HEALTHIENT, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR PLAN OF OPERATION
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD-LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND THE
FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING,
CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE
COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES
INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF ANY
SUCH STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY
OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
The following Management's Discussion and Analysis should be read in conjunction
with Management's Discussion and Analysis included in our Annual Report on Form
10-K for the year ended June 30, 2012 filed with the Securities and Exchange
Commission ("SEC"), and our other filings, including Current Reports on Form
8-K, filed with the SEC through the date of this report.
We are a network marketing company that sells healthy snacks and beverage mixes.
We pursue our mission of helping people achieve personal success by providing a
financially rewarding business opportunity to brand partners and great tasting
products to brand partners and customers who seek a healthy lifestyle.
We believe the direct-selling channel is ideally suited to marketing our
products because sales of weight management and nutrition products are
strengthened by ongoing personal contact between retail consumers and brand
partners. This personal contact may enhance consumers' nutritional and health
education as well as motivate consumers to begin and maintain wellness and
weight management programs. In addition, many of our brand partners use our
products themselves, and can therefore provide first-hand testimonials of our
products to consumers, which often serve as a powerful sales tool.
We are focused on building and maintaining our brand partner network by offering
financially rewarding and flexible career opportunities through sales of great
tasting, "better for you" snacks to health conscious consumers. We believe the
income opportunity provided by our network marketing program appeals to a broad
cross-section of people throughout the world, particularly those seeking to
supplement their family incomes, start a home business or pursue
entrepreneurial, full and part-time, employment opportunities.
Our brand partners, who are independent contractors, can profit from selling our
products and can also earn bonuses on sales made by the other brand partners
whom they recruit to join their sales organizations. We enable our brand
partners to maximize their potential by providing a broad array of motivational,
educational and support services. We motivate our brand partners through our
performance-based compensation plan, individual recognition, reward programs and
promotions, and participation in local and national company- sponsored sales
events. We are committed to providing professionally designed educational
training materials that our brand partners can use to enhance recruitment and
maximize their sales. We and our brand partner leadership conduct thousands of
training sessions each year to educate and motivate our brand partners. These
training events teach our brand partners not only how to develop invaluable
business building and leadership skills, but also how to differentiate our
products to consumers.
Our corporate sponsored training events provide a forum for brand partners, who
otherwise operate independently, to share ideas with each other. In addition, we
operate a web-based brand partner back-office, which delivers educational,
motivational and inspirational content to our brand partners. We plan to further
aid our brand partners by generating additional demand for our products through
traditional marketing and public relations activities, such as radio and
television ads, sporting event sponsorships and endorsements.
We believe that our success stems from our ability to motivate our brand partner
network through our marketing plan and provide brand partners with a unique go
to market strategy that supports sustainable daily consumption of our great
tasting snacks and beverages that appeal to consumer preferences for healthy
lifestyles. Our goal is to achieve sustained and profitable growth by
capitalizing on the following competitive strengths:
Brand Partner Base
Our brand partners can be segmented into three general categories based on their
product order patterns: discount buyers, small retailers and potential sales
leaders. We define discount buyers as customers who have signed up as brand
partners to enjoy a discount on their purchases; small retailers as product
users and sales people who generate modest sales to friends and family; and
potential sales leaders who are proactively developing a business with the
intention of building full-time careers. The marketing plan encourages active
participation in the business including building down-line sales organizations
of their own, which can serve to increase their income and increase our product
sales. Sales leaders, our top brand partners, contribute significantly to our
We are committed to building brand partner, customer and brand loyalty by
providing a diverse portfolio of healthy snacks and beverages. The breadth of
our product offerings enables our brand partners to sell a comprehensive package
of products designed to simplify weight management and nutrition. We plan to
continue to introduce new products annually and rigorously review, and if
necessary, improve our product formulations, based upon developments in
nutritional science. We believe that the variety in our product portfolio
significantly enhances our brand partners' ability to build their businesses.
Scalable Business Model
Our business model enables us to grow our business with only moderate investment
in our infrastructure and other fixed costs. We require no Company-employed
sales force to market and sell our products. We incur no direct incremental cost
to add a new brand partner in our existing markets, and our brand partner
compensation varies directly with sales. In addition, our brand partners bear
the majority of our consumer marketing expenses, and sales leaders sponsor and
coordinate a large share of brand partner recruiting and training initiatives.
We have the ability to establish our network marketing organization in new
markets. While sales within local markets may fluctuate due to economic, market
and regulatory conditions, competitive pressures, political and social
instability or for Company specific reasons, we believe that expanding our
geographic diversity will mitigate our financial exposure to any particular
market. We currently operate within the United States and plan to open two new
markets during 2012 and our strategic plan includes a goal of opening four new
markets during 2013.
Our Business Strategy
We believe that our network-marketing business model is the most effective way
to sell our products. Our objective is to increase the recruitment, retention,
retailing and productivity of our brand partner base by pursuing the following
We are committed to providing our brand partners with great tasting, healthy
snacks and beverage mixes to help them increase sales and recruit new brand
partners. Our product development is focused on two principal categories and
that capitalize on the growing trends of obesity and anti-aging: weight
management & energy and sports fitness. On an ongoing basis, we will augment our
product portfolio with additional products and, as appropriate, will bundle
products addressing similar health concerns into packages and programs.
To better support brand partners, we will expand our product packaging to
provide individual serving sizes for portion control and convenience, as well as
larger party or family sizes of our top selling products. Additionally, each
year we plan to launch products and/or programs, coupled with our major events,
to generate continued excitement among our brand partners. These product
launches will generally target specific market segments deemed strategic to us
that support our focus on driving daily consumption.
Brand Partner Strategy
We will continue to increase our investment in events and promotions, both in
absolute dollars and as a percent of net sales, as a catalyst to help our brand
partners improve the effectiveness and productivity of their businesses. We work
with our brand partner leaders to globalize best-practice business methods which
enable our brand partners to improve their penetration in existing markets.
These business methods will include: healthy snack clubs, weight loss
challenges, and internet/sampling.
We are implementing an enterprise-wide technology solution, with a scalable and
stable open architecture platform, to enhance our efficiency and productivity as
well as that of our brand partners. In addition, we are upgrading our
Internet-based marketing and brand partner services platform.
Our products are designed to help people achieve and maintain their healthy
weight, improve their health and experience life-changing results. Our snacks
and beverages appeal to the growing base of consumers seeking differentiated
products and desiring a healthier lifestyle.
We market and sell products through our brand partners. Our products may often
be sold as part of a program, and therefore our portfolio is comprised of a
series of related products designed to simplify weight management and nutrition
for our consumers and maximize our brand partners' cross-selling opportunities.
These programs target specific consumer market segments, such as women, men or
children, as well as weight-management customers and individuals looking to
enhance their overall well being.
The following information summarizes our products by product category.
Weight Management & Energy, Sports &Fitness
Smart Shake, CrispyFruit, LoliBars, RealFruit, Lite Natural Microwave Mini
Popcorn, Multigrain Pretzel Nuggets, LoliCrunch, Low-Sodium Mini-Twist Pretzels,
and Zing! Healthy Energy Drink Mix.
Literature, Promotional and Other Products
We sell promotional materials designed to support our brand partners' marketing
efforts, as well as a Premium Marketing Program that includes retail websites
for our brand partners to enhance the online experience and improve their
We are committed to providing our brand partners with delicious healthy snacks
and beverage mixes to help them increase recruitment, retention and retailing.
We believe this can be best accomplished in part by introducing new products and
by upgrading, reformulating and repackaging existing product lines.
Once a particular market opportunity has been identified, our marketing and sale
steams work closely with brand partners to effect a successful development and
launch of the product. Our research and development is performed by in-house
staff and outside consultants. For all periods presented, research and
development costs were expensed as incurred and were not material.
A new product development process was deployed to accelerate the introduction of
new products and to improve the launch of products. The process consists of five
stages: identification, feasibility assessment, development launch and learn.
New product ideas are generated and narrowed down to high potential ideas that
fill our business needs and conform to our overall strategy. We test the most
promising ideas with brand partners and customers. This testing is followed by a
feasibility assessment, which includes a review of product and package
prototypes, product positioning and messaging, process design and analysis of
The next stage is the development phase in which we finalize the formula,
process, manufacturing strategy, product positioning, pricing, labeling and
other related matters. The fourth stage is the launch phase in which we prepare
promotional and sales materials, complete the supply chain plan and complete
other final preparations for launch.
After the product is launched, we closely track sales performance and the
lessons learned so we can update and improve the product development process.
Network Marketing Program
Our products are distributed through a network marketing organization comprised
independent brand partners in the United States. In addition to helping our
brand partners achieve physical health and wellness through use of our products,
we offer our brand partners, who are independent contractors, attractive income
opportunities. Brand partners may earn income on their own sales and can also
earn bonuses on sales made by the brand partners in their sales organizations.
We believe that our products are particularly well suited to the network
marketing distribution channel because sales of weight management products are
strengthened by ongoing personal contact and coaching between retail consumers
and brand partners. We believe our continued commitment to developing great
tasting, snacks and beverage mixes will enhance our ability to attract new brand
partners as well as increase the productivity and retention of existing brand
Structure of the Network Marketing Program
To become a brand partner, a person must be sponsored by an existing brand
partner and must pay an annual brand partner fee.
Brand Partner Earnings
Brand partner earnings are derived from several sources. First, brand partners
may earn profits by purchasing our products at wholesale prices, which are
discounted 20% to 50% from suggested retail prices and selling our products to
retail customers or to other brand partners. Second, brand partners who sponsor
other brand partners and establish their own sales organizations may earn
Each brand partner's success is dependent on two primary factors: 1) the time,
effort and commitment a brand partner puts into his or her SnackHealthy business
and 2) the product sales made by a brand partner and his or her sales
Many of our brand partners join SnackHealthy to obtain a discount on our
products and become a discount consumer or have a part-time retail income goal
in mind. This retail income is not tracked by the Company.
Brand Partner Motivation and Training
We believe that motivation and training are key elements in brand partner
success and that our brand partner sales leaders have established a consistent
schedule of events to support these needs. We and our brand partner leadership
will conduct thousands of training sessions annually on local, regional and
national levels to educate and motivate our brand partners. Every month, there
are training seminars held throughout the nation. As we grow in each major
region, we plan to host events that focus on product and business development.
Additionally, once a year, we will host a national event at which our brand
partners can attend to learn about new products, expand their skills and
celebrate their success. In addition to these training sessions, we host weekly
SnackHealthy Webinars that we use to provide brand partners continual training
and the most current product and marketing information.
Manufacturing and Distribution
Our products are manufactured for us by third party manufacturing companies. We
work closely with our vendors in an effort to achieve the highest quality
standards and product availability. We continually strive to establish excellent
relationships with our manufacturers and to obtain improvements in product
quality and product delivery. Some of our key input materials such as whey
proteins and packaging materials are subject to pricing fluctuations driven by
commodities pricing. We are confident that we can offset potential cost
increases of these materials with volume increases in our inventory purchases
and, when necessary, by raising the prices of our products.
In order to coordinate and manage the manufacturing of our products, we will
utilize a demand planning and forecasting process that is directly tied to our
production planning and purchasing systems. Using a planning process allows us
to balance our inventory levels to provide exceptional service to brand partners
while minimizing working capital and inventory obsolescence.
Shipping and processing standards for orders placed are either same day or the
following business day. Products are distributed in the United States market
from our third party warehouse and distribution center in Salt Lake City.
Product Return and Buy-Back Policies
Our products include a customer satisfaction guarantee. Under this guarantee any
customer who is not satisfied with a SnackHealthy product for any reason may
return it unopened or any unopened unused portion of it within 30 days of
purchase to the brand partner from whom it was purchased for a full refund from
the brand partner or credit toward the purchase of another SnackHealthy product.
If they return the products to us on a timely basis, the brand partner may
obtain replacement product from us for such returned products. We believe this
buy-back policy addresses a number of the regulatory compliance issues
pertaining to network marketing.
Management Information, Internet and Telecommunication Systems
In order to facilitate our growth and support brand partner activities, we plan
to continually upgrade our management information, Internet and
telecommunication systems. These systems include: (1) Multiple centralized host
computer systems managed by Exigo Office in Dallas, Texas. These systems are
linked together via a secure wide area network that provides on-line, real-time
access to information, transitioning and reporting; (2) 24 hour order
fulfillment center located in Salt Lake City, Utah linked in real time to our
transitioning systems; (3) Local area networks of personal computers within our
markets, serving our regional administrative staffs; (4) A state of the art
international e-mail system through which our employees communicate; (5) A
standardized Cisco telecommunication system in all of our markets; (6) Internet
websites to provide a variety of online services for brand partners such as
status of qualifications, meeting announcements, product information,
application forms, educational materials and, in select markets including the
United States, sales ordering capabilities.
These systems are designed to provide, among other things, financial and
operating data for management, timely and accurate product ordering, payment
processing, inventory management and detailed brand partner records. We intend
to continue to invest in these systems in order to strengthen our operating
On October 5, 2010, the Company, previously known as Time Associates, a Nevada
corporation acquired all of the issued and outstanding common stock of Snack
Healthy, Inc., previously known as Healthient, Inc., a Nevada
corporation ("Healthient") in exchange for the issuance by the Company of a
total of 43,618,356 newly issued restricted shares of common voting stock to the
Healthient shareholders pursuant the Agreement an Plan of Reorganization dated
as if September 23, 2010 (the "Acquisition"). Prior to the issuance of the
shares, the Company had 160,078 shares of common stock issued and outstanding.
Subsequent to the exchange there were 43,778,434 shares issued and outstanding.
The shareholders of Healthient owned 99.6% of the common stock outstanding of
the Company after the issuance of the 43,618,356 shares. On November 15, 2010
Time Associates, Inc. name was changed to Healthient, Inc.
The acquisition of Healthient by the Company on October 5, 2010 has been
accounted for as a purchase and treated as a reverse acquisition an
re-capitalization since the former owners of Healthient controlled 99.6% of the
total shares of Common Stock of the Company outstanding immediately following
the acquisition. In November 2010, Healthient, Inc. changed its name to
On this basis, the historical financial statements prior to October 5, 2010 have
been restated to be those of the accounting acquirer Healthient (now
SnackHealthy, Inc.). The historical stockholders' equity prior to the reverse
acquisition has been retroactively restated (a re-capitalization) for the
equivalent number of shares received in the acquisition after giving effect to
any difference in par value of the issuer's and acquirer's stock. The original
160,078 shares of common stock outstanding prior to the exchange reorganization
have been reflected as an addition in the stockholders' equity account of the
Company on October 5, 2010.
RESULTS OF OPERATIONS
Our results of operations for the periods below are not necessarily indicative
of results of operations for future periods, which depend on numerous factors,
including our ability to recruit new brand partners and retain existing brand
partners, open new markets, further penetrate existing markets, introduce new
products and programs that will help our brand partners increase their retail
efforts and develop niche markets.
Revenues for the six months ended December 31, 2012 were $153,439 as compared to
$152,115 for the six months ended December 31, 2011. The Company first started
selling product in July of 2011.
Cost of Revenues
Costs of revenues were $83,711 or 54% of sales, which we expect to improve upon.
Gross profit $69,728 as a percentage of revenue was 46% for the six months.
Selling expenses $31,673 as a percentage of net sales were 21% and we expect
that percentage amount to continue for future sales.
General and Administrative Expenses
GENERAL AND ADMINISTRATIVE
Salaries and wages $ 30,097 $ 749,673
Independent contractors 135,793 559,697
Professional fees (44,627 ) 447,569
Technology 45,890 76,033
Travel and entertainment 9,878 60,019
Office expenses 19,834 15,872
Utilities 5,972 10,483
Rent 19,384 31,671
Amortization 31,416 27,600
Depreciation 1,756 1,632
Other 7,842 10,736
$ 263,235 $ 1,990,985
General and administrative expenses consist primarily of compensation and
benefits to our general management, finance and administrative staff,
professional advisor fees, audit fees and other expenses incurred in connection
with general operations. Our general and administrative expenses for the six
months ended December 31, 2012 decreased to $1,721,750 compared to the same
period in 2012. The decrease was primary due to an issuance of common stock for
professional fees and independent contractors of $1,727,750 during the six
months ended December 31, 2011. In addition $720,000 was issued for salaries in
the six months ended December 31, 2011.
Provision for Income Taxes
Net loss for the six months ended December 31, 2012 was $225,180 as compared to
$1,934,465 for the same period in 2011. The decrease was due primarily to the
issuance of stock for professional and independent contractor expenses in the
first six months of 2011.
Liquidity and Capital Resources
Generally, our principal uses of cash includes operating expenses, particularly
selling expenses, and working capital (principally inventory purchases), as well
as capital expenditures and the development of operations in new markets. The
capital expenditures to date have been primarily related to the following:
purchases of computer systems and software and development costs;
the build-out and upgrade of leasehold improvements in our new corporate
the purchase of office furniture, phone systems and equipment;
The Company anticipates it will need to raise additional funds during the next
twelve months in order to sustain the growth of our business and has signed an
investment banking agreement with a licensed broker dealer. Monies will be used
primarily to build significant product inventory and cash reserves.
As the Company completes it first year of operations it will require funds to
build and replenish inventory and increase sales. The Company plans to continue
to raise funds through the sales of common stock and to obtain credit from
vendors for the purchase of inventory. The Company had bank overdraft of $9,694
at September 30, 2012. The Company had a negative working capital ratio as
Total current assets $ 119,475
Total current liabilities 580,888
Negative working capital $ (461,413 )
Management believes that the actions presently being taken and the success of
future operations will be sufficient to enable the Company to continue as a
However, there can be no assurance that the raising of equity will be
successful. Failure to achieve the needed equity funding could have a material
adverse effect on the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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