively, which
was the fair market value at the date of the approval of the grant. The Company
is amortizing the expense over the vesting period.
The
following table summarizes the status of Restricted stock as of January 31,
2009, and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at January 31,
2008
|
|
325,833
|
|
$
|
4.26
|
|
|
Granted
|
|
185,000
|
|
|
1.50
|
|
|
Vested
|
|
(137,500
|
)
|
|
4.24
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at January 31,
2009
|
|
373,333
|
|
$
|
2.90
|
|
|
|
|
|
|
|
|
|
The
future expense related to unvested restricted stock awards will be as follows:
|
|
|
|
|
|
|
Years Ended January 31,
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
561,600
|
|
|
2011
|
|
|
254,100
|
|
|
2012
|
|
|
77,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
893,300
|
|
|
|
|
|
|
|
For the year
ended January 31, 2009 and 2008, the Company recognized share -based
compensation cost of $1,111,300 and $1,062,000, respectively. These costs are
included in selling, general and administrative expense.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 9.
Income Taxes:
The
components of the provision for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31,
2009
|
|
Year Ended
January 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current –
Federal
|
|
$
|
—
|
|
$
|
—
|
|
|
Current –
State
|
|
|
6,300
|
|
|
12,300
|
|
|
Deferred –
Federal
|
|
|
10,700
|
|
|
386,900
|
|
|
Deferred –
State
|
|
|
12,700
|
|
|
81,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
$
|
29,700
|
|
$
|
480,900
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense was calculated using the statutory tax rate. The difference between
the effective tax rate and the statutory tax rate is mainly due to
nondeductible stock based compensation expense.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31,
2009
|
|
Year Ended
January 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
Federal income tax rate
|
|
|
(34
|
)%
|
|
34
|
%
|
|
State taxes,
net of Federal benefit
|
|
|
1.8
|
%
|
|
8.3
|
%
|
|
Other
|
|
|
2.1
|
%
|
|
(12.5
|
)%
|
|
Stock based
compensation
|
|
|
36.5
|
%
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
6.4
|
%
|
|
35.6
|
%
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes reflect the tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial accounting purposes
and the amounts used for income tax reporting. The Company utilizes the asset
and liability approach which requires the recognition of deferred tax assets
and liabilities for the future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax law or rates.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 9.
Income Taxes (continued)
:
The
Company’s deferred taxes are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31,
2009
|
|
Year Ended
January 31,
2008
|
|
|
|
|
|
|
|
|
|
Current
Deferred Taxes
|
|
|
|
|
|
|
|
|
Provision
for losses on accounts receivable
|
|
$
|
13,500
|
|
$
|
5,800
|
|
|
Non
deductible accruals
|
|
|
37,800
|
|
|
—
|
|
|
Inventory
|
|
|
8,700
|
|
|
—
|
|
|
Net
operating losses
|
|
|
346,500
|
|
|
871,900
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Deferred
|
|
|
406,500
|
|
|
877,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonCurrent
Deferred Taxes
|
|
|
|
|
|
|
|
|
Depreciable
assets
|
|
|
(99,700
|
)
|
|
(46,500
|
)
|
|
Amortizable
assets
|
|
|
34,300
|
|
|
18,600
|
|
|
Stock based
compensation
|
|
|
477,200
|
|
|
286,600
|
|
|
Net
operating losses
|
|
|
557,200
|
|
|
221,300
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current
Deferred
|
|
|
969,000
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Taxes
|
|
$
|
1,375,500
|
|
$
|
1,357,700
|
|
|
|
|
|
|
|
|
|
|
The
Company has Federal income tax loss carryforwards as of January 31, 2009 of
approximately $2,635,900. The Federal Net Operating Loss (“NOL”) carryforwards
expire beginning in 2020 and will be fully expired during 2025. The Company has
various state NOL’S of approximately $185,500 which expire during 2012.
Effective
February 1, 2007, the Company adopted Financial Interpretation (“FIN”) No. 48,
Accounting for
Uncertainty in Income Taxes-An
Interpretation of FASB Statement No. 109
. This interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The interpretation contains a two-step approach to
recognizing and measuring uncertain tax positions accounted for in accordance
with SFAS No. 109. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The
second step is to measure the tax benefit as the largest amount that has a
greater than 50% likelihood of being realized upon effective settlement. The
interpretation also provides guidance on derecognition, classification,
interest and penalties, and other matters. The adoption did not have an effect
on the financial statements.
The
tax years 2004-2008 remain open to examination by the major taxing
jurisdictions to which the Company is subject.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 10.
Commitments
and Contingencies
:
Government Regulations
The
Company’s nutritional and health products are produced by third parties in
various plants under applicable government regulations. The Company depends
upon its vendors to comply with such regulations. Failure by such vendors to
comply with the applicable regulations could result in fines and/or seizure of
the food products. Presently, the Company is not a party to any such lawsuits.
Product Development and Supply Agreement
On
July 31, 2003, the Company entered into a ten-year product development and
supply agreement with Organics Corporation of America (“Organics”). Organics,
a related party, has agreed to assist the Company to continue to develop and
improve products that have been developed or are in the process of being
developed and improved; design, develop, implement, and provide merchantable
and marketable products; and maintain the confidentiality of all proprietary
product technology. The Company currently uses Organics as its primary
manufacturer of its products. Under the agreement, in consideration for
Organics performance, the Company shall make payment to them for all invoices
submitted for products and services performed, at costs to which both parties
have agreed upon and that Organics has the opportunity to manufacturer other
products for the Company in the future. In connection with this transaction,
the Company and Organics purchased shares of each other’s common stock. (See
Note 5 – “Investment in Organics Corporation of America” and Note 6-“Major
Customers and Major Vendor- Related Party”)
Employment Contract
Effective
April 17, 2006, the Company entered into an employment agreement with Mr.
Francis A. Newman, Chief Executive Officer. This agreement renews automatically
on April 17 of each succeeding year unless terminated as provided within the
terms of the agreement. Under the agreement, Mr. Newman is entitled to a minimum
base salary of $185,500 with annual salary increases at the discretion of the
Board of Directors, and an annual incentive bonus in an amount up to 100% of
base salary if the Company achieves agreed-upon targets. Additionally, Mr.
Newman is entitled to various other benefits (such as travel allowance and
participation in employee benefit plans).
Bonus Plan
On
June 7, 2005, the Company approved a bonus plan for officers based on a formula
which takes into account sales and EBITDA, with annual targets to be set at the
level of the annual operating plan approved by the Board of Directors. The plan
allows for payment up to 100% of the officers base salary. The percentage
combination of cash and common stock of the Company used to pay the bonuses will
be at the discretion of the Board of Directors, but in no case will the cash
portion be less than 25% of the bonuses awarded. For the years ended January
31, 2009 and 2008, the Company expensed $248,000 and $147,800 in bonuses based
on this plan, respectively.
401(k) Plan
In
March 2007, the Company established a 401(k) retirement plan (“plan”) for all
eligible employees. In January 2008, the Company amended the plan to include a
maximum Company contribution of 4 percent of base salary for the first 5
percent of elected base salary deferrals. Employees are eligible to contribute
the maximum as allowed by law. For the years ended January 31, 2009 and 2008,
the 401(k) expense was $89,000 and $5,700, respectively, and is included in
selling, general and administrative expenses.
F-22
Exhibit
Index
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Exhibit
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Description
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3.1
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Certificate
of Incorporation of Medical Nutrition USA, Inc., dated March 23, 2003 (1)
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3.2
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Bylaws of
Medical Nutrition USA, Inc., as adopted March 7, 2003 (2)
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4.1
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Form of
convertible 8% Notes dated July 31, 2003 between Medical Nutrition USA, Inc.
and certain investors (3)
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4.2
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Form of
Convertible Promissory Note dated December 5, 2003 between Medical Nutrition
USA, Inc. and certain investors (4)
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4.3
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Form of
Class A Warrant Agreement and related Warrant Certificate*
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4.4
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Form of
Class B Warrant Agreement and related Warrant Certificate*
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4.5
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Warrant to
Purchase Shares of Common Stock dated as of April 1, 2003 between Medical
Nutrition USA, Inc. (f/k/a Gender Sciences, Inc.) and Kirlin Securities,
Inc.*
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4.6
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Common Stock
Purchase Warrant dated as of April 22, 2003 between Medical Nutrition USA,
Inc. and Unity Venture Capital Associates, Ltd.*
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10.1
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2000 Long
term Incentive Plan (5) #
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10.2
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2003 Omnibus
Equity Incentive Plan (6) #
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10.3
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Employment
Agreement dated March 1, 2003 by and between Medical Nutrition USA, Inc. and
Francis A. Newman (7) #
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10.4
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Form of
Subscription Agreement dated July 31, 2003 between Medical Nutrition USA,
Inc. and Organics Corporation of America (8)
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10.5
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Form of
Subscription Agreement dated July 31, 2003 between Organics Corporation of
America and Medical Nutrition USA, Inc. (9)
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10.6
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Office Lease
dated October 4, 1984 by and between Medical Nutrition, Inc., a predecessor
of Medical Nutrition USA, Inc. and Van Brunt Associates, L.P. (10)
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10.7
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First
Amendment to Office Lease dated October 24, 1994 by and between Medical
Nutrition, Inc., a predecessor of Medical Nutrition USA, Inc. and Van Brunt
Associates, LP (11)
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10.8
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Lease
Extension Letter Agreement dated November 17, 1999 by and between Medical
Nutrition, Inc., a predecessor of Medical Nutrition USA, Inc. and First
Industrial Realty
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Trust, Inc.
(12)
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10.9
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Second Amendment
to Office Lease dated September 9, 2004 by and between Medical Nutrition USA,
Inc. and The Realty Associates Fund VI, L.P. (13)
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10.10
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Executive
Bonus Program effective January 1, 2005 (14) #
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21.1
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Subsidiaries
of Medical Nutrition USA, Inc. (15)
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23.1
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Consent of
Amper, Politziner & Mattia, LLP, Independent Registered Public Accounting
Firm
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31.1
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Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer. **
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31.2
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Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer. **
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32.1
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Certificate
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350. **
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* Previously
filed.
** Filed
herewith.
# Indicates
management contract or compensatory plan or arrangement.
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(1)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2005.
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(2)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2005.
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(3)
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Incorporated
by reference from the Company’s Quarterly Report on Form 10-QSB for the
fiscal quarter ended July 31, 2003.
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(4)
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Incorporated
by reference from the Company’s Quarterly Report on Form 10-QSB for the
fiscal quarter ended October 31, 2003
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(5)
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Incorporated
by reference from the Company’s definitive proxy statement for its 2000
Annual Meeting of Shareholders to be held October 19, 2000.
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(6)
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Incorporated
by reference from the Company’s definitive proxy statement for its 2004
Annual Meeting of Shareholders to be held June 8, 2004.
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(7)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2004.
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(8)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2004.
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(9)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2004.
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(10)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2003.
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(11)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2003.
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(12)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2003.
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(13)
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Incorporated
by reference from the Company’s Annual Report on Form 10-KSB for the fiscal
year ended January 31, 2005.
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(14)
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Incorporated
by reference from the Company’s Quarterly Report on Form 10-QSB for the
fiscal quarter ended July 31, 2005.
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(15)
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Incorporated
by reference from the Company’s annual Report on Form 10-KSB for the fiscal
year ended January 31, 2005.
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