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| NXTZ.OB > SEC Filings for NXTZ.OB > Form 10-Q on 17-Nov-2009 | All Recent SEC Filings |
17-Nov-2009
Quarterly Report
This Form 10-Q contains certain forward-looking statements. For this purpose any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
Executive Overview
We were formed under the laws of the State of Nevada on March 7, 2001 under the
name Wren, Inc. Our activities had been limited to identifying and purchasing
certain merchandise for resale. Our online inventory resale business did not
grow to our expectations. We encountered a potential business opportunity in the
form of a license for the marketing and distribution of the NextFit Keychain
Trainer. Consequently, during the fourth quarter of 2008, we implemented
management changes, and on March 4, 2009, the Company entered into an Exclusive
License and Distribution Agreement (the "License and Distribution Agreement")
with NextFitness, Inc. for the right to market and sell the NextFit Keychain
Trainer and associated Service, as defined below. As amended to date the License
and Distribution Agreement calls for the Company to pay license fees as follows:
issuance of 600,000 shares of Class A Preferred Stock, issuance of 600,000
shares of Class B Preferred Stock, $800,000 payable in the form of a Promissory
Note, additional periodic payments of $1,100,000, $300,000, $200,000 and
$200,000, and warrants to purchase 4,500,000 shares of common stock, valued at
$54,000 using the Black-Scholes method. In addition, the Company must pay to
NextFitness $2.00 for every Service subscriber each month, excluding the
subscriber's first month, and a minimum monthly payment of $30,000.
With the purchase of distribution rights under the License and Distribution Agreement, we have moved our focus to the consumer-direct selling of the NextFit Keychain Trainer and associated Service. The Company uses a network marketing strategy, which consists of a person-to-person, hand-to-hand selling approach. In keeping with the Company's focus on the NextFit Keychain Trainer and associated Service, we have changed the name of the Company to NextFit, Inc.
The NextFit Keychain Trainer and associated Service combine technology, expert coaching, and music to motivate people to reach their fitness goals. The keystone of the Company's business is the appeal of the NextFit Keychain Trainer as a training and fitness aid, resulting in initial retail sales of the Keychain Trainer and ongoing subscriptions for the associated Service. For the Service the subscriber pays annual, quarterly or monthly payments to the Company and receives downloads of dynamic and personalized health and fitness audio workouts featuring celebrities and/or preeminent trainers.
Advantages of the Keychain Trainer and associated Service:
·
Offers a fun, simple, easy way to get fit: Subscribers just listen to the music and follow their trainers' instructions.
·
Each session is custom-tailored for the individual Subscriber and coaching is available for every fitness level. Trainers call each Subscriber by name.
·
Gives Subscribers access to celebrity trainers, including "America's Trainer," Kathy Smith; David Kirsch, who trains Heidi Klum and Anne Hathaway; running expert Jeff Galloway; and more than forty other preeminent coaches.
·
150 tracks of professionally designed fitness music included (with ability for advanced users to mix in their own music).
·
Content library of more than 2,500 exercises, hundreds of kinds of equipment, and about 150,000 audio clips form the world's largest audio exercise database. Every audio clip is professionally scripted, tested, and recorded in English with Spanish training coming soon.
·
Over $15 million invested by NextFitness, Inc. in the technology platform.
·
8 patents pending on technology, such as the "Dynamic Media Production" system, which tailors workouts based upon the results of prior sessions, the training location and available equipment.
The Keychain Trainer naturally lends itself to network marketing. A distributor can hand a demonstration Keychain Trainer to a prospective subscriber and ask him or her to listen for themselves to a pre-loaded promotional session. This process takes little time and replaces millions of dollars in advertising to get a Keychain Trainer into the hands of a prospective customer.
During the third quarter of 2009, the Company launched its new and improved Keychain Trainer with added features, greater stability, marketability, and more memory.
Liquidity and Capital Resources
At September 30, 2009 we had $25,153 in cash. The net loss for the three months and nine months ended September 30, 2009 was $7,431,211 and $9,442,187, respectively. Excluding non-cash expenses relating to shares, options, and warrants issued, the net loss for the three and nine months ended September 30, 2009 was $1,316,109 and $2,544,669, respectively. At September 30, 2009 we also had total liabilities of $6,476,910, of which current liabilities was $6,428,860. Excluding non-cash stock payable, we had total liabilities of $4,835,938, of which current liabilities was $4,787,888. We have primarily financed our operations through the sale of common stock and borrowing using equity inducements. In order to raise the necessary capital to maintain our reporting company status, we may sell additional stock, arrange debt financing or seek advances from our officers or shareholders.
During the nine months ended September 30, 2009, the Company raised $305,000 of capital through private sales of a debenture that pays interest of 16% annually. The debentures are convertible to common stock at $0.30 per share at the three year maturity, or if the Company decides to prepay the offering in full. Debenture purchasers also received warrants to purchase common stock, on a dollar per share basis, exercisable for three years at an exercise price of $0.60 per share.
During the three and nine months ended September 30, 2009, the Company raised $1,075,000 and $1,216,000, respectively, of capital through interest bearing notes payable at varying interest rates. At maturity, the note holders have the option to convert their notes into debentures with terms similar to the debentures described above.
During the three and nine months ended September 30, 2009, the Company raised $250,600 and $480,600, respectively, of capital through interest bearing short-term loans at varying interest rates.
During the nine months ended September 30, 2009, the Company raised $438,000 of capital through non-interest bearing short-term loans.
Results of Operations
Our revenues for the three and nine months ended September 30, 2009 totaled $202,117 and $741,928, respectively, and we have a net loss for the same periods of $7,431,211 and $9,442,187 respectively. This compares to $14,576 in revenue and a net loss of $7,333 for the corresponding three months in 2008 and $18,671 in revenue and a net loss of $22,638 for the nine-month period in 2008. Expenses during the three months ended September 30, 2009, consisted of $1,119,959 in general and administrative expense and $213,213 in non-cash compensation from employee stock option issuances. Expenses during the comparable period in 2008 consisted of $12,577 in general and administrative expenses. Expenses during the nine months ended September 30, 2009, consisted of $2,337,142 in general and administrative expense and $409,604 in non-cash compensation from warrant and employee stock option issuances. Expenses during the comparable period in 2008 consisted of $29,500 in general and administrative expenses. Net loss for the three and nine months ended September 30, 2009 was $7,431,211 and $9,442,187, respectively. Excluding non-cash expenses relating to shares, options, and warrants issued, and $103,000 in cost for the inventory loss due to product discontinuance, the net loss for the three and nine months ended September 30, 2009 was $1,316,109 and $2,544,669, respectively. The increase in expenses from 2008 to 2009 are primarily the result of increased non-cash financing costs and increased salaries and other general and administrative expenses incurred in implementing and growing sales of the NextFit Keychain Trainer and the affiliated Service.
As of September 30, 2009 our total assets were $6,048,195, consisting of $25,153 in cash, $386,823 of net inventory, $78,717 in prepaid expenses and deposits, $2,889,421 in deferred loan costs, $66,883 in net fixed assets, and a license agreement of $2,601,200. Total liabilities at September 30, 2009 are $6,476,910, of which current liabilities are $6,428,860. Excluding non-cash stock payable we had total liabilities of $4,835,938, of which current liabilities are $4,787,888.
Off-balance Sheet Arrangements
None
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