SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2007
Commission
file number 000-25995
NEXTERA ENTERPRISES, INC.
(Name of Registrant as Specified in its
Charter)
Delaware
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95-4700410
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(State or Other
Jurisdiction of Incorporation)
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(I.R.S. Employer
Identification No.)
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14320
Arminta Street, Panorama City, California
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91402
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(Address of Principal
Executive Offices)
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(Zip Code)
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(818)
902-5537
(Registrants Telephone Number, Including
Area Code)
Securities registered pursuant to Section 12(b) of
the Act:
None.
Securities registered pursuant to Section 12(g) of
the Act:
Class A
Common Stock, $0.001 par value
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by rule 405
of the Securities Act. YES
o
NO
x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. YES
o
NO
x
(1)
Indicate
by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. YES
x
NO
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
¨
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting company
x
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(Do not check if
a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2
of the Exchange Act).
YES
o
NO
x
As of June 30, 2007 (the last business day of the
registrants recently completed second fiscal quarter), the aggregate market
value of the registrants Class A Common Stock held by non-affiliates of
the registrant was approximately $3,854,779, based on the closing price of the
Companys Class A Common Stock as quoted on the OTC Bulletin Board on June 30,
2007 of $0.18 per share. The quotations on the OTC Bulletin Board reflect inter-dealer
prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
As
of March 31, 2008, 38,692,851 shares
of registrants Class A Common Stock, $0.001 par value, were outstanding
and 3,844,200 shares of registrants Class B Common Stock, $0.001 par value,
were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
(1) The registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of
the Securities Act, because as of January 1, 2008 it had fewer than 300
shareholders of record.
Forward Looking Statements
The following discussion contains forward-looking
statements. Forward-looking statements give our current expectations or forecasts
of future events. These statements can be identified
by the fact that they do not relate strictly to historic or current facts. They
use words such as may, could, will, continue, should, would,
anticipate, estimate, expect, project, intend, plan, believe, and
other words and terms of similar meaning in connection with any discussion of
future operating or financial performance. In particular, these forward-looking
statements include statements relating to future actions or the outcome of
financial results. From time to time, we also may provide oral or written
forward-looking statements in other materials released to the public. Any or
all of the forward-looking statements in this annual report and in any other
public statements may turn out to be incorrect. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties.
Consequently, no forward-looking statement can be guaranteed. Our actual
results may differ materially from those stated or implied by such
forward-looking statements.
Factors
that could cause our actual results to differ materially include, but are not
limited to:
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There is substantial doubt about our ability to
continue as a going concern;
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We
are currently in default of financial covenants and payment obligations under
our Credit Agreement;
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Nextera
is a holding company with no business operations of its own;
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All
of the shares of Woodridge stock are pledged and substantially all of
Woodridges assets are subject to liens to secure obligations under the
Credit Agreement;
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We
initiated a voluntary recall of certain of our DermaFreeze365 products and
the effects of the recall may have a material adverse effect on our business,
operations and financial condition;
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The
loss of key personnel and the difficulty of attracting and retaining
qualified personnel could harm our business and results of operations;
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We
depend on a limited number of customers for a large portion of our net sales
and the loss of one or more of these customers could reduce our net sales;
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We
face significant competition within our industry, and we are not as
financially strong or large as many of our competitors;
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We
may be subject to claims of infringement regarding products or technologies
that are protected by trademarks, patents and other intellectual property
rights;
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To
service our indebtedness and fund our working capital requirements, we will
require significant amounts of cash;
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We
rely on third parties for all of our product manufacturing requirements;
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Our
ability to utilize our net operating loss carryforwards may be limited or
eliminated in its entirety;
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Our
common stock does not trade on an established trading market, which makes our
common stock more difficult to trade and more susceptible to price
volatility; and
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O
ther
factors detailed in Item 1A. Risk Factors below.
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New factors emerge from time to time, and it is
not possible for us to predict all these factors nor can we assess the impact
of these factors 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. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Given these risks and uncertainties,
you should not place undue reliance on forward-looking statements as a
prediction of actual results.
3
PART I
As
used in this report, the terms Nextera, Company, we, our, ours, and us
refer to Nextera Enterprises, Inc, a Delaware corporation, or Nextera, and our
wholly owned subsidiaries.
ITEM 1.
Business
Overview
Nextera
Enterprises, Inc. was incorporated in the state of Delaware in 1997. On March 9,
2006, Nextera, through W Lab Acquisition Corp., our wholly owned subsidiary,
acquired substantially all of the assets of Jocott Enterprises, Inc.,
which we refer to as Jocott in this report, which formerly operated under the
name Woodridge Labs, Inc. We
refer to this acquisition and all related transactions in this report as the
Transaction. Subsequently, our wholly owned subsidiary was renamed Woodridge
Labs, Inc. As used in this report, the term Woodridge refers to Jocott
for all periods prior to March 9, 2006 and to our wholly owned subsidiary
Woodridge Labs, Inc. from and after March 9, 2006. Prior to the
acquisition of the Woodridge assets, we had no business operations for the
period from November 29, 2003 through March 8, 2006. Woodridges
financial results have only been included for the period subsequent to the March 9,
2006 acquisition.
In
connection with the acquisition of the Woodridge Labs business on March 9,
2006, we entered into a senior secured credit facility, which was subsequently
amended in March 2007, April 2007 and November 2007. We refer to
our amended senior secured credit facility in this report as the Credit
Agreement. The Credit Agreement originally consisted of a $10.0 million fully-drawn
term loan, of which approximately $9.5 million was outstanding at December 31,
2007, and a four-year $5.0 million revolving credit facility. Under the terms
of the April 2007 amendment, the revolving credit facility was reduced to
$2.75 million, which was fully drawn at December 31, 2007.
Under
the terms of the November 2007 amendment, we obtained a bridge loan credit
facility aggregating $2.5 million. The bridge loan facility must be repaid with
cash balances in excess of $500,000 through the final maturity of May 31,
2008. Outstanding borrowings under the term loan must be repaid in four
quarterly payments, commencing March 31, 2008, with a final payment due on
March 31, 2009, the maturity date of the term loan. The maturity date for
the revolving credit facility is also March 31, 2009. The Credit Agreement, as amended, also
contains certain restrictive financial covenants, including minimum
consolidated earnings before interest,
taxes, depreciation and amortization (or, EBITDA), minimum purchase order
levels and maximum corporate overhead, as defined therein.
On
March 31, 2008, an installment of principal of the term loans in an
aggregate amount equal to $250,000, which we refer to as the March 31
Installment, became due and payable under the Credit Agreement. The March 31 Installment remains
unpaid. Additionally, we have furnished
the lenders of the Credit Agreement with financial information showing that we
failed to comply with the minimum consolidated EBITDA financial covenant that applied to the measurement period
ending January 31, 2008. As a
consequence of the failure to pay the March 31 Installment, and the
failure to comply with this financial covenant, events of default have occurred
under the Credit Agreement. No cure
periods or grace periods are applicable to these events of default. The events of default have not been waived
and are continuing under the Credit Agreement.
Note 15 to the accompanying consolidated financial statements describes
a proposed transaction to satisfy the obligations under the Credit Agreement,
but we cannot be assured that the proposed transaction will be consummated on
the terms described therein or at all.
As
shown in the accompanying consolidated financial statements, we have incurred
recurring net losses and have an accumulated deficit of $175.5 million,
stockholders deficit of $4.2 million and a working capital deficiency of $12.8
million as of December 31, 2007.
Additionally, as described above and in more detail in Notes 8 and 15 to
the accompanying consolidated financial statements, we are in default of our
Credit Agreement and on April 16, 2008, we executed a non-binding Letter of
Intent to sell substantially all of the assets of our sole operating
subsidiary, Woodridge, to a company owned by the secured lenders in
satisfaction of the obligations under the Credit Agreement. Should the proposed sale described in Note 15
be consummated, we would be left with no operating assets to generate cash
flows. Should the proposed sale not be
consummated, we would seek alternative debt or equity financing. To the extent alternative financing was not
available, we would likely need to cease operations. These factors raise substantial doubt about
our ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts or classification of liabilities that
may result for the outcome of this uncertainty.
Woodridge,
our sole operating business, is an independent developer and marketer of
branded consumer products that offer simple, effective solutions to niche
personal care needs. Since its formation in 1996, Woodridge has built its
reputation and market position by identifying and exploiting underdeveloped
opportunities within the personal care market, and by commercializing
distinctive, branded products that are intended to directly address the
specific demands of niche applications. In addition to its flagship Vita-K
Solution product line, Woodridge has created a portfolio of other existing and
development-stage consumer products, covering a wide range of uses and
applications.
Our
products are marketed at retail under the following core brands: Vita-K Solution®, DermaFreeze365, Ellin LaVar
Textures, Heavy Duty, Skin Appetit, 40 Carrots, Virtual Laser, Psssssst®, Stoppers-4®, Bath Lounge, Vita-C2, Firminol-10® and TurboShave®.
With our portfolio of products, we offer consumers affordable alternatives to
expensive dermatologist treatments, while also offering retailers profitable
and in-demand products. Our products can currently be found in over 22,000
retail locations across the United States and Canada. For the fiscal year ended
December 31, 2007, our top customers included Walgreens, CVS, and
Rite-Aid.
All
of our manufacturing, production and onsite assembly are presently outsourced
to third-parties, allowing us to focus on our core strength of discovering,
developing and marketing niche personal care products. Most of our material
warehousing and distribution functions are handled in-house and supervised by
Woodridge management.
4
Products
We
have a diverse portfolio of products sold under a variety of brands. Each
product seeks to provide a symptom-specific solution to a common skin or other
personal care condition. We believe that the success of our products can be
attributed to (i) our effectiveness in delivering the desired benefits, (ii) the
value proposition offered to consumers based on the products quality and price
point, and (iii) the attractiveness of our packaging.
Our
major brands are described below:
Vita-K
Solution
Vita-K
Solution is marketed as a line of symptom-specific products that utilize
vitamin K to provide cosmetic remedies. Since its retail launch in 1998, the
Vita-K Solution brand continues to be our top selling product line with the
greatest number of individual products. Gross sales for the Vita-K Solution
product line comprised 42% and 37% of total Woodridge gross sales for 2007 and
2006, respectively.
Woodridge
introduced its Vita-K Solution for Spider Veins in 1998. Woodridge has
established Vita-K Solution as an important skin care brand for retailers, and
has further penetrated the market with the launch of additional Vita-K Solution
products that target other common skin ailments. Currently, we market multiple
products under the Vita-K Solution brand, including: Vita-K Solution for Spider
Veins; Vita-K Solution for Dark Circles; Vita-K Solution for Blotchy Skin;
Vita-K Solution for Bruises; Vita-K Solution for Stretch Marks; Vita-K Solution
for Sun Spots; Vita-K Solution At Home Microdermabrasion Kit; Vita-K Pre-Kini;
and Vita-K Solution for Deep Facial Lines.
DermaFreeze
365
DermaFreeze365
Instant Line Relaxing Formula is marketed as an anti-line and wrinkle cream
based on GABA-BIOX technology that was launched by Woodridge during the first
quarter of 2005. The product offers consumers the benefits of two anti-aging
compounds: Gamma-Amino Butyric Acid, a
new ingredient in modern skin care technology, and BioxiLift which is believed
to produce a cumulative reduction in the appearance of fine lines and wrinkles.
We currently offer DermaFreeze products for the face, neck and chest, and lip
areas and have several DermaFreeze365 brand extensions currently in
development. The DermaFreeze 365 product line represented 26% and 29% of the
gross sales of the Woodridge business in 2007 and 2006, respectively.
On
March 13, 2007, Woodridge initiated a voluntary recall of all lots of its
DermaFreeze365 Instant Line Relaxing Formula (UPC Codes 6-05923-36501-6,
6-05923-36502-3 and 6-05923-10563-6) and DermaFreeze365 Neck & Chest
(UPC Code 6-05923-36503-0) products. This recall was a result of certain
products from two lots testing positive for the Pseudomonas aeruginosa
bacteria, exposure to which may result in potential illness for persons who are
immuno-compromised. Woodridge Labs is working with the third party manufacturer
of the affected products to identify the source of the contamination in order
to ensure that DermaFreeze365 Instant Line Relaxing Formula and Neck &
Chest products will be safe for future use. We have made a provision for the
recall in our consolidated financial statements as of and for the year ended December 31,
2006 included in this report whereby net sales were reduced by $2.3 million and
inventories were written down by $0.3 million. Additionally, customer
charge-backs related to 2007 sales of the affected products approximated $0.6
million in 2007.
Ellin
LaVar Textures
Ellin
LaVar Textures was created by celebrity stylist Ellin LaVar to address the
health and condition of hair and scalp on a daily basis. Ellin LaVar Textures
was introduced in March 2005 and was designed exclusively for those who
struggle with hair that is coarse, dry, curly or frizzy. We acquired the 12
piece line in May of 2006 and entered into an exclusive agreement to sell
the Ellin LaVar brand to CVS. Ellin LaVar Textures
products
include: OptiMoist Shampoo, SatinSoft Conditioner, LiquidGlass,
PenetratingBalm, ReconstructMasque, ThermMist, NourishOil, DetangleMist,
LiquidMotion, InstantShine, ScalpRx, and NaturalControl. We started shipping
Ellin LaVar products to CVS in January 2007 and the line represented 8% of
the gross sales of the Woodridge business in 2007.
Skin
Appetit
Skin
Appétit was developed in connection with renowned nutritionist Keri Glassman,
MS, RD, CDN, as the recipe for ageless skin. Skin Appétit products are
formulated with an exclusive Nutrx8Complex which contains eight extracts
including blueberries, cantaloupe, red grapes, creamy yogurt, wild honey, figs,
walnuts and dark cocoa chocolate, as well as other ingredients, such as vitamin
B5, vitamin E, macadamia seed oil, vitamin C, aloe and tea tree oil. Ms. Glassman
is the president of KKG Body Fuel Enterprises, Inc., a nutrition
counseling and consulting practice, and the founder and president of KeriBar, a
nutrition snack bar company. Keri is also the author of nutritional diet books.
The Skin Appétit product line was introduced in December of 2007.
5
Psssssst
In
December 2002, Woodridge acquired the Psssssst trademark and formulation
from Procter & Gamble, or P&G, as part of Woodridges strategy to
revive and reintroduce niche-oriented orphan brands through Woodridges sales
and marketing network. Psssssst is marketed as a dry shampoo product delivered
in an aerosol spray formulation. The product was originally marketed by P&G
in the 1970s as a shampoo alternative, but was slowly phased-out in the
mid-1980s. After several of Woodridges top retail customers identified a
significant continuing, yet unmet, demand for the Psssssst product line,
Woodridge acquired the technology from P&G and began distributing Psssssst to
retailers during the first quarter of 2003. Currently we have several brand
extensions to Psssssst in development.
Sales, Marketing and
Distribution
We
market our products to major drug, food and mass-merchandise retail chains
through a dedicated team of internal sales managers, as well as a sales force
of independent sales representatives. We have four primary objectives, which
underlie our sales and marketing strategy: (i) service and protect
existing customer accounts; (ii) expand product distribution by winning
new customer accounts; (iii) promote increased awareness of our brands and
product attributes; and (iv) maintain and strengthen our market position.
We
have an established national sales and distribution network that covers
substantially all of our existing mass drug, grocery and other retail
customers. At present, we maintain relationships with over 20 sales
representative agencies located in key markets across the U.S. This sales
representative agency network provides us with a sales force of over 50
specialized sales professionals. We believe that our combined internal and
external sales and marketing network is well-positioned to expand our
penetration of existing accounts, and to penetrate new accounts and
distribution channels.
We
regularly participate in various co-operative marketing programs with retailers
to further enhance consumer awareness of our products and brands. At times, we
work directly with retailers to design the plan-o-grams, or drawings
illustrating product placement, for our brands, as well as to develop in-store
displays, special events, promotional activities and marketing campaigns for
our products. These programs are designed to obtain or enhance distribution at
the retail level and to provide incentives to consumers at the
point-of-purchase. We also utilize consumer promotions, such as direct mail
programs and on-package offers, to encourage consumer demand for our products.
Sales
to customers are generally made pursuant to purchase orders, and as a result we
do not have a material order backlog. Consistent with customary practice in the
packaged goods industry, we accept authorized returns of un-merchandisable,
defective or discontinued products from our major customers.
Customers
Our
principal customers include chain drugstores, mass volume retailers, national
mass merchandisers and grocery chains. In the year ended December 31,
2007, our three largest customers represented approximately 69% of our gross
sales, and have all been our customers for at least five years.
Our
products are predominately sold in the drugstore channel, and we have developed
a strategic working relationship with our drugstore channel customers. Our
customer relationships provide us with a number of important benefits, such as
facilitating new product introductions and access to adequate shelf space.
Our
principal customer relationships in the year ended December 31, 2007
included Walgreens, CVS, and Rite Aid, who accounted for 19%, 13%, and 37% of
gross sales, respectively. No other customer accounted for more than 10% of
gross sales in the year ended December 31, 2007. As is customary in the
personal care industry, we generally do not enter into long-term or exclusive
contracts with our customers. Sales to customers are generally made pursuant to
purchase orders, and as a result none of our customers are under an obligation
to continue purchasing products from us in the future. We expect that
Walgreens, CVS, and Rite Aid and a small number of other customers will
continue to account for a large portion of our net sales.
New Product Development
We
strive to maintain the value of our existing products, and to achieve increased
market penetration, through aggressive product line and brand extensions.
Furthermore, our growth strategy includes an increased emphasis on new product
development, both through extending our core brands and through expanding our
presence into new product categories. To achieve these objectives, we rely on
internal market research as well as outside product developers to identify new
product formulations and line extensions that we believe will address consumer
needs and demands. Historically, Woodridge has used internal personnel for
product development along with contracted consultants. All new product concepts
are researched before launch, and, to the extent necessary or required, undergo
independent clinical testing.
6
Manufacturing and
Production
We
use third-party resources for all of our manufacturing and production
requirements. We believe that contract manufacturing helps maximize our
flexibility and responsiveness to industry and consumer trends, while helping
to minimize the need for significant capital expenditures. We select contract
manufacturers based on an evaluation of several factors, including
manufacturing capacity, access to raw materials, quality control disciplines,
research and development capabilities, regulatory compliance, timely delivery,
management, financial strength and competitive pricing.
Our
primary contract manufacturers provide comprehensive services from product
development through manufacturing and filling of compounds, and are responsible
for such matters as ongoing quality testing and procurement of certain raw
materials. Typically, final boxing and packaging of our products is performed
at our distribution facility in Panorama City, California. All of our products
are manufactured on a purchase order basis and we do not have any long-term
obligations or commitments.
We
continually evaluate our existing supply relationships to ensure that we
utilize the most cost-effective, flexible and strategically appropriate
arrangements available. We also continually evaluate opportunities to improve
efficiencies and reduce costs by either outsourcing or insourcing certain areas
of the product production cycle. Furthermore, we actively work to develop
alternative supply and distribution relationships, and believe that future
changes in supplier relationships would not have a material adverse effect on
our operations.
Competition
The
personal care industry is highly competitive, characterized by a fragmented
universe of industry players. Many other companies, both large and small,
manufacture and sell products that are similar to our personal care products,
including major retail customers that sell private label or house brands.
Sources of competitive advantage include product quality and effectiveness,
brand identity, advertising and promotion, product innovation, distribution
capability and price.
Many
of our principal competitors are well-established firms that are more
diversified and have substantially greater financial and marketing resources
than we do. Major competitors principally include large consumer products
companies, such as Procter & Gamble, Unilever, KAO Corporation, and LOreal,
and over-the-counter pharmaceutical companies, such as Pfizer and Johnson &
Johnson, as well as a large number of companies with revenues of less than $100
million. Many of our competitors are able to make significantly greater
expenditures for product development, advertising, promotion and marketing in
order to achieve and maintain both consumer and trade acceptance of their
personal care products. In addition, the personal care industry is subject to
rapidly changing consumer preferences and industry trends.
Part of
our strategy to offset the level of competition is to develop products and
brands that focus on niche markets or sub-segments of larger markets. By
focusing on narrow market segments, we believe we are able to limit the degree
of competition we face, as larger competitors may focus less on these smaller
niche markets and market sub-segments.
Growth Strategy
We
are continually exploring new opportunities to increase our market presence and
enhance our financial performance. To this end, we have identified several
specific growth opportunities, including, but not limited to: (i) developing
additional product lines and brands and increasing the range of products sold
under our current top-selling brands; (ii) expanding distribution by
seeking to increase shelf space with existing retail customers, and to gain
shelf space at new retailers, particularly mass volume retailers and grocery
chains; (iii) identifying, acquiring and reinvigorating orphan trademarks
and brands that hold untapped growth potential; (iv) initiating more
comprehensive advertising and promotional campaigns in support of our brands;
and (v) expanding opportunistically into other distribution channels and
into international markets.
Intellectual Property
We
have registered, or have pending applications for the registration of, our
Vita-K Solution®, DermaFreeze
365®, Ellin LaVar Textures,
Skin Appetit, 40 Carrots, Virtual Laser, Psssssst®, Stoppers-4®,
Bath Lounge, Firminol-10®,
TurboShave®, GABA-BIOX,
GABA-BIOX Lifting Complex, Pre-Kini, The Skin Firming Miracle in a Bottle,
Under Eyebryten, Wrinkl-eez and other trademarks and brand names in the
United States, as well as in certain foreign countries. We have an exclusive
license from the University of Medicine and Dentistry of New Jersey with
respect to U.S. Patent #6,187,822 regarding topical vitamin K delivery
systems that was filed on June 11, 1999 and expires 20 years from that
date. We also have a patent pending in the United States for Gamma-Amino
Butyric Acid Composition, U.S. Patent Application #11/072184.
7
We
believe our position in the marketplace depends to a significant extent upon
the goodwill engendered by our trademarks, trade dress and brand names, and,
therefore, considers trademark protection to be important to our business.
Accordingly, we actively monitor the market for our products to ensure that our
trademarks and other intellectual property are not infringed upon.
Government Regulation
Currently,
none of our products require pre-market approval from any regulatory body.
However, all of the current and future products that we market are potentially
subject to regulation by government agencies, such as the U.S. Food and Drug
Administration, the Federal Trade Commission, and various federal, state and/or
local regulatory bodies. In the event that any future regulations were to
require approval for any of our products, or should require approval for any
planned products, we intend to take all necessary and appropriate steps to
obtain such approvals.
Employees
As
of December 31, 2007, we had 27 employees, of whom 24 were full-time
employees and 3 were part-time employees. None of our employees are represented
by a union or subject to a collective bargaining agreement. We believe that our
relations with our employees are good.
Segments and Geographical
Information
We
operate in a single market segment. As of and for the years ended December 31,
2007, substantially all of our revenues and long-lived assets related to
operations in the United States.
Seasonality
Seasonality
has not generally had a significant impact on our gross sales.
Inflation
We
believe that inflation has not had a material effect on our results of
operations.
Availability of Public
Reports
As
soon as is reasonably practicable after they are electronically filed with or
furnished to the Securities and Exchange Commission, or SEC, our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
proxy statements and any amendments to those reports, are available free of
charge on our internet website at
http://www.nextera.com
. Information contained on our website is not
part of this report. They are also available free of charge on the SECs
website at
http://www.sec.gov
. In addition, any
materials filed with the SEC may be read by the public at the SECs Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
8
ITEM 1A.
Risk Factors
You
should carefully consider, among other potential risks, the following risk
factors as well as all other information set forth or referred to in this
report before purchasing shares of our common stock. Investing in our common stock
involves a high degree of risk. If any of the following events or outcomes
actually occurs, our business operating results and financial condition would
likely suffer. As a result, the trading price of our common stock could
decline, and you may lose all or part of the money you paid to purchase our
common stock.
There is substantial doubt about our ability to continue as a going
concern.
We
have suffered recurring losses from operations and had an accumulated deficit
of $175.5 million, a stockholders deficiency of $4.2 million and a working
capital deficit of $12.8 million that raises substantial doubt about our
ability to continue as a going concern. Also, as described in more detail below
and in Note 8 to the accompanying consolidated financial statements, we are in
default of our Credit Agreement.
Additionally, Note 15 to the accompanying consolidated financial
statements describes a proposed transaction to sell substantially all of the
Woodridge assets in order to satisfy our obligations under the Credit
Agreement. Should the sale be consummated, we would be left with no operating
assets to generate cash flows. These factors, among others, raise substantial
doubt about our ability to continue as a going concern.
We
are currently in default of the terms of our Credit Agreement.
In
connection with the acquisition of the Woodridge Labs business on March 9,
2006, we entered into a Credit Agreement, which was subsequently amended in March 2007,
April 2007 and November 2007.
The Credit Agreement originally consisted of a $10.0 million fully-drawn
term loan, of which approximately $9.5 million was outstanding at December 31,
2007, and a four-year $5.0 million revolving credit facility. Under the terms of the April 2007
amendment, the revolving credit facility was reduced to $2.75 million, which
was fully drawn at December 31, 2007.
Under
the terms of the November 2007 amendment, we obtained a bridge loan credit
facility aggregating $2.5 million. The bridge loan facility must be repaid with
cash balances in excess of $500,000 through the final maturity of May 31,
2008. Outstanding borrowings under the term loan must be repaid in four
quarterly payments, commencing March 31, 2008, with a final payment due on
March 31, 2009, the maturity date of the term loan. The maturity date for
the revolving credit facility is also March 31, 2009. The Credit Agreement, as amended, also
contains certain restrictive financial covenants, including minimum
consolidated EBITDA, minimum
purchase order levels and maximum corporate overhead, as defined therein.
On
March 31, 2008, an installment of principal of the term loan in an
aggregate amount equal to $250,000 became due and payable under the Credit
Agreement. The March 31 Installment
remains unpaid. Additionally, we have
furnished the lenders of the Credit Agreement with financial information
showing that we failed to comply with the minimum consolidated EBITDA financial covenant applicable
to the measurement period ending January 31, 2008. As a consequence of the failure to pay the March 31
Installment, and the failure to comply with this financial covenant, events of
default have occurred under the Credit Agreement. No cure periods or grace periods are
applicable to these events of default.
The events of default have not been waived and are continuing under the
Credit Agreement. Note 15 to the
accompanying consolidated financial statements describes a proposed transaction
to satisfy the obligations under the Credit Agreement, but we cannot be assured
that the proposed transaction will be consummated on the terms described
therein or at all.
Nextera
is a holding company with no business operations of its own.
Nextera
is a holding company with no business operations of its own. Nexteras only
material assets are the outstanding capital stock of Woodridge, Nexteras
wholly owned subsidiary, through which Nextera conducts its business
operations. Nextera is dependent on the earnings and cash flows of, and
dividends and distributions from, Woodridge to pay Nexteras expenses
incidental to being a public holding company. Woodridge may not generate
sufficient cash flows to pay dividends or distribute funds to Nextera because,
for example, Woodridge may not generate sufficient cash or net income or the
proposed transaction described in Note 15 to the accompanying consolidated
financial statements may result in the sale of substantially all of the
Woodridge assets.
All
of the shares of Woodridge stock are pledged and substantially all of Woodridges
assets are subject to liens to secure obligations under the Credit Agreement.
All
of the shares of the capital stock of Woodridge held by Nextera are pledged and
substantially all of Woodridges assets are subject to liens to secure
Woodridges obligations under the Credit Agreement. A foreclosure upon the shares of Woodridges
common stock or its assets would result in us being unable to continue our
operations and would have a material adverse effect on our business and results
of operations.
9
Our
stock price may be volatile and you could lose all or part of your investment.
We
expect that, due to, among other things, the risks described herein, the market
price of our common stock will continue to be volatile. The market price for our common stock may
also be affected by our ability to meet investors or securities analysts
expectations. Any failure to meet these expectations, even slightly, may result
in a decline in the market price of our common stock. Furthermore, because our common stock has
limited volume, the stock price may be subject to extreme volatility based on a
limited number of transactions. In addition, the stock market is subject to
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a companys securities,
securities class action litigation has often been instituted against that
company. If similar litigation were instituted against us, it could result in
substantial costs and a diversion of our managements attention and resources.
We
initiated a voluntary recall of certain of our DermaFreeze365 products and the
effects of the recall may have a material adverse effect on our business,
operations and financial condition.
On
March 13, 2007, Woodridge initiated a voluntary recall of all lots of its
DermaFreeze365 Instant Line Relaxing Formula (UPC Codes 6-05923-36501-6,
6-05923-36502-3 and 6-05923-10563-6) and DermaFreeze365 Neck & Chest
(UPC Code 6-05923-36503-0) products. This recall was a result of certain
products from two lots testing positive for the
Pseudomonas
aeruginosa
bacteria, exposure to which may result in potential
illness for persons who are immuno-compromised. As a result of the recall, we
were required to obtain $4.5 million in additional funding from Mounte LLC, or
Mounte, our majority stockholder, and from Jocott. To the extent that we cannot
replace the sales lost as a result of the recall or experience additional
adverse effects (financial or operational) from the recall, there may be a
material adverse effect on our business and results of operations.
Future
product recalls or safety concerns could adversely impact our results of
operations.
We
may be required to recall certain of our products in the future should they be
mislabeled, contaminated or damaged. We also may become involved in lawsuits
and legal proceedings if it is alleged that the use of any of our products
causes injury or illness. A future product recall or an adverse result in any
such litigation could have a material adverse effect on our operating and
financial results. We also could be adversely affected if consumers in our
principal markets lose confidence in the safety and quality of our products.
The
loss of key personnel and the difficulty of attracting and retaining qualified
personnel could harm our business and results of operations.
Our
success depends heavily upon the continued contributions of our senior
management and employees, particularly Mr. Millin (Nexteras president and
the president and chief executive officer of Woodridge), many of whom would be
difficult to replace. Mr. Millin has been the principal managing officer
of Woodridge for more than ten years, and the future success of the Woodridge
business will depend on his continued service and attention to the business. If
key employees terminate their employment with us, our business may be
significantly and adversely affected.
We depend on a limited
number of customers for a large portion of our net sales and the loss of one or
more of these customers could reduce our net sales.
We
rely on major drugstore chains and mass merchandisers for the sales of our
products. During the year ended December 31, 2007, our three largest
customers represented approximately 69% of our gross sales. We expect that for
future periods a small number of customers will, in the aggregate, continue to
account for a large portion of our net sales. As is customary in the consumer
products industry, none of our customers is under an obligation to continue
purchasing products from us in the future. The loss of one or more of our
customers that accounts for a significant portion of our net sales, or any
significant decrease in sales to these customers or any significant decrease in
our retail display space in any of these customers stores, including as a
possible result of the March 13, 2007 product recall, could reduce our net
sales and therefore could have a material adverse effect on our business,
financial condition and results of operations.
We
face significant competition within our industry, and we are not as financially
strong or large as many of our competitors.
We
are not financially as strong or as large as some of the major companies
against whom we compete. Our competitors vary depending upon product
categories. Many of our principal competitors are large, well-established firms
that are more diversified and have substantially greater financial and
marketing resources than we do. Major competitors principally
10
include large consumer
products companies, such as Procter & Gamble, Unilever, KAO
Corporation, LOreal and over-the-counter pharmaceutical companies, such as
Pfizer and Johnson & Johnson, as well as a large number of companies
with revenues of less than $100 million. Many of these companies have greater
resources than we do to devote to marketing, sales, research and development
and acquisitions. As a result, they have a greater ability to undertake more
extensive research and development, marketing and product promotion, and have
more aggressive pricing policies, and may be more successful than we are in
gaining and increasing shelf space at retail outlets. We cannot predict with
accuracy the timing or impact of the introduction of competitive products or
their possible effect on our sales. It is possible that our competitors may develop
new or improved products to treat the same conditions as our products or make
technological advances reducing their cost of production so that they may
engage in price competition through aggressive pricing policies to secure a
greater market share to our detriment. These competitors also may develop
products that make our current or future products obsolete. Any of these events
could significantly harm our business, financial condition and results of
operations, including reducing our market share, gross margins and cash flows.
Many
of our major competitors have global reach and international production,
distribution, marketing and sales capabilities. As a result, they have a much
greater ability than we do to expand product sales and distribution in
international markets and to capture and increase market share in international
markets. We may be unsuccessful in expanding into international markets, and
this could significantly harm our business, financial condition and results of
operations.
Inability
to anticipate changes in consumer preferences may result in decreased demand
for products, which could have an adverse impact on our future growth and
operating results
Our
success depends in part on our ability to respond to current market trends and
to anticipate the desires of consumers. Changes in consumer preferences, and
our failure to anticipate, identify or react to these changes could result in
reduced demand for our products, which could in turn cause our operating
results to suffer.
We
may be unsuccessful in developing and introducing new products or in expanding
our existing product lines.
Our
industry is highly competitive. Our future success and ability to effectively
compete in the marketplace and to maintain our revenue and gross margins
requires us to continue to identify, develop and introduce new products and
product lines in a timely and cost-efficient manner. We may not be successful
in identifying, developing and introducing new products, or in leveraging the
success of or expanding existing product lines, which may have a material
adverse effect on the business and prospects of our future. Many of our
principal competitors are large, well-established firms that are more
diversified and have substantially greater resources than we do to devote to
new product development and promotion.
Any
business disruption due to natural disasters or other catastrophic events could
adversely impact our financial performance
If
natural disasters or other catastrophic events occur in the U.S., such events
may disrupt operations, distribution and other aspects of our business. In the
event of such incidents, our business and financial performance could be
adversely affected.
We
rely on others to manufacture our products and for testing and quality control,
and disruptions to our manufacturing supply chain or failures in quality
control could materially and adversely affect our future sales and financial
condition.
Currently,
we outsource our entire product manufacturing and production needs. We rely on
outside manufacturers to provide us with an adequate and reliable supply of our
products on a timely basis. We also rely on our outside manufacturers to
provided testing and quality control with respect to our products. A failure by
our outside manufacturer of our DermaFreeze365 products resulted in the recall
of certain of these products as described elsewhere in these Risk Factors and
in this Annual Report on Form 10-K. Loss of a supplier, failures in
testing or quality control, or any difficulties that arise in the supply chain,
including a recall of products, could have a material adverse impact on our
business and results of operations and significantly affect our inventories and
supply of products available for sale. We do not have alternative sources of
supply for all of our products. If a primary supplier of any of our core
products is unable to fulfill our requirements for any reason, it could reduce
our sales, margins and market share, as well as harm our overall business and
financial results. If we are unable to supply sufficient amounts of our
products on a timely basis, our revenues and market share could decrease and,
correspondingly, our profitability could decrease.
11
We
may be subject to claims of infringement regarding products or technologies
that are protected by trademarks, patents and other intellectual property
rights.
Woodridge
has historically created individual brand names to identify each of its
personal care product lines. Our products may also be formulated using novel
chemical compounds, processes or technologies. In the crowded personal care
products industry, third parties often own similar brand names, or may own
patents on chemical formulas or manufacturing processes or other technologies.
Our success depends on our ability to operate without infringing upon the
proprietary rights of others and prevent others from infringing upon our
trademarks, trade dress, patent rights and other intellectual property rights.
If third parties believe we have infringed upon their proprietary rights, they
may assert infringement claims against us from time to time based on our
general business operations or specific product lines. Woodridge or retailers
who sell Woodridge products may also engage in advertising which compares
Woodridges products to products of third parties. As a result, third parties
may assert infringement claims against us from time to time based on specific
advertisements or marketing claims.
If
we are subject to an adverse judgment regarding infringement of the proprietary
rights of others, we may be forced to discontinue selling affected products
under their existing brands, or may need to remove such product from stores and
rebrand such products, all of which may have a material adverse effect on our
results of operations.
To
service our indebtedness and fund our working capital requirements, we will
require significant amounts of cash.
Our
ability to make payments on our indebtedness will depend upon our relationship
with our lenders, our future operating performance and our ability to generate
cash flow in the future, which is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We cannot assure you that our business will generate sufficient cash
flow from operations, or that future borrowings, including available borrowings
under our Credit Agreement (if any), will be available to us in an amount
sufficient to enable us to pay our indebtedness, or to fund our other liquidity
needs. If the cash flow from our operating activities is insufficient, we may
take actions, such as delaying or reducing capital expenditures, attempting to
restructure or refinance our indebtedness prior to maturity, and seeking
additional equity capital. Any or all of these actions may be insufficient to
allow us to service our debt obligations. Further, we may be unable to take any
or all of these actions on commercially reasonable terms, or at all.
Our
ability to utilize our net operating loss carryforwards may be limited or
eliminated in its entirety.
As
of December 31, 2007, we had approximately $61.2 million of federal net
operating loss carryforwards that begin to expire in 2021, for which a 100%
valuation allowance has been recorded. The utilization of the net operating
loss carryforwards in the future is dependent upon our having U.S. federal
taxable income. Prior to the acquisition of the Woodridge business, we had no
business operations and were unable to generate U.S. federal taxable income to
utilize the net operating loss carryforwards. Even following the acquisition of
the Woodridge business, there can be no assurance that we will be able to
generate taxable income in the future. Furthermore, the likelihood of an annual
limitation on our ability to utilize the net operating loss carryforwards to
offset future U.S. federal taxable income is increased by (1) the issuance
of common stock, certain convertible preferred stock, options, warrants, or
other securities exercisable for common stock, (2) changes in the equity
ownership occurring in the last three years and (3) potential future
changes in the equity ownership. The amount of an annual limitation can vary
significantly based on factors existing at the date of an ownership change. A
substantial portion of our net operating loss was used to offset our federal
tax liability, other than the alternative minimum tax, generated by the sale of
Nexteras economic consulting business in 2003. If the net operating loss carryforwards
were determined to be subject to annual limitations prior to its utilization to
offset the taxable gain from the sale of Nexteras economic consulting
business, our federal tax liability and the net operating loss carryforwards
could be materially different and our financial position could be adversely
affected. Such limitations could have a material adverse impact on our
financial condition, results of operations and cash flows.
Our
common stock does not trade on an established trading market, which makes our
common stock more difficult to trade and more susceptible to price volatility.
The
delisting of our Class A Common Stock from the Nasdaq SmallCap Market may
make our Class A Common Stock more difficult to trade, harm our business
reputation and adversely affect our ability to raise funds in the future.
Our
Class A Common Stock was delisted from the Nasdaq SmallCap Market on November 28,
2003 due to our failure to have an operating business after the sale of our
economic consulting business. As a result of the delisting, our common stock
may be more difficult to trade and we may suffer harm to our general business
reputation and have greater difficulty in the future raising funds in the
capital markets. Each of these consequences could have a material adverse
effect on our business, results of operations and financial condition. We
currently do not meet Nasdaqs initial listing requirements to be re-listed on
the Nasdaq SmallCap Market (now known as Nasdaq Capital Market) because, among
other things, we do not satisfy the minimum bid price requirement.
12
Mounte
(successor to Krest, LLC, Knowledge Universe LLC and Knowledge Universe, Inc.)
controls 65.1% of the voting power of our stock and can control all matters
submitted to our stockholders. Its interests may be different from yours.
Mounte
owns 8,810,000 shares of Class A Common Stock, 3,844,200 shares of Class B
Common Stock, 56,370 shares of our Series A Preferred Stock, and 15,752
shares of our Series B Preferred Stock, which combined represents
approximately 65.1% of the voting power of our outstanding common and preferred
stock as of December 31, 2007. The Class A Common Stock entitles its
holders to one vote per share, and the Class B Common Stock entitles its
holders to ten votes per share, on all matters submitted to a vote of our
stockholders, including the election of the members of the board of directors.
Holders of Series A Preferred Stock are entitled to 151 votes per share,
which equals the number of whole shares of Class A Common Stock into which
one share of Series A Preferred Stock is convertible. Holders of Series B Preferred Stock are
entitled to one vote per share.
Accordingly, Mounte will be able to determine the disposition of all
matters submitted to a vote of our stockholders, including mergers,
transactions involving a change in control and other corporate transactions and
the terms thereof. In addition, Mounte will be able to elect all of our
directors. This control by Mounte could materially adversely affect the market
price of the Class A Common Stock or delay or prevent a change in control
of our company.
Provisions
in our charter documents and Delaware law may delay or prevent an acquisition
of Nextera, which could decrease the value of our common stock.
Provisions
of our certificate of incorporation and bylaws and provisions of Delaware law
could delay, defer or prevent an acquisition or change of control of Nextera or
otherwise decrease the price of our common stock. These provisions include:
·
authorizing our board of directors to issue
additional preferred stock;
·
prohibiting cumulative voting in the election
of directors;
·
limiting the persons who may call special
meetings of stockholders;
·
prohibiting stockholder actions by written
consent; and
·
establishing
advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.
ITEM
2.
Properties
We
currently lease a total of approximately 53,000 square feet at a facility in
Panorama City, California for our corporate headquarters and distribution
center. This lease expires in November 2011. We believe that this facility
will provide us with adequate space for growth for the next several years. In
addition, we lease approximately 3,300 square feet of office space in Boston,
Massachusetts, related to our former corporate headquarters, which we are
currently subleasing. The Boston lease expires in July 2008.
ITEM
3.
Legal Proceedings
From
time to time we are involved in legal proceedings, claims and litigation
arising in the ordinary course of business, the outcome of which, in the
opinion of management, would not have a material adverse effect on us.
ITEM 4.
Submission
of Matters to a Vote of Security Holders
None.
13
PART II
ITEM 5.
Market for
Registrants Common Equity and Related Stockholder Matters
Our
Class A Common Stock, $0.001 par value per share, traded on the
over-the-counter market pink sheets under the symbol NXRA.PK from January 1,
2005 through April 16, 2006 and on the OTC Bulletin Board thereafter under
the symbol NXRA.OB. The following table sets forth the high bid quotation and
the low bid quotation, as quoted by the Pink Sheets LLC and as reported by the
OTC Bulletin Board, in each of the four quarters of fiscal 2007 and 2006. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
|
|
High
|
|
Low
|
|
Calendar
year2007
|
|
|
|
|
|
First Quarter
|
|
$
|
0.40
|
|
$
|
0.18
|
|
Second Quarter
|
|
$
|
0.22
|
|
$
|
0.10
|
|
Third Quarter
|
|
$
|
0.20
|
|
$
|
0.04
|
|
Fourth Quarter
|
|
$
|
0.07
|
|
$
|
0.01
|
|
|
|
High
|
|
Low
|
|
Calendar
year2006
|
|
|
|
|
|
First Quarter
|
|
$
|
0.66
|
|
$
|
0.33
|
|
Second Quarter
|
|
$
|
0.85
|
|
$
|
0.45
|
|
Third Quarter
|
|
$
|
0.65
|
|
$
|
0.41
|
|
Fourth Quarter
|
|
$
|
0.50
|
|
$
|
0.29
|
|
As
of March 31, 2008 there were 38,692,851 shares of Class A Common Stock outstanding held by
approximately 215 holders of record (excluding stockholders for whom shares are
held in a nominee or street name) and 3,844,200 shares of Class B
Common Stock outstanding held by one holder of record.
We
have never paid or declared any cash dividends on our Common Stock and do not
intend to pay dividends on our Common Stock in the foreseeable future. The
terms of our Credit Agreement restrict our ability to declare or pay dividends.
We intend to retain any earnings for use in any potential acquisition and
operation of a business.
Recent
Sales of Unregistered Securities
On
June 15, 2007, Nextera issued to Mounte and Jocott 15,169 and 10,113
shares, respectively, of Series B Preferred Stock in partial payment of
all outstanding principal and accrued interest owed to Mounte and Jocott
pursuant to individual promissory notes executed in connection with a Funding
Agreement between Nextera, Woodridge, Mounte and Jocott. In connection with the issuance of the Series B
Preferred Stock, Nextera also issued a Class A Common Stock Purchase
Warrant to each of Mounte and Jocott. Under the terms of such warrants, Nextera
granted Mounte and Jocott the right to purchase 3,033,945 and 2,022,630 shares,
respectively, of Nexteras Class A Common Stock at an exercise price of
$0.50 per share, exercisable at any time at the option of the holder. Each
transaction was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended, or the Securities Act, and Rule 506
of Regulation D. The terms of these transactions are described in more detail
in Notes 3 and 11 to the accompanying consolidated financial statements.
On
July 24, 2007, Nextera issued 200,000 shares of Class A Common
Stock and a stock option to purchase 400,000 shares of Class A Common
Stock to KKG Body Fuel Enterprises, Inc., in exchange for promotional
services from Keri Glassman, the president of KKG Body Fuel Enterprises, Inc.
This transaction was exempt from registration pursuant to Section 4(2) of
the Securities Act and Rule 506 of Regulation D.
The
issuances of these shares were exempt because they were private sales made
without general solicitation or advertising exclusively to accredited
investors as defined in Rule 501 of Regulation D. Further, the
certificates issued bear legends providing, in substance, that the securities
represented by the certificate have been acquired for investment only and may
not be sold, transferred or assigned in the absence of an effective
registration statement or opinion of counsel that registration is not required
under the Securities Act.
14
ITEM 6.
Selected
Financial Data
As a smaller reporting
company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934
(the Exchange Act), we are not required to provide the information required
by this item.
ITEM 7.
Managements
Discussion and Analysis of Financial Condition and Results of Operations
Overview
Nextera
was formed in 1997 and had historically focused on building a portfolio of
consulting companies through multiple acquisitions. Nextera formerly offered
services in three practice areas: technology consulting, human capital
consulting, and economic consulting. Nextera exited the technology consulting
business during the latter half of 2001 and sold the human capital consulting
business in January 2002. In November 2003, Nextera and its direct
and indirect subsidiaries sold substantially all of the assets used in our
economic consulting business and, as a result of such sale, we ceased to have
business operations. Accordingly, all results from our former consulting
operations have been classified as discontinued operations.
Acquisition of Woodridge Business
On
March 9, 2006, we, through W Lab Acquisition Corp., our wholly owned
subsidiary, acquired substantially all of the assets of Jocott pursuant to an
asset purchase agreement, which agreement we refer to as the Purchase Agreement
in this report. Prior to the acquisition of the Woodridge assets, we had no
business operations for the period from November 29, 2003 through March 8,
2006. Woodridges financial results have only been included for the period
subsequent to March 9, 2006. The Woodridge business currently comprises
our sole operating business.
The
purchase price for the Woodridge business was comprised of:
·
$23.2 million in cash, including $0.8 million
of acquisition expenses paid to third parties;
·
8,467,410
unregistered restricted shares of Nexteras Class A Common Stock
constituting approximately 20% of the total outstanding common stock of Nextera
immediately after such issuance, which shares were issued to Jocott and had a
value of $4.2 million on the date of the Transaction; and
·
the
assumption of a promissory note of Jocott in the principal amount of $1.0 million,
which assumed debt was paid in full by us on the closing date of the
Transaction.
$2.0
million of the cash portion of the purchase price was held in escrow until March 2007
at which time $0.5 million was withdrawn from the escrow account and distributed
to Nextera by Jocott as a deposit under an Indemnity Deposit Agreement entered
into between Nextera, Woodridge and Jocott on March 29, 2007, in
connection with the recall of certain DermaFreeze365
TM
products sold
by Woodridge. An additional $1.5 million
was withdrawn from the escrow account in April 2007 and these funds were
also distributed to Nextera by Jocott as a deposit under a separately executed
Funding Agreement entered into between Nextera, Mounte and Jocott on April 16,
2007. Under the terms of the Funding Agreement, Nextera and Woodridge will keep
the irrevocable deposit in full satisfaction of certain claims for
indemnification that Nextera or Woodridge may have against the sellers under
the Purchase Agreement. The payment of any remaining indemnification
obligations of Jocott was also secured through September 2007 by a pledge
of the unregistered restricted shares of Nexteras Class A Common Stock
issued to Woodridge in connection with the Purchase Agreement.
LaVar
Acquisition
On
May 23, 2006, Woodridge entered into a purchase agreement with LaVar
Holdings, Inc., whereby Woodridge acquired the exclusive worldwide license
rights, along with certain assets and proprietary rights, to the Ellin LaVar
Textures
TM
hair care product line and brand name. The total purchase
price, which includes approximately $0.1 million of deal costs, was
approximately $0.5 million. Woodridge is required to pay a royalty to LaVar
Holdings, Inc. with respect to certain sales of products under the
trademarks acquired from it.
Heavy
Duty Acquisition
On
March 8, 2007, Woodridge entered into a purchase agreement with Heavy Duty
Company and Alexandra Volkmann, whereby Woodridge acquired certain assets,
including the Heavy Duty
TM
and other trademarks and a copyright. The
total purchase price, which includes approximately $0.1 million of deal costs,
was approximately $0.3 million. Woodridge will pay a royalty to Heavy Duty
Company with respect to certain future sales of products under the trademarks
acquired from Heavy Duty Company and Alexandra Volkmann.
15
KKG
Body Fuel Enterprises License Agreement
On
June 21, 2007, we entered into an Intellectual Property License Agreement
with KKG Body Fuel Enterprises, Inc. and Keri Glassman, whereby we
acquired certain rights and licenses to use various trademarks names and
slogans. The consideration consisted of a non-refundable guaranteed royalty
payment of $0.1 million in the first year and minimum royalty payments of $0.1
million in each of the next three years.
Additionally,
on June 25, 2007 we entered into an Independent Contractor Agreement with
KKG Body Fuel Enterprises which provides a monthly fee of $5,000 plus expenses,
a stock issuance of 200,000 shares of our Class A Common Stock and a stock
option to purchase 400,000 shares of our Class A Common Stock in exchange
for promotional services from Keri Glassman.
The effective date of the agreement is July 24, 2007.
Results of Operations
The following table sets
forth our results of operations (excluding discontinued operations) for the
year ended December 31:
|
|
2007
|
|
2006
|
|
|
|
(Dollar amounts in thousands)
|
|
Net sales
|
|
$
|
7,939
|
|
$
|
7,481
|
|
Cost of sales
|
|
3,912
|
|
5,307
|
|
Gross profit
|
|
4,027
|
|
2,174
|
|
Selling, general
and administrative expenses
|
|
7,384
|
|
7,775
|
|
Impairment
charge
|
|
10,880
|
|
|
|
Amortization
expense
|
|
964
|
|
726
|
|
Operating loss
|
|
(15,201
|
)
|
(6,327
|
)
|
Interest income
|
|
7
|
|
193
|
|
Interest expense
|
|
(1,808
|
)
|
(1,016
|
)
|
Other income
|
|
925
|
|
|
|
Loss from
continuing operations before income taxes
|
|
(16,077
|
)
|
(7,150
|
)
|
Provision for
(benefit from) income taxes
|
|
(636
|
)
|
236
|
|
Loss from
continuing operations
|
|
$
|
(15,441
|
)
|
$
|
(7,386
|
)
|
Comparison
of the Year Ended December 31, 2007 and the Year Ended December 31,
2006
Net
Sales
. Sales are recorded net of estimated returns and other
allowances. The provision for sales returns represents managements estimate of
future returns based on historical experience and considering current external
factors and market conditions. Net sales
for the year ended December 31, 2007 in
creased
$0.46 million, or 6%, to $7.9 million from $7.5 million for the
year ended December 31,
2006
.
The 2006 net sales include
a $2.3
million charge for returns related to the March 2007 voluntary recall of
certain DermaFreeze365 products sold during 2006. The increase in net sales
for 2007 is due primarily to the decrease in the current year of recall
charge-backs, offset by the decrease in gross sales of $1.9 million.
Gross
Profit
. Gross profit for
the year ended December 31, 2007 increased $1.9 million, or 85% to $4.0
million from $2.2 million for the year ended December 31, 2006. The gross margin for the year ended December 31,
2007 was 50.7% compared to 29.1% for 2006. Included within gross profit for the
year ended December 31, 2006 was a
$1.4 million charge associated with the amortization of the step up to fair
value in the inventory acquired from Woodridge, as required by SFAS No. 142,
Goodwill and Other Intangible Assets,
or
SFAS 142. Eliminating the prior year step up to fair
value charge of $1.4 million, the comparative gross profit for the year ended December 31,
2007 would have increased $0.45 million, or 13% over 2006, with comparative
gross margins of 50.7% and 47.8%, respectively.
The improvement in gross profit is due primarily to a decrease in
charges for inventory reserves during the year ended December 31, 2007
compared to 2006.
Selling,
General and Administrative Expenses.
Selling, general and administrative expenses
for the year ended December 31, 2007
decreased $0.39 million, or 5%, to $7.4 million from $7.8 million for
2006. The decrease is due to decreased spending for selling, advertising and
travel expense and a decrease in office and facility costs related to the
transfer of the corporate offices from Boston, offset by an increase in
professional services and labor related costs
16
Impairment
charge
. For the year ended December 31,
2007, we recorded a $10.9 million impairment charge related to a write-down of
our goodwill and other intangible assets.
Interest
Expense
. Interest expense
was $1.8 million for the year ended December 31, 2007 compared to $1.0
million for the year ended December 31, 2006. The increase in interest
expense related to the a full year incurring interest in 2007 as compared to
the $13.0 million of debt that we established under our Credit Agreement that
we entered into on March 9, 2006.
Our debt bears interest at the London Interbank Offering Rate or LIBOR
plus 4.50%. Additionally, in 2007, we
expensed approximately $359,000 of deferred financing charges given the
uncertainty of the maturity status of our Credit Agreement.
Other
Income
. For the year ended December 31,
2007, we recorded approximately $0.9 million of other income from the
elimination of a long-standing liability related to a subsidiary that was
dissolved in 2007.
Income Taxes.
An income
tax benefit of $0.6 million was recorded for the year ended December 31,
2007 as compared to a $0.2 million tax expense in 2006. The tax benefit in 2007 primarily related to
the expiration of a previously recorded tax contingency and the write-off of
goodwill that was previously deducted for tax purposes. In 2006, due to the uncertainty of the reversal
of the goodwill timing difference, the deferred tax liability generated by the
goodwill tax deduction was not offset against our deferred tax assets, and the
related tax expense was recorded.
Comparison
of the Year Ended December 31, 2006 and the Year Ended December 31,
2005
Net Sales.
Sales are
recorded net of estimated returns and other allowances. The provision for sales
returns represents managements estimate of future returns based on historical
experience and considering current external factors and market conditions. Net
sales for the year ended December 31, 2006 were $7.5 million. Net
sales for 2006 reflect the operating results of the Woodridge business from the
March 9, 2006 acquisition date forward. During 2005, we had no business
operations and no sales.
The
2006 net sales include
a $2.3 million charge for expected
returns related to the March 2007 voluntary recall of certain
DermaFreeze365 products sold in 2006.
Gross Profit.
Gross profit for 2006 reflects the operating
results of the Woodridge business from the March 9, 2006 acquisition date
forward. Gross profit for the year ended December 31, 2006 was
$2.2 million. The gross margin for the year ended December 31, 2006
was 29.1%. Included within gross profit for the year ended December 31,
2006 is a $1.4 million charge associated with the amortization of the step-up
to fair value in the inventory acquired from Woodridge, as required by SFAS
141.
Additionally, the 2006 gross profit
includes
a $0.2 million charge for inventory write-downs related to
the March 2007 voluntary recall of certain DermaFreeze365 products
included in physical inventories at December 31, 2006. Excluding the
inventory step-up charge and the recall charge, the gross margin for 2006 would
have been approximately 65%, which is in the range we anticipate for our gross
margin in the next several quarters. During the year ended December 31,
2005, we had no business operations and no gross profit.
Selling, General and
Administrative Expenses.
Selling, general and administrative expenses increased $5.7
million, to $7.8 million for the year ended December 31, 2006 from $2.1
million for the year ended December 31, 2005. The increase in selling, general and
administrative expenses from 2005 was almost entirely attributable to the
expenses of the Woodridge business which were approximately $5.1 million.
Selling, general and administrative expenses represented 104% of net sales for
the year ended December 31, 2006. The selling, general and administrative
expenses for the year ended December 31, 2006 as a percentage of net sales
were adversely affected by not having business operations until March of
2006 and incurring $0.3 million in severance costs associated with relocating
our corporate headquarters to California.
Interest Income.
Interest income decreased to $0.2 million for
the year ended December 31, 2006 from $0.3 million for the year ended December 31,
2005. The decrease was due to the use of $11.8 million of cash on March 9,
2006 to acquire the Woodridge business, partially offset by an increase in the
interest rate earned on cash balances.
Interest Expense.
Interest expense was $1.0 million for the
year ended December 31, 2006. The interest expense was attributable to the
$13.0 million of debt that we incurred under our Credit Agreement that we
entered into on March 9, 2006. Substantially all of our debt under our
Credit Agreement bore interest at LIBOR plus 3.75% during 2006. During the year
ended December 31, 2006, our average debt outstanding was $12.4 million at
an effective rate of 10.08% per annum, of which 0.84% relates to the
amortization of financing costs. During the year ended December 31, 2005,
we had no interest expense.
Income Taxes.
We recorded a $0.2 million deferred tax
expense for the year ended December 31, 2006 to provide for goodwill which
is deductible for tax purposes but not for book purposes. Due to the
uncertainty of the reversal of the goodwill timing difference, the deferred tax
liability generated by the goodwill tax deduction has not been offset against
our deferred tax assets, which are primarily net operating losses. We expect to
recognize a deferred tax expense of $0.3 million on a yearly basis in the
future. No federal tax benefit was recorded for the loss incurred during the
year ended December 31, 2006. We did record
de minimis
state tax expense in 2005.
17
Liquidity
and Capital Resources
As shown in the
accompanying consolidated financial statements in this Annual Report on Form 10-K,
we have incurred recurring net losses and have an accumulated deficit of $175.5
million, stockholders deficiency of $4.2 million and a working capital deficit
of $12.8 million as of December 31, 2007. Additionally, as described
in more detail in Notes 8 and 15 to the accompanying consolidated financial
statements, we are in default of our Credit Agreement and on April 16,
2008, we executed a non-binding Letter of Intent to sell substantially all of
the assets of our sole operating subsidiary, Woodridge, to a company owned by
the secured lenders in satisfaction of the under the Credit Agreement. Should the proposed sale be consummated, we
would be left with no operating assets to generate cash flows. Should the
proposed sale not be consummated, we would seek alternative debt or equity
financing. To the extent alternative
financing was not available, we would likely need to cease operations. These
factors raise substantial doubt about our ability to continue as a going
concern. The accompanying consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts or classification of
liabilities that may result for the outcome of this uncertainty.
Net
cash used in operating activities was $6.3 million for the year ended December 31,
2007 compared to $1.3 million for 2006. The primary component of net cash used
in operating activities in 2007 was a $15.4 million net loss, a $1.3 million
decrease in other long-term liabilities and a $2.0 accounts payable primarily
related to the reduction of reclassified accounts receivable credits balances
resulting from the provision for returns expected from the March 2007
recall originally recorded in the 2006 financial statements, offset by
approximately $12.8 million of non-cash charges (primarily related to the
intangible asset impairment charge, amortization of intangible assets, an
inventory write-down, deferred taxes, and stock-based compensation).
Net cash provided by investing
activities was $1.7 million for the
year ended December 31
, 2007 primarily related to proceeds received from the
escrow account used in the acquisition of the Woodridge business. The cash used in investing activities of
$23.4 million from the year ended December 31, 2006 substantially related
to the original acquisition of the Woodridge business and to a much lesser
extent, the purchase of property, plant and equipment, and the purchase of the
Ellin LaVar brand.
Net cash provided by financing
activities was $ 4.1 million and $10.2 million for the
years ended December 31
, 2007 and 2006, respectively. In 2007, we had net
additional borrowing on credit facilities under our Credit Agreement of $4.1
million. In 2006, $13.0 million was
obtained under our Credit Agreement, which included a $10.0 million fully drawn
term loan and a $5.0 million revolving credit facility ($3.0 million of which
was drawn at the closing of the Woodridge acquisition) and we subsequently
repaid $0.8 million of our revolving credit facility and $0.5 million of our
term loan.
Senior
Secured Credit Facility
We
entered into a Credit Agreement on March 9, 2006 for a $15.0 million
senior secured credit facility, which was originally comprised of a $10.0
million fully-drawn term loan and a four-year $5.0 million revolving credit
facility. The Credit Agreement was subsequently amended on March 29, 2007,
April 17, 2007 and again on November 6, 2007.
The
administrative agent for the lenders under the Credit Agreement determined that,
as of March 29, 2007, certain events of default under the Credit Agreement
had occurred as a consequence of the breach by Nextera and Woodridge of certain
financial covenants as of December 31, 2006. Under an Amendment and
Forbearance Agreement, the lenders agreed, during the forbearance period, to
forbear the exercise of any and all rights and remedies to which the lenders
are or may become entitled as a result of the default. The forbearance period
began on March 29, 2007 and ended on April 30, 2007.
On
April 17, 2007, we entered into an amendment agreement under the Credit
Agreement (the Second Amendment). Under the terms of the Second Amendment,
the revolving credit facility was reduced from $5.0 million to $2.75 million.
On
November 6, 2007, we again entered into an amendment agreement under the
Credit Agreement (the Third Amendment). Under the terms of the Third
Amendment, we obtained a bridge loan credit facility aggregating $2.5 million.
Pursuant to the Third Amendment, the bridge loan facility, the term loan and
the revolving credit facility will bear interest at the London Interbank
Offered Rate (LIBOR) plus 5.0%, or bank base rate plus 4.0%, as selected by
us. Outstanding borrowings under the bridge loan facility must be repaid with
cash balances in excess of $500,000 through the final maturity of May 31,
2008. Outstanding borrowings under the term loan must be repaid in four
quarterly payments, commencing March 31, 2008, with a final payment due on
March 31, 2009, the maturity date of the term loan. The maturity date for
the revolving credit facility is also March 31, 2009.
The
Credit Agreement, as amended, contains certain restrictive financial covenants,
including minimum consolidated EBITDA,
minimum purchase order levels and maximum corporate overhead, as defined
therein. The obligations of Woodridge,
as borrower, under the Credit Agreement are guaranteed by Nextera and all of
the direct and indirect domestic subsidiaries of Woodridge and Nextera.
18
On
March 31, 2008, an installment of principal of the term loans in an
aggregate amount equal to $250,000 became due and payable under the Credit
Agreement. The March 31 Installment
remains unpaid. Additionally, we have
furnished the administrative agent of the Credit Agreement with financial
information showing that, as of January 31, 2008, we failed to comply with
the minimum consolidated EBITDA financial
covenant applicable to the measurement period ending January 31,
2008. As a consequence of the failure to
pay the March 31 Installment, and the failure to comply with this
financial covenant, events of default have occurred under the Credit Agreement
(collectively, Specified Events of Default).
No cure periods or grace periods are applicable to the Specified Events
of Default. The Specified Events of
Default have not been waived and are continuing under the Credit Agreement.
Accordingly, all amounts outstanding under the Credit Agreement have been
classified as current liabilities in the accompanying balance sheet as of December 31,
2007. Note 15 to the accompanying
consolidated financial statements describes a proposed transaction to satisfy
the obligations under the Credit Agreement, but we cannot be assured that the
proposed transaction will be consummated on the terms described therein or at
all.
We
have an interest rate collar agreement to hedge the LIBOR interest rate risk on
$5.0 million of the term loan. Under the terms of this agreement, we will pay a
6% fixed rate if the three-month LIBOR rate exceeds 6% and in return will
receive the three-month LIBOR rate. In addition, if the three-month LIBOR rate
falls below 5%, we will pay a 5% fixed rate and in return will receive the
three-month LIBOR rate. The effect of this agreement is therefore to convert
the floating three-month LIBOR rate to a fixed rate if the three-month LIBOR
rate exceeds 6% or falls below 5%. The three-month LIBOR rate received under
the agreement will substantially match the rate paid on the term loan since
term loan currently bears interest at the six-month LIBOR rate. The fair value
of the collar was ($97,000) at December 31, 2007.
Certain Contractual
Obligations, Commitments and Contingencies
The
following summarizes our significant contractual obligations and commitments at
December 31, 2007 that impact its liquidity.
|
|
Payments due by Period
|
|
Contractual Obligations
|
|
Total
|
|
Less than
1 year
|
|
1-3 years
|
|
4-5 years
|
|
After
5 years
|
|
|
|
(in thousands)
|
|
Long-term debt
|
|
$
|
13,350
|
|
$
|
13,350
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating leases,
prior to sublease income
|
|
1,962
|
|
567
|
|
1,046
|
|
349
|
|
|
|
Total
contractual obligations
|
|
$
|
15,312
|
|
$
|
13,917
|
|
$
|
1,046
|
|
$
|
349
|
|
$
|
|
|
We
have no other material commitments.
Off Balance Sheet
Arrangements
We
have not entered into any off-balance sheet transactions, arrangements or
obligations (including contingent obligations) that have, or are reasonably
likely to have, a material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
New Accounting Standards
Please
refer to Note 2 of the Notes to the consolidated financial statements for a
discussion of new accounting pronouncements and the potential impact to our
consolidated results of operations and consolidated financial position.
Critical Accounting
Policies
Our
significant accounting policies are described in Note 2 to the consolidated
financial statements. Our discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to the realizability of outstanding accounts receivable and
deferred tax assets. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Results may differ from these estimates under different
assumptions or conditions.
19
We
have identified the following critical accounting policies based on significant
judgments and estimates used in determining the amounts reported in our
consolidated financial statements and have discussed the development and
selection of such critical accounting policies with the Audit Committee of the
board of directors.
Going Concern
. As shown in the accompanying consolidated
financial statements, we have incurred recurring net losses and have an
accumulated deficit of $175.5 million, stockholders deficit of $4.2 million
and a working capital deficiency of $12.8 million as of December 31, 2007. Additionally, as described in more detail in
Notes 8 and 15, we are in default of our Credit Agreement and on April 16,
2008, we executed a non-binding Letter of Intent to sell substantially all of
the assets of our sole operating subsidiary, Woodridge, to a company owned by
the secured lenders in satisfaction of the obligations under the Credit
Agreement. Should the proposed sale
described in Note 15 be consummated, we would be left with no operating assets
to generate cash flows. Should the
proposed sale not be consummated, we would seek alternative debt or equity
financing. To the extent alternative
financing was not available, we would likely need to cease operations.
Revenue Recognition.
Sales are
recognized when title and risk of loss transfers to the customer, the sales
price is fixed or determinable and collectibility of the resulting receivable
is probable. Sales are recorded net of estimated returns and other allowances.
The provision for sales returns represents managements estimate of future
returns based on historical experience and considering current external factors
and market conditions.
Allowances for Sales
Returns and Markdowns.
Our sales
return accrual is a subjective critical estimate that has a direct impact on
reported net sales. As is customary in the industry, we grant certain of our
customers, subject to our authorization and approval, the right to either
return products or to receive a markdown allowance for certain promotional
product. Upon sale, we record a provision for product returns and markdowns
estimated based on our historical and projected experience, economic trends and
changes in customer demand. There is considerable judgment used in evaluating
the factors influencing the allowance for returns and markdowns, and therefore
additional allowances in any particular period may be needed. The types of
known or anticipated events that we have considered, and will continue to
consider, include, but are not limited to, the solvency of our customers, store
closings by retailers, changes in the retail environment, including mergers and
acquisitions, and our decision to continue or support new and existing
products. Actual sales returns and markdowns may differ significantly, either
favorably or unfavorably, from our estimates.
Provisions for Inventory
Obsolescence.
We record a
provision for estimated obsolescence of inventory. Our estimates consider the
cost of inventory, forecasted demand, the estimated market value, the shelf
life of the inventory and our historical experience. If there are changes to
these estimates, additional provisions for inventory obsolescence may be
necessary.
Goodwill and Other
Intangible Assets.
Goodwill is
calculated as the excess of the cost of purchased businesses over the fair
value of their underlying net assets. Other intangible assets principally
consist of purchased royalty rights and trademarks. Goodwill and other
intangible assets that have an indefinite life are not amortized.
On
an annual basis, or sooner if certain events or circumstances warrant, we test
goodwill and other intangible assets for impairment. To determine the fair
value of these intangible assets, there are many assumptions and estimates used
that directly impact the results of the testing. We have the ability to
influence the outcome and ultimate results based on the assumptions and
estimates we choose. To mitigate undue influence, we use industry accepted
valuation models and set criteria that are reviewed and approved by various
levels of management.
Deferred tax assets.
As of December 31,
2007, we had net operating losses of approximately $61.2 million that begin to
expire in 2021, for which a 100% valuation allowance has been recorded. The
realization of these assets is based upon estimates of future taxable income. A
full valuation allowance against the net operating loss carryforwards, along
with all other deferred tax assets, has been established to reflect the
uncertainty of the recoverability of this asset. The valuation allowance will
be reviewed periodically to determine its appropriateness. The utilization of
this asset in the future is dependent upon our having U.S. federal taxable
income. Prior to the Transaction, we had no operations and did not generate any
U.S. taxable income to utilize the net operating loss carryforwards. Even after
the Transaction, there can be no assurance that we will be able to generate
taxable income. Furthermore, the likelihood of an annual limitation on our
ability to utilize the net operating loss carryforwards to offset future
U.S. federal taxable income is increased by (1) the issuance of
certain convertible preferred stock, options, warrants, or other securities
exercisable for common stock, (2) changes in the equity ownership
occurring in the last three years and (3) potential future changes in the
equity ownership. The amount of an annual limitation can vary significantly
based on factors existing at the date of an ownership change. A substantial
portion of the net operating loss has been used to offset our U.S. federal tax
liability, other than alternative minimum tax, generated by the sale of the
economic consulting business.
ITEM 7a. Quantitative and Qualitative Disclosure of
Market Risk.
As
a smaller reporting company, as defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended (the Exchange Act), we are not required to
provide the information required by this item.
20
ITEM 8.
Financial Statements and Supplementary Data
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Nextera Enterprises, Inc.
We
have audited the accompanying consolidated balance sheets of Nextera
Enterprises, Inc. as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders (deficit) equity and cash
flows for the years then ended. Our audits also included the financial
statement schedule listed in the index at Item 15(a). These financial
statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Nextera Enterprises, Inc.
at December 31, 2007 and 2006, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects the
information set forth therein.
The
accompanying financial statements have been prepared assuming that Nextera
Enterprises, Inc. will continue as a going concern. As more fully
described in Note 2 to the consolidated financial statements, the Company has
incurred recurring operating losses, an accumulated and total stockholders
deficit and a working capital deficiency. In addition, the Company is also in
default of its Credit Agreement. These conditions raise substantial doubt about
the Companys ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
|
/s/
ERNST & YOUNG LLP
|
Los Angeles, California
|
|
May 9, 2008
|
|
21
Nextera
Enterprises, Inc.
Consolidated
Balance Sheets
(Dollar
amounts in thousands, except share data)
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
39
|
|
$
|
597
|
|
Inventories
|
|
2,619
|
|
2,595
|
|
Due from
supplier
|
|
|
|
127
|
|
Prepaid expenses
and other current assets
|
|
272
|
|
260
|
|
Total current
assets
|
|
2,930
|
|
3,579
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
233
|
|
284
|
|
Goodwill
|
|
|
|
10,969
|
|
Intangible
assets, net
|
|
10,221
|
|
12,827
|
|
Other assets
|
|
44
|
|
484
|
|
Total assets
|
|
$
|
13,428
|
|
$
|
28,143
|
|
|
|
|
|
|
|
Liabilities
and Stockholders (Deficit) Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
$
|
2,348
|
|
$
|
4,364
|
|
Bridge loan
credit facility in default
|
|
1,100
|
|
|
|
Revolver credit
facility in default
|
|
2,750
|
|
|
|
Current portion
of long-term debt in default
|
|
9,500
|
|
|
|
Total current
liabilities
|
|
15,698
|
|
4,364
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
11,718
|
|
Deferred taxes
|
|
|
|
236
|
|
Other long-term
liabilities
|
|
|
|
1,334
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Preferred Stock, $0.001 par value. Liquidation preference of $100 per share:
200,000 authorized shares designated Series B Cumulative
Non-Convertible, 26,253 and 0 shares issued and outstanding at
December 31, 2007 and 2006, respectively.
|
|
1,914
|
|
|
|
|
|
|
|
|
|
Stockholders
(deficit) equity:
|
|
|
|
|
|
Preferred Stock,
$0.001 par value, 10,000,000 shares authorized, 600,000 authorized shares
designated Series A Cumulative Convertible, 56,370 and 52,429
shares issued and outstanding at December 31, 2007 and 2006,
respectively
|
|
5,637
|
|
5,243
|
|
Class A
Common Stock, $0.001 par value, 95,000,000 shares authorized, 38,692,851 and
38,492,851 shares issued and outstanding at December 31, 2007 and
2006, respectively
|
|
39
|
|
38
|
|
Class B
Common Stock, $0.001 par value, 4,300,000 shares authorized, 3,844,200 shares
issued and outstanding at December 31, 2007 and 2006
|
|
4
|
|
4
|
|
Additional
paid-in capital
|
|
165,589
|
|
165,218
|
|
Accumulated
deficit
|
|
(175,453
|
)
|
(160,012
|
)
|
Total
stockholders (deficit) equity
|
|
(4,184
|
)
|
10,491
|
|
Total
liabilities and stockholders (deficit) equity
|
|
$
|
13,428
|
|
$
|
28,143
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
22
Nextera
Enterprises, Inc.
Consolidated
Statements of Operations
(Amounts
in thousands, except per share amounts)
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Net sales
|
|
$
|
7,939
|
|
$
|
7,481
|
|
Cost of sales
|
|
3,912
|
|
5,307
|
|
Gross profit
|
|
4,027
|
|
2,174
|
|
Selling, general
and administrative expenses
|
|
7,384
|
|
7,775
|
|
Impairment
charge
|
|
10,880
|
|
|
|
Amortization
expense
|
|
964
|
|
726
|
|
Operating loss
|
|
(15,201
|
)
|
(6,327
|
)
|
Interest income
|
|
7
|
|
193
|
|
Interest expense
|
|
(1,808
|
)
|
(1,016
|
)
|
Other income
|
|
925
|
|
|
|
Loss from
continuing operations before income taxes
|
|
(16,077
|
)
|
(7,150
|
)
|
Provision for
(benefit from) income taxes
|
|
(636
|
)
|
236
|
|
Loss from
continuing operations
|
|
(15,441
|
)
|
(7,386
|
)
|
Income from
discontinued operations, net of tax
|
|
|
|
69
|
|
Net loss
|
|
(15,441
|
)
|
(7,317
|
)
|
Preferred stock
dividends
|
|
(491
|
)
|
(353
|
)
|
Net loss
applicable to common stockholders
|
|
$
|
(15,932
|
)
|
$
|
(7,670
|
)
|
Net loss per
common share, basic and diluted
|
|
$
|
(0.37
|
)
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
Weighted average
common shares outstanding, basic and diluted
|
|
42,537
|
|
40,738
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
23
NEXTERA
ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICT) EQUITY
(Amounts
in thousands, except per share amounts)
|
|
Series A
Cumulative
Convertible
Preferred
Stock
|
|
Class A
Common
Stock
|
|
Class B
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Stock-
Holders
(Deficit)
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 31, 2006
|
|
$
|
4,890
|
|
$
|
30
|
|
$
|
4
|
|
$
|
161,130
|
|
$
|
(152,695
|
)
|
$
|
13,359
|
|
Net
loss and total comprehensive loss
|
|
|
|
|
|
|
|
|
|
(7,317
|
)
|
(7,317
|
)
|
Issuance
of 8,467,410 shares of Class A Common Stock
|
|
|
|
8
|
|
|
|
4,226
|
|
|
|
4,234
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
215
|
|
|
|
215
|
|
Cumulative
dividend of 3,524 shares on Series A Preferred Stock
|
|
353
|
|
|
|
|
|
(353
|
)
|
|
|
|
|
Balance
at December 31, 2006
|
|
$
|
5,243
|
|
$
|
38
|
|
$
|
4
|
|
$
|
165,218
|
|
$
|
(160,012
|
)
|
$
|
10,491
|
|
Net
loss and total comprehensive loss
|
|
|
|
|
|
|
|
|
|
(15,441
|
)
|
(15,441
|
)
|
Issuance
of 200,000 shares of Class A Common Stock
|
|
|
|
1
|
|
|
|
29
|
|
|
|
30
|
|
Warrants
issued with Series B Redeemable Preferred Stock
|
|
|
|
|
|
|
|
646
|
|
|
|
646
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
242
|
|
|
|
242
|
|
Cumulative
dividend of 3,941 shares on Series A Preferred Stock
|
|
394
|
|
|
|
|
|
(394
|
)
|
|
|
|
|
Cumulative
dividend of 971 shares on Series B Redeemable Preferred Stock
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
(97
|
)
|
Other
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
(55
|
)
|
Balance at December 31,
2007
|
|
$
|
5,637
|
|
$
|
39
|
|
$
|
4
|
|
$
|
165,589
|
|
$
|
(175,453
|
)
|
$
|
(4,184
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
24
Nextera Enterprises, Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Operating activities
|
|
|
|
|
|
Net loss
|
|
$
|
(15,441
|
)
|
$
|
(7,317
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation
|
|
73
|
|
50
|
|
Amortization
of intangible assets and deferred loan costs
|
|
1,125
|
|
726
|
|
Inventory
write-down
|
|
228
|
|
236
|
|
Deferred
taxes
|
|
(236
|
)
|
236
|
|
Stock-based
compensation
|
|
242
|
|
215
|
|
Loss
on disposal of property and equipment
|
|
10
|
|
|
|
Non-cash
intangible asset impairment charge
|
|
10,880
|
|
|
|
Change
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
350
|
|
Inventory
|
|
(253
|
)
|
747
|
|
Due
from supplier
|
|
127
|
|
|
|
Prepaid
expenses and other current assets
|
|
330
|
|
383
|
|
Accounts
payable and accrued expenses
|
|
(2,016
|
)
|
3,121
|
|
Other
long-term liabilities
|
|
(1,334
|
)
|
|
|
Net cash used in
operating activities
|
|
(6,265
|
)
|
(1,253
|
)
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchase of property
and equipment
|
|
(53
|
)
|
(200
|
|
Acquisition of
business, net of cash acquired
|
|
(314
|
)
|
(23,221
|
)
|
Proceeds from escrow
account
|
|
2,000
|
|
|
|
Proceeds from the
disposal of property and equipment
|
|
21
|
|
|
|
Net cash provided by
(used in) investing activities
|
|
1,654
|
|
(23,421
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Borrowings under
revolving credit facility
|
|
2,750
|
|
2,218
|
|
Payments under
revolving credit facility
|
|
(2,218
|
)
|
|
|
Borrowings under bridge
loan credit facility
|
|
1,100
|
|
2,218
|
|
Borrowings under term
note
|
|
|
|
10,000
|
|
Payment of term note
|
|
|
|
(500
|
)
|
Payment of note
acquired in acquisition
|
|
|
|
(1,000
|
)
|
Payment of debt
issuance costs
|
|
(79
|
)
|
(490
|
)
|
Proceeds from issuance
of note payable
|
|
2,500
|
|
|
|
Net cash provided by financing
activities
|
|
4,053
|
|
10,228
|
|
|
|
|
|
|
|
Net decrease in cash
and cash equivalents
|
|
(558
|
)
|
(14,446
|
)
|
Cash and cash
equivalents at beginning of year
|
|
597
|
|
15,043
|
|
Cash and cash
equivalents at end of year
|
|
$
|
39
|
|
$
|
597
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
1,175
|
|
$
|
952
|
|
Cash
paid during the year for taxes
|
|
$
|
1
|
|
$
|
|
|
Non-cash investing and
financing activities:
|
|
|
|
|
|
Issuance of common
stock in business combinations
|
|
$
|
|
|
$
|
4,234
|
|
Conversion
of note payable to preferred stock
|
|
$
|
2,500
|
|
$
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
25
NEXTERA
ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
1.
Nature of
Business
On March 9, 2006,
Nextera Enterprises, Inc. (the Company or Nextera), through a wholly
owned subsidiary, acquired substantially all of the assets of Jocott
Enterprises, Inc. (Jocott), formerly Woodridge Labs, Inc.
Subsequently, the wholly owned subsidiary was renamed Woodridge Labs, Inc.
As used herein, the term Woodridge refers to Jocott for all periods prior to March 9,
2006 and to Nexteras wholly owned subsidiary Woodridge Labs, Inc. from
and after March 9, 2006. Prior to the acquisition of the Woodridge assets,
Nextera had no business operations for the period from November 29, 2003
through March 8, 2006. Woodridges financial results have only been
included for the period subsequent to the acquisition, March 9, 2006.
Woodridge, Nexteras
sole operating business, is an independent developer and marketer of branded
consumer products that offer solutions to niche personal care needs. Brands
sold by Woodridge include Vita-K Solution, DermaFreeze 365, Ellin LaVar
Textures, Skin Appetit, 40 Carrots, Virtual Laser, Psssssst®, Stoppers-4®, Bath Lounge, Vita-C2, Firminol-10® and TurboShave®.
Mounte LLC (Mounte,
successor to Krest, LLC, Knowledge Universe LLC and Knowledge Universe, Inc.)
controls a majority of the voting
power of the Companys equity securities through its ownership of the Companys
Class A Common Stock, Class B Common Stock, Series A Cumulative Convertible
Preferred Stock and Series B
Cumulative Non-Convertible Preferred Stock.
2.
Significant
Accounting Policies
Principles
of Consolidation
The condensed
consolidated financial statements include the accounts of the Company and its
subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Going Concern
As shown in the
accompanying consolidated financial statements, the Company has incurred
recurring net losses and has an accumulated deficit of $175.5 million,
stockholders deficit of $4.2 million and a working capital deficiency of $12.8
million as of December 31, 2007.
Additionally, as described in more detail in Notes 8 and 15, the Company
is in default of its Credit Agreement and on April 16, 2008, the Company executed
a non-binding Letter of Intent to sell substantially all of the assets of its
sole operating subsidiary, Woodridge, to a company owned by the secured lenders
in satisfaction of the obligations of Woodridge and the Company under the
Credit Agreement. Should the proposed
sale described in Note 15 be consummated, the Company would be left with no
operating assets to generate cash flows.
Should the proposed sale not be consummated, the Company would seek
alternative debt or equity financing. To
the extent alternative financing was not available, the Company would likely
need to cease operations.
These factors raise
substantial doubt about the Companys ability to continue as a going
concern. The accompanying consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts or classification of
liabilities that may result for the outcome of this uncertainty.
Use
of Estimates
The preparation of
condensed consolidated 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 and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
Cash
and Cash Equivalents
Cash and cash
equivalents consist of cash on hand and demand deposit accounts. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are stated at cost, which approximates market
value.
26
Concentration
of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents in various financial institutions with
high credit ratings and, by policy, limits the amount of credit exposure to any
one financial institution.
Concentrations of credit
risk with respect to accounts receivable exists due to a limited number of
customers that make up the Companys customer base. Three customers accounted
for 79% of gross accounts receivable as of December 31, 2007. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains allowances for doubtful accounts for
specifically identified estimated losses resulting from the inability of its
customers to make required payments. Gross sales (net sales prior to customer
deductions) to the Companys three largest customers made up 69% of total gross
sales in 2007.
Revenue
Recognition, Allowances for Sales Returns and Markdowns
Sales are recognized when
title and risk of loss transfer to the customer, the sales price is fixed or
determinable and the collection of the resulting receivable is probable. Sales
are recorded net of estimated returns and other allowances. The provision for
sales returns represents managements estimate of future returns based on
historical experience and considering current external factors and market
conditions.
The sales-return
accrual is a subjective critical estimate that has a direct impact on reported
net sales. As is customary in the industry, the Company grants certain of
its customers, subject to authorization and approval, the right to either
return products or to receive a markdown allowance for certain promotional
product. Upon sale, the Company records a provision for product returns and
markdowns estimated based on historical and projected experience, economic
trends and changes in customer demand. There is considerable judgment used in
evaluating the factors influencing the allowance for returns and markdowns, and
therefore additional allowances in any particular period may be needed. The types of known or anticipated events that
the Company has considered, and will continue to consider, include, but are not
limited to, the solvency of its customers, store closings by retailers, changes
in the retail environment, including mergers and acquisitions, and the Companys
decision to continue or support new and existing products. Actual sales returns
and markdowns may differ significantly, either favorably or unfavorably, from
these estimates.
Advertising,
Promotion and Marketing
All costs associated
with advertising, promoting and marketing (including promotions, direct
selling, co-op advertising and media placement) of Company products are
expensed as incurred and charged to selling, general and administrative
expense. Advertising and promotion expenses were approximately $1.2 million and
$1.9 million for the years ended December 31, 2007 and 2006,
respectively.
Shipping
and Handling Costs
Substantially all costs
of shipping and handling of products to customers are included in selling,
general and administrative expense.
Shipping and handling costs were approximated $0.4 million and
$0.5 million for the years ended December 31, 2007 and 2006,
respectively.
Inventories
Inventories are stated
at the lower of cost (using the first-in, first-out method) or market value.
Provisions
for Inventory Obsolescence
The Company records a
provision for estimated obsolescence of inventory. These estimates consider the
cost of inventory, forecasted demand, the estimated market value, the shelf
life of the inventory and our historical experience. If there are changes to
these estimates, additional provisions for inventory obsolescence may be
necessary.
Property
and Equipment
Property and equipment
are stated at cost. Depreciation of property and equipment is provided on the
straight line method based on the estimated lives of the assets. The principal
estimated useful lives used in computing depreciation and amortization, are as
follows:
Equipment
and vehicles
|
|
3 - 5 years
|
|
Furniture
and Fixtures
|
|
3 - 5 years
|
|
Software
|
|
3 years
|
|
Leasehold improvements
are amortized over the shorter of the life of the lease or the estimated useful
life of the asset.
27
Accounting for Acquisitions and Intangible Assets
The Company has accounted for its acquisitions
under the purchase method of accounting for business combinations. Under the
purchase method of accounting, the costs, including transaction costs, are
allocated to the underlying net assets, based on their respective estimated
fair values. The excess of the purchase price over the estimated fair values of
the net assets acquired is recorded as goodwill.
The judgments made
in determining the estimated fair value and expected useful lives assigned to
each class of assets and liabilities acquired can significantly affect net income.
For example, different classes of assets will have useful lives that differ and
the useful life of property, plant and equipment acquired will differ
substantially from the useful life of brand licenses and trademarks.
Consequently, to the extent a longer-lived asset is ascribed greater value
under the purchase method than a shorter-lived asset, net income in a given
period may be higher.
Determining
the fair value of certain assets and liabilities acquired is judgmental in
nature and often involves the use of significant estimates and assumptions. One
of the areas that require more judgment is determining the fair value and
useful lives of intangible assets. To assist in this process, the Company often
obtains appraisals from independent valuation firms for certain intangible
assets.
The
Companys intangible assets primarily consist of customer relationships,
non-compete covenants, exclusive brand licenses and trademarks. The value of
the intangible assets, including customer relationships and other intangibles,
is exposed to future adverse changes if the Company experiences declines in
operating results or experiences significant negative industry or economic
trends. The Company periodically reviews intangible assets, at least annually
or more often as circumstances dictate, for impairment and the useful life
assigned using the guidance of applicable accounting literature.
Long-Lived
Assets
The
Company reviews for the impairment of long-lived assets to be held and used
whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be fully recoverable. Measurement of an impairment loss
is based on the fair value of the asset compared to its carrying value.
Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.
Deferred
Financing Costs
The Company has incurred
costs in connection with its credit agreement. Costs directly associated with
financings are capitalized as deferred financing costs and are amortized over
the weighted average life of the long-term credit facility.
Basic
and Diluted Earnings Per Common Share
The Company presents two
earnings per share amounts, basic earnings per common share and diluted
earnings per common share. Basic earnings per common share includes only the
weighted average shares outstanding and excludes any dilutive effects of
options, warrants and convertible securities. The dilutive effects of options,
warrants and convertible securities are added to the weighted average shares
outstanding in computing diluted earnings per common share. For the years ended
December 31, 2007 and 2006, basic and diluted earnings per common share
are the same due to the antidilutive effect of potential common shares
outstanding.
Income
Taxes
At any one time the
Companys tax returns for many tax years are subject to examination by U.S.
Federal, foreign, and state taxing jurisdictions. The Company establishes tax
liabilities in accordance with Financial Accounting Standards Board (FASB)
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements and prescribes a recognition
threshold and measurement attributes of income tax positions taken or expected
to be taken on a tax return. Under FIN 48, the impact of an uncertain tax
position taken or expected to be taken on an income tax return must be
recognized in the financial statements at the largest amount that is
more-likely-than-not to be sustained. An uncertain income tax position will not
be recognized in the financial statements unless it is more-likely-than-not to
be sustained. The Company adjusts these tax liabilities, as well as the related
interest and penalties, based on the latest facts and circumstances, including
recently published rulings, court cases, and outcomes of tax audits. To the
extent our actual tax liability differs from our established tax liabilities
for unrecognized tax benefits, the Companys effective tax rate may be
materially impacted. While it is often difficult to predict the final outcome
of, the timing of, or the tax treatment of any particular tax position or
deduction, the Company believes that its tax balances reflect the
more-likely-than-not outcome of known tax contingencies. There are no income tax examinations
currently in process.
28
Share-Based
Compensation
All share-based payments
to employees, including the grant of employee stock options, are recognized in
the condensed consolidated financial statements based on their fair value.
Compensation cost for awards that vest will not be reversed if the awards
expire without being exercised. The fair value of stock options is determined
using the Black-Scholes option-pricing model. Compensation costs for awards are
amortized using the straight-line method. Option pricing model input
assumptions such as expected term, expected volatility and risk-free interest
rate impact the fair value estimate. Further, the forfeiture rate impacts the
amount of aggregate compensation. These assumptions are subjective and
generally require significant analysis and judgment to develop. When estimating
fair value, some of the assumptions are based on or determined from external
data and other assumptions are derived from historical experience. The
appropriate weight to place on historical experience is a matter of judgment,
based on relevant facts and circumstances.
The Company relies on
its historical experience and post-vested termination activity to provide data
for estimating its expected term for use in determining the fair value of its
stock options. The Company currently estimates its stock volatility by
considering its historical stock volatility experience and other key factors.
The risk-free interest rate is the implied yield currently available on U.S.
Treasury zero-coupon issues with a remaining term equal to the expected term
used as the input to the Black-Scholes model. The Company estimates forfeitures
using its historical experience. The estimates of forfeitures will be adjusted
over the requisite service period based on the extent to which actual
forfeitures differ, or are expected to differ, from their estimates.
Fair
Value of Financial Instruments
The Companys financial
instruments include cash, receivables, short-term payables and the debt under
its Credit Agreement. The carrying amounts of cash, receivables, and short-term
payables approximate fair value due to their short-term nature. The carrying amounts of the debt under the
Credit Agreement approximates fair value based on interest rates currently
available.
Other
Income
For the year ended December 31,
2007, the Company recorded approximately $0.9 million of other income from the
elimination of a long-standing liability related to a subsidiary that was
dissolved in 2007.
Comprehensive Loss
Other than
the net loss incurred during the years ended December 31, 2007 and 2006,
there were no additional other components of comprehensive loss.
Recently Issued Accounting Pronouncements
In September 2006,
the FASB issued Statement of Financial Accounting Standards (SFAS) Statement No. 157,
Fair Value Measurements,
(SFAS
157). SFAS 157 defines fair value, establishes a framework for using fair
value to measure assets and liabilities, and expands disclosure about fair
value measurements. SFAS 157 applies whenever other statements require or
permit assets or liabilities to be measured at fair value and is effective for
fiscal years beginning after November 15, 2007. In December 2007, the FASB released a
proposed FASB Staff Position (FSP SFAS 157b
Effective
Date of FASB Statement No. 157)
which, if adopted, would delay
the effective date of SFAS No. 157 for all non-financial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). The
provisions of SFAS 157 are not expected to have a material impact on the
Companys consolidated financial statements.
In February 2007,
the
F
ASB issued SFAS 159,
The Fair Value Option for
Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115
. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. This
statement is effective as of the beginning of an entitys first fiscal year
that begins after November 15, 2007. The Company is currently evaluating
the impact of SFAS 159 on the Companys consolidated financial statements.
29
In December 2007,
the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R)) and Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS
160). SFAS 141(R) and SFAS 160 require most identifiable assets,
liabilities, noncontrolling interests and goodwill acquired in a business
combination to be recorded at full fair value and require noncontrolling
interests (previously referred to as minority interests) to be reported as a
component of equity. Both statements are
effective for fiscal years beginning after December 15, 2008. Statement
141(R) will be applied to business combinations occurring after the effective
date. Statement 160 will be applied prospectively to all noncontrolling
interests, including any that arose before the effective date. The Company has
not determined the effect, if any, the adoption of SFAS 141(R) and SFAS
160 will have on the Companys consolidated financial statements.
In March 2008, the
FASB issued SFAS Statement No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
. This standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position, financial
performance, and cash flows. It is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The Company is currently evaluating the
impact, if any, that this statement will have on its disclosures related to
hedging activities.
3.
Acquisitions
Woodridge
Labs, Inc
On March 9, 2006,
the Company, through W Lab Acquisition Corp., its wholly owned subsidiary,
acquired substantially all of the assets of Jocott Enterprises, Inc.,
which is referred to as Jocott in these financial statements. Jocott formerly
operated under the name Woodridge Labs, Inc. The assets of Jocott were acquired pursuant
to an asset purchase agreement, which agreement is referred to as the Purchase
Agreement in these financial statements. The acquisition of the assets of
Jocott and all related transactions are referred to in these financial
statements as the Transaction. Subsequently, W Lab Acquisition Corp. was
renamed Woodridge Labs, Inc. As used in these financial statements, the
term Woodridge refers to Jocott for all periods prior to March 9, 2006
and to our wholly owned subsidiary Woodridge Labs, Inc. from and after March 9,
2006. The financial results of Woodridge from March 9, 2006 through December 31,
2006 have been included within the financial results for the year ended December 31,
2006.
The purchase price
comprised:
·
$23.2 million in cash, including $0.8
million of acquisition expenses paid to third parties;
·
8,467,410 unregistered restricted shares
of Nexteras Class A Common Stock constituting approximately 20% of the
total outstanding common stock of Nextera immediately after such issuance,
which shares were issued to Jocott. Such shares had a value of $4.2 million on
the date of the Transaction; and
·
the assumption of a promissory note of
Jocott in the principal amount of $1.0 million, which assumed debt was paid in
full by the Company on the closing date of the Transaction.
$2.0 million of the cash
portion of the purchase price was held in escrow until March 2007 at which
time $0.5 million was withdrawn from the escrow account and distributed to
Nextera by Jocott as a deposit under an Indemnity Deposit Agreement entered
into between Nextera, Woodridge and Jocott on March 29, 2007. An
additional $1.5 million was withdrawn from the escrow account in April 2007
and these funds were also distributed to Nextera by Jocott as a deposit under a
separately executed Funding
Agreement entered into
between Nextera, Mount and Jocott on April 16, 2007. Under the terms of
the Funding Agreement, Nextera and Woodridge will keep the irrevocable deposit
in full satisfaction of certain claims for indemnification that Nextera or
Woodridge may have against the sellers under the Purchase Agreement. The
payment of any remaining indemnification obligations of Jocott was also secured
through September 2007 by a pledge of the unregistered restricted shares
of Nexteras Class A Common Stock issued to Woodridge in connection with
the Purchase Agreement. The acquisition was accounted for under the purchase
method of accounting in accordance with SFAS No. 141 (SFAS 141),
Business Combinations
.
Under the purchase method of accounting, the total estimated purchase
price is allocated to the net tangible and intangible identifiable assets and
liabilities based on their estimated relative fair values. The excess purchase price
over those assigned values was recorded as goodwill. Goodwill recorded as a
result of this acquisition is deductible for tax purposes. The purchase price
allocation follows:
30
Current
assets
|
|
$
|
4,559
|
|
Long-term
assets
|
|
389
|
|
Goodwill
|
|
8,969
|
|
Intangible
assets
|
|
13,000
|
|
Total
assets acquired
|
|
$
|
26,917
|
|
Less
liabilities assumed
|
|
1,703
|
|
|
|
$
|
25,214
|
|
The 2006 net loss and loss from continuing operations
includes
a $2.6 million charge for expected returns and a write-down
of inventories related to the March 2007 voluntary recall of certain
DermaFreeze365 products sold by Woodridge in 2006 or included in physical
inventories at December 31, 2006.
LaVar
Acquisition
On May 23, 2006,
Woodridge entered into a purchase agreement with LaVar Holdings, Inc.,
whereby Woodridge acquired the exclusive worldwide license rights, along with
certain assets and proprietary rights, to the Ellin LaVar Textures hair care
product line and brand name. The total purchase price, which includes
approximately $0.1 million of deal costs, was approximately $0.5 million.
Woodridge is required to pay a royalty to LaVar Holdings, Inc. with
respect to certain sales of products under the trademarks acquired from it.
Heavy
Duty Acquisition
On March 8, 2007,
Woodridge entered into a purchase agreement with Heavy Duty Company and
Alexandra Volkmann, whereby Woodridge acquired certain assets, including the
Heavy Duty and other trademarks and a copyright. The total purchase price,
which includes approximately $0.1 million of deal costs, was approximately $0.3
million. Woodridge will pay a royalty to Heavy Duty Company with respect to
certain future sales of products under the trademarks acquired from Heavy Duty
Company and Alexandra Volkmann.
KKG
Body Fuel Enterprises License Agreement
On June 21, 2007, the
Company entered into an Intellectual Property License Agreement with KKG Body
Fuel Enterprises, Incorporated and Keri Glassman, whereby we acquired certain
rights and licenses to use various trademarks names and slogans. The
consideration consisted of a non-refundable guaranteed royalty payment of $0.1
million in the first year and minimum royalty payments of $0.1 million in each
of the next three years.
Additionally, on June 25,
2007 the Company entered into an Independent Contractor Agreement with KKG Body
Fuel Enterprises which provides a monthly fee of $5,000 plus expenses, a stock
issuance of 200,000 shares of our Class A Common Stock and a stock option
to purchase 400,000 shares of our Class A Common Stock in exchange for
promotional services from Keri Glassman.
The effective date of the agreement is July 24, 2007.
4.
Inventories
Inventories consist of
the following:
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Raw
materials
|
|
$
|
877
|
|
$
|
1,217
|
|
Finished
goods
|
|
1,742
|
|
1,378
|
|
|
|
$
|
2,619
|
|
$
|
2,595
|
|
31
5.
Intangible
Assets
Intangible assets
consist of the following:
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Goodwill
|
|
$
|
|
|
$
|
10,969
|
|
|
|
|
|
|
|
Trademarks and
brands
|
|
$
|
1,896
|
|
$
|
2,200
|
|
Covenant not to
compete
|
|
1,379
|
|
1,600
|
|
Customer relationships
|
|
7,929
|
|
9,200
|
|
Licensing
agreements
|
|
677
|
|
489
|
|
Other
|
|
30
|
|
64
|
|
|
|
11,911
|
|
13,553
|
|
Less:
accumulated amortization
|
|
1,690
|
|
726
|
|
Intangible
assets, net
|
|
$
|
10,221
|
|
$
|
12,827
|
|
The
value of the intangible assets, including customer relationships and other
intangibles, is exposed to future adverse changes if the Company experiences
declines in operating results or experiences significant negative industry or
economic trends. The Company periodically reviews intangible assets, at least
annually or more often as circumstances dictate, for impairment and the useful
life assigned using the guidance of applicable accounting literature. As described in Note 15, the Company executed
a non-binding Letter of Intent (LOI) to sell substantially all of the assets
of its sole operating subsidiary, Woodridge, including the underlying
intangible assets in satisfaction of the obligations of Woodridge and the
Company under its Credit Agreement.
Based on the terms of the LOI, the Company determined that the carrying
amount of goodwill and other intangible assets were
not recoverable as carrying amounts exceeded the fair value. The terms of
the LOI were used to determine the implied fair value of goodwill and
intangible assets. Based of this implied fair value, an impairment loss
charge of $10.9 million was recognized in December 2007.
6.
Property and
Equipment
Property and equipment
consists of the following:
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Equipment
|
|
$
|
167
|
|
$
|
182
|
|
Tools and dies
|
|
115
|
|
85
|
|
Software
|
|
12
|
|
25
|
|
Furniture and
fixtures
|
|
16
|
|
53
|
|
Leasehold
Improvements
|
|
19
|
|
19
|
|
|
|
329
|
|
364
|
|
Less:
accumulated depreciation
|
|
96
|
|
80
|
|
Property and
equipment, net
|
|
$
|
233
|
|
$
|
284
|
|
32
7.
Accounts
Payable and Accrued Expenses
Accounts payable and
accrued expenses consist of the following:
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Trade accounts
payable
|
|
$
|
1,332
|
|
$
|
1,717
|
|
Accrued credit
customer balances
|
|
439
|
|
1,859
|
|
Accrued payroll
and compensation
|
|
92
|
|
129
|
|
Accrued legal,
audit and annual report costs
|
|
142
|
|
134
|
|
Accrued
severance
|
|
|
|
270
|
|
Accrued interest
|
|
156
|
|
65
|
|
Accrued
commission
|
|
57
|
|
|
|
Other
|
|
130
|
|
190
|
|
|
|
$
|
2,348
|
|
$
|
4,364
|
|
8.
Financing
Arrangements
In
connection with the acquisition of substantially all of the assets of Jocott,
Nextera and Woodridge (as borrower) entered into a credit agreement on March 9,
2006 for a $15.0 million senior secured credit facility, which was originally
comprised of a $10.0 million fully-drawn term loan and a four-year $5.0 million
revolving credit facility (the Credit Agreement). The Credit Agreement was
subsequently amended on March 29, 2007, April 17, 2007 and again on November 6,
2007.
The
administrative agent for the lenders under the Credit Agreement determined
that, as of March 29, 2007, certain events of default under the Credit
Agreement had occurred as a consequence of the breach by Nextera and Woodridge
of certain financial covenants as of December 31, 2006. Under the
Amendment and Forbearance Agreement, the lenders agreed, during the forbearance
period, to forbear the exercise of any and all rights and remedies to which the
lenders are or may become entitled as a result of the default. The forbearance
period began on March 29, 2007 and ended on April 30, 2007.
On
April 17, 2007, Nextera, Woodridge, the administrative agent and the
lenders entered into an amendment agreement under the Credit Agreement (the Second
Amendment). Under the terms of the Second Amendment, the revolving credit
facility was reduced from $5.0 million to $2.75 million.
On
November 6, 2007, Nextera, Woodridge, Mounte, the administrative agent and
the lenders entered into an amendment agreement under the Credit Agreement (the
Third Amendment). Under the terms of the Third Amendment, the Company
obtained a bridge loan credit facility aggregating $2.5 million. Pursuant to
the Third Amendment, the bridge loan facility , the term loan and the revolving
credit facility bear interest at the London Interbank Offered Rate (LIBOR)
plus 5.0%, or bank base rate plus 4.0%, as selected by Woodridge. Outstanding
borrowings under the bridge loan facility must be repaid with cash balances in
excess of $500,000 through the final maturity of May 31, 2008. Outstanding
borrowings under the term loan must be repaid in four quarterly payments,
commencing March 31, 2008, with a final payment due on March 31,
2009, the maturity date of the term loan. The maturity date for the revolving
credit facility is also March 31, 2009. The commitment fee on the
revolving credit facility is payable quarterly at a rate of 0.50% of the unused
amount of the revolving credit facility per annum. Additionally, the financial
covenants were waived for periods prior to November 6, 2007 and modified
thereafter.
The
Credit Agreement, as amended, contains certain restrictive financial covenants,
including minimum consolidated earnings
before interest, taxes, depreciation and amortization (EBITDA),
minimum purchase order levels and maximum corporate overhead, as defined
therein. The obligations of Woodridge,
as borrower, under the Credit Agreement are guaranteed by Nextera and all of
the direct and indirect domestic subsidiaries of Woodridge and Nextera.
On
March 31, 2008, an installment of principal of the term loan in an
aggregate amount equal to $250,000 (the March 31 Installment) became due
and payable under the Credit Agreement.
The March 31 Installment remains unpaid. Additionally, the Company has furnished the administrative
agent of the Credit Agreement with financial information showing that, as of January 31,
2008, the Company failed to comply with the minimum consolidated EBITDA financial covenant applicable
to the measurement period ending January 31, 2008. As a consequence of the failure to pay the March 31
Installment, and the failure to comply with this financial covenant, events of
default have occurred under the Credit Agreement (collectively, Specified
Events of Default). No cure periods or
grace periods are applicable to the Specified Events of Default. The Specified Events of Default have not been
waived and are continuing under the Credit Agreement.
33
Accordingly, all amounts
outstanding under the Credit Agreement have been classified as current
liabilities in the accompanying balance sheet as of December 31,
2007. Note 15 describes a proposed
transaction to satisfy the obligations under the Credit Agreement.
The
Company has an interest rate collar agreement to hedge the LIBOR interest rate
risk on $5.0 million of the term loan. Under the terms of this agreement, the
Company will pay a 6% fixed rate if the three-month LIBOR rate exceeds 6% and
in return will receive the three-month LIBOR rate. In addition, if the
three-month LIBOR rate falls below 5%, the Company will pay a 5% fixed rate and
in return will receive the three-month LIBOR rate. The effect of this agreement
is therefore to convert the floating three-month LIBOR rate to a fixed rate if
the three-month LIBOR rate exceeds 6% or falls below 5%. The three-month LIBOR
rate received under the agreement will substantially match the rate paid on the
term loan since term loan currently bears interest at the six-month LIBOR rate.
The fair value of the collar was ($97,000) at December 31, 2007 and is
included in accrued liabilities in the accompanying balance sheets.
9.
Income Taxes
The provision (benefit)
for income taxes consists of the following (in thousands):
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
Current:
|
|
|
|
|
|
Federal
|
|
$
|
(400
|
)
|
$
|
|
|
Total current
tax benefit
|
|
$
|
(400
|
)
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
|
(201
|
)
|
201
|
|
State
|
|
(35
|
)
|
35
|
|
Total deferred
tax (benefit) provision
|
|
(236
|
)
|
236
|
|
Total tax
(benefit) provision
|
|
$
|
(636
|
)
|
$
|
236
|
|
The reconciliation of
the consolidated effective tax rate of the Company is as follows:
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
Tax benefit at
statutory rate
|
|
(34
|
)%
|
(34
|
)%
|
State taxes
benefit, net of federal benefit
|
|
(6
|
)
|
(6
|
)
|
Tax reserve
release
|
|
(2
|
)
|
1
|
|
Other
|
|
|
|
1
|
|
Valuation
allowance adjustments, primarily net operating losses not benefited
|
|
38
|
|
43
|
|
Income tax
provision
|
|
(4
|
)%
|
3
|
%
|
34
Significant components
of the Companys deferred tax assets and liabilities are as follows:
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Deferred tax
assets:
|
|
|
|
|
|
Reserves and
allowances
|
|
$
|
1,789
|
|
$
|
1,942
|
|
Inventory
|
|
288
|
|
256
|
|
Other accrued
liabilities
|
|
510
|
|
588
|
|
Trademarks and other
|
|
1,240
|
|
527
|
|
Goodwill
|
|
3,051
|
|
|
|
AMT credit
|
|
1,060
|
|
1,060
|
|
Loss
carryforwards
|
|
25,976
|
|
20,333
|
|
Gross deferred
tax assets
|
|
33,914
|
|
24,706
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
Goodwill
|
|
|
|
(236
|
)
|
Separately
Identifiable Intangibles
|
|
(37
|
)
|
(11
|
)
|
Gross deferred
tax liabilities
|
|
(37
|
)
|
(247
|
)
|
|
|
|
|
|
|
Valuation
allowance
|
|
(33,877
|
)
|
(24,695
|
)
|
|
|
|
|
|
|
Net deferred tax
liabilities
|
|
|
|
$
|
(236
|
)
|
|
|
|
|
|
|
|
|
Valuation allowances
relate to uncertainties surrounding the realization of tax loss carryforwards
and the tax benefit attributable to certain tax assets of the Company. The
valuation allowance represents a reserve against all deferred tax assets that
must be realized through the generation of taxable income in future periods.
The deferred tax liability at December 31, 2006 generated by the
amortization of goodwill for tax purposes was not offset against the deferred
tax assets in determining the valuation allowance as there was no assurance
that the deferred tax liability would reverse prior to the expiration of the
net operating losses or the reversal of other deferred tax assets. In 2007, the elimination deferred tax
liability related to the previous amortization of goodwill for tax purposes,
resulted in additional income tax benefit.
At December 31,
2007, the Company had Federal and State tax net operating loss carryforwards of
approximately $62.1 million and $63.2
million, respectively, that expire between 2007 and 2027. In addition, the
Company has Federal alternative minimum tax credits of $1.1 million that do not
expire. The loss carryforwards and credits may be subject to annual limitations
under IRC section 382. If such limitations were deemed to exist, the Companys
ability to utilize the carryforwards to their fullest extent would be limited
and may adversely affect future net income and cash flows.
10.
Related
Party Transactions
The
law firm of Maron & Sandler has served as Nexteras general counsel
since its inception. Richard V. Sandler, who currently serves as Chairman
of the board of directors of the Company and Stanley E. Maron, a director and
secretary of the Company, are partners of Maron & Sandler. In 2007 and
2006, Maron & Sandler billed Nextera approximately $36 thousand
and $40 thousand, respectively, for
legal services rendered to the Company
.
In December 2006, a
party related to Messrs. Millin and Weiss, directors of Nextera, acquired
approximately $0.3 million of slow-moving inventory from the Company at book
value. Additionally, the Company paid Weiss Accountancy , a firm affiliated
with Scott Weiss, approximately $8 thousand and $20 thousand, in 2007 and 2006,
respectively, for accounting services.
On March 29, 2007,
Nextera, Woodridge and Jocott entered into an Indemnity Deposit Agreement. On April 16,
2007, Nextera, Mounte, the majority stockholder of Nextera, and Jocott entered
into a separate Funding Agreement and related Promissory Notes and Standstill
Agreements. See note 11 for a detailed description of these agreements.
35
11.
Stockholders
Equity
Class A
and Class B Common Stock
At December 31,
2007, the Company had
38,692,851
shares
of Class A Common Stock and 3,844,200
shares of Class B Common Stock outstanding. The Class B Common
Stock has the same economic characteristics as the Class A Common Stock,
except that each share of Class B Common entitles the holder to ten votes
per share of Class B Common Stock.
Each share of Class B Common Stock can be converted by the holder
into one share of Class A Common Stock.
Series A
Cumulative Convertible Preferred Stock
On December 14,
2000, the Company entered into a Note Conversion Agreement with Mounte whereas
Mounte converted certain debentures into shares of $0.001 par value Series A
Cumulative Convertible Preferred Stock (Series A Preferred). The Series A
Preferred currently bears dividends at a 7% rate. Such dividends are payable
quarterly in arrears in cash or, at the option of the Company, in additional
nonassessable shares of Series A Preferred.
The Series A
Preferred carries a liquidation preference equal to $100 per share and is
convertible into Class A Common Stock at the option of the holder. The Series A
Preferred is convertible at a price equal to $0.6875 per share. Each holder of Series A
Preferred is entitled to vote on matters presented to stockholders on an as
converted basis. Holders of our Series A
Preferred are entitled to 151 votes per
share (which equals the number of whole shares of Class A Common Stock
into which one share of Series A Preferred is convertible) on all matters
to be voted upon for each share of Series A Preferred held.
Beginning on December 14,
2004, in the event that the average closing price of the Companys Class A
Common Stock for the 30 days prior to the redemption is at least $1.0313, the Series A
Preferred may be redeemed at the option of the Company. As of December 31,
2007, the Series A Preferred may be redeemed at a price equal to $103 per
share plus accrued unpaid dividends through December 14, 2007 by the
Company. Each year thereafter, the redemption price will decrease $1 per share
until December 14, 2010, at which point the redemption price will be fixed
at $100 per share plus accrued unpaid dividends.
Funding
Agreement and Note Conversion Agreements - Series B Cumulative
Non-Convertible Preferred Stock
On
April 16, 2007, Nextera, Woodridge, Mounte and Jocott entered into a
Funding Agreement (the Funding Agreement). Under the terms of the Funding
Agreement, Mounte and Jocott loaned to Nextera the principal sums of $1.5
million and $1.0 million respectively, pursuant to individual promissory notes.
The notes accrued interest at an annual rate of 7% with principal originally
payable at the maturity date of April 1, 2012. Nextera was prohibited from
paying interest in cash on these notes under the terms of its Credit Agreement.
Accordingly, interest was accrued and added to the principal balance of the
notes. The notes, including accrued interest, were exchanged in connection with
the Note Conversion Agreement discussed below.
The
Funding Agreement provides, subject to (i) any required consents or
approvals of the lenders under the Credit Agreement and of any other persons
whose consent or approval is required at the time under any credit or other
contract or agreement to which Nextera, Woodridge or any of their affiliates is
a party, (ii) any required consent of the holders of the outstanding Series A
Preferred, and (iii) the approval of Nexteras board of directors; that,
in the event that Nexteras EBITDA for a fiscal year is greater than or equal
to $7.0 million or is greater than or equal to $12.0 million for any two
consecutive fiscal years, or any event happens that results in the exchange or
redemption of, or payment of a liquidation preference with respect to, any of
Nexteras outstanding preferred stock (the Triggering Event), Nextera will
take the following actions:
a)
Within 15
business days after the occurrence of a Triggering Event, Nextera will issue to
Jocott additional shares of Cumulative Non-convertible Series B Preferred
Stock (Series B Preferred) in addition to the shares of Series B
Preferred issued in connection with the Note Conversion Agreement, at a price
equal to $100 per share. The number of
such additional shares to be issued to Jocott will be equal to the quotient
obtained by dividing (i) the sum of (A) $1,000,000, plus (B) the
Appreciation Amount defined below, by (ii) 100, and rounding down to the
nearest whole share. Such shares of Series B
Preferred will be issued to Jocott in consideration of Jocotts irrevocable
payment of the $2.0 million indemnity deposit and Jocotts compromise and
settlement of the past, pending and future specified claims. The Appreciation
Amount means an amount equal to a deemed appreciation equal to (1) $1,000,000,
multiplied by (2) seven percent (7%) per annum, compounded annually,
calculated from the date that Jocott loaned the funds to Nextera pursuant to
the promissory note issued by Jocott until the date of the issuance of the
additional shares of Series B Preferred to Jocott.
b)
Within 15
business days after the occurrence of a Triggering Event, Nextera will also
issue to Jocott the same number of shares of Series C Cumulative
Non-Convertible Preferred Stock (Series C Preferred) of Nextera as the number
of additional shares of Series B Preferred issued to Jocott. The Series C Preferred will (i) be
issued at a price equal to $100 per share, (ii) have a liquidation
preference equal to $100 per share and (iii) provide for a 7% paid-in-kind
dividend. The Series C Preferred
will not be convertible into any other securities of Nextera and the Series C
Preferred will rank (i) junior to the Series A Preferred as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, and (ii) on a parity with the Series B
Preferred as
36
to the payment of
dividends and the Special Redemption Right noted below, but rank junior to the Series B
Preferred as to the distribution of assets upon liquidation, dissolution or
winding up. The Series C Preferred will be structured so as to comply with
any applicable restrictions in any credit or other contract or agreement to
which Nextera, Woodridge or any of their affiliates is a party. Such shares of Series C Preferred will
be issued to Jocott in consideration of Jocotts irrevocable payment of the
$2.0 million indemnity deposit and Jocotts compromise and settlement of the
past, pending and future specified claims.
c)
Nextera will
grant to the holders of Series A Preferred, Series B Preferred and Series C
Preferred the right (the Special Redemption Right), the exercise of which is
conditioned upon the occurrence of a Triggering Event, the request of the
holders and the approval of the Companys board of directors, to redeem all or a portion of the shares of
the Preferred Stock held by such holders at a redemption price equal to $100
per share (plus any applicable accrued but unpaid dividends on the shares so
redeemed). The Special Redemption Right
of the holders of Series A Preferred will be senior and prior to the
Special Redemption Rights of the holders of Series B Preferred and Series C
Preferred, and the Special Redemption Rights of the holders of Series B
Preferred and Series C Preferred will be on parity with each other.
Additionally,
under the provisions of the Funding Agreement, in connection with and at the
time of the issuance of any Series B Preferred and/or Series C
Preferred, Nextera issued warrants to purchase Nexteras Class A Common
Stock at an exercise price of $0.50 per share (the Warrants) to the holder of
such Series B Preferred and/or Series C Preferred. The number of
shares of Nexteras Class A Common Stock for which such warrants are
exercisable is equal to (i) with respect to notes redeemed or exchanged
for Series B Preferred , the product of (A) the outstanding principal
balance plus all accrued but unpaid interest that was redeemed or exchanged,
multiplied by (B) two (2); (ii) 2,000,000 shares with respect to the Series B
Preferred Stock issued upon the occurrence of a Triggering Event (when and if
such Series B Preferred is issued), and (iii) 2,000,000 shares with
respect to the Series C Preferred issued upon the occurrence of a
Triggering Event (when and if such Series C Preferred is issued). The
Warrants will have a ten (10) year term and have customary piggyback
registration rights and anti-dilution rights and other rights with respect to
specified events, all as determined by Nexteras board of directors.
On
June 15, 2007, Nextera entered into a Note Conversion Agreement whereby
Nextera exchanged all outstanding principal and accrued interest owed to Mounte
and Jocott pursuant to individual promissory notes executed in connection with
the Funding Agreement for 15,169 and 10,113 shares, respectively, of Nexteras Series B
Preferred together with a cash payment in lieu of fractional shares. The Series B
Preferred Stock was issued at a price of $100 per share, has a liquidation
preference of $100 per share, provides for a 7% per annum cumulative
paid-in-kind dividend, and entitles its holders to a number of votes equal to
the number of shares held. The Series B Preferred Stock is not convertible
into any other securities of Nextera and ranks junior to the Series A
Preferred as to the payment of dividends, the issuance of a special redemption,
and the distribution of assets upon liquidation, dissolution or winding up. The
Series B Preferred Stock is structured so as to qualify as Permitted
Equity Interests as such term is defined in Nexteras Credit Agreement, as
amended.
In connection with the
issuance of the Series B Preferred Stock, Nextera issued a Class A
Common Stock Purchase Warrant to, each of Mounte and Jocott, pursuant to the
terms of a Funding Agreement. Under such Warrants, Nextera granted Mounte and
Jocott the right to purchase 3,033,945 and 2,022,630 shares, respectively, of
Nexteras Class A Common Stock at an exercise price of $0.50 per share,
exercisable at any time at the option of the holder. The warrants have a
ten-year term and have customary piggyback registration rights and
anti-dilution rights with respect to specified events. The fair value of the
warrants has been determined to be $647 thousand. This amount was calculated
using the Black-Scholes pricing model with the following assumptions: 118.9%
volatility; expected term of 10 years; 5.10% risk-free rate; and 0% dividend.
The Series B
Preferred is classified as mezzanine equity as the Redemption Rights are
effectively redeemable at the option of the holders and are not solely within
the control of the issuer. The initial
carrying amount of the Series B Preferred is the fair value at
issuance. The Series B Preferred
will not be accreted to the redemption value of $2.5 million until redemption
is considered probable. The 7%
paid-in-kind dividend accrues to the carrying value of the Series B
Preferred.
Employee
Equity Participation Plans
The Amended and Restated
1998 Equity Participation Plan (the Plan), a stockholder approved plan,
provides for several types of equity-based incentive compensation awards
including stock options, stock appreciation rights, restricted stock and
performance awards. Employees, consultants and independent directors are
eligible to receive awards under the Plan. Under the Plan, the maximum number
of shares that may be awarded is 12,000,000 shares. All awards granted under
the Plan consist of stock options. Under the Plan, performance-based stock
options and incentive stock options may not be priced at less than one hundred
percent (100%) of the fair market value of a share of the Companys Class A
Common Stock on the date the option is granted, except that in the case of
incentive stock options granted to an individual then owning more
37
than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or
any subsidiary or parent thereof, such price may not be less than one hundred
ten percent (110%) of the fair market value of a share of the Companys Class A
Common Stock on the date the option is granted. The stock option awards
generally vest over a three- to four-year period and have contractual ten-year
terms.
The weighted-average
grant-date fair value of options granted during the years ended December 31,
2007 and 2006 was estimated on the grant date using the Black-Scholes
option-pricing model with assumptions noted in the following table. Expected volatilities are based on historical
volatility of the Common Stock and other factors. The expected term of options represented the
period of time that options granted are expected to be outstanding and is
derived from historical terms and other factors. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
|
|
2007
|
|
2006
|
|
Risk-free
interest rates
|
|
4.8
|
%
|
5.25
|
%
|
Expected lives
(years)
|
|
5
|
|
3-4
|
|
Expected
volatility
|
|
81
|
%
|
73.5
|
%
|
Dividend rate
|
|
0
|
%
|
0
|
%
|
Options granted,
exercised, expired and forfeited under the Plan are as follows:
Stock Options
|
|
Shares
|
|
Weighted-
Average
Exercise
price
|
|
Weighted-
Average
Remaining
Life (years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at
December 31, 2005
|
|
5,402,267
|
|
$
|
1.84
|
|
|
|
|
|
Granted
|
|
1,150,000
|
|
0.58
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Forfeited or
expired
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2006
|
|
6,552,267
|
|
$
|
1.62
|
|
5.6
|
|
$
|
|
|
Granted
|
|
1,651,168
|
|
0.24
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Forfeited or
expired
|
|
1,401,250
|
|
1.23
|
|
|
|
|
|
Outstanding at
December 31, 2007
|
|
6,802,185
|
|
$
|
1.37
|
|
5.5
|
|
$
|
|
|
Options vested
and expected to vest at December 31, 2007
|
|
1,413,750
|
|
$
|
0.38
|
|
8.9
|
|
$
|
|
|
Options
exercisable at end of year
|
|
5,388,435
|
|
$
|
1.63
|
|
4.6
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average
grant-date fair value of options granted during the years 2007 and 2006 was
$0.15 and $0.34, respectively. Intrinsic
value is defined as the difference between the relevant current market value of
the underlying common stock and the grant price for options with exercise
prices less than the market values on such dates. No options were exercised during 2007 and
2006.
As of December 31,
2007, there was approximately $0.1 million of unrecognized compensation cost
related to stock options outstanding which will be recognized over the next
year.
Options are granted at
an exercise price equal to the fair market value at the date of grant. Information regarding stock options
outstanding at December 31, 2007 is as follows:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding at
December 31,
2007
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted-Average
Exercise Price
|
|
Number
Exercisable at
December 31,
2007
|
|
Weighted-Average
Exercise Price
|
|
$0.16 - $1.00
|
|
3,824,918
|
|
7.6
|
|
$
|
0.41
|
|
2,411,168
|
|
$
|
0.43
|
|
$1.01 - $3.00
|
|
2,762,267
|
|
2.8
|
|
2.00
|
|
2,762,267
|
|
2.00
|
|
$3.01 - $11.00
|
|
215,000
|
|
1.8
|
|
10.32
|
|
215,000
|
|
10.32
|
|
|
|
6,802,185
|
|
|
|
$
|
1.37
|
|
5,388,435
|
|
$
|
1.63
|
|
38
12.
Basic and
Diluted Earnings Per Common Share
The following table sets
forth the reconciliation of the numerator and denominator of the net income
(loss) per common share computation:
|
|
Year ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Amounts in thousands,
except per share data)
|
|
Numerator:
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(15,441
|
)
|
$
|
(7,386
|
)
|
Preferred
dividends
|
|
(491
|
)
|
(353
|
)
|
Loss
from continuing operations applicable to common stockholders
|
|
(15,932
|
)
|
(7,739
|
)
|
Income
from discontinued operations
|
|
|
|
69
|
|
Net
loss applicable to common stockholders
|
|
$
|
(15,932
|
)
|
$
|
(7,670
|
)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
42,537
|
|
40,738
|
|
Net
loss per common share, basic and diluted
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.37
|
)
|
$
|
(0.19
|
)
|
Income
from discontinued operations
|
|
0.00
|
|
0.00
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.37
|
)
|
$
|
(0.19
|
)
|
In 2007 and 2006, the Company had 7,372,000 of common stock equivalents,
consisting of stock options, warrants and convertible preferred stock, which
were not included in the computation of earnings per share because they were
antidilutive.
13.
Retirement
Savings Plans
The Company and certain
of its subsidiaries sponsor retirement savings plans under the Internal Revenue
Code for the benefit of all of their employees meeting certain minimum service
requirements. Eligible employees may elect to contribute to the retirement
plans subject to limitations established by the Internal Revenue Code. The
trustees of the plans select investment opportunities from which participants
may choose to contribute. Employer contributions are made at the discretion of
the Company. Total employer contribution expense under the plans was $0.1
million in both 2007 and 2006.
14.
Commitments
and Contingencies
Lease Commitments
The Company leases its
corporate office and warehouse under noncancelable operating leases with
various expiration dates through August 2011. Total rent expense was
approximately $0.5 million and $0.1 million for 2007 and 2006, respectively.
The future minimum annual payments and anticipated sublease income under such
leases in effect at December 31, 2007, were as follows (in thousands):
|
|
Minimum
Rental
Payments
|
|
Sublease
Rental
Income
|
|
Net
Minimum
Lease
Payments
|
|
2008
|
|
$
|
567
|
|
$
|
34
|
|
$
|
533
|
|
2009
|
|
523
|
|
|
|
523
|
|
2010
|
|
523
|
|
|
|
523
|
|
2011
|
|
349
|
|
|
|
349
|
|
2012
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
1,962
|
|
$
|
34
|
|
$
|
1,928
|
|
39
Contingencies
The Company is subject
to certain asserted claims arising in the ordinary course of business. The
Company intends to vigorously assert its rights and defend itself in any
litigation that may arise from such claims. While the ultimate outcome of these
matters could affect the results of
operations of any one quarter or year when resolved in future periods, and
while there can be no assurance with respect thereto, management believes that
after final disposition, any financial impact to the Company would not be
material to the Companys financial position, results of operations or
liquidity.
15.
Subsequent
Event
On April 16,
2008, the Company executed a non-binding Letter of Intent (LOI) to sell
substantially all of the assets of its sole operating subsidiary, Woodridge, to
a company (the Buyer) owned by the secured lenders under Woodridges senior
secured credit agreement in satisfaction of the obligations of Woodridge and
the Company under the Credit Agreement.
NewStar Financial, Inc. (NewStar), the administrative agent under
the Credit Agreement, and its affiliates would control the Buyer subsequent to
the closing of the proposed transaction.
All proceeds from the proposed sale of these assets will be applied at
closing towards repayment of Woodridges bridge loans, term loan and revolving
credit facility under the Credit Agreement.
Accordingly, all amounts outstanding under the Credit Agreement have
been classified as current liabilities in the accompanying balance sheet as of
December 31, 2007.
As of the date of
this Annual Report on Form 10-K, NewStar was owed $13.25 million under all
facilities of the Credit Agreement. Mounte and Jocott are bridge lenders under
the Credit Agreement, with $1.0 million and $0.4 million outstanding as of the
date of this Annual Report on Form 10-K, respectively.
The proposed
transaction is subject to various conditions, including the signing of mutually
satisfactory definitive agreements, the approval of the Companys board of
directors, including a recommendation by the independent members of the board
of directors, and the approval of the Companys shareholders. There can be no assurance that the
transactions contemplated by the LOI will be consummated as described herein or
at all. Should the sale be consummated,
the Company would be left with no operating assets to generate cash flows.
40
ITEM 9.
Changes in
and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
Controls and
Procedures
A system of disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934,
as amended the Exchange Act) are controls and other procedures that are designed
to provide reasonable assurance that the information that the Company is
required to disclose in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is
accumulated and communicated to the Companys management, including the
President (Principal Executive Officer) and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. There are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives, and management necessarily is required to
use its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. In addition, the design of any system of controls is
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. Moreover, over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with policies or procedures may deteriorate. Because of the
inherent limitations in a control system, misstatements due to error or fraud
may occur and not be detected.
Notwithstanding the issues described below, the
current management has concluded that the consolidated financial statements for
the periods covered by and included in this Annual Report on Form 10-K are
fairly stated in all material respects in accordance with generally accepted
accounting principles in the United States for each of the periods presented
herein.
Managements Report on Internal Control Over
Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002
requires that management document and test the Companys internal control over
financial reporting and include in this Annual Report on Form 10-K a
report on managements assessment of the effectiveness of our internal control
over financial reporting.
The Companys management is responsible for
establishing and maintaining adequate internal control over the Companys
financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with United States of America generally accepted accounting
principles. A Companys internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the Company are
being made only in accordance with authorization of management and directors of
the Company and (iii) provide reasonable assurance regarding the
prevention or timely detection of unauthorized acquisition, use or disposition
of the Companys assets that could have a material effect on our consolidated
financial statements.
In connection with the preparation of this Annual
Report on Form 10K, to evaluate the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31,
2007, the Companys management did not complete the assessment of the
effectiveness of the Companys internal control over financial reporting,
implementing the criteria set forth by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission in Internal Control-Integrated
Framework. Management has concluded as a result that its disclosure controls
and procedures may not be effective at the reasonable assurance level as of
December 31, 2007. Specifically, its control environment possibly may not
sufficiently promote effective internal control over financial reporting
through the management structure to prevent a material misstatement.
41
The Company needs to complete implementing the
internal controls based on the criteria established in Internal Control
Integrated Framework issued by the COSO. The management believes that it is
taking the steps that will properly address any issue. While we are taking
immediate steps to implement the internal controls based on the criteria
established in Internal Control - Integrated Framework issued by the COSO, they
will not be considered fully implemented until the internal controls are tested
and are found to be operating effectively.
This Annual Report on Form 10-K does not include
an attestation report of our registered public accounting firm regarding
internal control over financial reporting. Managements report was not subject
to attestation by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only managements report in
this Annual Report on Form 10-K.
Changes in Internal Control Over Financial
Reporting
There have been no changes in the Companys internal
control over financial reporting during the most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
ITEM 9B. Other Information
None.
42
PART III
ITEM 10.
Directors
and Executive Officers of the Registrant
Richard V. Sandler
Mr. Sandler,
59, currently serves as Chairman of the board of directors of Nextera, a
position he has held since December 2003. He has been a director of
Nextera since February 1997. Previously, Mr. Sandler served as
Vice-Chairman of Nextera from February 2003 to December 2003.
Mr. Sandler serves on Nexteras Compensation Committee. Mr. Sandler
also serves as an officer or director of other privately held affiliates of
Mounte (successor to Krest LLC, Knowledge Universe, Inc. and Knowledge
Universe LLC) and subsidiaries of Nextera. Mounte beneficially owns or controls
approximately 65.1% of the voting power of our outstanding Common Stock,
Series A Preferred Stock and Series B Preferred Stock. Mr. Sandler is a senior partner in the
law firm of Maron & Sandler, a position he has held since
September 1994.
Ralph Finerman
Mr. Finerman,
72, currently serves as a director of Nextera, a position he has held since
August 1998. Mr. Finerman also serves as an officer or director of
other privately held affiliates of Mounte and subsidiaries of Nextera.
Mr. Finerman is a certified public accountant and an attorney and
practiced in New York prior to forming RFG Financial Group, Inc. in 1994.
Mr. Finerman currently serves as President of RFG Financial Group.
Alan B. Levine
Mr. Levine,
64, currently serves as a director of Nextera, a position he has held since
June 2003, and serves as Chairman of Nexteras Audit Committee in addition
to serving on Nexteras Compensation Committee. Mr. Levine currently is
the Vice-President and Chief Financial Officer of Graduate Management Admission
Council. Mr. Levine serves on the board of RBC Bearings, Incorporated,
where he is the Chairman of the Audit Committee. Mr. Levine served as a
director and Chief Financial Officer of Virtual Access Networks, Inc. from
September 2001 to April 2002 and Vice President, Chief Financial
Officer and Treasurer of Marathon Technologies Corporation from
October 1998 to September 2001. Mr. Levine was a partner with
Ernst & Young LLP from 1986 to September 1998.
Stanley E. Maron
Mr. Maron,
60, currently serves as a director and Secretary of Nextera, positions he has
held since February 1997. Mr. Maron serves on Nexteras Compensation
Committee. Mr. Maron is also a director of LeapFrog
Enterprises, Inc., Secretary of Mounte and an officer or director of
various public and privately held affiliates of Mounte and subsidiaries of
Nextera. Mr. Maron is a senior partner in the law firm of Maron &
Sandler, a position he has held since September 1994.
Joseph J. Millin
Mr. Millin,
54, was elected as a director and President of Nextera on March 9, 2006 in
connection with the closing of the purchase by Nextera of the assets of
Woodridge (the Transaction). Mr. Millin
also serves as the Chief Executive Officer and President of Woodridge, a wholly
owned subsidiary of Nextera, in accordance with the terms of his employment
agreement with us. Since 1996, Mr. Millin has served as the President and
director of Jocott, formerly known as Woodridge prior to March 9, 2006.
Scott J. Weiss
Mr. Weiss,
52, was elected as a director of Nextera on March 9, 2006 in connection
with the closing of the Transaction. Mr. Weiss also serves as the Chief
Operating Officer of Woodridge, in accordance with the terms of his employment
agreement with us. Since 1996, Mr. Weiss has served as the Chief Financial
Officer, Secretary and director of Jocott, formerly known as Woodridge prior to
March 9, 2006. Mr. Weiss is a licensed certified public accountant
and is the President and director of Weiss Accountancy Corporation.
43
Antonio Rodriquez
Mr. Rodriquez,
42, joined us on January 31, 2007 as our Chief Financial Officer. Prior to
joining the Company, Mr. Rodriquez served as the Chief Accounting Officer
of Capstone Turbine Corp., a publicly traded leading producer of low-emission
microturbine systems, from January 2006 to January 2007. Prior to
Capstone Turbine, Mr. Rodriquez served as Vice President of Finance for
ValueClick, Inc., a publicly-traded internet media and technology firm,
from 2000 until December 2005. Mr. Rodriquez also served as a Senior
Manager in the Assurance Practice of the Manufacturing, Retailing and Distribution
line of business at KPMG, LLP. Mr. Rodriquez is a certified public
accountant and is a member of the American Institute of Certified Public
Accountants.
Corporate
Governance
We have formally adopted
a written code of business conduct and ethics that governs our employees,
officers and directors. This code of
business conduct is available free of charge to any person that requests a copy
through a written request made to our Chief Financial Officer at our Corporate
Headquarters. We promote accountability for adherence to honest and
ethical conduct; endeavor to provide full, fair, accurate, timely and
understandable disclosure in reports and documents that we file with the
Commission and in other public communications made by us; strive to be
compliant with applicable governmental laws, rules and regulations; and
promote prompt internal reporting of violations of the code of ethics to an
appropriate person or persons.
There were no material
changes to the procedures by which shareholders may recommend nominees to our
board of directors during the fiscal year ended December 31, 2007.
The Audit Committee is
responsible for reviewing and making recommendations concerning the selection
of outside auditors, reviewing the scope, results and effectiveness of the
annual audit of our consolidated financial statements and other services
provided by our independent public accountants. The board of directors also
reviews our internal accounting controls, practices and policies. The Audit Committee during fiscal 2007 was
composed of Messrs. Levine and Grinstein. Mr. Grinstein resigned from
Nexteras board of directors effective as of April 21, 2008. Mr. Levine qualifies as an audit
committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires our officers, directors and persons who own more than
10% of a registered class of our equity securities to file reports of ownership
and changes in ownership to file with the SEC initial reports of ownership and
reports of changes in their beneficial ownership of our common stock. Such
officers, directors and shareholders are required by SEC Regulations to furnish
us with copies of all such reports. To our knowledge, based solely on a review
of copies of reports filed with the SEC during the last fiscal year, all
applicable Section 16(a) filing requirements were met, except as set
forth below. Each of Mr. Ralph
Finerman, Mr. Alan Levine, Mr. Stanley Maron and Mr. Richard Sandler
filed a late Form 4 relating to a single transaction.
44
ITEM 11.
Executive
Compensation
Compensation Discussion and Analysis
The
Compensation Committee of the board of directors (the Compensation Committee)
administers Nexteras executive compensation program and establishes the
salaries of Nexteras executive officers. The Compensation Committee in fiscal
2007 consisted of Messrs. Maron, Sandler and our two independent
directors, Messrs. Grinstein and Levine.
Mr. Grinstein resigned from Nexteras board of directors effective
as of April 21, 2008.
Compensation Philosophy and
Objectives
The general philosophy of the Compensation Committee
is to motivate, measure and reward employees for performance that we believe
will result in superior operational results and build long-term value for our
shareholders. The objectives of our compensation and benefit programs are to
link the financial interests of Nexteras executive officers to the interests of
its stockholders, to encourage support of Nexteras long-term goals, to tie
executive compensation to Nexteras performance, to attract and retain talented
leadership and to encourage significant ownership of Nexteras common stock by
executive officers. Most of our
compensation elements simultaneously fulfill one or more of these objectives.
Setting Executive Compensation
In making decisions affecting our executive
compensation, the Compensation Committee reviews the nature and scope of the
executive officers responsibilities as well as his effectiveness in supporting
Nexteras long-term goals. There is no
pre-established amount or formula for the allocation between annual
compensation and long-term compensation for our executive officers. Rather, the
compensation committee relies on each committee members knowledge and
experience as well as information provided by management to determine the
appropriate level and mix of compensation.
Executive Compensation Components
We utilize certain elements of our executive
compensation to ensure a proper balance between our short- and long-term
successes as well as between our financial performance and shareholder return.
The principal components of compensation provided to
Nexteras executive officers are:
Annual
salary;
Annual
performance bonuses;
Long-term
equity incentives;
Retirement
savings opportunity; and
Health
and welfare benefits.
Each component aligns the interests of our executive
officers with the interests of our stockholders in different ways, whether
through focusing on short-term and long-term performance goals, promoting an
ownership mentality towards ones job, linking individual performance to our
performance, or by ensuring healthy employees.
Elements of Compensation
Base Salary
We provide our executives with a base salary to
compensate them for services rendered during the fiscal year and to provide a
stable annual salary at a level consistent with their individual contributions
to us. Consistent with its philosophy, the Compensation Committee establishes
and adjusts base salaries for Nexteras executive officers annually, taking
into account the performance of Nextera, individual performance of each
executive, and the executives scope of responsibility in relation to other
officers and key executives within Nextera. In selected cases, other factors
may also be considered.
No adjustments were made to our executive officers
base salaries during 2007.
45
Annual Incentive Bonuses
Nextera does not have a formal incentive bonus plan.
However, Nextera may pay bonuses to its executive officers at the end of each
fiscal year based primarily on the Compensation Committees subjective
assessment of Nexteras performance and individual executive performance for
the year then ended. For 2007, based on
Nexteras performance, no annual bonuses were awarded to our executive
officers.
Long-Term Incentives
The Compensation Committee is committed to long-term
incentive programs for executives that promote the long-term growth of Nextera.
Our long-term incentives consist solely of stock option awards. We believe that
stock options are an effective way to reward our employees and to align
employee and stockholder long-term interest. Stock options provide a direct
link between compensation and stockholder return. The exercise price of stock
options granted to executives is equal to the fair market value of Nexteras
Class A Common Stock on the date of the grant, as determined under Nexteras
Amended and Restated 1998 Equity Participation Plan. The vesting schedule for
options granted under Nexteras option plans is generally set to emphasize the
long-term incentives provided by option grants. A longer vesting schedule is
generally selected to encourage executives to consider the long-term welfare of
Nextera and to establish a long-term relationship with Nextera. It is also
designed to reduce executive turnover and to retain the trained skills of
valued employees.
The number of options granted to individual executive
officers depends upon the executives position at Nextera, his or her
performance prior to the option grant and market practices within our industry.
Because the primary purposes of granting options are to provide incentives for
future performance and retain highly skilled and valued executives, the
Compensation Committee considers the number of shares that are not yet
exercisable by an executive under previously granted options when granting
additional stock options.
During 2007, the
Compensation Committee granted stock options to purchase 200,000 shares of our
Class A Common Stock to Antonio Rodriquez in connection with his
commencement of employment based on its consideration of the foregoing factors.
Retirement Savings
Our executive officers are eligible for the same
benefits that are available to Nextera employees generally. These include
participation in a tax-qualified 401(k) plan and group life, health,
dental, vision and disability insurance plans.
401(k) Plan
Nexteras 401(k) plan is available to the
executive officers and other eligible Nextera employees enabling them to
contribute certain percentages of their annual base salary into the plan. We will match 75% of the first 6% of an
employees eligible compensation contributed to the plan, subject to the
maximums permissible under the Internal Revenue Code of 1986, as amended, or
the Code.
Severance Plans
The below-referenced employment agreements contain
provisions related to severance payments upon termination of employment. Each
of these agreements is described in detail under the heading Potential
Payments upon Termination or Change in Control. We do not have any other
formal severance policies or plans.
Health and Welfare Benefits
We offer a variety of health and benefit programs,
including group life, health, dental, vision and disability insurance plans.
Internal
Revenue Code Section 162(m)
The Compensation Committee also considers the
potential impact of Section 162(m) of the Code
(Section 162(m)). Section 162(m) disallows a tax deduction for
any publicly held corporation for individual compensation exceeding $1 million
in any taxable year for the chief executive officer and the other senior
executive officers, other than compensation that is performance-based under a
plan that is approved by the shareholders of the corporation and that meets
certain other technical requirements. Based on these requirements, the
Compensation Committee has determined that Section 162(m) will not
prevent Nextera from receiving a tax deduction for any of the compensation paid
to executive officers.
46
Executive Compensation
The following table sets forth all compensation paid
or accrued for the years ended December 31, 2006 and 2007 for our
president and our chief financial officer (referred to herein as our Named
Executive Officers).
Summary Compensation Table
Name and
Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($) (3)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
All Other
Compensation
($)
|
|
Total ($)
|
|
Joseph J. Millin (1)
|
|
2007
|
|
$
|
360,000
|
|
$
|
|
|
$
|
|
|
$
|
5,893
|
|
$
|
|
|
$
|
|
|
$
|
31,092
|
|
$
|
396,985
|
|
President
(Principal Executive Officer) and Director
|
|
2006
|
|
$
|
291,429
|
|
$
|
|
|
$
|
|
|
$
|
5,161
|
|
$
|
|
|
$
|
|
|
$
|
21,063
|
|
$
|
317,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio Rodriquez (2)
|
|
2007
|
|
$
|
183,333
|
|
$
|
|
|
$
|
|
|
$
|
13,728
|
|
$
|
|
|
$
|
|
|
$
|
7,333
|
|
$
|
204,395
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Mr. Millin was named President of Nextera and an executive officer
in March 2006. All Other
Compensation for 2007 includes $16,692 in reimbursements for the costs of
Mr. Millins automobile and $14,400 of 401(k) employer matching
contribution.
(2)
Mr. Rodriquez was named Chief Financial Officer of Nextera
Enterprises in February 2007.
Reflects a pro-rated base salary for 2007. All Other Compensation includes $7,333 of
401(k) employer matching contribution.
(3)
This
column represents the dollar amount recognized for financial statement
reporting purposes with respect to the applicable fiscal year for the stock
options granted to each of the Named Executive Officers in accordance with SFAS
123R. Pursuant to SEC rules, the amounts
shown exclude the impact of estimated forfeitures related to service-based
vesting conditions. For additional information on the valuation assumptions
used in the calculation of these amounts, refer to notes 2 and 11 to the
financial statements included in this annual report. These amounts reflect the
Companys accounting expense for these awards, and do not correspond to the
actual value that will be recognized by the Named Executive Officers.
Grants
of Plan-Based Awards
The following table sets forth information regarding
stock options under plan-based awards granted to our Named Executive Officers
in 2007.
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
|
All Other
Stock
Awards:
Number of
Shares of
|
|
All Other
Option Awards:
Number of
Securities
|
|
Exercise
or Base
Price of
Option
|
|
Grant Date Fair
Value of Stock
|
|
Name
|
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Stock of
Units (#)
|
|
Underlying
Options (#)
|
|
Awards
($ /Sh)
|
|
and Option
Awards
|
|
Joseph J. Millin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio Rodriguez (1)
|
|
02/13/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The option vests as follows: 50,000 shares were
vested upon issuance and 50,000 shares vest on each anniversary of
Mr. Rodriquezs date of hire (February 1, 2007) over a three year
period. The option has a ten year
term. The grant date fair value of the
award was calculated in accordance with SFAS 123R.
Discussion of
Summary Compensation and Grants of Plan-Based Awards Table
Our
executive compensation policies and practices, pursuant to which the
compensation set forth in the Summary Compensation Table and the Grants of
Plan-Based Awards table was paid or awarded, are described above under
Compensation Discussion and Analysis. A summary of certain material terms of
our compensation arrangements with our Named Executive Officers is set forth
below.
Joseph
J. Millin
On March 9, 2006,
we entered into an employment agreement with Joseph J. Millin, in connection
with his appointment as the President of Nextera and the President and Chief
Executive Officer of its wholly owned subsidiary Woodridge. The agreement
provides for a term of four years and automatically renews for additional
one-year periods unless either party
47
provides at least 30
days notice of its intention not to renew. If we elect not to renew his
employment agreement at the end of the initial four-year term, we must give
Mr. Millin at least 180 days notice or continue to pay his salary for a
period of 180 days from the date of the termination notice. Pursuant to the
agreement, Mr. Millin receives an annual base salary of $360,000, an
annual discretionary bonus of an amount determined by the board of directors in
its sole discretion, benefits under our benefit plans and various fringe benefits.
The employment agreement
also provides for certain termination benefits in the event that
Mr. Millins employment is terminated by us without cause or by him with
good reason, as described under the heading Potential Payments Upon
Termination or Change in Control below.
Antonio
Rodriquez
In an offer letter dated
December 14, 2006, Nextera extended to Antonio Rodriquez an offer of
employment as Chief Financial Officer of Nextera and Woodridge. Mr. Rodriquez joined Nextera and
Woodridge on February 1, 2007.
Under the terms of the
offer letter, Mr. Rodriquez receives an annual base salary of $200,000 and
is eligible to participate in our discretionary bonus plan in an amount up to
50% of his annual salary. Mr. Rodriquezs
offer letter also provides for certain termination benefits in the event that
Mr. Rodriquezs employment is terminated by us within six months following
a change of control, as described under the heading Potential Payments Upon
Termination or Change in Control below.
Outstanding Equity Awards at Fiscal Year-End
The
following table sets forth certain information with respect to outstanding
equity awards at December 31, 2007 held by our Named Executive Officers.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price ($)(1)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock that
Have Not
Vested (#)
|
|
Market
Value
of Shares
or Units
of Stock
That Have
Not Vested ($)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (#)
|
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($ )
|
|
Joseph J. Millin (2)
|
|
50,000
|
|
50,000
|
|
|
|
$
|
0.60
|
|
06/06/2016
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Antonio Rodriquez (3)
|
|
50,000
|
|
150,000
|
|
|
|
$
|
0.27
|
|
02/13/2017
|
|
|
|
$
|
|
|
|
|
$
|
|
|
(1)
Option
exercise price represents the closing market price of Nextera stock on date of
grant.
(2)
The
option vests as follows: 25% of the shares subject to the option vest on each
of March 9, 2007, 2008, 2009 and 2010.
(3)
The
option vests as follows: 50,000 shares were vested upon issuance and 50,000
shares vest on each anniversary of Mr. Rodriquezs date of hire
(February 1, 2007) over a three year period.
Option
Exercises for 2007
The
following table sets forth information regarding stock options exercised by our
Named Executive Officers during 2007.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
Acquired on
Exercise (#)
|
|
Value Realized
on Exercise ($)
|
|
Number of
Shares Acquired
on Vesting (#)
|
|
Value Realized
on Vesting ($)
|
|
Joseph
J. Millin
|
|
|
|
|
|
|
|
|
|
Antonio
Rodriquez
|
|
|
|
|
|
|
|
|
|
Pension Benefits
None of our Named
Executive Officers participates in or has account balances in qualified or
non-qualified defined benefit plans sponsored by us. We do not provide pension
arrangements or post-retirement health coverage for our executive employees.
Our executive officers are eligible to participate in our 401(k) defined
contribution plan.
48
Nonqualified
Deferred Compensation
None of our Named
Executive Officers participates in or has account balances in non-qualified
defined contribution plans or other deferred compensation plans maintained by
us.
Potential Payments Upon Termination or Change in
Control
Joseph
Millin
Mr. Millins
employment agreement provides that if his employment is terminated by us
without cause or by him with good reason, or if we fail to renew his employment
agreement, then; subject to his execution of a general release of claims,
Mr. Millin will be entitled to: (1) his base salary for a period of
one year, (2) a bonus in an amount based upon the bonus amount, if any,
that would have been paid to Mr. Millin for the year in which the
termination occurs, pro-rated for the length of his service during the year in
which his termination occurs, (3) continuation of customary welfare
benefits for one year and (4) immediate vesting of either 50% of all
unvested options granted to Mr. Millin for Nexteras Class A Common
Stock or the options granted to Mr. Millin for Nexteras Class A
Common Stock which would have vested in the 12 month period immediately
following the date of termination, whichever is greater. If Mr. Millins employment were
terminated by Nextera without cause or by him for good reason as of
December 31, 2007, subject to his execution of a general release of claims
and continued compliance with the terms of the employment agreement, Nextera
would have been obligated to continue to pay to Mr. Millin his annual base
salary of $360,000 throughout 2008 and to provide welfare benefits for
2008. The exercise price of all of
Mr. Millins stock options is currently in excess of the fair market value
of Nexteras Class A Common Stock so there is no value attributable to any
accelerated vesting of such stock options.
For the purposes of
Mr. Millins employment agreement, cause means dishonest statements or
acts towards the Company that are materially injurious to Nextera, the
commission of or entry of a guilty or no contest plea to a felony or
misdemeanor involving moral turpitude, deceit, dishonesty or fraud, the willful
violation of a federal or state law that is applicable to Nexteras business
and is materially injurious to Nextera, the willful and continued failure to
perform his job duties after a written demand for such performance is delivered
by the board of directors, or a material breach of any agreement with the
Company.
For the purposes of
Mr. Millins employment agreement, good reason means a material reduction
of Mr. Millins authority duties or responsibilities or a change in his
title or a requirement that he report to anyone other than the board of
directors, a reduction of his salary, the forced relocation of
Mr. Millins home or office further than 25 miles from their current
location or excessive travel as a condition of employment, certain material
breaches of the employment agreement by Nextera, or the failure of a successor
of Nextera to assume the employment agreement.
Antonio
Rodriquez
Mr. Rodriquezs
offer letter provides that if his position with Nextera is terminated within
six months following a change in control, then Mr. Rodriquez will be
entitled to his base salary for a period of six months.
Director Compensation
The
table below summarizes the compensation paid by Nextera to non-Named Executive
Officer directors during the fiscal year ended December 31, 2007.
Name
|
|
Fees
Earned or
Paid in
Cash
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
|
|
Total
|
|
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
($)(2)
|
|
($)
|
|
Sandler
(2)
|
|
$
|
80,000
|
|
|
|
$
|
29,527
|
|
|
|
|
|
|
|
$
|
109,527
|
|
Finerman
(3)
|
|
21,500
|
|
|
|
15,082
|
|
|
|
|
|
|
|
36,582
|
|
Fink
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grinstein(5)
|
|
38,500
|
|
|
|
9,407
|
|
|
|
|
|
|
|
47,907
|
|
Levine
(6)
|
|
38,500
|
|
|
|
18,503
|
|
|
|
|
|
|
|
57,003
|
|
Maron
(7)
|
|
21,500
|
|
|
|
15,082
|
|
|
|
|
|
|
|
36,582
|
|
Weiss
(8)
|
|
|
|
|
|
2,946
|
|
|
|
|
|
|
|
2,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
This column represents
the dollar amount recognized for financial statement reporting purposes with
respect to the 2007 fiscal year for the stock options granted to each of the
non-employee directors in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based vesting
conditions. For additional information on the valuation assumptions used in the
calculation of these amounts, refer to Notes 2 and 11 to the accompanying
consolidated financial statements. These amounts reflect our accounting expense
for these awards, and do not correspond to the actual value that will be
recognized by the non-employee directors.
49
(2)
Mr. Sandler received an option to
purchase 49,690 shares of Nexteras Class A Common Stock on June 1,
2007. The grant date fair value of this
stock option award, calculated pursuant to SFAS 123(R) was $6,667. As of December 31, 2007,
Mr. Sandler held stock options to purchase an aggregate of 814,690 shares
of Nexteras Class A Common Stock.
(3)
Mr. Finerman received an option to
purchase 44,721 shares of Nexteras Class A Common Stock on June 1,
2007. The grant date fair value of this
stock option award, calculated pursuant to SFAS 123(R) was $6,000. As of December 31, 2007,
Mr. Finerman held stock options to purchase an aggregate of 334,721 shares
of Nexteras Class A Common Stock.
(4)
As
of December 31, 2007, Mr. Fink held stock options to purchase an
aggregate of 255,000 shares of Nexteras Class A Common Stock.
(5)
Mr. Grinstein
resigned as a member of Nexteras board of directors effective April 21,
2008. As of December 31, 2007,
Mr. Grinstein held stock options to purchase an aggregate of 345,000
shares of Nexteras Class A Common Stock.
(6)
Mr. Levine received an option to purchase
74,536 shares of Nexteras Class A Common Stock on June 1, 2007. The grant date fair value of this stock
option award, calculated pursuant to SFAS 123(R) was $9,990. As of December 31, 2007, Mr. Levine
held stock options to purchase an aggregate of 224,536 shares of Nexteras
Class A Common Stock.
(7)
Mr. Maron received an option to purchase
44,721 shares of Nexteras Class A Common Stock on June 1, 2007. The grant date fair value of this stock
option award, calculated pursuant to SFAS 123(R) was $6,000. As of December 31, 2007, Mr. Maron
held stock options to purchase an aggregate of 354,721 shares of Nexteras
Class A Common Stock.
(8)
As of December 31, 2007, Mr. Weiss
held stock options to purchase an aggregate of 50,000 shares of Nexteras
Class A Common Stock.
During
2007, independent directors Messrs. Grinstein and Levine were eligible to
receive a quarterly cash retainer fee of $7,500, with each quarterly payment
being conditioned on participation in at least 75% of the directors board and
committee activities and duties during that calendar quarter. During 2007,
Messrs. Finerman, Fink and Maron were eligible to receive a quarterly
cash retainer fee of $4,500, with each quarterly payment being conditioned on
participation in at least 75% of the directors board and committee activities
and duties during that calendar quarter. Additionally, except for
Messrs. Millin, Sandler and Weiss, each director is paid an in-person
meeting fee of $1,000 and a telephonic meeting fee of $500 for each meeting
attended, with the exception of Audit Committee meetings. Members of the Audit
Committee are paid a meeting fee of $1,000. Mr. Sandler received a fee of
$6,667 per month for his services as Chairman. Directors are reimbursed for all
expenses incurred in connection with attendance at board and committee
meetings.
Compensation Committee Report(2)
The Compensation Committee has reviewed and discussed
the Compensation Discussion and Analysis with management. Based on its review
and discussions with management, the Compensation Committee recommended to the
board of directors that the Compensation Discussion and Analysis be included in
Nexteras Annual Report on
Form 10-K.
|
Respectfully Submitted by the
Compensation Committee
|
|
|
|
Alan B. Levine
|
|
Stanley E. Maron
|
|
Richard V. Sandler
|
Compensation Committee Interlocks and
Insider Participation
The members of the Compensation Committee for the 2007
fiscal year were Messrs. Grinstein, Levine, Maron and Sandler.
Mr. Grinstein resigned as a member of Nexteras board of directors
effective April 21, 2008.
Mr. Sandler serves as the Chairman of the board of directors and
Mr. Maron serves as our Secretary. Mr. Maron and Mr. Sandler are
senior partners in the law firm of Maron & Sandler. The law firm of
Maron & Sandler has provided legal services to us since
February 1997. In 2007, Maron & Sandler billed us approximately
$36,000 for legal services rendered. During the three years ended
December 31, 2007, Maron & Sandler has not charged the Company
for the time that Mr. Sandler spends on Nextera matters.
(2) This report of the Compensation Committee
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act or the Securities Exchange Act, except to the extent that
Nextera specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
50
Neither Mr. Grinstein nor Mr. Levine has at
any time been an officer or employee of Nextera or any of its subsidiaries.
None of our executive officers currently serves, or in the past year has
served, as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our board of
directors or compensation committee.
ITEM 12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Equity
Compensation Plans
The
following table sets forth information with respect to our equity compensation
plans in effect during the year ended December 31, 2007.
Plan category
|
|
Number of
securities
to be issued upon
exercise of
outstanding
options,
warrants and
rights
|
|
Weighted-average
exercise price of
outstanding
options,
warrants and rights
|
|
Number of
securities remaining
available for
future issuance
under equity
compensation plans
(excluding
securities
reflected in
column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by security
holders
|
|
6,802,185
|
|
$
|
1.37
|
|
5,064,617
|
|
Equity compensation plans not approved by
security holders
|
|
400,000
|
|
0.44
|
|
|
|
Total
|
|
7,202,185
|
|
$
|
1.32
|
|
5,064,617
|
|
Description of
Non-Security Holder-Approved Plans
During
2006, Nextera issued 150,000 options to purchase shares of Nexteras
Class A Common Stock to outside consultants.
On
February 19, 2004, the Compensation Committee recommended that all
directors receive options to purchase shares of Nexteras Class A Common
Stock at an exercise price of $0.43 per share, the closing market price on the
day the Compensation Committee made the recommendation, subject to the approval
of the full board of directors. On March 3, 2004, the board of directors
approved the option grant. The closing market price of Nexteras Class A
Common Stock was $0.53 on March 3, 2004. A total of 250,000 of such
options were granted.
Security Ownership of
Certain Beneficial Owners and Management
The following table sets
forth the beneficial ownership of Nexteras Class A Common Stock,
Class B Common Stock, Series A Preferred Stock and Series B
Preferred Stock as of April 13, 2008, by (i) all those known by us to
be beneficial owners of more than 5% of Nexteras Common Stock; (ii) each
of Nexteras directors; (iii) Nexteras President and our other most
highly paid executive officer; and (iv) all of our directors and executive
officers as a group. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or will
become exercisable within 60 days after April 13, 2008 are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percentage ownership of any other person. Unless otherwise indicated,
all shares are owned directly and the indicated person has sole voting and
investment power. Unless otherwise indicated, the address of the persons named
below is care of Nextera Enterprises, Inc., 14320 Arminta Street, Panorama
City, California 91402.
51
|
|
Beneficial
|
|
Beneficial
|
|
Beneficial
|
|
Beneficial
|
|
|
|
Ownership of
|
|
Ownership of
|
|
Ownership of
|
|
Ownership of
|
|
|
|
Class A Common
|
|
Class B Common
|
|
Series A Preferred
|
|
Series B Preferred
|
|
|
|
Stock (1)(2)
|
|
Stock (1)(2)
|
|
Stock (1)(2)
|
|
Stock (1)(2)
|
|
|
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
Name of
|
|
Beneficially
|
|
of
|
|
Beneficially
|
|
of
|
|
Beneficially
|
|
of
|
|
Beneficially
|
|
of
|
|
Beneficial Owner
|
|
Owned
|
|
Class
|
|
Owned
|
|
Class
|
|
Owned
|
|
Class
|
|
Owned
|
|
Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph J. Millin
|
|
8,517,410
|
(5)
|
22.0
|
%
|
|
|
|
|
|
|
|
|
10,501
|
|
40
|
%
|
Richard V. Sandler
|
|
712,259
|
(7)
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio Rodriquez
|
|
100,000
|
(7)
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ralph Finerman
|
|
300,346
|
(7)
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith D. Grinstein
|
|
310,625
|
(7)(9)
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan B. Levine
|
|
320,346
|
(7)
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanley E. Maron
|
|
320,346
|
(7)
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott J. Weiss
|
|
8,492,410
|
(6)
|
21.9
|
%
|
|
|
|
|
|
|
|
|
10,501
|
|
40
|
%
|
Mounte LLC
|
|
8,810,000
|
(8)
|
22.8
|
%
|
3,844,200
|
|
100
|
%
|
56,370
|
|
100
|
%
|
15,752
|
|
60
|
%
|
Lawrence J. Ellison
|
|
8,810,000
|
(8)
|
22.8
|
%
|
3,844,200
|
|
100
|
%
|
56,370
|
|
100
|
%
|
15,752
|
|
60
|
%
|
Michael R. Milken
|
|
8,810,000
|
(8)
|
22.8
|
%
|
3,844,200
|
|
100
|
%
|
56,370
|
|
100
|
%
|
15,752
|
|
60
|
%
|
Lowell J. Milken
|
|
8,810,000
|
(8)
|
22.8
|
%
|
3,844,200
|
|
100
|
%
|
56,370
|
|
100
|
%
|
15,752
|
|
60
|
%
|
Jocott Enterprises, Inc.
|
|
8,467,410
|
(4)
|
21.9
|
%
|
|
|
|
|
|
|
|
|
10,501
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(8 persons)
|
|
19,416,332
|
|
47.55
|
%
|
3,844,200
|
|
100.00
|
%
|
56,370
|
|
100.00
|
%
|
26,253
|
|
100.00
|
%
|
|
|
Beneficial Ownership of
Class A and B Common Stock and Series A and Series B
Preferred Stock(1)(2)
|
|
Name of
Beneficial Owner
|
|
Percent of Combined
Voting Power(3)
|
|
Percent of Common and
Preferred Stock
Outstanding
|
|
Joseph J. Millin
|
|
9.99
|
|
20.01
|
|
Richard V. Sandler
|
|
*
|
|
*
|
|
Antonio Rodriquez
|
|
*
|
|
*
|
|
Ralph Finerman
|
|
*
|
|
*
|
|
Keith D. Grinstein(9)
|
|
*
|
|
*
|
|
Alan B. Levine
|
|
*
|
|
*
|
|
Stanley E. Maron
|
|
*
|
|
*
|
|
Scott J. Weiss
|
|
9.96
|
|
19.95
|
|
Mounte LLC.
|
|
64.99
|
|
29.98
|
|
Lawrence J. Ellison
|
|
64.99
|
|
29.98
|
|
Michael R. Milken
|
|
64.99
|
|
29.98
|
|
Lowell J. Milken
|
|
64.99
|
|
29.98
|
|
Jocott Enterprises, Inc.
|
|
9.94
|
|
19.89
|
|
All directors and executive officers as a group (8
persons)
|
|
77.41
|
|
54.77
|
|
*
|
|
Indicates beneficial
ownership of less than 1.0% of the outstanding Class A, Class B
Common Stock, Series A Preferred Stock or Series B Preferred Stock,
as applicable.
|
|
|
|
(1)
|
|
Beneficial ownership is
determined in accordance with the rules of the SEC and includes voting
or investment power with respect to securities. Shares of Common Stock
issuable upon the exercise of stock options exercisable within 60 days of
April 13, 2008 are deemed outstanding and to be beneficially owned by
the person holding such options for purposes of computing such persons
percentage ownership, but are not deemed outstanding for the purposes of
computing the percentage ownership of any other person. Except for shares
held jointly with a persons spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
stockholder identified in the table possesses the sole voting and disposition
power with respect to all shares of Common Stock shown as beneficially owned
by such stockholder.
|
|
|
|
(2)
|
|
Based on approximately
38,692,851 shares of
Class A Common Stock, 3,844,200 shares of Class B Common Stock,
56,370 shares of Series A Preferred Stock and 26,253 shares of
Series B Preferred Stock outstanding as of April 13, 2008.
|
|
|
|
(3)
|
|
Holders of Nexteras
Class B Common Stock are entitled to 10 votes per share. Holders of
Nexteras Series A Preferred Stock are entitled to 151 votes per share,
which equals the number of whole shares of Class A Common Stock into
which one share of Series A Preferred Stock is convertible. Holders of
Nexteras Series B Preferred Stock are entitled to one vote per share.
|
|
|
|
(4)
|
|
At the closing of the
acquisition of the Woodridge business, 8,467,410 shares of Class A
Common Stock were issued to
Jocott
Enterprises, Inc.
Messrs. Millin and Weiss are each directors of Jocott
Enterprises, Inc. and a trustee and
beneficiary (together with their respective spouses) of living trusts that
own all of the shares of Jocott Enterprises, Inc. Messrs. Millin and Weiss have disclaimed
all beneficial ownership of the shares held by Jocott
Enterprises, Inc., except to the
extent of their respective pecuniary interests therein.
|
|
|
|
(5)
|
|
At the closing of the
acquisition of the Woodridge business, 8,467,410 shares of Class A
Common Stock were issued to
Jocott Enterprises, Inc. Messrs. Millin and Weiss are each
directors of Jocott Enterprises, Inc. and a trustee and beneficiary (together with their respective spouses)
of living trusts that own all of the shares of Jocott
Enterprises, Inc.
Messrs. Millin and Weiss have disclaimed all beneficial ownership of the
shares held by Jocott Enterprises, Inc., except to the extent of their respective pecuniary interests therein.
Includes 50,000 shares issuable with respect to options exercisable within 60
days of April 13, 2008.
|
52
(6)
|
|
At the closing of the
acquisition of the Woodridge business, 8,467,410 shares of Class A
Common Stock were issued to
Jocott
Enterprises, Inc.
Messrs. Millin and Weiss are each directors of Jocott
Enterprises, Inc. and a trustee and
beneficiary (together with their respective spouses) of living trusts that
own all of the shares of Jocott Enterprises, Inc. Messrs. Millin and Weiss have disclaimed
all beneficial ownership of the shares held by Jocott
Enterprises, Inc., except to the
extent of their respective pecuniary interests therein. Includes 25,000
shares issuable with respect to options exercisable within 60 days of
April 13, 2008.
|
|
|
|
(7)
|
|
Represents shares
issuable with respect to options exercisable within 60 days of April 13,
2008.
|
|
|
|
(8)
|
|
Lawrence J. Ellison,
Michael R. Milken and Lowell J. Milken may each be deemed to have the power
to direct the voting and disposition of, and to share beneficial ownership
of, any shares of Common Stock and Series A Preferred Stock owned by
Mounte LLC. Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken may
be deemed to be a group within the meaning of Rule 13d-5 under the
Exchange Act. Lawrence J. Ellison is Chairman and Chief Executive Officer of
Oracle Corporation. Michael R. Milken is a manager and member of Mounte LLC.
|
|
|
|
(9)
|
|
Mr. Grinstein
resigned from Nexteras board of directors effective as of April 21,
2008
.
|
ITEM 13.
Certain
Relationships and Related Transactions, and Director Independence
Certain
Relationship and Related Transactions
The Company has a
Related Party Transaction Policies and Procedures (the Policy). The Policy
requires the Audit Committee to review, assess and report on the material facts
of interested transactions with related parties to the board for board
pre-approval or ratification unless a transaction has been pre-approved or
previously approved by the board, as determined by the Audit Committee.
Pursuant to the Policy, no director who is a related party may participate in
any discussion or approval of an interested transaction, except that such
director will supply any material information concerning the transaction to the
Audit Committee and the board, as needed.
Under the Policy, in
reaching its determination of whether to obtain board pre-approval or
ratification of the interested transaction, the Audit Committee is to consider,
among other factors, whether the terms of the transaction are no less favorable
than terms generally available to unaffiliated third parties under the same or
similar circumstances, as well as the extent of the related persons interest
in the transaction. The Policy is evidenced by the minutes to the meetings of
the board and Audit Committee.
Acquisition of the Woodridge Business
On March 9, 2006,
Nextera and its wholly owned subsidiary Woodridge entered into an asset
purchase agreement (the Purchase Agreement), with Jocott
Enterprises, Inc. (Seller); Joseph J. Millin and Valerie
Millin, Trustees of the Millin Family Living Trust Dated November 18,
2002; Scott J. Weiss and Debra Weiss, as Trustees of the Scott and Debra Weiss
Living Trust; Joseph J. Millin; and Scott J. Weiss, under which Woodridge
purchased substantially all of the assets of Seller.
The purchase price for
the Woodridge business was comprised of:
·
$23.2
million in cash, including $0.8 million of acquisition expenses paid to third
parties;
·
8,467,410
unregistered restricted shares of Nexteras Class A Common Stock (the
Sale Shares) constituting approximately 20% of the total outstanding common
stock of Nextera immediately after such issuance, which shares were issued to
Jocott and had a value of $4.2 million on the date of the Transaction; and
·
Nexteras
assumption of a promissory note of Jocott in the principal amount of $1.0
million, which assumed debt was paid in full by Nextera on the closing date of
the Transaction.
$2.0 million of the cash
portion of the purchase price was held in escrow until March 2007 at which
time $0.5 million was withdrawn from the escrow account and distributed to
Nextera by Jocott as a deposit under an Indemnity Deposit Agreement entered
into between Nextera, Woodridge and Jocott on March 29, 2007. An
additional $1.5 million was withdrawn from the escrow account in
April 2007 and these funds were also distributed to Nextera by Jocott as a
deposit under a separately executed Funding Agreement entered into between
Nextera, Mounte and Jocott on April 16, 2007. Under the terms of the Funding Agreement,
Nextera and Woodridge will keep the irrevocable deposit in full satisfaction of
certain claims for indemnification that Nextera or Woodridge may have against
the sellers under the Purchase Agreement. The payment of any remaining
indemnification obligations of Jocott was also secured through
September 2007 by a pledge of the unregistered restricted shares of
Nexteras Class A Common Stock issued to Woodridge in connection with the
Purchase Agreement.
53
As a condition to the
closing of the Transaction, Nextera was required to increase the size of the
board of directors to nine members, and, effective as of the closing,
Messrs. Millin and Weiss were elected to fill the resultant vacancies on
the board of directors. Messrs. Millin and Weiss also entered into
employment agreements with Nextera and Woodridge. All of the shares of Jocott
are owned by two living trusts; Mr. Millin serves as a trustee and is a
beneficiary of one of the living trusts and Mr. Weiss serves as a trustee
and beneficiary of the other living trust.
Under the Purchase
Agreement, Jocott is granted piggyback registration rights with respect to
the Sale Shares. In addition, each of Jocott, the shareholders of Jocott,
Mr. Millin and Mr. Weiss agreed not to compete with the personal
care, healthcare and beauty product business of Woodridge for a period of five
years from and after the closing or, with respect to Messrs. Millin and
Weiss, the date of termination of their employment (reduced to two years for
Mr. Millin and Mr. Weiss if their employment contracts are not
renewed by Woodridge or Nextera, if they are terminated without cause, or if
they terminate their employment for good reason).
Debentures and
Series A Cumulative Convertible Preferred Stock
On December 14,
2000, Nextera entered into a Note Conversion Agreement with Mounte whereby
Mounte converted certain debentures into shares of Series A Preferred
Stock, or Series A Preferred.
Mounte is the majority stockholder of Nextera. The Series A
Preferred currently bears dividends at a 7% rate. Such dividends are payable
quarterly in arrears in cash or, at the option of Nextera, in additional
nonassessable shares of Series A Preferred.
The Series A
Preferred carries a liquidation preference equal to $100 per share and is
convertible into Class A Common Stock at the option of the holder. The
Series A Preferred is convertible at a price equal to $0.6492 per share.
Each holder of Series A Preferred is entitled to vote on matters presented
to stockholders on an as converted basis. Holders
of our Series A Preferred are entitled to 151 votes per share (which
equals the number of whole shares of Class A Common Stock into which one
share of Series A Preferred is convertible) on all matters to be voted
upon for each share of Series A Preferred held.
Beginning on
December 14, 2004, in the event that the average closing price of
Nexteras Class A Common Stock for the 30 days prior to the redemption is
at least $1.0313, the Series A Preferred may be redeemed at the option of
Nextera at a price equal to $106 per share plus accrued unpaid dividends
through December 14, 2004. Each year thereafter, the redemption price will
decrease $1 per share until December 14, 2010, at which point the
redemption price will be fixed at $100 per share plus accrued unpaid dividends.
Funding
Agreement and Note Conversion Agreements - Series B Cumulative Non-Convertible
Preferred Stock
On
April 16, 2007, Nextera, Woodridge, Mounte and Jocott entered into a
Funding Agreement. Under the terms of
the Funding Agreement, Mounte and Jocott loaned to Nextera the principal sums
of $1.5 million and $1.0 million respectively, pursuant to individual
promissory notes. The notes accrued interest at an annual rate of 7% with
principal originally payable at the maturity date of April 1, 2012.
Nextera was prohibited from paying interest in cash on these notes under the
terms of its Credit Agreement. Accordingly, interest was accrued and added to
the principal balance of the notes. The notes, including accrued interest, were
exchanged in connection with the Note Conversion Agreement discussed below.
The
Funding Agreement provides, subject to (i) any required consents or
approvals of the lenders under the Credit Agreement and of any other persons
whose consent or approval is required at the time under any credit or other
contract or agreement to which Nextera, Woodridge or any of their affiliates is
a party, (ii) any required consent of the holders of the outstanding
Series A Preferred, and (iii) the approval of Nexteras board of
directors; that, in the event that Nexteras EBITDA for a fiscal year is
greater than or equal to $7.0 million or is greater than or equal to $12.0
million for any two consecutive fiscal years, or any event happens that results
in the exchange or redemption of, or payment of a liquidation preference with
respect to, any of Nexteras outstanding preferred stock, referred to herein as
the Triggering Event, Nextera will take the following actions:
a)
Within 15
business days after the occurrence of a Triggering Event, Nextera will issue to
Jocott additional shares of Cumulative Non-Convertible Series B Preferred Stock,
or Series B Preferred, in addition to the shares of Series B
Preferred issued in connection with the Note Conversion Agreement, at a price
equal to $100 per share. The number of
such additional shares to be issued to Jocott will be equal to the quotient
obtained by dividing (i) the sum of (A) $1,000,000, plus (B) the
Appreciation Amount defined below, by (ii) 100, and rounding down to the
nearest whole share. Such shares of
Series B Preferred will be issued to Jocott in consideration of Jocotts
irrevocable payment of the $2.0 million indemnity deposit and Jocotts
compromise and settlement of the past, pending and future specified claims. The
Appreciation Amount means an amount equal to a deemed appreciation equal to
(1) $1,000,000, multiplied by (2) seven percent (7%) per annum,
compounded annually, calculated from the date that Jocott loaned the funds to
Nextera pursuant to the promissory note issued by Jocott until the date of the
issuance of the additional shares of Series B Preferred to Jocott.
54
b)
Within 15
business days after the occurrence of a Triggering Event, Nextera will also
issue to Jocott the same number of shares of Series C Cumulative
Non-Convertible Preferred Stock, or Series C Preferred, of Nextera as the
number of additional shares of Series B Preferred issued to Jocott. The Series C Preferred will (i) be
issued at a price equal to $100 per share, (ii) have a liquidation
preference equal to $100 per share and (iii) provide for a 7% paid-in-kind
dividend. The Series C Preferred
will not be convertible into any other securities of Nextera and the
Series C Preferred will rank (i) junior to the Series A
Preferred as to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, and (ii) on a parity with the
Series B Preferred as to the payment of dividends and the Special
Redemption Right noted below, but rank junior to the Series B Preferred as
to the distribution of assets upon liquidation, dissolution or winding up. The
Series C Preferred will be structured so as to comply with any applicable
restrictions in any credit or other contract or agreement to which Nextera,
Woodridge or any of their affiliates is a party. Such shares of Series C Preferred will
be issued to Jocott in consideration of Jocotts irrevocable payment of the
$2.0 million indemnity deposit and Jocotts compromise and settlement of the
past, pending and future specified claims.
c)
Nextera will
grant to the holders of Series A Preferred, Series B Preferred and
Series C Preferred the right, referred to herein as the Special Redemption
Right, the exercise of which is conditioned upon the occurrence of a Triggering
Event, the request of the holders and the approval of the Companys board of
directors, to redeem all or a portion of
the shares of the Preferred Stock held by such holders at a redemption price
equal to $100 per share (plus any applicable accrued but unpaid dividends on
the shares so redeemed). The Special Redemption
Right of the holders of Series A Preferred will be senior and prior to the
Special Redemption Rights of the holders of Series B Preferred and
Series C Preferred, and the Special Redemption Rights of the holders of
Series B Preferred and Series C Preferred will be on parity with each
other.
Additionally,
under the provisions of the Funding Agreement, in connection with and at the
time of the issuance of any Series B Preferred and/or Series C
Preferred, Nextera issued warrants to purchase Nexteras Class A Common
Stock at an exercise price of $0.50 per share (the Warrants) to the holder of
such Series B Preferred and/or Series C Preferred. The number of
shares of Nexteras Class A Common Stock for which such warrants are exercisable
is equal to (i) with respect to notes redeemed or exchanged for
Series B Preferred , the product of (A) the outstanding principal
balance plus all accrued but unpaid interest that was redeemed or exchanged,
multiplied by (B) two (2); (ii) 2,000,000 shares with respect to the
Series B Preferred Stock issued upon the occurrence of a Triggering Event
(when and if such Series B Preferred is issued), and (iii) 2,000,000
shares with respect to the Series C Preferred issued upon the occurrence
of a Triggering Event (when and if such Series C Preferred is issued). The
Warrants will have a ten (10) year term and have customary piggyback
registration rights and anti-dilution rights and other rights with respect to
specified events, all as determined by Nexteras board of directors.
On
June 15, 2007, Nextera entered into a Note Conversion Agreement whereby
Nextera exchanged all outstanding principal and accrued interest owed to Mounte
and Jocott pursuant to individual promissory notes executed in connection with
the Funding Agreement for 15,169 and 10,113 shares, respectively, of Nexteras
Series B Preferred together with a cash payment in lieu of fractional
shares. The Series B Preferred Stock was issued at a price of $100 per
share, has a liquidation preference of $100 per share, provides for a 7% per
annum cumulative paid-in-kind dividend, and entitles its holders to a number of
votes equal to the number of shares held. The Series B Preferred Stock is
not convertible into any other securities of Nextera and ranks junior to the
Series A Preferred Stock as to the payment of dividends, the issuance of a
special redemption, and the distribution of assets upon liquidation,
dissolution or winding up. The Series B Preferred Stock is structured so
as to qualify as Permitted Equity Interests as such term is defined in
Nexteras Credit Agreement, as amended.
In connection with the
issuance of the Series B Preferred Stock, Nextera issued a Class A
Common Stock Purchase Warrant to, each of Mounte and Jocott, pursuant to the
terms of a Funding Agreement. Under such Warrants, Nextera granted Mounte and
Jocott the right to purchase 3,033,945 and 2,022,630 shares, respectively, of
Nexteras Class A Common Stock at an exercise price of $0.50 per share,
exercisable at any time at the option of the holder. The warrants have a
ten-year term and have customary piggyback registration rights and
anti-dilution rights with respect to specified events. The fair value of the
warrants has been determined to be $647 thousand. This amount was calculated
using the Black-Scholes pricing model with the following assumptions: 118.9%
volatility; expected term of 10 years; 5.10% risk-free rate; and 0% dividend.
The Series B
Preferred is classified as mezzanine equity as the Redemption Rights are
effectively redeemable at the option of the holders and are not solely within
the control of the issuer. The initial
carrying amount of the Series B Preferred is the fair value at
issuance. The Series B Preferred
will not be accreted to the redemption value of $2.5 million until redemption
is considered probable. The 7%
paid-in-kind dividend accrues to the carrying value of the Series B
Preferred.
55
Legal Services
The law firm of
Maron & Sandler has provided legal services to us since
February 1997. Messrs. Maron and Sandler, two members of our
Compensation Committee, are partners of Maron & Sandler.
Mr. Sandler currently serves as the Chairman of Nexteras board of
directors and Mr. Maron serves as our Secretary. Effective February 1, 2003,
Mr. Sandler began serving as Vice Chairman of Nexteras board of directors
on a month to month basis. Pursuant to the terms of his letter of acceptance,
dated February 1, 2003, Mr. Sandler was paid $20,000 per month
for such services. On January 25, 2006, Nextera and Mr. Sandler
agreed to reduce the compensation paid to Mr. Sandler for his services as
Chairman of the board of directors from $20,000 per month to $6,667 per month,
effective as of January 1, 2006. In
2007, Maron & Sandler billed us approximately $37,000 for legal
services rendered. Since
Mr. Sandler became Vice-Chairman and subsequently Chairman of Nextera, no
legal fees relating to Mr. Sandlers services to Nextera have been billed
to us.
Inventory Purchase
During 2006, a party
related to Jocott acquired approximately $0.3 million of slow-moving inventory
at book value from the Company.
ITEM 14. Principal
Accountant Fees and Services
The following table
summarizes the aggregate fees billed to Nextera by Ernst & Young for
the years ended December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Audit Fees(1)
|
|
$
|
169,500
|
|
$
|
183,200
|
|
Audit-Related
Fees(2)
|
|
|
|
|
|
Tax Fees(3)
|
|
|
|
|
|
All Other
Fees(4)
|
|
|
|
1,500
|
|
Total
|
|
$
|
169,500
|
|
$
|
184,700
|
|
(1)
Audit
fees consist of fees billed for professional services rendered for the audit of
Nexteras consolidated annual financial statements, review of the interim
consolidated financial statements included in quarterly reports and other
services associated with regulatory filings.
(2)
Audit-related
fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of Nexteras
consolidated financial statements and are not reported under Audit Fees.
(3)
Tax fees
consist of fees billed for professional services rendered for tax compliance,
tax consultations, and tax merger and acquisition due diligence.
(4)
All other
fees consist of fees for products and services other than the services reported
above. For the year ended December 31, 2006, this category included a
subscription fee for technical research material.
The
Audit Committee discussed the nature of the services provided by
Ernst & Young with our management and determined that they are
permitted under the rules and regulations concerning auditor independence
promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as
the Public Company Accounting Oversight Board.
Pre-Approval Policy of the Audit Committee
The
Audit Committees policy is to pre-approve all audit and non-audit services by
the independent registered public accounting firm. These services may include
audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The Audit Committee has delegated pre-approval
authority to Mr. Levine, the Chairman of the Audit Committee, for services
required on an expedited basis. The independent registered public accounting
firm and management are required to periodically report to the full Audit
Committee regarding the extent of services provided by the independent
registered public accounting firm in accordance with this pre-approval, and the
fees for the services performed to date. All of the audit, audit-related, tax
and other services provided by Ernst & Young LLP in fiscal year 2007
and related fees were approved in accordance with the Audit Committees policy.
56
PART IV
ITEM 15. Exhibits
and Financial Statement Schedules
(a) The following documents are filed as part of this report as
Exhibits:
1. The following consolidated financial statements and report of
independent registered public accounting firm are included in Item 8 of this
Annual Report on Form 10-K:
·
Report
of Independent Registered Public Accounting Firm
·
Consolidated
Balance Sheets at December 31, 2007 and 2006
·
Consolidated
Statements of Operations for the years ended December 31, 2007 and 2006
·
Consolidated
Statements of Stockholders Equity for the years ended December 31, 2007
and 2006
·
Consolidated
Statements of Cash Flows for the years ended December 31, 2007 and 2006
·
Notes
to consolidated financial statements
2. Financial schedules required to be filed by Item 8 of this form
and by Item 15(d) below:
·
Schedule
II Valuation and qualifying accounts
All
other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
3. Exhibits:
Exhibit No.
|
|
Description
|
3.1(1)
|
|
Third Amended and
Restated Certificate of Incorporation
|
3.2(2)
|
|
Second Amended and
Restated Bylaws
|
4.1(3)
|
|
Form of
Class A Common Stock Certificate
|
4.2(4)
|
|
Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Series A Cumulative Convertible Preferred Stock
of Nextera Enterprises, Inc.
|
4.3(5)
|
|
Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Series B Cumulative Non-Convertible Preferred
Stock of Nextera Enterprises, Inc.
|
4.4(5)
|
|
Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Series C Cumulative Non-Convertible Preferred
Stock of Nextera Enterprises, Inc.
|
4.5(4)
|
|
Note Conversion
Agreement dated as of December 14, 2000 by and between Knowledge
Universe, Inc. and Nextera Enterprises, Inc.
|
4.6(5)
|
|
Note Conversion
Agreement between Nextera Enterprises, Inc. and Mounte LLC dated as of
June 15, 2007.
|
4.7(5)
|
|
Note Conversion
Agreement between Nextera Enterprises, Inc. and Jocott
Enterprises, Inc. dated as of June 15, 2007.
|
4.8(5)
|
|
Class A Common
Stock Purchase Warrant issued to Mounte LLC dated as of June 15, 2007.
|
4.9(5)
|
|
Class A Common
Stock Purchase Warrant issued to Jocott Enterprises, Inc. dated as of
June 15, 2007.
|
4.10(6)
|
|
Letter Agreement dated
June 29, 2001 between Knowledge Universe, Inc. and Nextera
Enterprises, Inc.
|
4.11(7)
|
|
Letter Agreement dated
March 29, 2002 between Knowledge Universe, Inc. and Nextera
Enterprises, Inc.
|
4.12(7)
|
|
Letter Agreement dated
June 14, 2002 between Knowledge Universe, Inc. and Nextera
Enterprises, Inc.
|
10.1(8)*
|
|
Amended and Restated
1998 Equity Participation Plan dated as of June 6, 2006.
|
10.2(9)*
|
|
Nextera/Lexecon
Limited Purpose Stock Option Plan.
|
10.3(10)*
|
|
Employment Agreement
dated October 25, 2000 between Nextera Enterprises, Inc. and David
Schneider.
|
57
Exhibit No.
|
|
Description
|
10.4(11)*
|
|
Letter dated January 9,
2003 between David Schneider and Nextera Enterprises, Inc.
|
10.5(12)*
|
|
Letter dated as of
February 1, 2003 between Richard V. Sandler and Nextera
Enterprises, Inc.
|
10.6(13)*
|
|
Letter dated as of
January 25, 2006 between Richard V. Sandler and Nextera
Enterprises, Inc.
|
10.7(14)
|
|
Asset Purchase
Agreement, dated September 25, 2003, by and among Nextera
Enterprises, Inc., Lexecon Inc., CE Acquisition Corp., ERG Acquisition
Corp., FTI Consulting, Inc. and LI Acquisition Company, LLC.
|
10.8(15)
|
|
Credit Agreement dated
as of March 9, 2006 by and among Nextera Enterprises, Inc., W Lab
Acquisition Corp., the lenders party thereto and NewStar Financial, Inc.
(as administrative agent for the lenders)
|
10.8.1(16)
|
|
Amendment and
Forbearance Agreement dated as of March 29, 2007 by and among Nextera
Enterprises, Inc., Woodridge Labs, Inc., the lenders party thereto
and NewStar Financial, Inc. (as administrative agent for the lenders).
|
10.8.2(17)
|
|
Amendment Agreement
dated as of April 17, 2007 under the Woodridge Labs Credit Agreement
dated as of March 29, 2007 by and among Nextera Enterprises, Inc.,
Woodridge Labs, Inc., the lenders party thereto and NewStar
Financial, Inc. (as administrative agent for the lenders).
|
10.8.3(18)
|
|
Amendment Agreement
dated as of November 7, 2007 under the Woodridge Labs Credit Agreement,
as amended, originally dated as of March 9, 2006 by and among Nextera
Enterprises, Inc., the lenders party thereto and NewStar
Financial, Inc. (as administrative agent for the lenders).
|
10.9(15)
|
|
Guaranty Agreement
dated as of March 9, 2006 by and among Nextera Enterprises, Inc., W
Lab Acquisition Corp. and NewStar Financial, Inc. (as administrative
agent).
|
10.10(15)
|
|
Security Agreement
dated as of March 9, 2006 by and among Nextera Enterprises, Inc., W
Lab Acquisition Corp. and NewStar Financial, Inc. (as administrative
agent)
|
10.11(15)
|
|
Pledge Agreement dated
as of March 9, 2006 by and among Nextera Enterprises, Inc., W Lab
Acquisition Corp. and NewStar Financial, Inc. (as administrative agent).
|
10.12(1)
|
|
Asset Purchase
Agreement dated as of March 9, 2006 by and among Nextera
Enterprises, Inc., W Lab Acquisition Corp., Woodridge Labs, Inc.,
Joseph J. Millin and Valerie Millin, Trustees of the Millin Family Living
Trust Dated November 18, 2002, Scott J. Weiss and Debra Weiss, as
Trustees of the Scott and Debra Weiss Living Trust, Joseph J. Millin, and
Scott J. Weiss.
|
10.13(1)
|
|
Stock Pledge and
Security Agreement dated as of March 9, 2006 by and among Nextera
Enterprises, Inc. by and among Nextera Enterprises, Inc., W Lab
Acquisition Corp. and Woodridge Labs, Inc.
|
10.14(1)*
|
|
Employment Agreement
dated as of March 9, 2006 by and among Nextera Enterprises, Inc., W
Lab Acquisition Corp. and Joseph J. Millin.
|
10.15(1)*
|
|
Employment Agreement
dated as of March 9, 2006 by and among Nextera Enterprises, Inc., W
Lab Acquisition Corp. and Scott J. Weiss.
|
10.16(19)*
|
|
Form of
Non-Qualified Stock Option Agreement for use with the Amended and Restated
1998 Equity Participation Plan (Independent Director)
|
10.17(19)*
|
|
Form of
Non-Qualified Stock Option Agreement for use with the Amended and Restated
1998 Equity Participation Plan (Employee).
|
10.18(20)
|
|
Inventory Sale
Agreement dated as of December 1, 2006 by and between Nextera
Enterprises, Inc., Woodridge Labs, Inc., J&S Investments,
Jocott Enterprises, Inc., Joseph J. Millin and Scott J. Weiss.
|
10.19(21)*
|
|
Offer Letter dated
December 14, 2006 from Nextera Enterprises, Inc. to Antonio
Rodriguez.
|
10.20(22)
|
|
Indemnity Deposit
Agreement dated as of March 29, 2007 by and between Nextera
Enterprises, Inc., Woodridge Labs, Inc. and Jocott
Enterprises, Inc.
|
10.21(17)
|
|
Funding Agreement
dated as of April 16, 2007 by and among Nextera Enterprises, Inc.,
Woodridge Labs, Inc., Mounte LLC and Jocott Enterprises, Inc.
|
10.22(17)
|
|
Mounte LLC Promissory
Note
|
10.23(17)
|
|
Jocott Promissory Note
|
10.24(17)
|
|
Mounte LLC Standstill
Agreement
|
10.25(17)
|
|
Jocott Standstill
Agreement
|
10.26(17)
|
|
Intercompany
Subordination Agreement
|
21.1
(1)
|
|
List of Subsidiaries
|
23.1(23)
|
|
Consent of Independent
Registered Public Accounting Firm
|
31.1(23)
|
|
Rule 13a-14(a)/15d-14(a) Certification
|
31.2(23)
|
|
Rule 13a-14(a)/15d-14(a) Certification
|
58
Exhibit No.
|
|
Description
|
32.1(23)
|
|
Section 1350
Certification
|
32.2(23)
|
|
Section 1350
Certification
|
(1)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on March 15, 2006, and incorporated herein by
reference.
|
|
|
|
(2)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on March 3, 2006, and incorporated herein by
reference.
|
|
|
|
(3)
|
|
Filed as an exhibit to Nexteras Amendment
No. 7 to Registration Statement on Form S-1
(File No. 333-63789) dated May 17, 1999, and incorporated
herein by reference.
|
|
|
|
(4)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on December 15, 2000, and incorporated herein by
reference.
|
|
|
|
(5)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on June 18, 2007, and incorporated herein by reference.
|
|
|
|
(6)
|
|
Filed as an exhibit to Nexteras Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001 and incorporated
herein by reference.
|
|
|
|
(7)
|
|
Filed as an exhibit to Nexteras Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 and incorporated
herein by reference.
|
|
|
|
(8)
|
|
Filed as an exhibit to Nexteras Registration
Statement on Form S-8 (File No. 333-135335) dated June 26,
2006, and incorporated herein by reference.
|
|
|
|
(9)
|
|
Filed as an exhibit to Nexteras Amendment
No. 6 to Registration Statement on Form S-1
(File No. 333-63789) dated May 6, 1999, and incorporated
herein by reference.
|
|
|
|
(10)
|
|
Filed as an exhibit to Nexteras Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and incorporated
herein by reference.
|
|
|
|
(11)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on February 6, 2003 and incorporated herein by
reference.
|
|
|
|
(12)
|
|
Filed as an exhibit to Nexteras Annual Report on
Form 10-K for the year ended December 31, 2002 and incorporated
herein by reference.
|
|
|
|
(13)
|
|
Filed an exhibit to Nexteras Current Report on
Form 8-K filed on January 26, 2006 and incorporated herein by
reference.
|
|
|
|
(14)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on September 26, 2003 and incorporated herein by
reference.
|
|
|
|
(15)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on March 10, 2006 and incorporated herein by
reference.
|
|
|
|
(16)
|
|
Filed as an exhibit to Nexteras Current Report on Form 8-K
filed on April 3, 2007 and incorporated herein by reference.
|
|
|
|
(17)
|
|
Filed as an exhibit to Nexteras Annual Report on
Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference.
|
|
|
|
(18)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on November 9, 2007 and incorporated herein by
reference.
|
|
|
|
(19)
|
|
Filed as an exhibit to Nexteras Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006 and incorporated
herein by reference.
|
|
|
|
(20)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on December 5, 2006, and incorporated herein by
reference.
|
|
|
|
(21)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on January 4, 2007 and incorporated herein by
reference.
|
|
|
|
(22)
|
|
Filed as an exhibit to Nexteras Current Report on
Form 8-K filed on April 3, 2007 and incorporated herein by
reference.
|
|
|
|
(23)
|
|
Filed herewith.
|
|
|
|
*
|
|
Indicates a management plan or compensatory plan or
arrangement.
|
59
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) 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.
|
NEXTERA
ENTERPRISES, INC.
|
May 9, 2008
|
|
|
|
|
|
|
By:
|
|
/s/ JOSEPH J. MILLIN
|
|
|
|
Joseph J. Millin
|
|
|
|
President
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ JOSEPH J. MILLIN
|
|
President
and Director (Principal Executive
|
|
May 9,
2008
|
Joseph J. Millin
|
|
Officer)
|
|
|
|
|
|
|
|
/s/ ANTONIO RODRIQUEZ
|
|
Chief
Financial Officer (Principal Financial
|
|
May 9,
2008
|
Antonio Rodriquez
|
|
Officer
and Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ RICHARD V. SANDLER
|
|
Chairman
of the Board of Directors
|
|
May 9,
2008
|
Richard V. Sandler
|
|
|
|
|
|
|
|
|
|
/s/ RALPH FINERMAN
|
|
Director
|
|
May 9,
2008
|
Ralph Finerman
|
|
|
|
|
|
|
|
|
|
/s/ ALAN B. LEVINE
|
|
Director
|
|
May 9,
2008
|
Alan B. Levine
|
|
|
|
|
|
|
|
|
|
/s/ STANLEY E. MARON
|
|
Director
|
|
May 9,
2008
|
Stanley E. Maron
|
|
|
|
|
|
|
|
|
|
/s/ SCOTT J. WEISS
|
|
Director
|
|
May 9,
2008
|
Scott
J. Weiss
|
|
|
|
|
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2007 and 2006
|
|
Balance
at
Beginning
of Period
|
|
Acquired in
Acquisition
|
|
Charged
to Costs
and
Expenses
|
|
Charged
to revenue
|
|
Deductions
|
|
Balance at
end of
period
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts
|
|
$
|
25
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
16
|
|
$
|
9
|
|
Allowance for
sales deductions (returns, damages and discounts)
|
|
4,607
|
|
|
|
|
|
4,929
|
|
5,078
|
|
4,456
|
|
Inventory
obsolescence
|
|
593
|
|
|
|
417
|
|
|
|
337
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts
|
|
$
|
|
|
$
|
25
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
25
|
|
Allowance for
sales deductions (returns, damages and discounts)
|
|
|
|
966
|
|
|
|
5,865
|
|
2,224
|
|
4,607
|
|
Inventory
obsolescence
|
|
|
|
396
|
|
237
|
|
|
|
40
|
|
593
|
|
Nextera Enterprises (CE) (USOTC:NXRA)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Nextera Enterprises (CE) (USOTC:NXRA)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024