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.

COMPANY OVERVIEW OUR BUSINESS 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.

12 -------------------------------------------------------------------------------- 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.

Competitive Strengths 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 sales.

13 -------------------------------------------------------------------------------- Product Portfolio 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.

Geographic Diversification 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 strategic initiatives: Product Strategy 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.

14 -------------------------------------------------------------------------------- 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.

Infrastructure Strategy 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.

Product Overview 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.

Product Categories: Weight Management & Energy, Sports &Fitness Representative Products 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 productivity.

Product Development 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.

15 -------------------------------------------------------------------------------- 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 manufacturing issues.

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 General 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 partners.

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 production bonuses.

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 organization.

16 -------------------------------------------------------------------------------- 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.

17 -------------------------------------------------------------------------------- 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 platform.

ACQUISITION 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 SnackHealthy, Inc.

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.

18 -------------------------------------------------------------------------------- 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.

Revenue 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 Gross profit $69,728 as a percentage of revenue was 46% for the six months.

Selling Expenses 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 12/31/2012 12/31/2011 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.

19 -------------------------------------------------------------------------------- Provision for Income Taxes None.

Net Loss 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 headquarters; the purchase of office furniture, phone systems and equipment; product inventory.

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 follows: 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 going concern.

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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