11. SUBSEQUENT EVENTS
The Company grantedOne holder exercised options to purchase100,000150,000 shares of the Company’s common stock in October 2013 under the 2012 Stock Incentive Plan to one consultant. These options vest over January 2014 at an exercise price of $three0.10 years.per share. The Company received proceeds of $15,000 from this exercise.
In October 2013,February 2014, convertible notes payable with a principaldebentures in the amount of $50,000$625,000 and accrued interest of $1,562.50 were converted into 111,112a total of 695,511 shares of the Company’s common stock and warrants to purchase 500,000stock. shares of the Company’s common stock were exercised in exchange to $170,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” and the “Company” refer to Stevia First Corp., a Nevada corporation.
Cautionary Statement
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Financial Statements and the related notes thereto contained in Part I, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended March 31, 2013 filed on May 20, 2013, and the related audited financial statements and notes included thereto.
Certain statements made in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).1934. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include: general economic and financial market conditions; our ability to obtain additional financing as necessary; our ability to continue operating as a going concern; any adverse occurrence with respect to our intended business; our ability to develop and bring our intended productplanned future products to market; market demand for our intended product;planned future products; shifts in industry capacity; product development or other initiatives by our competitors; fluctuations in the availability of raw materials and costs associated with growing raw materials for our intended product;planned future products; poor growing conditions for the stevia plant; other factors beyond our control; and the other risks described under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on May 20, 2013.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. These forward-looking statements speak only as of the date on which they are made. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Company Overview
We were incorporated in the State of Nevada on June 29, 2007 and commenced operations as a development stage exploration company. On October 10, 2011, we completed a merger with our wholly-owned subsidiary, Stevia First Corp., whereby we changed our name from “Legend Mining Inc.” to “Stevia First Corp.” As a result of our management change, the addition of key personnel, and the lease of property for laboratory and office space and agricultural land in California, we abandoned our mining and exploration business and are pursuing our newa business as an agricultural biotechnology company engaged in the cultivation and harvest of stevia leaf and the development of stevia products. We are in the early stages of establishing a vertically-integrated enterprise that controls the process of stevia extract production using biotechnological methods including fermentation, or using traditional farming, cultivation, and extraction from the stevia plant, and which also develops, markets, and sells stevia consumer products.
Our common stock is currently quoted on the OTC Markets Group’s OTCQB tier under the symbol “STVF.” No shares of our common stock traded until March 5, 2012 and there is only a limited trading market for our common stock.
Plan of Operations
We have not yet generated or realized any revenues from our business operations. In theirits report on theour annual financial statements for the fiscal year ended March 31, 2013, our independent auditorsauditor included an explanatory paragraph regarding concerns about our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an on-going business unless we obtain additional capital or generate sufficient cash from our operations. We do not expect to generate cash from our operations for the foreseeable future. The continuation of our business is dependent upon our ability to obtain loans, or sell securities to new and existing investors.investors or pursue alternative means of raising the capital we need to operate our business, which could include strategic or licensing transactions or other similar arrangements.
Our current strategy is to build a vertically integrated stevia enterprise in North America through our internal research and development, cultivation of stevia in California’s Central Valley, product development activities combined with acquiring rights to additional intellectual property and land suitable for stevia production, and forming alliances with leading California growers, current manufacturers and distributors of high-grade but low-cost stevia extracts with superior taste profiles. We are focused on the production of stevia extract through use of fermentation technologies, the production of stevia extract through California stevia leaf production, the development of consumer stevia products such as a tabletop sweetener, and more broadly at building a vertically-integrated stevia enterprise in the United States.
We have begun development of a stevia consumer product utilizing stevia extract purchased from other suppliers until we are able to produce our own stevia extract. Operations related to stevia product development include the formulation and testing of a stevia tabletop sweetener. We initiated consumer product testing in the first half of 2013. Assuming favorable results from our consumer product testing efforts, we would expect to release our planned tabletop sweetener product later in 2013 and generate revenues from this proposed product as soon as the end of 2013.2014 calendar year. We expect additional expenses related to this development work to be approximately $30,000, costs for initial manufacturing runs and distribution of the product to be approximately $20,000, and that each of these activities would be funded internally.
Our present operations primarily consist of research and development related to stevia extract production through use of biotechnology or fermentation, including the directed conversion of steviol, undesirable steviol glycosides, or low-cost substrates to high-value and desirable steviol glycosides such as Rebaudioside A (“Reb A”) that are sweet and normally present within the stevia leaf. Operations related to production of stevia extract through fermentation include microbial strain development and enzyme characterization work. Prior to the launch of California-producedthese stevia extract,products, we will need to achieve certain operational milestones, including but not limited to further microbial strain development and fermentation process development and optimization, work which we currently estimate to cost $150,000.$100,000. Assuming our research and development efforts are successful, we would seek manufacturing capacity with contract manufacturers and regulatory approvals for products developed using these methods, which we currently estimate would cost $750,000. Assuming our research and development and regulatory approval efforts are successful, we expect the first revenues on sales of products resulting from use of our biotechnological or fermentation work could occur in 2014. However, we willmay require additional investment obtained through additional funding from our stockholders andand/or other qualified investors, lenders or other third parties in order to complete these milestones, and for initial commercialization as described will also require the availability of contract manufacturing capacity on desirable terms from outside companies. We may be unsuccessful in our development and commercialization of stevia extracts using biotechnology or fermentation methods, and may never commercialize any related product, generate revenue, or become profitable.
To a lesser extent, our present operations also consist of pursuing traditional industry means of stevia extract production, including stevia crop cultivation, harvest, and extraction of steviol glycosides from the stevia leaf., Operations related to production of stevia extract through traditional means include establishing stevia field trial production outputs, and development and scale-up of stevia leaf extraction and processing methods, work which we currently estimate will cost $200,000$175,000 and which we expect to be ongoing and to extend intoin 2014. Provided research and development is successful, and we still plan to pursue traditional industry means of stevia extract production, we would seek to expand stevia leaf production through contract stevia growers, seek contract processing capacity with operators of extraction facilities, and obtain any necessary regulatory approvals for these stevia extracts and processing facilities, work which we currently estimate to cost $250,000. If these efforts prove successful, we expect the first revenues on sales of California stevia extract could occur in 2014. However, we will require additional investment obtained through additional funding from our stockholders andand/or other qualified investors, lenders or other third parties in order to complete these milestones, and for initial commercialization of California stevia extract as described will require the participation of local growers and the availability of contract extraction facilities on desirable terms. We may be unsuccessful in our development and commercialization of stevia extracts using traditional industry means, and may never commercialize any related product, generate revenue, or become profitable.
Over the 12 months following the date of this report, we expect to continue to review potential acquisitions and alliances, and to increase the scale of research and development operations.operations as capital and other resources permit. As of November 4, 2013,February 13, 2014, we had 46 full-time employees and 2 part-time employees. Total expenditures over the 12 months following September 30,December 31, 2013, are expected to be approximately $1,500,000. As of September 30,December 31, 2013, we expect to have sufficient funds to operate our business for at least six months; however, we do not currently believe our existing cash resources are sufficient to meet our anticipated needs during the next twelve months. Further, ourone year. Our estimate of total expenditures could increase if we encounter unanticipated difficulties. In addition, our estimates of the amount of cash necessary to fund our business may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. We will need to raise additional capital to pursue our plan of operations as described. We expect to continue to seek funding from our stockholders and/or other qualified investors, lenders or other third parties in order to pursue our business plan, but we do not have any arrangements in place for any future financing and sources of additional funds may not be available when needed on acceptable terms or at all. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail. We expect to continue to seek funding from our stockholders and other qualified investors in order to pursue our business plan. We do not have any arrangements in place for any future financing. Sources of additional funds may not be available on acceptable terms or at all.
Recent Events
On June 25, 2013, we entered into a Securities Purchase Agreement with three (3) investors for the sale of an aggregate of 3,676,472 shares of our common stock for total gross proceeds of $1,250,000 or a sales price of $0.34 per share. The offering closed on June 28, 2013. We incurred $112,500 of direct costs in connection with the financing, resulting in net cash proceeds to the Company of $1,137,500. The purchasers who entered into the Securities Purchase Agreement were also issuedand warrants to purchase up to an aggregate of 11,029,416 shares of our common stock.stock, for gross proceeds as of the initial issuance of such securities of $1,250,000. The warrants were issued in three series of 3,676,472 each and have initial exercise prices of $0.40, $0.50 and $0.60 per share, respectively, are exercisable immediately upon issuance and have a term of exercise equal to five years, six months and nine months, respectively. We also issued warrants to purchase up to 294,185 shares of our common stock to the placement agent related to the financing. The placement agent warrantsfinancing, which have an exercise price of $0.425 per share and a term of five years and are exercisable immediately. During the three months ended December 31, 2013, certain purchasers exercised some of their six-month warrants and acquired an aggregate of 314,000 shares of our common stock at the then-effective exercise price of $0.50 per share, resulting in proceeds to us of $157,000. On December 6, 2013, we offered the purchasers holding the remaining six-month warrants the right to exercise all of those warrants, for an aggregate of 3,362,472 shares of our common stock, based on the terms of an early exercise offer wherein such warrants became exercisable at a reduced exercise price of $0.42 per share, so long as the exercise thereof occurred on or before December 9, 2013. All purchasers acted on the early exercise offer and we issued 3,362,472 shares of our common stock, resulting in proceeds to us of $1,327,504. As of December 31, 2013, all of the nine-month and five-year warrants issued to investors in the financing remained outstanding. See the more fulsome description of June 2013 financing in Notes 5 and 7 of the unaudited condensed financial statements included in this Quarterly Report.
As further discussed in “Liquidity and Capital Resources” below, we will need to raise additional funds in order to continue operating our business.
Results of Operations
Three Months Ended September 30,December 31, 2013 and September 30,December 31, 2012
Our net loss during the three months ended September 30,December 31, 2013 was $781,680$1,045,037 compared to a net loss of $865,773$586,758 for the three months ended September 30,December 31, 2012 (a decrease(an increase in net loss of $84,093)$458,279). The decreaseincrease in net loss during the three months ended September 30,December 31, 2013 compared to the three months ended September 30,December 31, 2012 is attributable primarily to lower stock based compensation expenseshigher consulting and professional fees incurred in the 2013 period. During the three months ended September 30,December 31, 2013 and 2012 respectively, we did not generate any revenue.
During the three months ended September 30,December 31, 2013, we incurred general and administrative expenses in the aggregate amount of $701,318$796,017 compared to $797,939$499,275 incurred during the three months ended September 30, 2012 (a decrease of $96,621). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. A significant portion of these costs are related to the development of our organizational capabilities as an agricultural biotechnology company engaged in the development of stevia products, including costs such as legal and advisory fees related to intellectual property development. The majority of the decrease in general and administrative costs in the period relates to stock based compensation costs which decreased to $271,804 in the period ending September 30, 2013, as compared to $413,273 in the period ending September 30, 2012.
In addition, during the three months ended September 30, 2013, we incurred research and development costs of $100,156 relating to the development of our stevia products compared to zero during the three months ended September 30, 2012.
During the three months ended September 30, 2013, we incurred related party rent and other costs totaling $31,950 compared to $39,517 incurred during the three months ended September 30, 2012 (a decrease of $7,567).
This resulted in a loss from operations of $833,424 during the three months ended September 30, 2013 compared to a loss from operations of $837,456 during the three months ended September 30, 2012.
During the three months ended September 30, 2013, we recorded total other income in the amount of $51,744, compared to total other expenses recorded during the three months ended September 30, 2012 in the amount of $28,016. During the three months ended September 30, 2013, we incurred interest expense of $41,346 compared to $28,016 incurred during the three months ended September 30,December 31, 2012 (an increase of $13,330). The increase in interest expense was directly related to the amortization of valuation discount on our convertible notes. We also recorded a gain related to the change in fair value of derivatives of $93,090 during the three months ended September 30, 2013. No such items were recorded during the three months ended September 30, 2012.
Six Months Ended September 30, 2013 and September 30, 2012
Our net loss during the six months ended September 30, 2013 was $1,680,985 compared to a net loss of $1,185,277 for the six months ended September 30, 2012 (an increase in net loss of $495,708). The increase in net loss during the six months ended September 30, 2013 compared to the six months ended September 30, 2012 is attributable primarily to higher research and development expenses as well as higher interest expense incurred in the 2013 period. During the six months ended September 30, 2013 and 2012, respectively, we did not generate any revenue.
During the six months ended September 30, 2013, we incurred general and administrative expenses in the aggregate amount of $1,427,514 compared to $1,083,586 incurred during the six months ended September 30, 2012 (an increase of $343,928)$296,742). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. A significant portion of these costs are related to the development of our organizational capabilities as an agricultural biotechnology company engaged in the development of stevia products, including costs such as legal and advisory fees related to intellectual property development. The majority of the increase in general and administrative expenses relatedcosts during the 2013 period relates to consulting and other professional fees , which increased to $372,246 in the period ending December 31, 2013, as compared to $65,700 in the period ending December 31, 2012, an increase of $306,546.
In addition, during the three months ended December 31, 2013, we incurred research and development costs which increasedof $219,436 relating to $223,395 in the period ending September 30, 2013, asdevelopment of our stevia products, compared to $89,090 in$132,888 during the sixthree months ending September 30, 2012. ended December 31, 2012 (an increase of $86,548). This increase was primarily attributable to increased research efforts during the 2013 period.
During the sixthree months ended September 30,December 31, 2013, we incurred related party rent and other costs totaling $73,100$42,150 compared to $66,450$41,150 incurred during the sixthree months ended September 30,December 31, 2012 (an increase of $6,650)$1,000).
This resulted in a loss from operations of $1,724,009$1,057,603 during the sixthree months ended September 30,December 31, 2013 compared to a loss from operations of $1,239,126$673,313 during the three months ended September 30,December 31, 2012.
During the sixthree months ended September 30,December 31, 2013, we recorded total net other income in the amount of $43,024,$12,566, compared to total net other income recorded during the sixthree months ended September 30,December 31, 2012 in the amount of $53,849.$76,525 (a decrease of $63,959). During the sixthree months ended September 30,December 31, 2013, we incurred interest expense of $235,087$88,842 compared to $52,953$69,468 incurred during the sixthree months ended September 30,December 31, 2012 (an increase of $182,134)$19,374). The increase in interest expense was directly related to the amortization of valuation discount on our convertible notes. We also recorded a gain related to the change in fair value of derivatives of $278,111$275,232 during the sixthree months ended September 30,December 31, 2013 compared to a gain of $234,321 for the three months ended December 31, 2012, an increase of $40,911. We also recorded an expense in the amount of $173,824 related to the reduction in the exercise price of certain warrants that were exercised during the three months ended December 31, 2013. No such item was recorded during the three months ended December 31, 2012.
Nine Months Ended December 31, 2013 and December 31, 2012
Our net loss during the nine months ended December 31, 2013 was $2,726,022 compared to a net loss of $1,772,035 for the nine months ended December 31, 2012 (an increase in net loss of $953,987). The increase in net loss during the nine months ended December 31, 2013 compared to the nine months ended December 31, 2012 is attributable primarily to higher research and development expenses as well as higher consulting and professional fees incurred in the 2013 period. During the nine months ended December 31, 2013 and 2012 we did not generate any revenue.
During the nine months ended December 31, 2013, we incurred general and administrative expenses in the aggregate amount of $2,120,541 compared to $1,475,111 incurred during the nine months ended December 31, 2012 (an increase of $645,430). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. A significant portion of these costs are related to the development of our organizational capabilities as an agricultural biotechnology company engaged in the development of stevia products, including costs such as legal and advisory fees related to intellectual property development. The increase in general and administrative expenses was mainly related to consulting and professional fees totaling $585,384 during the nine months ended December 31, 2013, compared to $206,335 during the three months ended December 31, 2012, an increase of $379,049. In addition, our stock based compensation expense increased to $718,448 during the 2013 period, from $575,915 during the 2012 period, an increase of $142,533. Our accounting and audit expenses also increased from $36,591 during the nine months ended December 31, 2012 to $169,114 during the nine months ended December 31, 2013, an increase of $132,523.
During the nine months ended December 31, 2013, we incurred research and development costs of $545,821 relating to the development of our stevia products compared to $329,728 during the nine months ended December 31, 2012, an increase of $216,093. These costs included stock based compensation of $178,078 during the 2013 period, compared to $127,461 during the 2012 period, an increase of $50,617.
During the nine months ended December 31, 2013, we incurred related party rent and other costs totaling $115,250 compared to $107,600 incurred during the nine months ended December 31, 2012 (an increase of $7,650).
This resulted in a loss from operations of $2,781,612 during the nine months ended December 31, 2013, compared to a loss from operations of $1,912,439 during the nine months ended December 31, 2012.
During the nine months ended December 31, 2013, we recorded total net other income in the amount of $55,590, compared to total net other income recorded during the nine months ended December 31, 2012 in the amount of $140,404 (a decrease of $84,874). During the nine months ended December 31, 2013, we incurred interest expense of $323,929 compared to $122,421 incurred during the nine months ended December 31, 2012 (an increase of $201,508). The increase in interest expense was directly related to the amortization of valuation discount on our convertible notes. We also recorded a gain related to the change in fair value of derivatives of $553,343 during the nine months ended December 31, 2013 compared to a gain of $234,321 for the nine months ended December 31, 2012, an increase of $319,022. We also recorded an expense in the amount of $173,824 related to the reduction in the exercise price of certain warrants that were exercised during the nine months ended December 31, 2013. No such item was recorded during the three months ended December 31, 2012. In the 2012 period we recorded a gain on settlement of debt in the amount of $107,004. No such item was recorded during the nine months ended December 31, 2013.
Liquidity and Capital Resources
We have not yet received revenues from sales of products or services, and have recurring losses from operations. Our financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $5,855,022$6,900,059 as at September 30,December 31, 2013, and further losses are anticipated in the development of its business. The Company also had a stockholders’ deficit of $1,459,714 at September 30, 2013. These and other factors raise substantial doubt about the Company's ability to continue as a going concern.
As of September 30,December 31, 2013, we had total current assets of $637,208$1,884,659 which was comprised of cash of $551,318,$1,831,189, security deposits of $2,500, prepaid expenses in the amount of $10,473,$9,306, and an advance payment on related party lease of $72,917.$41,664. Our total current liabilities as of September 30,December 31, 2013 were $1,492,676$1,084,088, represented primarily by accounts payable and accrued liabilities of $111,173,$166,510, accounts payable to a related party of $2,611,$9,200, and derivative liability of $1,369,517.$908,378. The derivative liability is a non-cash item related to our outstanding warrants as described in Note 4 to our unaudited condensed financial statements.statements included herein. As a result, on September 30,December 31, 2013, we had a working capital deficiency of $855,468.$800,571.
As of September 30,December 31, 2013, our long term liabilities were $604,246,$546,212, which consisted of convertible notes payable in the amount of $762,500,$625,000, net of a discount of $158,254.$78,788.
The continuation of our company as a going concern is dependent upon our company attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our company discontinue operations.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the year ended March 31, 2013, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors. After giving effect to the funds received in the recent equity and debt financings, we estimate as of September 30,December 31, 2013 we will have sufficient funds to operate the business for the next 6 months; however, based on our current operating expenses and working capital requirements, we do not currently believe our existing cash resources are sufficient to meet our anticipated needs during the next twelve12 months. We will require additional financing to fund our planned future operations, including the continuation of our ongoing research and development efforts, seeking to license or acquire new assets, and researching and developing any potential patents and any further intellectual property that we may acquire. Further, these estimates could differ if we encounter unanticipated difficulties, in which case our current funds may not be sufficient to operate our business for that period. In addition, our estimates of the amount of cash necessary to operate our business may prove to be wrong, and we could spend our available financial resources much faster than we currently expect.
We do not have any firm commitments for future capital. Significant additional financing will be required to fund our planned operations in the near term and in future periods, including research and development activities relating to our principal product candidate,stevia extract production, developing and seeking regulatory approval for any of that or any otherour stevia product candidate we may choose to develop,candidates, commercializing any product candidate for which we are able to obtain regulatory approval or certification, seeking to license or acquire new assets or businesses, and maintaining our intellectual property rights and pursuing rights to new technologies. We do not presently have, nor do we expect in the near future to have, revenue to fund our business from our operations, and will need to obtain all of our necessary funding from external sources in the near term. WeSince inception, we have funded our operations primarily through equity and debt financings, and we expect to continue to rely on these sources of capital in the future. However, if we raise additional funds by issuing equity or convertible debt securities, our existing stockholders’ ownership will be diluted, and obtaining commercial loans would increase our liabilities and future cash commitments. Further, these or other sources of capital may not be able to obtain additional financingavailable on commercially reasonable or acceptable terms when needed, or at all. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail and our stockholders could lose all of their investment.
Recent Financings
Recent Financings
On February 7, 2012, we entered into a Subscription Agreement (the “Subscription Agreement”) with one investor in a private placement, pursuant to which such investor purchased $1,250,000 in common stock and convertible debentures from the Company over a twelve month period beginning on March 1, 2012. Under the Subscription Agreement, the investor purchased an aggregate of (i) 625,000 shares of common stock at a purchase price of $1.00 per share and (ii) convertible debentures with an aggregate principal amount of $625,000 convertible into a total of 693,774 shares of our common stock at prices ranging from $0.65 to $1.25, in five tranches over a 12 month period beginning on March 1, 2012, for proceeds to us of $250,000 per tranche. The conversion price of the common stock underlying each of the convertible debentures is subject to adjustment upon a reclassification or other change in the Company’s outstanding common stock and certain distributions to all holders of our common stock. The entire principal balance of each debenture is due and payable three years following its date of issuance unless earlier redeemed by us in accordance with its terms.). Each of these convertible debentures bears interest at the rate of 6.0% per annum, payable semi-annually in arrears on June 30 and December 31 of each year. During the threenine months ended June 30,December 31, 2013, the aggregate accrued interest due on these convertible debentures of $18,750$37,500 was converted into 20,81641,632 shares of the Company’s common stock based on the conversion rates of the five tranches of these convertible debentures ranging from $0.65 to $1.25 per share. As of September 30,December 31, 2013, all $625,000 of these convertible debentures were outstanding. If the outstanding principal on all of the convertible debentures issued pursuant to the Subscription Agreement were converted into common shares, as of September 30,December 31, 2013, the holders thereof would receive 693,773 shares of common stock.
On October 29, 2012, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with two investors providing for the issuance and sale of an aggregate of $500,000 in convertible debentures and warrants to purchase 1,000,000 shares of our common stock, for proceeds to us of $500,000. The financing closed on November 1, 2012. After deducting for fees and expenses, the aggregate net proceeds from the sale of the debentures and warrants was $445,000. The balance due on these debentures at MarchDuring the nine months ended December 31, 2013, was $330,000. During the three months ended June 30, 2013, $192,500$330,000 of the debentures, wererepresenting the full amount of the balance due thereon, was converted into 427,778733,334 shares of common stock, and thestock. As of December 31, 2013, there was no remaining balance due on these debentures at September 30, 2013 was $137,500.
debenturesand they have been cancelled in full. The debentures are non-interest bearing and mature on November 1, 2014. The debentures are convertible at the purchaser’s option into shares of our common stock (the “Conversion Shares”) at an initial conversion price of $0.50 per share, subject to adjustment for stock dividends and splits, subsequent rights offerings and pro rata distributions to our common stockholders. Upon the earlier of the effectiveness of a registration statement registering the Conversion Shares and Warrant Shares or the date the Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 under the Securities Act of 1933 (the “Securities Act”) without volume or manner-of-sale restrictions (such earlier date, the “Trigger Date”), the conversion price of the debentures shall be reduced to the lesser of (i) the then conversion price or (ii) 90% of the average of the volume weighted average price of the Company’s common stock for the five trading days immediately prior to the Trigger Date, provided that the conversion price shall not be reduced to less than $0.35 per share (such adjusted conversion price, the “Reset Conversion Price”). Upon the effectiveness of the registration statement registering the shares issuable upon the conversion and exercise of the debentures and warrants on March 6, 2013, the conversion price of the debentures was reduced to $0.45. We may force conversion of the debentures into common stock if, at any time, the volume weighted average price of our common stock for each of any five consecutive trading days exceeds 120% of the Reset Conversion Price. We may force conversion of the debentures into Conversion Shares if, at any time following the Trigger Date, the volume weighted average price of our common stock for each of any five consecutive trading days exceeds 120% of the Reset Conversion Price. The debentures provide for certain restrictive covenants and events of default which, if any of them occurs, would permit or require the principal amount of the debentures to become or to be declared due and payable.
Each of the purchasers under the Securities Purchase Agreement was issued a warrant to purchase up to a number of shares of the Company’s common stock equal to 100% of the Conversion Shares initially issuable to such purchaser pursuantinvestors party to the Securities Purchase Agreement totaling upwere also issued warrants to purchase an aggregate of 1,000,000 shares of our common stock (the “Warrant Shares”).stock. The warrants had an initial exercise price of $0.70 per share, which was subsequently reduced to $0.34 per share as set forth in the adjustment provisions of the warrants, are exercisable immediately upon issuance and have a term of exercise equal to five years. The Company also issued warrants to purchase up to 80,000 shares of the Company’s common stock to its placement agent related to the financing that had an initial exercise price of $0.625 per share. On March 6,share, which was also subsequently reduced to $0.34 per share as set forth in the adjustment provisions of the warrants. During the three months ended December 31, 2013, the investors exercised all of their warrants and acquired 1,000,000 shares of our common stock at the then-effective exercise price of all the warrants was reduced$0.34 per share, resulting in $340,000 in proceeds to $0.50. On June 28, 2013, the exercise price of allus. All of the placement agent’s warrants issued in the October 2012 financing was further reduced to $0.34.remained outstanding as of December 31, 2013.
On June 25, 2013, we entered into a Securities Purchase Agreement with three (3) investors for the sale of an aggregate of 3,676,472 shares of our common stock for total gross proceeds of $1,250,000 or a sales price of $0.34 per share. The offering closed on June 28, 2013. We incurred $112,500 of direct costs in connection with the financing, resulting in net cash proceeds to the Company of $1,137,500. The purchasers who entered into the Securities Purchase Agreement were also issued warrants to purchase up to an aggregate of 11,029,416 shares of our common stock. The warrants were issued in three series of 3,676,472 each and have initial exercise prices of $0.40, $0.50 and $0.60 per share, respectively, are exercisable immediately upon issuance and have a term of exercise equal to five years, six months and nine months, respectively. We also issued warrants to purchase up to 294,185 shares of our common stock to the placement agent related to the financing. The placement agent warrants have an exercise price of $0.425 per share and a term of five years and are exercisable immediately. During the nine months ended December 31, 2013, warrants to acquire 3,676,472 of our common stock were exercised, resulting in net proceeds to the Company of $1,484,504. See the description under the heading “—Recent Events” in this management’s discussion and analysis for further information.
During the nine months ended December 31, 2013, the holders of options to purchase 700,000 shares of the Company’s common stock were exercised at an average exercise price of $0.31 per share. We received proceeds of $216,000 as a result of these exercises.
Net Cash Used in Operating Activities
We have not generated positive cash flows from operating activities. For the sixnine months ended September 30,December 31, 2013, net cash used in operating activities was $974,415$1,595,049 compared to net cash used in operating activities of $882,716$1,877,580 for the sixnine months ended September 30,December 31, 2012. This increasedecrease was primarily attributable to the change in the fair value of the derivative liability. Net cash used in operating activities during the sixnine months ended September 30,December 31, 2013 consisted primarily of a net loss of $1,680,985$2,726,022 and change in fair value of derivative liability of $278,111,$553,343, offset by $693,902$896,526 related to stock-based compensation. Net cash used in operating activities during the sixnine months ended September 30,December 31, 2012 consisted of a net loss of $1,185,277$1,772,035, a change in fair value of derivative liability of $234,321 and an increase of $197,917$166,666 related to an advance payment to a related party offset by $581,923$708,376 related to stock based compensation.
Net Cash Provided By Financing Activities
During the sixnine months ended September 30,December 31, 2013, net cash provided by financing activities was $1,133,250$3,033,755 compared to net cash provided by financing activities of $885,000$1,330,000 for the sixnine months ended September 30,December 31, 2012. Net cash provided from financing activities during the sixnine months ended September 30,December 31, 2013 was attributable to $1,133,250 from the sale of common stock and warrants in our offering closed in June 2013.2013 and $1,824,505 from the exercise of a portion of those warrants. Net cash provided from financing activities during the sixnine months ended September 30,December 31, 2012 was attributable to the issuance of loans from third parties of $425,000$870,000 and the sale of common stock of $425,000 during the period, in each case under the Subscription Agreement.
Net Cash Used in Investing Activities
During the sixnine months ended September 30,December 31, 2013 and 2012, no net cash was used in or provided by investing.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in U.S. dollars.
Development Stage Company
The Company is a development stage enterprise pursuant to applicable guidance of the Financial Accounting Standards Board (“FASB”), and is devoting substantially all of its present efforts to establishing a new business and has not produced any revenues from its operations .
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The more significant estimates and assumption by management include, among others, the fair value of shares issued for services, fair value of warrants issued in conjunction with convertible debentures, and assumptions used in the valuation of conversion features and derivative liabilities.
Stock-Based Compensation
We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the FASBFinancial Accounting Standards Board (“FASB”), whereas the value of the award is measured on the date of grant and recognized over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of our common stock option and warrant grant is estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton option pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricing model could materially affect compensation expense recorded in future periods.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton modelsmodel to value the derivative instruments at inception and on subsequent valuation dates through the September 30,December 31, 2013 reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Recent Accounting Pronouncements
In March 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-05 (Topic 830), “Foreign Currency Matters” (“ASU 2013-05”). ASU 2013-05 resolves the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, ASU 2013-05, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments in this update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. ASU 2013-022013-05 became effective for the company prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material effect on the Company’s financial statements.
The FASB has issued ASU No. 2013-04, Liabilities (Topic 405), “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740) “Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force)” (“ASU 2013-11”). ASU 2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carrforward,carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. This update is effective for public entities for fiscal years beginning after December 15, 2013 and interim periods within those years. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities and Exchange Commission (“SEC”(“SEC”)did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4.
Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive and financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive and financial officer concluded that as of September 30,December 31, 2013, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2013. In light of the material weaknesses identified by management, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the interim period ended September 30,December 31, 2013 are fairly presented, in all material respects, in accordance with U.S. GAAP.
Description of Material Weaknesses and Management’s Remediation Initiatives
As of the date of this report, our remediation effortswe continue related to consider ways to address each of the material weaknesses and additional time and resources will be required in order to fully address these material weaknesses. We have not been able to complete all actions necessary and test the remediated controls in a manner that would enable us to conclude that such controls are effective. We are committed to implementing the necessary controls to remediate the material weaknesses described below.below as time and other resources permit. These material weaknesses will not be considered remediated until (1) the new processes are designed, appropriately controlled and implemented for a sufficient period of time and (2) we have sufficient evidence that the new processes and related controls are operating effectively. The following is a list of the material weaknesses as of September 30,December 31, 2013:
(1) Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the three months ended September 30,December 31, 2013, we internally performed all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact that these duties were often performed by the same person, there was a lack of review over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the Securities and Exchange Commission. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
(2) Insufficient corporate governance policies. The Company does not have a majority of independent members on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.
Changes in Internal Control over Financial Reporting
Other than the ongoing remediation efforts identified above, thereThere were no changes in our internal control over financial reporting during the three months ended September 30,December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are currently considering adding additional independent members to our board of directors and adding accounting personnel to our staff in connection with efforts to remediate the weaknesses described above, but no specific progress has been made to improve our internal controls during the three months ended September 30,December 31, 2013.
Inherent Limitations on Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
In addition, projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time that maycould harm our business. We are not currently a party to any proceedings the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
Please refer to the risks described under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on May 20, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In December 2013, the Company issued 20,816 shares of its common stock as payment for $18,750 in interest accrued under outstanding convertible debentures issued pursuant to the Subscription Agreement. Pursuant to the terms of such convertible debentures, the Company may elect to make interest payments through the issuance of shares of its common stock valued at the applicable conversion price. The shares of common stock issued to the holder of convertible debentures have not been registered under the Securities Act of 1933 (the “Securities Act”), and such securities were issued in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act. We are under no obligation to register the resale of such shares and do not expect to do so. Such shares may not be offered or sold in the United States absent registration under or exemption from the Securities Act and any applicable state securities laws. The convertible debenture holder has represented that it is an accredited investor as defined by the rules and regulations under the Securities Act and that it is acquiring the shares of our common stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.
Item 6. Exhibits
Exhibit
Number | | Description of Exhibit |
| 4.1 | | Offer Letter to Series B Warrant holders dated December 6, 2013 (incorporated by reference to Exhibit 4.1 to Stevia First Corp.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2013) |
| 10.1 | | Amendment to License Agreement, dated October 10, 2013 by and between Stevia First Corp. and Vineland Research and Innovation Centre, Inc. (incorporated by reference to Exhibit 10.1 to Stevia First Corp.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 16, 2013) |
| 31.1* | | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
| 32.1*† | | Certification of Chief Executive Officer and Chief Financial Officer Under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS*† | | XBRL Instance Document |
| 101.SCH*† | | XBRL Taxonomy Extension Schema Document |
| 101.CAL*† | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF*† | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB*† | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE*† | | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith.
† These exhibits are being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STEVIA FIRST CORP.
| By: | /s/ Robert Brooke | |
| | Robert Brooke | |
| | Chief Executive Officer | |
| | (Principal Executive Officer and Principal Financial and Accounting Officer) | |
| | Date: November 5, 2013February 14, 2014 | |
EXHIBIT INDEX
Exhibit
Number | | Description of Exhibit |
| 4.1 | | Offer Letter to Series B Warrant holders dated December 6, 2013 (incorporated by reference to Exhibit 4.1 to Stevia First Corp.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2013) |
| 10.1 | | Amendment to License Agreement, dated October 10, 2013 by and between Stevia First Corp. and Vineland Research and Innovation Centre, Inc. (incorporated by reference to Exhibit 10.1 to Stevia First Corp.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 16, 2013) |
| 31.1* | | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 |
| 32.1*† | | Certification of Chief Executive Officer and Chief Financial Officer Under Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS*† | | XBRL Instance Document |
| 101.SCH*† | | XBRL Taxonomy Extension Schema Document |
| 101.CAL*† | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF*† | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB*† | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE*† | | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith.
† These exhibits are being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.