- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2009

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _________ to ____________

COMMISSION FILE NUMBER 001-33411

MEDICAL NUTRITION USA, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE		11-3686984

(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

10 WEST FOREST AVENUE, ENGLEWOOD, NEW JERSEY 07631

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(201) 569-1188

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

(FORMER NAME, IF CHANGED SINCE LAST REPORT)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” large accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act (Check one):


Large Accelerated Filer	o	Accelerated Filer	o
Non-Accelerated Filer	o	Smaller Reporting Company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 14,098,466 shares of common stock as of September 11, 2009.

MEDICAL NUTRITION USA, INC.

FORM 10-Q - INDEX


		Page(s)

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Balance Sheets at July 31, 2009 (unaudited) and January 31, 2009	3

	Condensed Statements of Operations for the Three and Six Months Ended July 31, 2009 and 2008 (unaudited)	4

	Condensed Statements of Cash Flows for the Six Months Ended July 31, 2009 and 2008 (unaudited)	5

	Condensed Statement of Stockholders’ Equity for the Six Months Ended July 31, 2009 (unaudited)	6

	Notes to Condensed Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

Item 4T.	Controls and Procedures	19

PART II. OTHER INFORMATION
Item 5.	Other Information	20
Item 6.	Exhibits	20

Signatures		21

Part I. Financial Information

MEDICAL NUTRITION USA, INC.

CONDENSED BALANCE SHEETS


	July 31, 2009			January 31, 2009

	(unaudited)
ASSETS

Current Assets:
Cash and cash equivalents	$	9,945,500		$	9,654,300
Accounts receivable, net of allowance of $46,200 and $65,600, respectively		1,419,800			1,377,400
Inventories		627,200			510,600
Deferred income taxes		372,700			406,500
Prepaid income taxes		9,400			8,300
Other current assets		96,200			191,900

Total current assets		12,470,800			12,149,000

Fixed Assets , net of accumulated depreciation and amortization of $406,900 and $345,400, respectively		313,700			318,800

Other Assets:
Deferred income taxes		913,700			969,000
Security deposits		15,300			15,300
Investment in Organics Corporation of America		125,000			125,000
Intangible assets, net of amortization		260,700			276,800


	$	14,099,200		$	13,853,900


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	806,000		$	530,700
Accrued expenses		640,600			967,600
Accrued rebates		54,300			73,700

Total current liabilities		1,500,900			1,572,000


Stockholders’ Equity:
Preferred stock $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding as of July 31, 2009 and January 31, 2009		—			—
Common stock, $0.001 par value; 20,000,000 shares authorized; 14,198,614 and 14,128,614 shares issued as of July 31, 2009 and January 31, 2009, respectively		14,200			14,100
Additional paid-in-capital		25,404,300			25,067,600
Accumulated deficit		(12,516,800	)		(12,497,900	)
Less treasury stock, at cost, 100,148 and 98,080 shares, respectively		(303,400	)		(301,900	)

Total stockholders’ equity		12,598,300			12,281,900

	$	14,099,200		$	13,853,900

See notes to condensed financial statements.

MEDICAL NUTRITION USA, INC.

CONDENSED STATEMENTS OF OPERATIONS


	SIX MONTHS ENDED JULY 31,						THREE MONTHS ENDED JULY 31,

	2009			2008			2009		2008

	(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)
Sales	$	7,551,800		$	6,636,500		$	4,124,100	$	3,326,900
Cost of sales		3,562,800			3,103,100			1,953,300		1,562,900

Gross profit		3,989,000			3,533,400			2,170,800		1,764,000

Selling, general and administrative expenses		3,818,400			3,999,200			1,959,700		2,061,800

Research and development		177,800			51,500			30,700		—


Operating (loss) income		(7,200	)		(517,300	)		180,400		(297,800	)


Interest income		78,000			121,800			40,500		52,900


Income (loss) income before income taxes		70,800			(395,500	)		222,900		(244,900	)

Income tax expense (benefit)		89,700			(90,400	)		95,900		(61,200	)


Net (loss) income	$	(18,900	)	$	(305,100	)	$	125,000	$	(183,700	)


(Loss) earnings per common share:
Basic	$	(0.00	)	$	(0.02	)	$	0.01	$	(0.01	)


Diluted		(0.00	)	$	(0.02	)	$	0.01	$	(0.01	)


Weighted average common shares outstanding
Basic		13,945,385			13,931,496			13,945,682		13,889,399


Diluted		13,945,385			13,931,496			14,111,589		13,889,399

See notes to condensed financial statements.

MEDICAL NUTRITION USA, INC.

CONDENSED STATEMENTS OF CASH FLOWS


	SIX MONTHS ENDED JULY 31,

	2009			2008

	(unaudited)			(unaudited)

Operating Activities:
Net loss	$	(18,900	)	$	(305,100	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense		94,200			71,900
Provision for (recovery) losses on accounts receivable		(19,400	)		4,500
Deferred income tax (benefit) expense		89,100			(121,700	)
Stock based compensation		336,800			575,500
Changes in operating assets and liabilities
Accounts receivable		(23,000	)		(12,400	)
Inventories		(116,600	)		(60,200	)
Prepaid income taxes		(1,100	)		219,700
Other current assets		95,700			(47,000	)
Accounts payable		275,300			122,100
Accrued expenses		(326,300	)		70,500
Accrued rebates		(19,400	)		(14,100	)


Net cash provided by operating activities		366,400			503,700


Investing Activities:
Acquisition of fixed assets		(56,400	)		(101,500	)
Trademark costs		(6,200	)		(21,000	)
Capitalized patent costs		(9,900	)		(19,800	)
Website development costs		(1,200	)		—
Purchase of short term investments		—			(61,600	)


Net cash used in investing activities		(73,700	)		(203,900	)


Financing Activities:
Income tax benefit from exercise of stock options		—			29,500
Stock repurchase plan		—			(814,300	)
Purchase of treasury stock		(1,500	)		(4,300	)
Proceeds from exercise of stock options		—			29,300


Net cash used in financing activities		(1,500	)		(759,800	)


Net increase (decrease) in cash		291,200			(460,000	)
Cash - beginning of period		9,654,300			5,208,000


Cash - end of period	$	9,945,500		$	4,748,000


Supplemental information:
Taxes paid during the period	$	4,500		$	3,900

See notes to condensed financial statements.

MEDICAL NUTRITION USA, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JULY 31, 2009 (UNAUDITED)


																		Total Stockholders’ Equity
	Common Stock					Additional			Accumulated			Treasury Stock

	Shares			Amount		Paid-in-capital			Deficit			Shares			Amount

Balance at January 31, 2009		14,030,534		$	14,100	$	25,067,600		$	(12,497,900	)		(98,080	)	$	(301,900	)	$	12,281,900

Restricted stock		70,000			100		—			—			—			—			100

Purchase of treasury stock		(2,068	)		—		(100	)		—			(2,068	)		(1,500	)		(1,600	)

Stock based compensation		—			—		336,800			—			—			—			336,800

Net loss		—			—		—			(18,900	)		—			—			(18,900	)

Balance at July 31, 2009		14,098,466		$	14,200	$	25,404,300		$	(12,516,800	)		(100,148	)	$	(303,400	)	$	12,598,300

See notes to condensed financial statements.

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 1. Organization and Business :

Medical Nutrition USA, Inc. (a Delaware Corporation) (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.

The accompanying unaudited condensed financial statements of Medical Nutrition USA, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these unaudited condensed financial statements do not include all of the information and notes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month period ending July 31, 2009 are not necessarily indicative of the results that may be expected for the current fiscal year ending January 31, 2010 or for any future period. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, these unaudited condensed financial statements should be read in conjunction with the financial statements and the notes included in the Company’s Annual Report on Form-10K for the fiscal year ended January 31, 2009.

Note 2. Significant Accounting Policies :

Concentration of credit risk - The Company maintains the majority of its cash and cash equivalents in two financial institutions. The balances, at times, may exceed federally insured limits. The Company does not expect material losses with respect to its investment portfolio or exposure to market risks associated with interest rates. At July 31, 2009, the Company had approximately $9.7 million in excess of FDIC insured limits.

The other financial component, which principally subjects the Company to significant concentrations of credit risk, is trade accounts receivable.

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.

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 change in the future should historical trends or current account status require.

MEDICAL NUTRITION USA, INC.
NOTES TO CONSDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 2. Significant Accounting Policies (continued) :

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 their 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.

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 5 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 5 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 No. 109 (SFAS 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 collectability is reasonably assured. Revenue from product sales is recognized upon shipment of products to customers.

Share based compensation – The Company accounts for stock based compensation plans under SFAS No.123 (revised 2004). “Share-Based Payment,” (“SFAS No. 123R”). SFAS No. 123R addresses the accounting for share 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 transaction be accounted for using a fair value based method. Stock-based compensation expense is generally recognized ratably over the requisite service period. Total share-based compensation expense recorded as selling, general and administrative expenses in the condensed statements of operations for the three months ended July 31, 2009 and 2008 was $184,700 and $289,700, respectively. Total share-based compensation for the six months ended July 31, 2009 and 2008 was $336,800 and $575,500, respectively.

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 2. Significant Accounting Policies (continued):

Earnings per share – The Company’s financial statements are presented in accordance with Statement of Financial Accounting Standards No. 128 (SFAS 128), “Earnings Per Share.” Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period.

Diluted 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 three months ended July 31, 2009, 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 was 2,464,284.

Basic EPS is computed by dividing net 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. A reconciliation of the numerators and denominators of basic and diluted per share computations follows:


	Six months ended July 31,						Three months ended July 31,
	2009			2008			2009		2008

Numerator:
Net (loss) income	$	(18,900	)	$	(305,100	)	$	125,000	$	(183,700	)
Denominator:
Weighted average common shares (Basic)		13,945,385			13,931,496			13,945,682		13,889,399

Dilutive effect of outstanding options and nonvested shares of restricted stock		—			—			165,907		—


Weighted average common shares including assumed conversions (Diluted)		13,945,385			13,931,496			14,111,589		13,889,399


Basic net (loss) income per share	$	(0.00	)	$	(0.02	)	$	0.01	$	(0.01	)
Diluted net (loss) income per share	$	(0.00	)	$	(0.02	)	$	0.01	$	(0.01	)

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 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 State 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 allowance for doubtful accounts related to accounts receivable. Actual results could differ from those estimates.

Recent Pronouncements - 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. The adoption of this pronouncement did not have a material impact on the Company’s 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. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

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. The adoption of this pronouncement did not have a material impact on the Company’s 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. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 2. Significant Accounting Policies (continued) :

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. The adoption of this pronouncement did not have a material impact on the Company’s 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 adoption of this pronouncement did not have a material impact on the Company’s financial statements.

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. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. This standard was effective for the quarter ended July 31, 2009. The adoption of this pronouncement did not have a material impact on the Company’s financial statements. The Company evaluated all events or transactions that occurred from July 31, 2009 to September 11, 2009, the date the Company issued these financial statements. During this period the Company did not have any material recognizable or non-recognizable subsequent events.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification™ as the source of authoritative accounting and reporting standards recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States. Rules and interpretive releases of the Securities and Exchange Commission (SEC) are also sources of authoritative GAAP for SEC registrants. SFAS 168 is not intended to create new accounting and reporting guidance but rather to organize and simplify existing authoritative literature. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009, which for us is our quarter ending October 31, 2009. We do not expect the adoption of SFAS 168 to have a material impact on our consolidated financial statements.

Note 3. Fixed Assets :

Fixed assets consisted of the following at July 31, 2009 and January 31, 2009, respectively:


	July 31, 2009		January 31, 2009


Furniture, fixtures and equipment	$	670,200	$	613,800
Leasehold improvements		50,400		50,400


		720,600		664,200
Less: Accumulated depreciation and amortization		406,900		345,400


	$	313,700	$	318,800

Depreciation and amortization expense was $31,800 and $22,800 for the three months ended July 31, 2009 and 2008, respectively. Depreciation and amortization expense was $60,900 and $42,700 for the six months ended July 31, 2009 and 2008, respectively.

Note 4. Intangible Assets :

Intangible assets consisted of the following at July 31, 2009 and January 31, 2009, respectively:


	July 31, 2009		January 31, 2009


Patent application and other deferred costs	$	302,400	$	292,500

Trademarks		119,400		113,300

Website development costs		22,100		20,900


		443,900		426,700

Less accumulated amortization		183,200		149,900


	$	260,700	$	276,800

Intangible amortization expense was $16,700 and $14,300 for the three months ended July 31, 2009 and 2008, respectively. Intangible amortization expense was $33,300 and $29,200 for the six months ended July 31, 2009 and 2008, respectively.

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 5. Major Customer and Major Vendor-Related Party :

Major Customers

For the three months ended July 31, 2009, two distributors accounted for approximately 26% of total revenues, representing $1,095,400 of sales as compared to 27% or $891,600 of sales for the three months ended July 31, 2008 for the same distributors. For the six months ended July 31, 2009, two distributors accounted for approximately 26% of total revenues, representing $2,051,700 of sales as compared to 28% or $1,882,200 of sales for the six months ended July 31, 2008 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 product from alternative distributors.

As of July 31, 2009, these two customers had an aggregate open accounts receivable balance of $254,700 which represented 17% of the Company’s total accounts receivable.

Major Vendor-Related Party

During the three months ended July 31, 2009 and 2008, the Company purchased $1,505,000 and $1,199,300, respectively, of finished goods from Organics Corporation of America (“Organics”), an approximate 1% shareholder of the Company, under a supply agreement. As of July 31, 2009, the Company had an accounts payable balance with Organics of $516,500. During the six months ended July 31, 2009 and 2008, the Company purchased $2,657,400 and $2,333,600, respectively, of finished goods from Organics. The Company owns approximately 5% of the outstanding stock of Organics.

Note 6. Stockholders’ Equity :

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. At July 31, 2009, no stock option grants were outstanding under the 2000 Plan.

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 6. Stockholders’ Equity (continued) :

2003 Omnibus Equity Incentive Plan

Effective as of April 22, 2003, the Board of Directors (the “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 July 31, 2009, 2,534,284 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 under the 2003 Plan to continuing outside directors 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 under the 2003 Plan to each chairman of a Board committee to 5,000 common shares. The Board also approved the restatement of the 2003 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 2003 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 July 31, 2009, which were issued prior to January 31, 2003 and not pursuant to any formal plan.

A summary of option activity during the six months ended July 31, 2009 is presented below:


	Options			Weighted Average exercise price


Outstanding at January 31, 2009		2,809,284		$	2.39


Granted		—			—
Exercised		—			—
Expired or Surrendered		(75,000	)		4.05


Outstanding at July 31, 2009		2,734,284		$	2.39

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 6. Stockholders’ Equity (continued):

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. The tax benefit realized on the tax deductions from option exercises under stock-based compensation arrangements was $0.

For the three and six months ended July 31, 2008, the Company has estimated the fair value of each option award on the date of grant using the Black-Scholes model. For the three and six months ended July 31, 2008, 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. The Company did not grant stock options during the three and six months ended July 31, 2009.

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 quarter and six months ended July 31, 2009 and 2008:


	Three months ended						Six months ended
	July 31, 2009			July 31, 2008			July 31, 2009			July 31, 2008


Expected term until exercised, years		—			6			—			6
Expected stock price volatility, average		—	%		106	%		—	%		106	%
Risk-free interest rate		—	%		3.9	%		—	%		3.9	%
Expected dividend yield		—			0			—			0
Weighted-average fair value per option	$	—		$	2.38		$	—		$	2.38

Restricted Stock Awards

The following table summarizes the status of restricted stock as of July 31, 2009, and changes during the six months then ended:


	Shares			Weighted Average Grant Date Fair Value


Nonvested at January 31, 2009		373,333		$	2.90
Granted		70,000			1.66
Vested		(3,333	)		4.40
Forfeited		(47,500	)		3.68


Nonvested at July 31, 2009		392,500		$	2.57

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 7. Income Taxes:

The components of the provision for income taxes consist of the following:


	Six Months Ended July 31, 2009		Six Months Ended July 31, 2008


Current - Federal	$	—	$	—
Current - State		700		1,900
Deferred - Federal		76,500		(85,100	)
Deferred - State		12,500		(7,200	)


Income tax (benefit) expense	$	89,700	$	(90,400	)

Income tax (benefit) 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.


	Six Months Ended July 31, 2009			Six Months Ended July 31, 2008


Statutory Federal income tax rate		34.0	%		(34.0	)%
State taxes, net of Federal benefit		6.1	%		(2.5	)%
Permanent difference		6.0	%		1.6	%
Stock based compensation		75.3	%		10.7	%
Other		5.3	%		1.4	%


Effective income tax rate		126.7	%		(22.8	)%

The increase in the effective income tax rate for the six months ended July 31, 2009 as compared to the six months ended July 31, 2008 is primarily due to stock based compensation as it relates to the write off of certain deferred tax assets in connection with the vesting of restricted shares.

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.

The Company has Federal income tax loss carryforwards as of July 31, 2009 of approximately $2,454,400. The Federal Net Operating Loss (“NOL”) carryforwards expire beginning in 2020 and will be fully expired during 2025.

Effective January 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 which is more than fifty percent likely of being realized upon ultimate settlement. The interpretation also provides guidance on derecognition, classification, interest and penalties, and other matters. The adoption of this pronouncement did not have a material effect on the financial statements.

The tax years 2005-2008 remain open to examination by the major taxing jurisdictions to which we are subject.

MEDICAL NUTRITION USA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2009

Note 8. Commitments and Contingencies :

Lease Commitments

The Company leases an office and warehouse facility in New Jersey under a lease, which expires in December 2012. Total rent expense for the three months ended July 31, 2009 and 2008 was $30,800 and $29,700, respectively. Total rent expense for the six months ended July 31, 2009 and 2008 was $61,700 and $63,100, respectively.

The future minimum lease payments are as follow:


Years Ended January 31,

2010	$	43,700
2011		84,500
2012		86,400
2013		80,800


	$	295,400

The Company leases vehicles and equipment under various operating leases expiring through 2012. During the three months ended July 31, 2009 and 2008, the total payments under such leases were $3,600 and $3,700, respectively. During the six months ended July 31, 2009 and 2008, the total payments under such leases were $7,400.

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.

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 three months ended July 31, 2009 and 2008, the Company expensed $42,100 and $90,000 in bonuses based on this plan, respectively. For the six months ended July 31, 2009 and 2008, the Company expensed $130,100 and $195,400 in bonuses based on this plan, respectively.

Note 9. 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 three months ended July 31, 2009 and 2008, the 401(k) expense was $21,200 and 22,700, respectively. For the six months ended July 31, 2009 and 2008, the 401(k) expenses were $45,000 and $42,000, respectively. The 401(k) expense is included in selling, general and administrative expenses.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present the Company’s estimates and assumptions only as of the date of this report. The Company does not intend, and undertakes no obligation, to update any forward-looking statements.

Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company’s forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

For a detailed description of factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Risk Factors” in Item 1A-Risk Factors, of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009.

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.

Three Months Ended July 31, 2009 Compared to Three Months Ended July 31, 2008

Sales for the three months ended July 31, 2009 were $4,124,100 as compared with $3,326,900 for the three months ended July 31, 2008, an increase of $797,200 or 24%. This increase was primarily attributable to an increase in branded product sales offset by a decrease in non branded sales. Branded product sales increased by approximately $696,800 or 23% to $3,799,400 for the three months ended July 31, 2009, as compared to $3,102,600 for the three months ended July 31, 2008. The Company had a 20% increase in branded product unit sales for the three months ended July 31, 2009 as compared to the three months ended July 31, 2008. The majority of the Company’s branded product sales were from formulations of hydrolyzed collagen. Non branded sales increased by $100,400 or 45%, to approximately $324,700 for the three months ended July 31, 2009, as compared to $224,300 for the three months ended July 31, 2008.

Cost of sales for the three months ended July 31, 2009 was $1,953,300 or 47% of sales, as compared with $1,562,900 for the three months ended July 31, 2008, or 47% of sales. Gross profit percentage was 53% for both periods primarily due to the increased sales of higher margin branded products and the Company’s continuous efforts to control product costs.

Selling, general and administrative expenses for the three months ended July 31, 2009, decreased by $102,100 to $1,959,700 from $2,061,800 for the three months ended July 31, 2008. This decrease was primarily attributable to a decrease in selling and marketing personnel costs and a decrease in retail marketing development expenses.

Research and development expenses for the three months ended July 31, 2009 increased by $30,700 to $30,700 from $0 for the three months ended July 31, 2008. The increase is primarily due to the timing of certain clinical studies.

For the three months ended July 31, 2009, the Company had operating income of $180,400 as compared to operating loss of $297,800 for the three months ended July 31, 2008. The increase in operating income is primarily due to higher branded sales and a decrease in selling, general and administrative expenses, as discussed previously.

Interest income was $40,500 for the three months ended July 31, 2009, compared to $52,900 for the three months ended July 31, 2008. The decrease is due to reduced interest rates.

The Company recorded a tax expense of $95,900 for the three months ended July 31, 2009 compared to a tax benefit of $61,200 for the three months ended July 31, 2008. For tax purposes, the Company’s income is calculated prior to certain GAAP charges for stock-based compensation, which are not tax deductible.

The Company’s net income for the three months ended July 31, 2009 was $125,000, or $0.01 per share, compared to a net loss for the three months ended July 31, 2008 of $183,700 or $(0.01) per share. The increase in income is due to the reasons described above.

Six Months Ended July 31, 2009 Compared to Six Months Ended July 31, 2008

Sales for the six months ended July 31, 2009 were $7,551,800 as compared with $6,636,500 for the six months ended July 31, 2008, an increase of $915,300 or 14%. This increase was primarily attributable to an increase in branded product sales of approximately 15% to $6,911,800 from $5,995,100. The Company had a 15% increase in branded product unit sales for the six months ended July 31, 2009 as compared to the six months ended July 31, 2008. The majority of the Company’s branded product sales were from formulations of hydrolyzed collagen. Non branded sales decreased by $1,500 to approximately $640,000 for the six months ended July 31, 2009 from $641,500 for the six months ended July 31, 2008.

Cost of sales for the six months ended July 31, 2009 was $3,562,800 or 47% of sales, as compared with $3,103,100 for the six months ended July 31, 2008, or 47% of sales. Gross profit percentage was 53% for both periods primarily due to the increased sales of higher margin branded products and the Company’s continuous efforts to control product costs.

Selling, general and administrative expenses for the six months ended July 31, 2009, decreased by $180,800 to $3,818,400, from $3,999,200 for the six months ended July 31, 2008. This decrease was primarily attributable to a decrease in stock based compensation expense, a decrease in tradeshow costs, offset by an increase in general and administrative personnel costs.

Research and development expenses for the six months ended July 31, 2009 increased by $126,300 to $177,800 from $51,500 for the six months ended July 31, 2008. The increase is primarily due to the timing of certain clinical studies.

For the six months ended July 31, 2009, the Company had an operating loss of $7,200 as compared to an operating loss of $517,300 for the six months ended July 31, 2008. The decrease in operating income is due to the reasons described above.

Interest income was $78,000 for the six months ended July 31, 2009, compared to $121,800 in the prior period. The decrease is due to reduced interest rates.

The Company recorded a tax expense of $89,700 for the six months ended July 31, 2009 at an effective rate of 126.7%, compared to a tax benefit of $90,400 at am effective rate of (22.8)%, for the six months ended July 31, 2008. For tax purposes, the Company’s income is calculated prior to certain GAAP charges for stock-based compensation, which is not tax deductible. The Company had a net deferred tax asset of $1,286,400 and $1,479,400 as of July 31, 2009 and 2008, respectively, resulting from previous net operating losses, which will be applied against income taxes due.

The Company’s net loss for the six months ended July 31, 2009 was $18,900 or $(0.00) per share, compared to a net loss for the six months ended July 31, 2008 of $305,100 or $(0.02) per share. The increase in income is due to the reasons described above.

Liquidity and Capital Resources

At July 31, 2009, the Company had cash, cash equivalents and short term investments of $9,945,500 as compared to $9,654,300 at January 31, 2009. At July 31, 2009, approximately 99% of accounts receivable were less than 30 days past due. Cash provided by operations during the six months ended July 31, 2009 was $366,400 as compared to cash provided by operations of $503,700 for the six months ended July 31, 2008. The decrease in cash provided by operations is primarily due to a federal tax refund received in the six months ended July 31, 2008 of approximately $200,000, higher bonus payments paid in the six months ended July 31, 2009 related to prior year bonus accruals of approximately $144,000, offset by higher income provided by operations.

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 potential expansion into retail markets, 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 the Company’s operations.

Off-Balance Sheet Arrangements

As of July 31, 2009, the Company did not have any off-balance sheet financing arrangements or any equity interests in any variable entity or other minority owned ventures.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Cash and cash equivalents at July 31, 2009 totaled $9.9 million. These amounts are primarily invested in money market accounts. 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 fair value of our investment portfolio or related income would not be significantly impacted by changes in interest rates due mainly to the short-term nature of our investment portfolio.

ITEM 4T. 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, as amended, (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 July 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 fiscal quarter ended July 31, 2009 and have concluded that no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 5. Other Information

The effect of general economic conditions and the current financial crisis

Recent distress in the financial markets has resulted in declines in institutional spending, which can affect demand for the Company’s products. Healthcare institutions are exhibiting more stringent cost concerns and implementing aggressive cost reductions. If the national economy or credit markets in general were to deteriorate further, it is possible that such changes could put negative pressure on our customers, affecting our cash flows. There can be no assurance that our liquidity will not be affected by changes in the financial markets and the global economy.

While we do not anticipate that we will need additional financing or equity during the next fiscal year, tightening of the credit markets could make it more difficult for us to enter into agreements for new indebtedness or obtain funding through the issuance of our securities. The effects of these changes could also require us to make additional changes to our current plans and strategy.

In addition, the current credit crisis is having a significant negative impact on businesses around the world, and the impact of this crisis on our major raw material suppliers cannot be predicted. The inability of key suppliers to access liquidity, or the insolvency of key suppliers, could lead to their failure to deliver products or services. If we are unable to procure products and services when needed, or if we experience deterioration in demand for our products over an extended period of time, our sales and cash flows could be negatively impacted in future periods.

ITEM 6. Exhibits


	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

	32.1	Certification of Periodic Financial Reports by the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.