News Column

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

August 14, 2014

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Pursuant To "Safe Harbor" Provisions Of Section 21e Of The Securities Exchange Act Of 1934

Except for historical information, the Company's reports to the Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements. These risks and uncertainties include general economic and business conditions, development and market acceptance of the Company's products, current dependence on the willingness of investors to continue to fund operations of the Company and other risks and uncertainties identified in the risk factors discussed below and in the Company's other reports to the Securities and Exchange Commission, periodic press releases, or other public documents or statements.

Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

Results of Operations for the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013:

Total revenues generated from the sales of Surgex™, Bikini Ready®, SlimTrim™ and Martha Stewart Essentials™ for the quarter ended June 30, 2014 totaled $523,615 an increase of 685% from the quarter ended June 30, 2013 which totaled $66,667. The primary reason for the increase was due to the Company's distribution of Martha Stewart Essentials and the newly formulated Surgex brand along with the introduction of Bikini Ready and SlimTrim to the retailers during the quarter ended June 30, 2014. The introduction of these brands continues to show growth into the third quarter of 2014.

At this stage in the Company's development, revenues are not yet sufficient to cover ongoing operating expenses.

Gross profit for the quarter ended June 30, 2014 amounted to $213,178 for a 41% gross margin. Gross profit increased $196,986 or 1,217% for the quarter ended June 30, 2014 compared to $16,192 for the quarter ended June 30, 2013. The increase in gross profit is a result of higher sales in the quarter ended June 30, 2014.

After research and development cost and selling, general and administrative expenses of $1,564,032, the Company realized an operating loss of $1,350,854 for the quarter ended June 30, 2014. Operating losses of $1,350,854 increased $500,259 or 59% as compared to the first quarter of 2013 operating loss of $850,595. The majority of the increase was due to the increase in promotion and royalty for the launch of the various products into the retail in the amount of $477,384. Additional employees were hired to support the infrastructure of the business in addition to stock awards in the amount of $66,225. There was a reduction in other professional fees in the amount of $56,304.

Non-operating expenses totaled $108,167 for the quarter ended June 30, 2014 an increase of 233% or $189,769 as compared to income of $81,602 for the quarter ended June 30, 2013. The increase in non-operating expenses of $189,769 was due to the decrease in accretion of debt discount in the amount of $9,428 and an increase in gain associated with the fair value of the derivative instruments issued with the convertible debt in the amount of $507,000. There was an increase in interest expense of $282,468 due to more debt outstanding. There was an decrease in the gain on extinguishment of debt in the amount of $44,191 compared to the quarter ended June 30, 2013.

15



The net result for the quarter ended June 30, 2014 was a loss of $1,564,212 or $0.02 per share which included a preferred dividend on the Series G stock in the amount of $321,525, compared to a loss of $1,234,697 or $0.02 per share for the second quarter of 2013. The net loss for the second quarter of 2014 increased by $329,515 or 27% as compared to the second quarter of 2013, primarily due to an increase in selling, general and administrative expenses and increased interest expense due to additional debt outstanding. Management will continue to make an effort to lower operating expenses and increase revenue. The Company will continue to invest in further expanding its operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting the name and products of the Company. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects them to significantly decrease as a percentage of revenues as revenues increase.

Results of Operations for the six months ended June 30, 2014 compared to the six months ended June 30, 2013:

Total revenues generated from the sales of Surgex™, Bikini Ready®, SlimTrim™ and Martha Stewart Essentials™ for the six months ended June 30, 2014 totaled $1,003,417 an increase of 1,266% from the six months ended June 30, 2013 which totaled $73,442. The primary reason for the increase was due to the Company's distribution of Martha Stewart Essentials and the newly formulated Surgex brand along with the introduction of Bikini Ready and SlimTrim to the retailers during the six months ended June 30, 2014. The introduction of these brands continues to show growth into the third quarter of 2014.

At this stage in the Company's development, revenues are not yet sufficient to cover ongoing operating expenses.

Gross profit for the six months ended June 30, 2014 amounted to $330,377 for a 33% gross margin. Gross profit increased $312,180 or 1,716% for the six months ended June 30, 2014 compared to $18,197 for the six months ended June 30, 2013. The increase in gross profit is a result of higher sales in the six months ended June 30, 2014.

After research and development cost and selling, general and administrative expenses of $4,709,160, the Company realized an operating loss of $4,378,783 for the six months ended June 30, 2014. Operating losses of $4,378,783 increased $2,240,486 or 95% as compared to the first six months of 2013 operating loss of $2,240,486. The majority of the increase was due to the increase in promotion and royalty for the launch of the various products into the retail in the amount of $1,358,041. Additional employees were hired to support the infrastructure of the business in addition to stock awards in the amount of $1,050,387. There was a reduction in other professional fees in the amount of $45,409.

Non-operating expenses totaled $1,390,965 for the six months ended June 30, 2014 an increase of 414% or $1,120,502 as compared to $270,463 for the six months ended June 30, 2013. The increase in non-operating expenses of $1,120,502 was due to the increase in accretion of debt discount in the amount of $86,871 and an increase in loss associated with the fair value of the derivative instruments issued with the convertible debt in the amount of $436,000. There was an increase in interest expense of $569,031 due to more debt outstanding. There was a decrease in the gain on extinguishment of debt in the amount of $28,600 compared to the six months ended June 30, 2013.

The net result for the six months ended June 30, 2014 was a loss of $6,349,711 or $0.09 per share which included a preferred dividend on the Series G stock in the amount of $579,963, compared to a loss of $3,258,848 or $0.06 per share for the six months of 2013. The net loss for the six months of 2014 increased by $3,090,863 or 95% as compared to the six months of 2013, primarily due to an increase in selling, general and administrative expenses and accretion of debt discount, increase loss of derivatives and increased interest expense due to additional debt outstanding. Management will continue to make an effort to lower operating expenses and increase revenue. The Company will continue to invest in further expanding its operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting the name and products of the Company. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects them to significantly decrease as a percentage of revenues as revenues increase.

16



Disclosure About Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Critical Accounting Estimates



Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this report.

Liquidity and Capital Resources

The Company's future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating, cash flow positive company. The Company has been operating with negative cash flows for the past 13 years.

The Company incurred substantial net losses for the six months ended June 30, 2014 and the year ended December 31, 2014 and has accumulated a deficit of $90,506,748 at June 30, 2014. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company has never reported Net Income.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.

The Company's business operations generally have been financed by debt investments through promissory notes with accredited investors. During the six months of 2014, the Company obtained new debt from the issuance of promissory notes that supplied the funds that were needed to finance operations during the reporting period. The new issuance of debt requires conversion of existing debt which may not be able to convert on favorable terms. Such new borrowings resulted in the receipt by the Company of $1,495,030. While these funds sufficed to compensate for the negative cash flow from operations they were not sufficient to build up a liquidity reserve. As a result, the Company's financial position at the end of the reporting period showed a working capital deficit of $9,899,294. During the first six months of 2014 the Company obtained new financing sufficient to fund ongoing working capital requirements. We need to continue to raise funds to cover working capital requirements until we are able to raise revenues to a point of positive cash flow.

The Company entered into a license agreement with minimum royalty payments totaling $1,800,000, $2,100,000, $2,700,000, $3,200,000 and $3,800,000 for each of the years ended 2014, 2015, 2016, 2017 and 2018, respectively. $1,350,000 was paid as of June 30, 2014. Total royalties due through June 30, 2014 of $1,350,000 are to be paid quarterly on the first day of the quarter commencing April 1, 2014.

17



During the third quarter, the Company was not able to make the payment that was due July 1, 2014 to Martha Stewart Living Omnimedia pursuant to our license agreement. While we are in discussions to work out terms of payment, we most likely will need to raise additional funds to meet our obligations under the license agreement.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters