ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
THE
FOLLOWING DISCUSSION IS INTENDED TO ASSIST IN UNDERSTANDING THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF Z TRIM HOLDINGS, INC. YOU SHOULD READ
THE
FOLLOWING DISCUSSION ALONG WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED ELSEWHERE IN THIS FORM 10-QSB. THE FOLLOWING DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS. OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2007 AND BEYOND
MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD
LOOKING STATEMENTS.
Overview
Z
Trim
Holdings, Inc. which changed its name from Circle Group Holdings, Inc. in 2006,
is an emerging growth company focused on the production, licensing, marketing
and distribution of its proprietary and patented technology, Z Trim. Z Trim(R)
is a natural food ingredient that is currently used by food manufacturers,
restaurants, and consumers to replace up to 50% of fat and calories without
changing taste, texture, appearance or digestive properties in baked goods,
dairy products, snacks, deserts, sauces, dressings, processed meats and many
other foods. Z Trim is dedicated to transforming the multi-billion dollar
processed food industry in its fight to create healthier, lower-fat,
lower-calorie products.
Z
Trim is
also available as an Appetite Control formula that is 100% natural dietary
fiber
made from the bran of grain and delivered in a cellulose capsule. The new
breakthrough product has great absorption capacity resulting in a feeling of
fullness and a reduction in appetite thus allowing consumers to continue
enjoying eating without sacrifice. Z Trim Appetite Control was recently shown
in
clinical studies to improve weight loss without causing any gastrointestinal
or
other negative side effects.
For
decades, the industry has taken steps to try to make foods with less calories
for the dieting consumer. They have been able to replace sugar and other
sweeteners with modest success but have had little success replacing fat,
usually creating products that don't taste very good. Sugar replacements such
as
saccharin, NutraSweet(R) and Splenda(R) can be found everywhere in our foods
and
eating habits. These food technologies have made their way into our soft drinks,
snacks, cookies and our home cooking. We believe that Z Trim, as a fat
replacement, has the potential to become as commonplace in our eating as sugar
substitutes, and it will do this while still maintaining the original taste
of
the foods.
As
a
marketing driven company with a unique technological base, Z Trim's mission
is
to establish a new paradigm in fiber rich, lower calorie, reduced saturated
fat
products that promote health beyond basic nutrition. By reducing the fat and
calories from fat by up to 50% in foods without sacrificing taste or texture,
Z
Trim represents a quantum breakthrough in food science and
technology.
After
years of development, Z Trim is now commercialized. The Company currently
manufactures and markets Z Trim as an affordable ingredient technology that
dramatically improves the industry's nutritional promise. The Company's primary
objective in 2007 is to build on Z Trim's early successes in various food
products and studies, with the target goal of establishing it as an important
ingredient in revolutionizing the food industry in a manner analogous to
NutraSweet(R). The Company is targeting the end consumer through (i) proposing
licensing agreements and direct sales to major food manufacturers and several
small to mid size companies, (ii) direct sales to the consumer, and (iii) direct
sales to large food institutions such as those that supply to restaurants,
hospitals, schools and cafeterias.
Plant
Usage Sales Scenarios
In
a 12
month period, the Mundelein Z Trim plant can currently produce an estimated
one
million pounds of finished Z Trim powder at 25x absorption. This could also
equate to 25 million pounds of Z Trim Gel at 4% solids. The Company has no
way
at this time of knowing exact amounts of each product but anticipates it will
produce a combination of 25x Z Trim Powder and 4% solids Z Trim Gel. Below
are
various uses of that available production capacity supply. The Company already
sells to all 9 channels in varying percentages and expects that trend to
continue as it grows however with little predictability of how much will be
sold
to each area in the future.
1)
Industry Manufacturer sales of Z Trim Boxed Powder (22 pounds) at $120 (current
price @ $5.5/lb) 45,454 boxes (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $5,500,000.
2)
Industry Manufacturer sales of Z Trim Gel (one gallon) at $2.5 (current price
@
$0.3/lb) 3,000,000 gallons (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $7,500,000.
3)
Institutional User sales of Z Trim Gel (one gallon) at $5.00 (current price
@
$0.6/lb) Schools, Universities, Hospitals, Hotels, Restaurants 3,000,000 gallons
(assuming total utilization of all available production capacity supply for
only
this channel). Total Annual Potential Gross Revenue: $15,000,000.
4)
Consumer Retail sales of Appetite Control Capsules at $29.95 (current bulk
price
at web site) 3,600,000 bottles (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $107,820,000.
5)
Consumer Retail sales of Appetite Control Capsules at $14.00 (wholesale price
to
large retailers) 3,600,000 bottles (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $50,400,000.
6)
Consumer Retail sales of Z Trim Fat Replacement at $3.99 (current bulk price
at
web site) 25,000,000 bottles (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $99,750,000.
7)
Consumer Retail sales of Z Trim Fat Replacement at $2.00 (wholesale price to
large retailers) 25,000,000 bottles (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $50,000,000.
8)
Consumer Retail sales of Z Trim Fiber Supplement (8 ounce) at $34.95 (current
price at web site) 2,000,000 packs (assuming total utilization of all available
production capacity supply for only this channel). Total Annual Potential Gross
Revenue: $69,900,000.
9)
Consumer Retail sales of Z Trim Fiber Supplement (8 oz) at $15.00 (wholesale
price to large retailers) 2,000,000 packs (assuming total utilization of all
available production capacity supply for only this channel). Total Annual
Potential Gross Revenue: $30,000,000.
Product
Description
Z
Trim is
an all natural ingredient made from plant fiber, essentially an amorphous
cellulose gel. Based on a novel processing system that converts crude fiber
grain components into cereal hydro-colloidal compositions, Z Trim is rich in
soluble and insoluble fiber, devoid of fat and calories, neutral in taste and
totally compatible in texture with foods that in which it is used. In concrete
terms, this patented, proven ingredient system can significantly improve the
health benefits of foods without compromising the taste delivery and mouth-feel
properties of full-fat products that are critical to consumers and the market
share belonging to the brands of every major food company.
Z
Trim
was developed at the U.S. Department of Agriculture by Dr. George Inglett.
The
goal was to create a zero-calorie healthy natural food ingredient utilizing
grain bi-products that would replace a large portion of high calorie fats in
processed foods. The Company holds the exclusive United States and international
manufacturing and marketing rights to the technology for all fields of use.
The
Company spent the past five years and approximately 14 million dollars
perfecting its patented and trade secret formulas, a state-of-the-art
manufacturing facility and marketing rollout for production and use. The Company
has dozens of U.S. and international patents issued and pending on the Z Trim
composition and process as well as numerous trade secrets relating to this
proprietary technology. Processes based upon the Company's intellectual property
portfolio are now in use at the Z Trim plant located in Mundelein,
Illinois.
Several
consumer studies have been performed on Z Trim by independent focus groups,
home
use tests, state fairs and staged events at restaurants, and in the media that
have been broadcast on NBC, CBS, WGN and FOX. All the results taken as a
collective grouping have consistently demonstrated that people cannot tell
the
difference between a full fat food and the same recipe replacing up to 50%
of
the fat with Z Trim. Seven out of ten consumers consistently chose Z Trim as
the
full fat version or the better tasting version.
Z
Trim
adds water to recipes, so it improves textures resulting in creamier, moister,
and juicier foods. The additional water also has the effect of cleansing the
palette thereby diminishing aftertastes of fats such as greasiness and
filminess. Lastly, Z Trim is healthy soluble and insoluble fiber. Fiber has
been
shown to improve satiety and contribute to other benefits such as weight loss,
lowering of cholesterol and improvement of glycemic index.
We
have
four operating subsidiaries: Fiber-Gel Technologies, Inc., thebraveway.com,
Inc.,(operating as The Brave Way Training Systems), On-Line Bedding Corp.,
and
Z-Amaize Technologies, Inc.
Z
Trim
Holdings has accumulated a substantial Intellectual Property Portfolio for
its
products and technologies including patents, trademarks, trade secrets and
licensed rights. This portfolio will provide the company with the protection
needed as it moves forward in the competitive business environment. Additional
intellectual property will be added to the portfolio as advances in the existing
technologies and new technologies are developed.
Subsidiaries
Fibergel
Technologies, Inc.
FiberGel
owned the exclusive, worldwide license for all fields of use to Z Trim, an
all-natural, agricultural-based fat replacement developed by the Agricultural
Research Service of the United States Department of Agriculture ("USDA"). The
Company acquired FiberGel, formerly a wholly-owned subsidiary of Utek
Corporation ("Utek"), on August 27, 2002. Under the terms of the acquisition,
we
issued 2,800,000 shares of our common stock to Utek valued at $504,000 using
an
average market price of $0.18 per share. We also issued a three year warrant
to
Utek to purchase 500,000 shares of our common stock at an exercise price of
$0.36 per share of which such warrants were fully exercised in 2004. Z Trim
Holdings, Inc. owns the exclusive U.S. and international rights to Z Trim,
and Z
Trim is currently our primary focus.
The
Company is currently making and shipping product to satisfy its customers'
orders and product sample requests. Swiss based conglomerate DKSH, the company's
distributor under exclusive limited territorial rights in Europe, Asia,
Australia and South America has been purchasing Z Trim and providing current
and
potential customers with product samples and other product related assistance
for both Z Trim and their newly developed non-GMO (Genetically Modified
Organisms) Oat versions of Z Trim. The raw material oats are being acquired
through a distributor from Quaker Oats.
Nat
Tools For Good Health
We
acquired the worldwide exclusive license to the NAT Web, the Nutrition Analysis
Tool ("NAT") website developed by the Department of Food Science and Human
Nutrition at the University of Illinois. The University of Illinois' NAT website
is an interactive, web-based system designed to empower individuals to select
a
nutrient-rich diet. This fully functional nutrient analysis program utilizes
the
USDA nutrient database, including over 6,000 foods as well as information from
food companies. NAT provides information on the relative composition of food
and
could aid consumers in their quest to achieve or maintain good health via
nutritious eating.
Pioneered
and developed by Dr. James Painter at the University of Illinois in 1995, and
a
winner of several awards, the Nutritional Analysis Tools and System ("NATS")
is
based upon the behavioral scientific discoveries that keeping track daily of
what we eat, plus how many calories we burn through fitness activities, are
among the most critical components in achieving and sustaining long-term
successful weight loss and health management. Using data provided by the USDA
and most brand name food companies, NAT'S users can keep track every day of
the
foods, calories, fats, proteins, carbohydrates and other nutrients they consume.
New members can join MyNATS for free and save all their menus on the NATS
database. Non-members can use NATS 2.0 to save all their data to their own
computers for free offline reference. NATS users can calculate calories burned
during the day. The web site provides visitors the ability to enter a certain
activity and the amount of calories they wish to burn, and then calculates
how
long the given activity needs to be done. Visitors can also enter how long
they
did an activity and the web site calculates how many calories they burned or
which activities a person can do to burn a certain amount of calories in a
given
length of time.
The
acquisition of the socially conscious NATS site is very significant to us
because it has the potential to provide us with a large consumer audience,
as it
attracts as many as two million visitors per month from more than eighty
countries. We are increasing awareness about our Z Trim products and their
benefits to consumers who visit the NATS website. Visitors to the site can
also
purchase Z Trim products, a pedometer based diet program, and Palm OS software
versions of the NATS site that they can use when on the go. We are planning
to
expand the number of products being offered on the web site in 2006 to include
cooperative advertising and marketing of healthy, calorie and fat reduced Z
Trim
products launched by food industry partners.
Brave
Way Training Systems
The
Brave
Way Training Systems, another of our wholly owned subsidiaries, is a security
training and product company. The Brave Way offers proven, highly effective,
low-cost self-defense courses and videos with a uniquely targeted curriculum
focusing on personal safety and self-defense including rape prevention. Courses
are offered for police officers and security personnel through The Brave Way's
state certified law enforcement training for students and teachers, individuals,
Airline Personnel, Hospital personnel, through park districts, clubs, churches
and other organizations as well as corporations. The Brave Way instructors
have
experience in multiple martial arts, and backgrounds in martial arts, security,
self-defense, and the military.
On-Line
Bedding Corp.
On-Line
Bedding Corp. ("On-Line Bedding"), another of our wholly-owned subsidiaries,
founded in 1981, is a distributor of pillows, blankets and other bedding
products to airlines, hospitals, government, and other commercial and
institutional customers. On-Line Bedding subcontracts the production of pillows,
blankets and other bedding products to manufacturers. On-Line Bedding's
customers include hospitals, nursing homes, hotels and motels, and
transportation-based companies such as airlines, railroads and motor coach
companies. On-Line Bedding purchases its raw materials from various suppliers,
and contracts production of its airline pillows and blankets with third party
manufacturers. On-Line Bedding warehouses a limited inventory, and drop ships
its products from manufacturers or wholesale suppliers in multiple locations
throughout the United States to reduce freight costs for its customers. On-Line
Bedding's primary accounts include AMTRAK, as well as certain domestic and
international airlines. In addition, the United States Armed Forces regularly
purchases a specialty pillow from On-Line Bedding through the United States
military's electronic invoice system. On-Line Bedding is also an authorized
pillow and related product vendor for a hospital purchasing group with over
500
members in eight states.
Operating
Segments
We
operate three reportable segments, food product development, defense product
development, and e-tailer.
Our
management reviews the operating companies' income to evaluate segment
performance and allocate resources. Our operating companies' income for the
reportable segments excludes income taxes and amortization of goodwill.
Provision for income taxes is centrally managed at the corporate level and,
accordingly, such items are not presented by segment since they are excluded
from the measure of segment profitability reviewed by our
management.
For
financial data on the reportable segments, you should refer to the Consolidated
Financial Statements and the notes thereto.
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
Certain
information set forth in this
report contains "forward-looking statements" within the meaning of federal
securities laws. Forward looking statements include statements concerning our
plans, objectives, goals, strategies, future events, future revenues or
performance, capital expenditures, and financing needs and other information
that is not historical information. When used in this report, the words
"estimates," "expects," "anticipates," "forecasts," "plans," "intends,"
"believes" and variations of such words or similar expressions are intended
to
identify forward-looking statements. Additional forward-looking statements
may
be made by us from time to time. All such subsequent forward-looking statements,
whether written or oral and whether made by us or on our behalf, are also
expressly qualified by these cautionary statements.
Our
forward-looking statements are
based upon our current expectations and various assumptions. Our expectations,
beliefs and projections are expressed in good faith and are believed by us
to
have a reasonable basis, including without limitation, our examination of
historical operating trends, data contained in our records and other data
available from third parties, but there can be no assurance that our
expectations, beliefs and projections will result or be achieved or
accomplished. Our forward-looking statements apply only as of the date made.
We
undertake no obligation to publicly update or revise forward-looking statements
which may be made to reflect events or circumstances after the date made or
to
reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause actual results
to
differ materially from those set forth in, contemplated by or underlying
the
forward-looking statements contained in this report. Those risks and
uncertainties include, but are not limited to, the risk that we do not
regain
compliance with the continued listing standards of the American Stock Exchange,
risks relating to our material weakness in internal controls overfinancial
reporting, our history of operating losses, lack thus far of significant
market
acceptance of our products, the fact that we may dilute existing shareholders
through additional stock issuances, our reliance on our intellectual property,
and the potential negative effects of manipulation in the trading of our
common
stock. Those risks and certain other uncertainties are discussed in more
detail
in our 2006 Annual Report on Form 10-KSB and our subsequent filings with
the
SEC. There may also be other factors, including those discussed elsewhere
in
this report that may cause our actual results to differ from the forward-looking
statements. Any forward-looking statements made by us or on our behalf
should be
considered in light of these factors.
RECENT
MATERIAL DEVELOPMENTS
On
February 22, 2007 we announced that this year's fiscal sales(calendar 2007)
of Z
Trim for January and the first 21 days of February surpassed the Z Trim product
sales for calendar year 2006, which were $103,269.00 and the achievement of
significant progress in its business plan implementation. The company attributes
the improvement to strategic marketing coinciding with increased demand by
consumers and growing use by food producers.
In
the
4th quarter of 2006, the Company surveyed its existing customer base and was
provided projections of their anticipated utilization of Z Trim for the calendar
year 2007. The total of those projections, if achieved, is estimated to consume
the company's current plant capacity on a run-rate basis by year end 2007.
With
the potential for exceeding the existing plant capacity becoming a realistic
late 2007 target, the Company is presently in various discussions with custom
food ingredient companies to manufacture Z Trim in plants within the continental
United States as well as internationally.
The
Company now has three distinct venues it markets and sells to:
*
1st
Tier.....Food Processors & Manufacturers
*
2nd
Tier.....Food Service (Schools, Restaurants, Hospitals, Hotels)
*
3rd
Tier.....Direct to Consumers, Consumer Retail
These
Tiers all present totally different opportunities, but each offer unique and
substantial market leverage if maximized.
On
May 4,
2007, the Company announced that its Z Trim Appetite Control Capsules can now
be
purchased at select GNC retail stores and from the GNC web site. This is one
of
the important steps in the Company's planned retail rollout to make Z Trim
products accessible to people everywhere. Many foods are engineered to break
through our natural resistance to over-eating. Z Trim contributes to a
satisfying feeling of fullness and provides a simple way to reduce caloric
intake. Lowering calories is widely regarded as the key to successful weight
management. This is why Z Trim Appetite Control is such a critical new product
in gaining control over the battle between personal sacrifice and our eating
enjoyment. With Z Trim, people can enjoy eating and still improve their
health.
Z
Trim
Appetite Control® is 100% natural dietary fiber made from the bran of corn and
delivered in a vegetarian cellulose capsule. This breakthrough product has
superior absorption capacity resulting in a feeling of fullness and a reduction
in appetite thus allowing consumers to continue enjoying eating without
sacrifice. Z Trim Appetite Control has been shown in clinical studies to improve
sustainable weight loss without lifestyle change and without causing any
gastrointestinal or other negative side effects. Z Trim should be considered
by
people who are not maximizing success with their existing weight management
approach, as well as for those who cannot take stimulant based products for
various health reasons. Z Trim Appetite Control Capsules, are available as
part
of a healthy multi-disciplinary approach.
On
May 3,
2007, the Company reported that by letter dated April 27, 2007, the American
Stock Exchange ("AMEX") notified Z Trim Holdings, Inc. (the "Company") pursuant
to Section 1009(a)(i) of the AMEX Company Guide (the "Guide") that the Company
was not in compliance with AMEX's continued listing standards as a result of
the
issuance of 879,996 shares of restricted common stock upon exercise of a warrant
without prior listing approval, contrary to Section 301 of the Guide. The letter
constitutes a "Warning Letter" and does not cause the initiation of a de-listing
procedure or result in the suspension of trading in the Company's common stock.
The Company has resolved the Section 301 violation by rescinding the transaction
giving rise to the issuance of the shares in question.
On
May 1,
2007, Z Trim Holdings, Inc. hired Alan Orlowsky as the Company's Chief Financial
Officer. Mr. Orlowsky has served as a member of the Company's Board of Directors
since January 2004 and most recently was the Chairman of the Company's Audit
Committee and a member of the Company’s Compensation Committee. Mr. Orlowsky
resigned those positions as of April 30, 2007. Dana Dabney, the Company's prior
CFO, remains employed as Vice President and remains on the Company's Board
of
Directors. Mr. Orlowsky is moving into the CFO position at an important time
of
growth and expanding opportunity for the Company and his hiring is seen by
the
Company as a strategic benefit to operations going forward.
Mr.
Orlowsky, age 58, received his B.S. in accounting from the University of
Illinois in Champaign and upon graduation passed the C.P.A. exam. He then earned
his law degree at IIT Chicago-Kent College of Law and passed the Illinois bar
exam in 1975. Following graduation from law school, Mr. Orlowsky worked at
the
I.R.S. in the Estate and Gift Tax Division. During his tenure with the I.R.S.,
Mr. Orlowsky was also adjunct professor of Accounting, Taxation and Business
Law
at Northeastern Illinois School of Business. He left the IRS to accept a
position with Deloitte & Touche as a tax professional and subsequently
joined the faculty of Loyola University of Chicago School of Business where
he
taught Taxation and Accounting and opened his own practice. The Company's Board
of Directors has appointed Brian Israel, age 49, to fill the vacancy created
by
Mr. Orlowsky's departure. In addition, Mr. Israel will serve as a member of
the
Compensation Committee and the Audit Committee, which he will Chair. Mr. Israel
has spent more than 20 years in the real estate finance industry, during which
he managed teams responsible for production, operations, risk management,
product and policy development, technology and project management functions
for
a major national lender and a large regional commercial bank.
Mr.
Israel has long been active in legislative and consumer advocacy, is a former
President of the Illinois Mortgage Bankers Association and has served on a
variety of mortgage-related advisory bodies including the Federal Home Loan
Mortgage Corporation's Affordable Housing Advisory Council and Regional Lender
Advisory Board, and the Illinois Department of Financial and Professional
Regulation's Residential Mortgage Advisory Board.
Currently,
Mr. Israel provides strategic planning, training and project management services
to businesses and non-profit entities as an independent consultant. He also
serves as President of North Shore Custom Homes, Ltd., as a Mentor with Big
Brothers and Big Sisters of Metropolitan Chicago, as a member of the Chicago
Hospitality Resource Partnership Advisory Council and as President of the River
North Residents Association. Mr. Israel will stand re-election at the Company's
2007 annual meeting of shareholders. By that time the Company also expects
Mr.
Orlowsky and an additional outside director will have joined the board; bringing
the total number of Directors to eight.
On
April
16, 2007, the Company announced that at any of the 69 food service operations
in
the Volusia County, Florida Public School system's award-winning "School Way
Cafe," students can choose from an assortment of baked goods made with or
without Z Trim. Based on taste alone, they overwhelmingly prefer the reduced
fat
items with Z Trim.
Innovating
for better tasting, healthier foods in the cafeterias of the 58th largest school
district in the country has been a primary objective of Volusia County School
Food Service Director Jon Dickl since he was hired by the district in early
2007.
Since
late January, school food service operations in Pennsylvania, Massachusetts,
and
Florida have begun actively using Z Trim gel in baked goods, dressings and
mayo.
Many more are testing the product, as are foodservice operations in
hospitals.
Z
Trim
underwent a thorough review prior to use at Volusia schools. An evaluation
phase
was conducted by a certified research chef comparing Z Trim recipes to Control
recipes. New and traditional menu items were prepared for tasting by school
officials. A tasting panel consisting of students was formed as
well.
Chef
Costa Magoulas, CEC, CCE, Coordinator of Culinary Operations, reformulated
all
bakery items made on premises by replacing percentages of the butter, margarine
and oil with natural Z Trim gel, enabling the food service operations throughout
the district to offer fresh baked cakes, breads, icings, rolls, cookies,
brownies, and muffins with reduced calories, more fiber, and all the taste
of
the full fat alternatives.
In
addition to using Z Trim in baked goods and dressings, Volusia County
foodservice personnel are also testing Z Trim in their savory category of menu
offerings such as baked ziti, lasagna, chili, etc.
The
next
steps for the widespread transition to healthier favorites include many players.
The product has been proven safe and effective in lowering fat while maintaining
taste. The Company is talking to school districts, hospital nutritionists,
and
third party food service contractors across the country about incorporating
Z
Trim into their food programs.
Those
sentiments are shared by the authors of the current best seller, "You On a
Diet," (Free Press) Dr. Mehmet Oz and Dr. Michael Roizen. On page 90 of their
book, under the heading of "Help is on the Way," the two Oprah show regulars
tout the benefits of Z Trim, confirming its calorie reduction and taste benefits
and noting that it "may eventually change the way we eat." That change is
already underway, according to some school nutritionists. "We've established
the
dividing line between the old and the new ways," Lazzaro said. "As long as
we're
introducing more fresh produce into student diets, we can and should take major
steps toward improving the nutritional profiles of the traditional favorites
as
well, with Z Trim. It's quite simply the new way to 'do food' going
forward."
On
March
8, 2007, the Company announced the launching of its new Affiliate Sales Program.
The program is designed to reward loyal users of its Z Trim product line and
Z
Trim shareholders who continue to refer customers to Z Trim products. They
now
will have the opportunity to benefit from their referrals by signing up for
the
Affiliate Program and earning a commission on sales brought in by them through
simple referrals. The Company feels that this is one of the best ways to show
that Z Trim is “The People's Company”.
Z
Trim
has seen increased coverage in the first quarter of 2007 on the web and in
written media. The Company and its products have received coverage in Business
Week, First For Women magazine and the best selling book “You On A Diet” in the
written media, and About.com for low fat cooking, 3 Fat Chicks on a Diet, and
Knobias on the web. The current First for Women cover story has a featured
inset
on Z Trim in the cover story, next to Oprah and Dr. Mehmet Oz. Z Trim has also
been featured in a number of news stories around the country in newspapers
and
magazines, and on the radio and television during the first quarter of
2007.
On
March
6, 2007, the Company announced that a signature brand is using Z Trim, its
zero
calorie natural fat replacement ingredient, in their refrigerated "heat &
serve" Italian entree. The ingredient list references "Z Trim (natural dietary
fiber)". This is the Company’s first entry into the refrigerated and prepared
food market. Z Trim brings binding and texture enhancements to refrigerated
foods, as well as fat replacement and dietary fiber benefits. The Company looks
to continue to expand Z Trim into other categories in the retail marketplace
over the next year. The entrees are carried in the refrigerated section of
Costco stores in the Midwest region.
In
January 2007, a Pittsburgh area school district announced it was using Z Trim
Mayo spread in its prepared salads, such as tuna fish salad, egg salad and
potato salad and in its ranch dressing. Z Trim Mayo Spread has 25 calories
per
serving and 82% less fat then the regular leading brand mayonnaise, which has
90
calories per serving. The kids in the school thought they were eating regular
mayonnaise. As a result of the announcement, stories about Z Trim being used
in
the school lunch program were carried by TV and radio stations, newspapers,
magazines and online news services and other websites, nationally and
internationally. They highlighted that the schools were using Z Trim for ten
months and kids never knew the difference. The Associated Press released a
feature on this situation that was the top AP health story for two
days.
Consumers
responded to the media coverage by requesting information and by ordering Z
Trim
products through the Internet and telephone. Several school districts around
the
country also responded by either contacting us directly or having their food
service provider and food vendors contact us in order to get Z Trim into their
school meal programs. Shipments have already been made to some of them. The
media coverage further resulted in testing Z Trim in one of the nation's premier
hospital-based, doctor-sponsored, large insurance company wellness programs.
It
also resulted in a major vitamin retailer approaching the Company with the
possibility of carrying Z Trim products nationally in 2007-Q2.
In
January 2007, the Company concluded the review of a six week preliminary
clinical study by Zev Davis, M.D. at Edward Heart Hospital using Z Trim Appetite
Control capsules. The results, which were statistically analyzed by Dr. Paul
Rathouz, Ph.D. - University of Chicago, showed that approximately three out
of
four people lost 1 to 2 pounds per week without lifestyle modification.
Commenced one week before Thanksgiving and concluding the week after Christmas
2006, the study showed that Z Trim caused no gastrointestinal or other negative
side affects. Sales in the Appetite Control capsules have increased consistently
since the release of the results sparking interest from several other prominent
clinicians seeking to assist in expanding the scope and duration of additional
studies demonstrating Z Trim's special abilities.
In
January 2007, the second order was received for Non-Dairy Cheese in the
UK.
The
Company has agreed to have a book authored by two well-known nutrition experts
to be released in April 2007 along with an aggressive promotional tour. The
work
will be called the Pyramid Diet referring to the new Pyramid the USDA plans
to
heavily promote in the coming year. The book will provide significant coverage
about the Z Trim Advantage and the "Live Life Better" lifestyle.
In
December 2006, the Company hired former Atkins Nutritional Medical Director
Stuart Trager, M.D. as its Director of Clinical Affairs. In this role Dr. Trager
will promote Z Trim to the media from a medical and scientific perspective.
Dr.
Trager has been on many national news programs as a weight health expert and
testified to congress on these issues for Tommy Thompson from the Department
of
Health and Human Services.
We
have
completed equipment and procedural modifications to increase efficiency in
the Z
Trim manufacturing facility and we have also added production areas for Z Trim
gel bottling and Appetite Control capsule production. Starting January 6, 2007,
the Z Trim manufacturing facility increased its production schedule to 24 hours,
7 days a week. The Company is building inventory to support anticipated future
demand.
We
have
made many additions and changes to our web site recently in order to continue
to
inform and educate the food industry and the public about the health benefits
of
and how to use Z Trim. These changes include:
-
-
- Additional links and information for food industry
professionals
-
-
- A downloadable online Z Trim brochure
-
-
- A Frequently Asked Questions (FAQ)
section
-
-
- Links to additional recipes and cooking
tips
-
-
- New online instructional "Cooking With Z Trim"
videos
-
-
- Educational and entertaining animated features for
teachers, students, and parents
-
-
- Videos with fitness experts Heather Hawk and Nikki
Anderson
-
-
- Updated plant pictures and a video tour of the Z Trim
plant
-
-
- Bios of our Expanded Advisory Panel members who have
been selected to advise and assist the company in reaching its
goals
-
-
- Quotes about the benefits of Z Trim by Industry
Experts
-
-
- New videos and news links covering the Plum Borough,
Pennsylvania school district using Z Trim in their school meals
program
-
-
- The addition of the downloadable Z Trim Player which
will allow people to stay informed of the latest news about Z Trim.
-
-
- The linking of the NATS website directly to the Z Trim
product online store to allow visitors to the NATS website to buy Z Trim
products
We
are
working on many exciting projects that include:
-
-
- Additional ongoing clinical Z Trim research
studies
-
-
- Internet traffic to the Nutritional Analysis and Tools
System (NATS) website continues to remain strong, allowing us to inform and
educate visitors to the website about the benefits of using Z Trim. It also
provides the opportunity to market and sell Z Trim products to them as
well.
SUMMARY
OF FINANCIAL RESULTS
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THE SAME PERIOD ENDING MARCH 31,
2006.
Revenues
Revenues
increased 179% for the three months ended March 31, 2007 from $115,443 for
the
three months ended March 31, 2006 to $322,164. The increase in revenues was
primarily due to the increase in Z Trim product sales and in e-tailer segments.
The following table provides a breakdown of the revenues for our divisions
for
the periods indicated:
Three
months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Products
|
|
$
|
321,408
|
|
|
$
|
111,720
|
|
|
Services
|
|
|
756
|
|
|
|
3,723
|
|
|
Total
Revenues
|
|
$
|
322,164
|
|
|
$
|
115,443
|
|
Operating
expenses
Operating
expenses consist of payroll and related costs, stock option expense, insurance,
occupancy expenses, professional fees, and general operating expenses. Total
operating expenses increased by $998,097 to $3,557,355 for the three months
ended March 31, 2007 from $2,559,258 for the three months ended March 31, 2006.
The increase in operating expenses was primarily due to the increase in
consulting and payroll expenses, net of the decrease in investor and public
relations, and stock option expenses.
The
stock
option expense for the three months ending March 31, 2007 was $306,955 compared
to $1,093,500 for the three months ending March 31, 2006.
Stock
options from the Company's stock option plan have been utilized in place of
large salaries for management, staff, and plant employees, and as compensation
for the advisory board members. Over the past year the Company has been building
an Advisory Board of experts in the food industry, pharmaceutical industry,
nutrition and fitness industry, medical profession, and other industries related
to Z Trim's business. These current and former industry executives, doctors,
chefs, food formulators, nutritionists, fitness experts, and others have been
brought together to help Z Trim Holdings with its direction and contacts to
help
insure the growth and success of the Company. The Company has also significantly
increased the size of its workforce over that time in the production, sales,
and
marketing areas of the Company to allow for the continued expansion and
execution of its marketing, production, and sales plans. The incentive plan
is
based on three components, the amount of participation or attendance of the
individual, the type, quality, and amount of service of the individual, and
the
results and value that the individuals provide to the Company with their service
or participation. Each option grant is based on milestones that must be met
in
order for the options to be exercised. The Company feels strongly that the
charge for the stock options under the new accounting rules is a wise investment
in the Company's future.
Other
income (expense)
Total
other income for the three months ended March 31, 2007 was $10,367 compared
to
$5,697 for the three months ended March 31, 2006. The increase was primarily
due
to a combination of increase in interest income and decrease in interest
expense.
Net
loss
The
Company reported a net loss for the first quarter of 2007 of $3,906,811 or
$0.06
per share, as compared with a net loss of $2,705,699 or $0.05 per share for
the
first quarter of 2006.
Assets
The
Company reported a decrease in Assets for the first quarter of 2007 of
$11,143,524 from $11,173,099 for the comparable period in fiscal 2006. The
decrease was primarily due to the decrease in value for depreciation of the
plant and other intangible assets less the increase in current
assets.
LIQUIDITY
AND CAPITAL RESOURCES
At
March
31, 2007, the Company had cash and cash equivalents of $4,046,845, an increase
of $3,350,346 from December 31, 2006. The increase in cash is due to the
proceeds of stock, exercise of options and warrants net capital lease payments,
which totals $5,023,102, less cash used in operations of $1,541,727 and
in the
purchase of property and equipment of $131,029. The Company’s total capital
lease obligations were $8,245 at March 31, 2007.
Net
cash
used by operating activities increased by 66% to $1,541,727 for the three
months
ended March 31, 2007 as compared to $930,135 for the three months ended
March
31, 2006. The increased cash usage was composed of a net loss of $3,906,811
adjusted for non-cash items, including depreciation and amortization of
$162,091, stock option expense of $306,855, and non-cash expenses of
$
2,302,279, and for the net cash used from the net increases
in
assets and decreases in liabilities of approximately
$406,241.
Net
cash
used by investing activities was $131,029 for the three months ended March
31,
2007, as compared to net cash used by investing activities of $1,960 for
the
three months ended March 31, 2006. The increase was due to increased
acquisitions of property and equipment for our manufacturing plant in the
current year.
Net
cash
provided by financing activities was $5,023,102 for the three months ended
March
31, 2007 as compared to $4,908,893 for the three months ended March 31,
2006.
Net cash provided by financing activities for the three months ended March
31,
2007 was primarily from the proceeds received from the sale of stock, and
the
exercise of options and warrants, which total $5,028,931. Net cash provided
by
financing activities for the three months ended March 31, 2006 was primarily
from the sale of our stock, and from the exercise of options and warrants
of
approximately $4,918,288.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company has no off-balance sheet arrangements as defined in Item 303(c) of
Regulation S-B.