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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _________ to ____________ |
MEDICAL NUTRITION USA, INC. |
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) |
DELAWARE | 11-3686984 | |
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(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, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED SINCE LAST REPORT) |
Large Accelerated Filer | o | Accelerated Filer | o | |
Non-Accelerated Filer | o | Smaller Reporting Company | x |
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Item 1. | Financial Statements | ||
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| July 31, 2009 |
| January 31, 2009 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
| $ | 9,945,500 |
| $ | 9,654,300 |
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Accounts receivable, net of allowance of $46,200 and $65,600, respectively |
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| 1,419,800 |
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| 1,377,400 |
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Inventories |
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| 627,200 |
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| 510,600 |
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Deferred income taxes |
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| 372,700 |
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| 406,500 |
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Prepaid income taxes |
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| 9,400 |
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| 8,300 |
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Other current assets |
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| 96,200 |
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| 191,900 |
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Total current assets |
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| 12,470,800 |
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| 12,149,000 |
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Fixed Assets, net of accumulated depreciation and amortization of $406,900 and $345,400, respectively |
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| 313,700 |
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| 318,800 |
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Other Assets: |
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Deferred income taxes |
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| 913,700 |
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| 969,000 |
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Security deposits |
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| 15,300 |
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| 15,300 |
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Investment in Organics Corporation of America |
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| 125,000 |
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| 125,000 |
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Intangible assets, net of amortization |
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| 260,700 |
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| 276,800 |
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| $ | 14,099,200 |
| $ | 13,853,900 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
| $ | 806,000 |
| $ | 530,700 |
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Accrued expenses |
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| 640,600 |
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| 967,600 |
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Accrued rebates |
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| 54,300 |
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| 73,700 |
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Total current liabilities |
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| 1,500,900 |
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| 1,572,000 |
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Stockholders’ Equity: |
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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 |
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| — |
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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 |
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| 14,200 |
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| 14,100 |
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Additional paid-in-capital |
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| 25,404,300 |
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| 25,067,600 |
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Accumulated deficit |
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| (12,516,800 | ) |
| (12,497,900 | ) |
Less treasury stock, at cost, 100,148 and 98,080 shares, respectively |
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| (303,400 | ) |
| (301,900 | ) |
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Total stockholders’ equity |
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| 12,598,300 |
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| 12,281,900 |
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| $ | 14,099,200 |
| $ | 13,853,900 |
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April 30, 2010 | January 31, 2010 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 4,444,500 | $ | 4,416,900 | ||||
Short-term investments/Marketable securities | 7,117,700 | 7,081,300 | ||||||
Accounts receivable, net of allowance of $55,200 and $52,200, respectively | 1,406,800 | 1,479,100 | ||||||
Inventories | 484,200 | 596,100 | ||||||
Deferred income taxes | 363,300 | 480,400 | ||||||
Prepaid income taxes | 35,900 | — | ||||||
Other current assets | 157,700 | 188,800 | ||||||
Total current assets | 14,010,100 | 14,242,600 | ||||||
Fixed Assets, net of accumulated depreciation | 241,200 | 251,000 | ||||||
Other Assets: | ||||||||
Deferred income taxes | 431,200 | 442,300 | ||||||
Security deposits | 20,000 | 15,300 | ||||||
Investment in Organics Corporation of America | 125,000 | 125,000 | ||||||
Intangible assets, net of amortization | 273,400 | 277,300 | ||||||
$ | 15,100,900 | $ | 15,353,500 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 614,700 | $ | 797,200 | ||||
Accrued expenses | 874,000 | 1,065,200 | ||||||
Income taxes payable | — | 149,800 | ||||||
Total current liabilities | 1,488,700 | 2,012,200 | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding as of April 30, 2010 and January 31, 2010 | — | — | ||||||
Common stock, $0.001 par value; 20,000,000 shares authorized; 14,439,659 shares issued and 14,416,808 shares outstanding as of April 30, 2010 and 14,437,425 shares issued and 14,414,574 shares outstanding as of January 31, 2010 | 14,400 | 14,400 | ||||||
Additional paid-in-capital | 25,551,300 | 25,434,000 | ||||||
Accumulated deficit | (11,861,700 | ) | (12,015,300 | ) | ||||
Accumulated other comprehensive income | 11,600 | 11,600 | ||||||
13,715,600 | 13,444,700 | |||||||
Less treasury stock, at cost, 22,851 shares | (103,400 | ) | (103,400 | ) | ||||
Total stockholders’ equity | 13,612,200 | 13,341,300 | ||||||
$ | 15,100,900 | $ | 15,353,500 |
SIX MONTHS ENDED THREE MONTHS ENDED 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 SIX MONTHS ENDED 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 Total Stockholders’ 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 2010. As of April 30, 2010, four distributors accounted for approximately 40% of total revenues. The Company defines a major customer as one that provides approximately 7% or more of total revenues. The Company has no contractual arrangements with these distributors, and if they were to discontinue purchasing from the Company, it could have a material impact on the Company’s sales unless end users were able to purchase the company’s products from alternative distributors. valuation techniques the Company used to determine fair value: 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 1,301,950. For the three months ended April 30, 2009 all potentially dilutive shares, consisting of options and restricted stock, were excluded from the calculations due to the net loss. 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 ) 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 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 Options Weighted 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 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 Shares Weighted 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 the Company recognized share-based compensation cost of $125,500 and $152,200, respectively. These costs are included in selling, general and administrative expenses. Six Months Ended Six Months Ended 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 ) Six Months Ended Six Months Ended 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 )% net operating loss carry forwards. 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 respectively 2010, as well as the disclosure set forth under Part II, Item 5 of this Quarterly Report on Form 10-Q. April 30, 2009 lower retail expenses. rates in the Company’s money market accounts and investment fund. operations offset by year end tax and bonus payments. 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 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 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 MEDICAL NUTRITION USA, INC. Dated: By: /s/ Frank J. Kimmerling Frank J. Kimmerling Chief Financial Officer
JULY 31,
JULY 31, 2010 2009 (Unaudited) (Unaudited) Sales $ 4,447,300 $ 3,427,700 Cost of sales 2,005,600 1,610,300 Gross profit 2,441,700 1,817,400 Selling, general and administrative expenses 2,017,200 1,857,900 Research and development 151,200 147,100 Operating income (loss) 273,300 (187,600 ) Interest income 43,200 37,600 Income (loss) before income tax expense (benefit) 316,500 (150,000 ) Income tax expense (benefit) 162,900 (6,100 ) Net income (loss) $ 153,600 $ (143,900 ) Earnings (loss) per common share: Basic $ 0.01 $ (0.01 ) Diluted $ 0.01 $ (0.01 ) Weighted average common shares outstanding Basic 14,041,116 14,130,752 Diluted 14,884,580 14,130,752
JULY 31, 2010 2009 (unaudited) (unaudited) Net income (loss) $ 153,600 $ (143,900 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense 43,800 45,600 Provision for losses on accounts receivable 3,000 (3,600 ) Deferred income tax expense (benefit) 128,200 (6,700 ) Stock based compensation 125,500 152,200 Changes in operating assets and liabilities Accounts receivable 69,300 189,400 Inventories 111,900 (18,500 ) Prepaid income taxes (35,900 ) (1,200 ) Other current assets 31,100 7,000 Security deposit (4,700 ) — Accounts payable (182,500 ) 177,500 Income taxes payable (149,800 ) — Accrued expenses (191,200 ) (413,900 ) Net cash provided by (used in) operating activities 102,300 (16,100 ) Investing Activities: Acquisition of fixed assets (16,400 ) (23,700 ) Trademark costs (1,900 ) (4,600 ) Capitalized patent costs (11,800 ) (9,300 ) Purchase of short term investments (36,400 ) — Net cash used in investing activities (66,500 ) (37,600 ) Financing Activities: Purchase of treasury stock (8,200 ) (1,500 ) Net cash used in financing activities (8,200 ) (1,500 ) Net increase in cash and cash equivalents 27,600 (55,200 ) Cash and cash equivalents - beginning of period 4,416,900 9,654,300 Cash and cash equivalents-end of period $ 4,444,500 $ 9,599,100 Supplemental information: Taxes paid during the period $ 220,400 $ 4,500 JULY 31, 2009APRIL 30, 2010 (UNAUDITED)
Equity Common Stock Treasury Stock Outstanding Amount Deficit Shares Amount Income Equity Balance at January 31, 2010 14,414,574 $ 14,400 $ 25,434,000 $ (12,015,300 ) (22,851 ) $ (103,400 ) $ 11,600 $ 13,341,300 Issuance of restricted shares of common stock 5,000 — — — — — — — Stock based compensation — — 125,500 — — — — 125,500 Treasury stock-repurchase of restricted stock for tax withholding — — — — (2,766 ) (8,200 ) — (8,200 ) Retirement of treasury stock-related to restricted stock for tax withholding (2,766 ) — (8,200 ) — 2,766 8,200 — — Net income — — — 153,600 — — — 153,600 Total other comprehensive income — — — — — — — 153,600 Balance at April 30, 2010 14,416,808 $ 14,400 $ 25,551,300 $ (11,861,700 ) (22,851 ) $ (103,400 ) $ 11,600 $ 13,612,200 (a, a Delaware Corporation) (Medical Nutrition or thecorporation, (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.Medical Nutrition USA, Inc.the Company 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, 2009April 30, 2010 are not necessarily indicative of the results that may be expected for the current fiscal year ending January 31, 20102011 or for any future period. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, thesethe se unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form-10K for the fiscal year ended January 31, 2009.and cash equivalents and a short term investment account in twobank accounts at four financial institutions. The balances, at times, may exceed federally insured limits. At April 30, 2010, the Company had approximately $3.9 million in excess of FDIC insured limits. The Company’s operations are not subject to risks of material foreign currency fluctuations, nor does it use derivative financial instruments in its investment practices. The Comp any 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. At July 31, 2009,The impact on the Company had approximately $9.7 millionCompany’s results of one percentage point change in excess of FDIC insured limits.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.accounts.accounts as of April 30, 2010 and January 31, 2010.JULY 31, 2009foods,goods, are stated at the lower of cost or market, using the “first-in, first-out” (FIFO) cost method.32 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.5seventeen 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 5five years.Statement of Financial Accounting Standards No. 109 (SFAS 109),Code 740 “Accounting for Income Taxes.” SFAS 109ASC 740 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,ASC 740-10, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109.Taxes.” 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 positionsposit ions accounted for in accordance with SFAS No. 109.ASC 740. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that has a greater than 50% likelihood of being realized upon effective settlement. The interpretation also provides guidance on derecognition, classification, interest and penalties, and other matters.The 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 theirASC 820-10 defines fair value dueas the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This standard also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:short-term nature of these instruments. Level 1 Level 2 Level 3 Available for sale securities $ 7,117,700 $ 7,117,700 — — SFAS No.123 (revised 2004).ASC 718, “Share-Based Payment,” (“SFAS No. 123R”). SFAS No. 123RASC 718 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. 123RASC 718 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 operationsoperation s for the three months ended July 31,April 30, 2010 and 2009 was $125,500 and 2008 was $184,700 and $289,700,$152,200, respectively. Total share-based compensation for the six months ended July 31, 2009 and 2008 was $336,800 and $575,500, respectively.JULY 31, 2009 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.creditedcr edited to additional paid-in capital assuming exercise of the options and the vesting of nonvested shares. In accordance with SFAS 128, dilutedDiluted 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,April 30, 2010, 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. Three months ended April 30, 2010 2009 (unaudited) (unaudited) Numerator: Net income (loss) $ 153,600 $ (143,900 ) Denominator: Weighted average common shares (Basic) 14,041,116 14,130,752 Dilutive effect of outstanding options and nonvested shares of restricted stock 843,464 — Weighted average common shares including assumed conversions (Diluted) 14,884,580 14,130,752 Basic net income (loss) per share $ 0.01 $ (0.01 ) Diluted net income (loss) per share $ 0.01 $ (0.01 ) JULY 31, 2009StateStates 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 - FebruaryNovember 2008, FASB Staff Positionthe Securities Exchange Commission, or (“FSP”SEC”) FAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. 157-2”) was issued. FSP No. 157-2 defers, issued for comment a proposed roadmap regarding the effective datepotential use by U.S issuers 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 onprepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a recurring basis (at least annually)comprehensive series of accounting standards published by the International Accounting Standards Board (IASB). Examples of items withinUnder the scope of FSP No. 157-2 are non-financial assets and non-financial liabilities initially measured at fair valueproposed roadmap, we could be required in fiscal 2014 to prepare financial statements in accordance with IFRS. The SEC will make a business combination (but not measured at fair valuedetermination 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. The2011 regarding the mandatory adoption of IFRS. We are currently assessing the impact that this pronouncementpotential change would have on our financial statements and we will continue to monitor the development of the potential implementation of IFRS.December 2007,August 2009, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141R”),ASU 2009-05, “Measuring Liabilities at Fair Value,” or ASU 2009-05, which replaces FASB Statement No. 141. FAS 141R establishes principles and requirementsamends ASC 820 to provide clarification of a circumstances in which a quoted price in an active market 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 usersidentical liability is not available. A reporting entity is required to evaluate the nature and financial effectsmeasure fair value using one or more of the business combination. FAS 141R is effective asfollowing methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities (or similar liabilities when traded as assets) and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liabil ity. The standard was effective for the Company 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 pronouncementquarter ended October 31, 2009 and did not have a material impact on the Company’s financial statements.December 2007,February 2010, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial StatementsASU 2010-09 “Subsequent Events - Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”). ASU 2010-09 reiterates that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The updated guidance was effective upon issuance. The amendment of Accounting Research Bulletin No. 51” (“FAS 160”), which establishes accounting and reporting standardswas effective 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 yearCompany beginning February 1, 2009. The adoption of this pronouncement2010 and 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 STATEMENTSJULY 31, 2009Note 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.July 31, 2009April 30, 2010 and January 31, 2009,2010, respectively: April 30, 2010 January 31, 2010 (unaudited) Furniture, fixtures and equipment $ 688,900 $ 672,500 Leasehold improvements 50,400 50,400 739,300 722,900 Less: Accumulated depreciation and amortization 498,100 471,900 $ 241,200 $ 251,000 and amortization expense was $31,800$26,200 and $22,800$29,100 for the three months ended July 31,April 30, 2010 and 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.July 31, 2009April 30, 2010 and January 31, 2009,2010, respectively: April 30, 2010 January 31, 2010 (unaudited) Patent application and other deferred costs $ 355,400 $ 343,600 Trademarks 128,300 126,500 Website development costs 23,300 23,200 507,000 493,300 Less accumulated amortization 233,600 216,000 $ 273,400 $ 277,300 $16,700$17,600 and $14,300$16,500 for the three months ended July 31,April 30, 2010 and 2009, and 2008, respectively. Intangible amortization expense was $33,300 and $29,200 for the six months ended July 31, 2009 and 2008, respectively.JULY 31, 2009July 31, 2009, twoApril 30, 2010, four distributors accounted for approximately 26%40% of total revenues, representing $1,095,400$1,861,300 of sales as compared to 27%37% or $891,600$1,310,800 of sales for the three months ended July 31, 2008 for the same distributors. For the six months ended July 31,April 30, 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 productproducts from alternative distributors.July 31,April 30, 2010 and 2009, these twofour customers had an aggregate open accounts receivable balance of $254,700$416,500 and $308,600 respectively, which represented 17%30% and 21% respectively, of the Company’s total accounts receivable.July 31,April 30, 2010 and 2009, and 2008, the Company purchased $1,505,000$1,267,000 and $1,199,300,$1,152,000, 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,April 30, 2010, 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.$424,100. The Company owns approximately 5% of the outstanding stock of Organics.theth e 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,As of April 30, 2010, no stock option grants were outstanding under the 2000 Plan.JULY 31, 20092003 Plan).“2003 Plan”) following approval by the Company’s stockholders. 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 incentivein centive stock options or non-statutory stock options) or stock appreciation rights.3131st of each year, commencing with January 31, 2005, the aggregate number of Common Sharesshares of common stock reserved for issuance under the 2003 Plan would automatically increase in an amount equal to the number of Common Sharesshares of common stock issued by reason of awards being granted, exercised or settled, as applicable, during the immediately preceding fiscal year. At July 31, 2009, 2,534,284April 30, 2010, 2,685,950 options were issued and outstanding under the 2003 Plan.RestatedResta ted 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.sixthree months ended July 31, 2009April 30, 2010 is presented below:
Average exercise
price Options Outstanding at January 31, 2010 2,685,950 $ 2.42 Granted — — Exercised — — Expired or Surrendered — — Outstanding at April 30, 2010 2,685,950 $ 2.42 JULY 31, 2009 SFAS No. 123(R)Years Ended January 31, 2011 $ 41,700 2012 2,200 $ 43,900 and six months ended July 31, 2008,April 30, 2010 and 2009, 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,April 30, 2010 and 2009, 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 duringfor the three and six months ended July 31,April 30, 2010 and 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: July 31, 2009,April 30, 2010, and changes during the sixthree months then ended:
Average Grant
Date Fair Value Shares Nonvested at January 31, 2010 380,833 $ 1.97 Granted 5,000 2.20 Vested (20,567) 2.05 Retired (2,766) 1.62 Nonvested at April 30, 2010 362,500 $ 1.97 JULY 31,Years Ended January 31, 2011 $ 272,600 2012 207,400 2013 89,400 $ 569,400
July 31, 2009
July 31, 2008 Current – Federal $ — $ — Current – State 34,700 600 Deferred – Federal 124,800 (6,100 ) Deferred – State 3,400 (600 ) Income tax expense (benefit) $ 162,900 $ (6,100 ) 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.
July 31, 2009
July 31, 2008 The increase inexpense and also 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 offuse of certain deferred tax assets in connection with the vesting of restricted shares. Statutory Federal income tax rate 34.0 % (34.0 )% State taxes, net of Federal benefit 6.9 % (2.9 )% Stock based compensation 9.3 % 31.1 % Other 0.9 % 1.7 % Effective income tax rate 51.1 % (4.1 )% July 31, 2009April 30, 2010 of approximately $2,454,400.$964,400. The Federal Net Operating Loss (“NOL”) carryforwards expire beginning in 2020 and will be fully expired during 2025.Financial Interpretation (“FIN”) No. 48,ASC 740-10, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109Taxes”. 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.ASC 740. 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 litigationlitigat ion 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.2005-2008related to the fiscal years ended January 31, 2007 through January 31, 2009 remain open to examination by the major taxing jurisdictions to which we arethe Company is subject. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties were recorded during the three months ended April 30, 2010 and 2009, respectively.JULY 31, 2009an officeoffices and warehouse facilityfacilities in New Jersey under a lease,operating leases, which expiresexpire in December 2012. Total rent expense for the three months ended July 31,April 30, 2010 and 2009 was $28,600 and 2008 was $30,800 and $29,700,$30,900, respectively. Total rent expense for the six months ended July 31, 2009 and 2008 was $61,700 and $63,100, respectively. Years Ended January 31, 2011 $ 112,800 2012 146,800 2013 135,600 Thereafter 2,000 $ 397,200 2012.2015. During the three months ended July 31,April 30, 2010 and 2009, and 2008, the total payments under such leases were $3,600$2,600 and $3,700, respectively. During the six months ended July 31, 2009 and 2008, the total payments under such leases were $7,400.Board of Directors.Board. 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,April 30, 2010 and 2009, and 2008, the Company expensed $42,100$102,200 and $90,000$88,000 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.(“plan”(the “401(k) Plan”) for all eligible employees. In January 2008, the Company amended the plan401(k) 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,April 30, 2010 and 2009, and 2008, the 401(k) expense was $21,200$22,900 and 22,700, respectively. For the six months ended July 31, 2009 and 2008, the 401(k) expenses were $45,000 and $42,000,$23,800, respectively. The 401(k) expense is included in selling, general and administrative expenses.2009.July 31, 2009April 30, 2010 Compared to Three Months Ended July 31, 2008July 31, 2009April 30, 2010 were $4,124,100$4,447,300 as compared with $3,326,900$3,427,700 for the three months ended July 31, 2008,April 30, 2009, an increase of $797,200$1,019,600, 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%30%. This increase was primarily attributable to an increase in branded product sales of approximately 15%$1,104,800, or 35%, as the Company continues 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, 2009add new nursing homes and hospitals to our end user community as compared to the six months ended July 31, 2008.well as higher consumption within existing facilities. 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.sixthree months ended July 31, 2009April 30, 2010 was $3,562,800$2,005,600, or 47%45% of sales, as compared with $3,103,100$1,610,300 for the sixthree months ended July 31, 2008,April 30, 2009, or 47% of sales. Gross profit percentage was 55% for the three months ended April 30, 2010 as compared to 53% for both periodsthe three months ended April 30, 2009. These increases in cost of sales and gross profit percentage are primarily due to the increased sales of higher margin branded products and the Company’s continuous efforts to control product costs.sixthree months ended July 31, 2009, decreasedApril 30, 2010, increased by $180,800$159,300 to $3,818,400,$2,017,200 from $3,999,200$1,857,900 for the sixthree months ended July 31, 2008.April 30, 2009. This decreaseincrease was primarily attributable to a decreasean increase in personnel costs offset by lower stock based compensation expense a decrease in tradeshow costs, offset by an increase in general and administrative personnel costs.sixthree months ended July 31, 2009April 30, 2010 increased by $126,300$4,100 to $177,800$151,200 from $51,500$147,100 for the sixthree months ended July 31, 2008.April 30, 2009. The increase is primarily due to the timing of certain clinical studies.sixthree months ended July 31, 2009,April 30, 2010, the Company had an operating lossincome of $7,200$273,300 as compared to an operating loss of $517,300$(187,600) for the sixthree months ended July 31, 2008.April 30, 2009. The decreaseincrease in operating income is primarily due to the reasons describedhigher sales and gross margins offset by an increase in selling, general and administrative expenses, as discussed above.$78,000$43,200 for the sixthree months ended July 31, 2009,April 30, 2010, compared to $121,800 in$37,600 for the prior period.three months ended April 30, 2009. The decreaseincrease is due to reducedincreased interest rates.expenseprovision of $89,700$162,900 for the sixthree months ended July 31, 2009April 30, 2010 at an effective rate of 126.7%, compared51.1%. For tax purposes, certain expenses for stock based compensation are not deductible. There were also two types of expenses for stock based compensation which resulted in the increase of the effective tax rate above the statutory rate. Restricted stock grants which vested during the year at a time when the fair value of the stock was lower than the value at the grant date resulting in actual tax deductions that are less than the related deferred tax benefit which was recorded over the vesting period related to these grants. Second, the Company incurred charges for stock based compensation related to incentive stock options. To the extent that this expense exceeded the tax deduction related to any disqualifying di spositions of these incentive stock options during the quarter, there was a related increase in the effective tax rate. For the three months ended April 30, 2009, the Company recorded a tax benefit in the amount of $90,400$6,100, at aman effective tax rate of (22.8)(4.1)%, 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.lossincome for the sixthree months ended July 31, 2009April 30, 2010 was $18,900$153,600, or $(0.00)$0.01 per share, compared to a net loss for the sixthree months ended July 31, 2008April 30, 2009 of $305,100$(143,900) or $(0.02)$ (0.01) per share. The increase in income is due to the reasons described above.July 31, 2009,April 30, 2010, the Company had cash, cash equivalents and short term investments of $9,945,500approximately $11,600,000, as compared to $9,654,300approximately $11,500,000, at January 31, 2009.2010. At July 31, 2009,April 30, 2010, approximately 99%97% of accounts receivable were less than 30 days past due. Cash provided by operations during the sixthree months ended July 31, 2009April 30, 2010 was $366,400$102,300, as compared to cash provided byused in operations of $503,700$16,100 for the sixthree months ended July 31, 2008.April 30, 2009. The decrease in cash provided by operationsincrease 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.July 31, 2009,April 30, 2010, the Company did not have any off-balance sheet financing arrangements or any equity interests in any variable entity or other minority owned ventures. and cash equivalents and short term investments at July 31, 2009April 30, 2010 totaled $9.9approximately $11.6 million. These amounts are primarily invested in money market accounts.accounts and a short term bond fund. 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.Medical Nutrition USA, Inc.the Company 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.the Company 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.Medical Nutrition USA, Inc.the Company 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,April 30, 2010, 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.Medical Nutrition USA, Inc.the Company 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, 2009April 30, 2010 and have concluded that no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.31.1 31.119341934200210.11 Third Amendment to office lease dated July 27, 2009 by and between Medical Nutrition USA, Inc. and the Realty Associates Fund VI, L.P. ** 10.12 Fourth Amendment to office lease dated April 23, 2010 by and between Medical Nutrition USA, Inc. and the Realty Associates Fund VI, L.P. ** ** Filed Herewith SignatureRegistrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.September 11, 2009