UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~March 31~~June 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 333-147631

NXT Nutritionals Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		59-2921318
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

933 E. Columbus Avenue

Suite C

Springfield, MA 01105

(Address of principal executive offices) (Zip Code)

(413) 533-9300

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 305 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x

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 ~~May~~September 1613, 2011, there were 5152,~~259~~301,~~068~~874 shares of the registrant’s common stock outstanding.

NXT NUTRITIONALS HOLDINGS, INC.

FORM 10-Q

~~March~~June 3130, 2011

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Control and Procedures

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	(Removed and Reserved)
Item 5.	Other Information
Item 6.	Exhibits

SIGNATURE

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

NXT NUTRITIONALS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

~~MARCH~~JUNE 3130, 2011

(UNAUDITED)

	Page(s)
Consolidated Balance Sheets as March 31, 2011 (unaudited) and December 31, 2010 –	1
Consolidated Statements of Operations Three Months Ended March 31, 2011 and 2010 (unaudited) –	2
Consolidated Statements of Cash Flows Three Months Ended March 31, 2011 and 2010 (unaudited) –	3
Notes to Consolidated Financial Statements (unaudited)	4-14

NXT Nutritionals Holdings, Inc. and Subsidiaries

~~Part~~Table I.of ~~FINANCIAL INFORMATION~~Contents

June 30, 2011

~~Item 1. Financial Statements~~(unaudited)

NXT NUTRITIONALS HOLDINGS, INC.



Consolidated Balance Sheets June 30, 2011 (unaudited) and December 31, 2010 –	1

Consolidated Statements of Operations Three and Six Months Ended June 30, 2011 and 2010 (unaudited) –	2

Consolidated Statements of Cash Flows Six Months Ended June 30, 2011 and 2010 (unaudited) –	3

Notes to Consolidated Financial Statements (unaudited)	4-13

NXT Nutritionals Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
	March 31, 2011			December 31, 2010
	June 30, 2011
	(unaudited)			December 31, 2010
Assets
Assets:
Cash	$	~~658~~69,~~165~~083		$	1,662,130
Accounts receivable		6429,~~610~~399			119,070
Inventories		~~716~~842,~~855~~203			431,643
Total Current Assets		1940,~~439,630~~685			2,212,843
Debt Issuance Costs - net		2116,~~086~~575			25,548
Total Assets	$	1957,~~460,716~~260		$	2,238,391
Liabilities and Stockholders' Deficit
Liabilities:
Accounts payable and accrued expenses	$	~~826~~680,~~381~~910		$	654,963
Loans payable - related parties		332,126			332,126
Loans payable - other		208,500			208,500
Accrued interest payable - other		62,890			59,035
Accrued interest payable		67,916			59,035
Registration rights payable		608,840			608,840
Convertible notes payable - net of debt discount		7,~~960~~841,~~684~~507			8,438,684
Derivative liabilities		132,~~645,852~~402			2,986,900
Total Current Liabilities		119,~~645~~772,~~273~~201			13,289,048
Convertible notes payable - net of debt discount		1,~~365~~104,~~852~~951			1,496,959
Total Long-Term Liabilities		1,~~365~~104,~~852~~951			1,496,959
Total Liabilities		1310,~~011~~877,~~125~~152			14,786,007
Stockholders' Deficit
Preferred stock, $0.001 par value, 50,000,000 shares authorized,
none issued and outstanding		-			-
Common stock, $0.001 par value, 200,000,000 shares authorized,
51,845,068 and 49,408,068 shares issued and outstanding, respectively		51,845			49,408
53,212,874 and 49,408,068 shares issued and outstanding, respectively		53,213			49,408
Additional paid in capital		34,~~004~~621,~~859~~147			32,822,477
Accumulated deficit		(4544,~~607~~594,~~113~~252	)		(45,419,501	)
Total Stockholders' Deficit		(119,~~550~~919,~~409~~892	)		(12,547,616	)
Total Liabilities and Stockholders' Deficit	$	1957,~~460,716~~260		$	2,238,391

See accompanying notes to financial statements .

NXT Nutritionals Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Sales - net of slotting fees and discounts	$	5034,~~190~~754		$	~~108~~49,~~734~~057		$	84,944		$	157,791
Cost of sales		~~125~~36,~~130~~518			~~120~~35,~~724~~957			161,648			156,681
Gross loss		(74,940	)		(11,990	)
Gross profit (loss)		(1,764	)		13,100			(76,704	)		1,110
General and administrative expenses		1502,~~064,646~~398			~~849~~582,~~770~~071			1,567,044			1,431,841
Loss from operations		(1504,~~139,586~~162	)		(~~861~~568,~~760~~971	)		(1,643,748	)		(1,430,731	)
Other Income (Expenses)
Interest expense		(~~236~~60,~~009~~417	)		(1,~~633~~585,~~430~~150	)		(296,426	)		(3,218,580	)
Derivative expense		-			(8,590,802	)
Interest income		-			2,759			-			2,759
Change in fair market value of derivative liability		1,187,983			7,876,004
Derivative expense		-			-			-			(8,590,802	)
Registration rights expense		-			(28,339	)
Change in fair market value of derivative liability		1,577,442			4,487,928			2,765,425			12,363,932
Total Other Income (Expenses) - Net		951,974			(2,376,567	)
Registration rights expense		-			-			-			(28,339	)
Net Loss	$	(187,612	)	$	(3,238,327	)
Total Other Income - Net		1,517,025			2,905,537			2,468,999			528,970
Net Loss per Common Share - Basic and Diluted	$	(0.00	)	$	(0.08	)
Net Income (Loss)	$	1,012,863		$	2,336,566		$	825,251		$	(901,761	)
Weighted Average Number of Common Shares Outstanding		50,684,412			42,701,420
Net Income (Loss) per Common Share - Basic	$	0.02		$	0.05		$	0.02		$	(0.02	)
Net Income (Loss) per Common Share - Diluted	$	(0.01	)	$	(0.02	)	$	(0.02	)	$	(0.02	)

See accompanying notes to financial statements .

NXT Nutritionals Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
	Three Months Ended March 31,
	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(187,612	)	$	(3,238,327	)
Net income (loss)	$	825,251		$	(901,761	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of debt issue costs		48,~~462~~971			67217,~~294~~525
Amortization of debt discount		~~227~~283,~~693~~204			12,~~560~~990,~~158~~612
Stock based compensation		~~194~~341,~~954~~013			~~211~~243,~~150~~030
Derivative expense		-			8,590,802
Change in fair market value of derivative liability		(12,~~187~~765,~~983~~425	)		(712,~~876~~363,~~004~~932	)
Registration rights expense		-			28,339
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable		5489,~~460~~671			~~(10~~27,~~846~~271	)
Prepaid expenses		-			-
Inventories		(410,560	)		(218,878	)
Inventories		(285,212	)		(19,509	)
Increase (Decrease) in:
Accounts payable and accrued expenses		~~171~~25,~~418~~947			~~(58~~14,~~678~~039	)
Accrued interest payable - other		3,855			4,416
Accrued interest payable		8,881			8,881
Net Cash Used in Operating Activities		(1,~~003~~593,~~965~~047	)		(~~741~~1,~~205~~364,072	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible notes		-			5,667,743
Debt issuance costs paid in cash		-			(726,988	)
Repayment on loans - other		-			(215,000	)
Net Cash Provided By Financing Activities		-			4,725,755
Net Increase (Decrease) in Cash		(1,~~003~~593,~~965~~047	)		3,~~984~~361,~~550~~683
Cash - Beginning of Period		1,662,130			68,454
Cash - End of Period	$	~~658~~69,~~165~~083		$	43,~~053~~430,~~004~~137
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income Taxes	$	-		$	-
Interest	$	-		$	-
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt discount recorded on convertible notes	$	-		$	5,667,743
Original issue discount	$	-		$	850,201
Conversion of convertible notes payable into common stock	$	~~836~~1,~~800~~272,389		$	1,~~599~~664,210
Reclassification of derivative liability to additional paid in capital	$	~~153~~189,~~065~~073		$	-

See accompanying notes to financial statements .

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

Note 1 Nature of Operations and Basis of Presentation

Nature of Operations

NXT Nutritionals Holdings, Inc. ("Holdings), is a Delaware corporation incorporated in 2006. On February 12, 2009, Holdings acquired NXT Nutritionals, Inc. (the “Company”, “NXT Nutritionals”, or “NXT, Inc”) a Delaware corporation incorporated in 2008.

The Company is a developer of proprietary, patent pending, healthy alternative sweeteners. The foundation and common ingredient for all of the Company’s products is the all-natural sweetener SUSTA®. The Company also sells non-fat yogurt smoothie products.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.

The financial information as of December 31, 2010 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the years ended December 31, 2010 and 2009. The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended December 31, 2010 and 2009.

Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the ~~three~~ six months ended ~~March~~June 3130, 2011 are not necessarily indicative of results for the full fiscal year.

Note 2 Summary of Significant Accounting Policies

Principles of consolidation

All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: the fair value of share-based payments, fair value of derivative liabilities, estimates of the probability and potential magnitude of contingent liabilities and the valuation allowance for deferred tax assets due to continuing operating losses.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

Risks and uncertainties

The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company's operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.

The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the grocery industry, (ii) general economic conditions in the various local markets in which the Company competes, including the general downturn in the economy, (iii) the volatility of prices pertaining to food and beverages in connection with the Company’s distribution of product, and (iv) effective use of slotting fees paid as well as advertising. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.

Cash and cash equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at ~~March~~June 3130, 2011 and at December 31, 2010, respectively.

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.

As of ~~March~~June 3130, 2011 and December 31, 2010 the Company had cash in bank accounts which exceeded the federally insured limits by $~~308,072~~ - and $1,235,498, respectively.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method.

	March 31, 2011		December 31, 2010
	June 30, 2011		December 31, 2010
Work in process	$	~~548~~730,~~573~~395	$	285,769
Finished goods		~~168~~111,~~282~~808		145,874
	$	~~716~~842,~~855~~203	$	431,643

Debt Issue Costs and Debt Discount

These items are amortized over the life of the debt to interest expense. If a conversion, extinguishment or repayment of the underlying debt occurs, a proportionate share of these amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued in 2010 and 2009, the Company provided the debt ~~holders~~holder with an original issue discount. The original issue discount was equal to three years of simple interest at 10% of the proceeds raised. The original issue discount was recorded to debt discount reducing the face amount of the note and is being amortized to interest expense over the maturity period of the debt.

Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Binomial Lattice Valuation Model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

Once determined, the derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the binomial option-pricing model. At ~~March~~June 3130, 2011 and December 31, 2010, respectively, the Company had derivative liabilities in the amounts of $132,~~645,852~~402 and $2,986,900, respectively.

Revenue recognition

The Company records revenue for both the yogurt smoothie and for the natural sweetener when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured. There is no stated right of return for products.

Sales are recognized upon shipment of products to customers. The Company allows deductions in the form of credits for products unsold during its shelf life which is on average 3 to 4 months. The Company’s reserve for accounts receivable takes these potential future credits into consideration. As ~~March~~June 3130, 2011 and December 31, 2010, the Company had no reserves.

Expenses such as slotting fees and sales discounts are accounted for as a direct reduction of revenues. During the three and six months ended ~~March~~June 3130, 2011 and 2010, the Company recorded slotting fees and discounts of $62991,~~898~~ $63,889 and $19,~~504~~544, $10,958, respectively.

Cost of sales

Cost of sales represents costs directly related to the production and manufacturing of the Company’s yogurt smoothie products and the all-natural sweetener SUSTA®. Costs include product development, freight, packaging and print production costs.

Advertising

Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred as follows:

Three Months Ended March 31, 2011	Three Months Ended March 31, 2010
Three Months Ended June 30, 2011	Three Months Ended June 30, 2010	Six Months Ended June 30, 2011	Six Months Ended June 30, 2010
$84,467	$104,858
$40,431	$219,787	$124,898	$324,645

Share-based payments

Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments are recorded in cost of goods sold or general and administrative expense in the consolidated statement of operations, depending on the nature of the services provided.

Earnings per share

Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

~~The~~Earnings ~~Company~~per ~~had the following potential common stock equivalents at March 31, 2011:~~share

Convertible debt – face amount of $1,642,328, conversion price of $0.40			4,105,820
Convertible debt – face amount of $7,960,684, conversion price of $0.37			21,515,362
Common stock warrants, exercise price of $0.40 (Series “A” and “C”) and $0.60 (Series “B”)			27,231,269
Stock options, exercise price $0.22			2,123,750
Total common stock equivalents			54,976,201

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

The ~~Company~~computations ~~had~~of ~~the~~basic ~~following~~and ~~potential~~diluted ~~common~~net ~~stock~~income/(loss) ~~equivalents~~attributable atto ~~March~~common ~~31,~~share ~~2010~~are as follows:

Convertible debt – face amount of $2,066,128, conversion price of $0.40		5,165,320
	3 Months Ended
Convertible debt – face amount of $6,517,904, conversion price of $1.00		6,517,944
	6/30/11					6/30/10
Common stock warrants, conversion price of $0.40 (Series “A”) and $0.60 (Series “B”)		19,735,634
	Income			Shares(a)		Income			Shares(a)
Common stock warrants, conversion price of $1.25 (Series “C”)		6,517,944
Net income	$	1,012,863				$	2,336,566
Total common stock equivalents		37,936,842
Basic net income per common share	$	0.02			52,657,344	$	0.05			45,973,194
Net income	$	1,012,863			52,657,344	$	2,336,566			45,973,194
Dilutive securities:
Convertible notes		(1,522,231	)		24,776,819		(4,190,218	)		11,520,764
Warrants		-			27,231,269		–			26,253,578
Stock Options					2,123,750		–			–
Diluted net loss	$	(509,368	)		106,789,182	$	(1,853,652	)		83,747,536
Diluted net loss per common share	$	(0.01	)			$	(0.02	)

Since the Company incurred a net loss in 2011 and 2010, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.

	6 Months Ended
	6/30/11					6/30/10
	Income			Shares(a)		Loss			Shares(a)
Net Income (loss)	$	825,251				$	(901,761	)

Basic net income ( loss) per common share	$	0.02			51,683,885	$	(0.02	)		44,347,519

Net Income (loss)	$	825,251			51,683,885	$	(901,761	)		44,347,519
Dilutive securities:
Convertible notes	$	(2,482,221	)		24,776,819		–			11,520,764
Warrants					27,231,269		–			26,253,578
Stock Options					2,123,750		–			–

Diluted net loss	$	(1,656,970	)		105,815,723	$	(901,761	)		82,121,861

Diluted net loss per common share	$	(0.02	)			$	(0.02	)

(a)	Weighted-average common shares outstanding.

For the three and six months ended June 30, 2011 and 2010, the adjustments to net income/(loss) are based on the add back of amortization of the original issue discount on the convertible notes as well as the reduction for the current period change in fair market value of the derivative liability.

Recent accounting pronouncements

InThere ~~January 2010,~~are ~~the~~no ~~Financial~~recent ~~Accounting~~accounting ~~Standards~~pronouncements ~~Board~~that ~~(FASB) issued~~are ~~Accounting~~expected ~~Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, “Fair Value Measurements” ("ASC 820")~~ to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have aan ~~significant~~ effect on the Company’s ~~consolidated~~ financial ~~position or results of operations~~statements.

In August 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-05, Measuring Liabilities at Fair Value, or ASU 2010-05, which amends ASC 820 to provide clarification of a circumstance in which a quoted price in an active market for an identical liability is not available. A reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities (or similar liabilities when traded as assets) and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2010-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption did not have a material impact on our unaudited interim consolidated financial statements.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

InNote ~~December~~3 ~~2010,~~Going the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-29, Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 affects any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-29 to have an effect on its financial position, results of operations or cash flows.Concern

~~Note~~As 3reflected ~~Going~~in ~~Concern~~the accompanying unaudited interim consolidated financial statements, the Company has a net loss from operations of $1,643,748 and ~~Liquidity~~net cash used in operations of $1,593,047 for the six months ended June 30, 2011; and has a working capital deficit of $8,831,516 and a stockholders’ deficit of $9,919,892.

AsThe ~~reflected~~ability inof the ~~accompanying~~Company ~~unaudited~~to ~~interim~~continue ~~consolidated~~its ~~financial~~operations ~~statements,~~is ~~the~~dependent ~~Company~~on ~~has~~Management's aplans, ~~net~~which ~~loss~~include the raising of ~~$187,612~~capital through debt and/or ~~net~~equity ~~cash~~markets ~~used~~with insome ~~operations~~additional offunding $1from other traditional financing sources,~~003~~ including term notes,~~965~~ ~~for~~until ~~the~~such ~~three~~time ~~months~~that ~~ended~~funds ~~March~~provided ~~31,~~by ~~2011;~~operations ~~and~~are ~~has~~sufficient ato fund working capital ~~deficit~~requirements. The ofCompany ~~$10,205,643~~may ~~and~~need ato ~~stockholders’~~incur ~~deficit~~additional ofliabilities ~~$11,550,409~~with certain related parties to sustain the Company’s existence.

The ~~ability of the~~ Company towill ~~continue~~require ~~its~~additional ~~operations~~funding isto ~~dependent~~finance ~~on management's plans, which include~~ the ~~raising~~growth of ~~capital~~its ~~through~~current ~~debt~~ and~~/or~~ ~~equity~~expected ~~markets~~future ~~with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by~~ operations ~~are~~as ~~sufficient~~well as to ~~fund~~achieve ~~working~~its ~~capital~~strategic ~~requirements~~objectives. The Company believes ~~that it will be required to restructure the terms of~~ its ~~existing~~current ~~indebtedness~~available incash ~~order~~along towith ~~attract~~anticipated ~~additional~~revenues ~~capital~~are ~~and~~insufficient to ~~avoid~~meet aits ~~default~~cash ~~under~~needs for the ~~terms~~near ~~of this indebtedness~~future. There ~~The~~can ~~Company~~be isno ~~currently~~assurance ~~engaged~~that infinancing ~~discussions~~will ~~with~~be ~~various~~available ~~third~~in ~~parties~~amounts ~~concerning~~or aterms ~~possible~~acceptable ~~investment~~to in the Company~~. These~~, ~~discussions~~if ~~are~~at ~~preliminary in nature and there can be no assurance that any of them will result in an additional funding~~all.

The Company ~~will~~believes ~~require~~that ~~additional funding to meet its working capital obligations and to finance~~ the ~~growth~~utilization of its ~~current~~unique ~~and~~ingredient ~~expected~~“SUSTA” ~~future operations. The Company believes its current available cash along with anticipated revenues~~ will ~~not~~allow benew ~~sufficient~~product todevelopment ~~meet its working capital needs unless the Company’s obtains additional funding in the near future. There can be no assurance~~ that ~~financing~~ will beprovide ~~available~~future inpositive ~~amounts~~cash orflows, ~~terms~~however, ~~acceptable~~sales to ~~the~~date ~~Company,~~have ifbeen ~~at all~~nominal.

The ability of the Company to continue as a going concern is dependent on its ability to do all or most of the above listed steps. In the event that the Company were unable to obtain additional financing, it is likely that the Company would be required to discontinue operations.

The accompanying unaudited interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 Debt

(A)	2010 Original Issue Discount Senior Secured Convertible Note Offering

On February 26, 2010, the Company completed ana ~~offering of~~ secured convertible notes and warrants offerings, which ~~were~~was modified and amended on September 1, 2010, and modified and amended again on December 6, 2010. As of ~~March~~June 3130, 2011, the terms of the notes are as follows:

i. In accordance with the December 6, 2010 Modification and Amendment Agreement, the Conversion price ~~of the related notes~~ was modified from $0.40 to $0.37 ~~per share~~.

ii. Registration rights. ~~The~~– the Company is required to file a registration statement within 30 days of the close of the offering. If the Company fails to file such registration statement, the Company will incur liquidated damages of 0.5% of the aggregate amount raised in the offering. The maximum liquidated damages are capped at 6.0% of the aggregate amount raised in the offering. The Company obtained an effective registration on February 14, 2011.

iii.	Original issue discount- 60% of the cash proceeds received. The discount has been fully amortized to interest expense as of December 31, 2010.

iv.	Full ratchet provision – The notes contain a provision in which the conversion price can be reduced in any event the Company issues any security or debt instrument with a lower consideration per share in any future offering.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

~~iv.~~The ~~Full~~Company ~~ratchet~~also ~~provision~~issued –the ~~The~~note ~~notes~~holders ~~contain~~one astock ~~provision~~purchase inwarrant ~~which~~with ~~the~~a ~~conversion~~maturity ~~price~~of ~~can~~5 beyears. The ~~reduced~~exercise inprice ~~any~~is ~~event~~$0.37. The ~~the~~stock ~~Company~~purchase ~~issues~~warrants ~~any~~contain ~~security~~cashless orexercise ~~debt~~provisions. There ~~instrument~~are ~~with~~currently a7,495,590 ~~lower~~warrants ~~consideration~~associated ~~per~~with ~~share~~this ~~in any future~~ offering outstanding.

The Company also issued the note holders stock purchase warrants with a term of 5 years. The exercise price is $0.40 per share. The stock purchase warrants contain cashless exercise provisions. The warrants issued in the offering currently entitled the holders to purchase 7,495,590 shares of the Company’s common stock

In connection with the ASC 815, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” the Company determined that the embedded conversion feature and the warrant issuances (ratchet down of exercise price based upon lower exercise price in future offerings) are not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability (the “Embedded Derivative”), which requires bifurcation and to be separately accounted for.

The Company measured the fair value of the derivative liabilities using a binomial lattice valuation model.

The fair value of the derivative liabilities are summarized as follow:

Derivative liability balance at December 31, 2010	$	2,986,900
Reclassification to paid in capital when derivative liability ceases to exist		(~~153~~189,~~065~~073	)
Mark to market adjustments for the three months ended March 31, 2011		(1,187,983	)
Mark to market adjustments for the three months ended June 30, 2011		(2,765,425	)
Derivative liability balance at March 31, 2011	$	1,645,852
Derivative liability balance at June 30, 2011	$	32,402

Mark to Market

At ~~March~~June 3130, 2011, and at the time of each debt conversion, the Company remeasured the derivative liabilities, and recorded a fair value adjustment of $12,~~187~~765,~~983~~425 and $~~153~~189,~~065~~073 as a reclassification of the derivative associated with the notes converted. The following management assumptions were considered in connection with the conversion of debt and related reclassification of derivative liabilities to Additional paid in capital and the period end remeasurement:

Exercise price	$0.37 - $0.40
Expected dividends	0%
Expected volatility	360%
Risk fee interest rate	0.30 – 2.24%
Suboptimal exercise factor	1.5
Expected life of conversion features	0.7550
Expected life of Series C Warrants	3.8964 – 3.9166 years

Conversions

During the ~~three~~six months ended ~~March~~June 3130, 2011, 3 note holders converted principal in the amount of $~~478~~783,~~000~~589 into 12,~~195~~012,~~000~~806 shares of the Company’s common stock at a conversion rate of $0.37 - $0.40.

The 2010 Original Issue Discount Senior Secured Convertible Notes are summarized as follow:

Convertible Notes Payable at December 31, 2010	$	8,~~436~~438,684
Conversion of debt into common stocks		(~~478~~783,~~000~~589	)
Convertible Notes Payable at March 31, 2011	$	7,960,684
Convertible Notes Payable at June 30, 2011	$	7,655,095

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

(B)	Convertible Debt and Warrants

During 2008 and 2009, the Company ~~issued~~entered into a convertible ~~notes~~note and ~~warrants~~warrant ~~to investors~~offering. The key terms of the notes are as follows:

i.	Conversion price: $0.40

ii.	Three year maturity

iii.	Original issue discount of 30%

iv. ~~Registration~~Secured ~~rights~~by –all ~~the~~assets Company was required to have a registration statement filed within 60 days after the offering closed. To date, the company has not filed a registration statement and has accrued the maximum liquidated damages penalty of ~~9% of~~ the ~~offering.~~Company

v. ~~Full~~Registration ~~ratchet~~rights ~~provision~~ – ~~The~~the ~~notes~~Company ~~contain~~was required to have a ~~provision~~registration instatement ~~which~~filed ~~the~~within ~~conversion~~60 ~~price~~days ~~can~~after bethe ~~reduced~~offering inclosed. ~~any~~To ~~event~~date, the ~~Company~~company ~~issues~~has ~~any~~not ~~security~~filed ora ~~debt~~registration ~~instrument~~statement ~~with~~and ahas ~~lower~~accrued ~~consideration~~the ~~per~~maximum ~~share~~liquidated indamages ~~any~~penalty ~~future~~of 9% of the offering.

vi. 1Full ~~Series~~ratchet ~~“A”~~provision 5– ~~Year~~The ~~$0.40~~notes ~~stock~~contain ~~purchase~~a ~~warrant~~provision ~~and~~in 1which ~~Series~~the ~~“B”~~conversion 5price ~~Year~~can ~~$0.60~~be ~~stock~~reduced ~~purchase~~in ~~warrant~~any ~~for~~event ~~each~~the ~~convertible~~Company issues any security or debt instrument with a lower consideration per share in any future offering.

vii.	1 Series “A” 5 Year $0.40 stock purchase warrant and 1 Series “B” 5 Year $0.60 stock purchase warrant for each convertible share

A summary of the Convertible Debt Principal is as follows:

Convertible Debt, net of debt discount as of December 31, 2010	$	1,496,959
Conversion of debt into common stocks		(~~358~~488,800	)
Accretion of debt discount for the three months ended March 31, 2011		227,693
Accretion of debt discount for the six months ended June 30, 2011		283,204
Convertible Debt Principal as of March 31, 2011	$	1,365,852
Convertible Debt, net of debt discount as of June 30, 2011	$	1,291,363

Conversions

During the ~~three~~six months ended ~~March~~June 3130, 2011, 45 note holders converted principal in the amount of $~~358~~488,800 into ~~897~~1,222,000 shares of the Company’s common stock at a conversion rate of $0.40.

Debt Discount

At issuance, the Company recorded debt discounts associated with the original issue discount and beneficial conversion features. The ~~company~~Company is accreting the debt discount over the life of the notes. During the ~~three~~six months ended ~~March~~June 3130, 2011 and 2010, the Company recorded interest expense of $~~227~~220,~~693~~965 and $1,~~560~~160,~~158~~118, respectively.

(C)	Debt Issuance Costs

Debt issuance costs, net are as follows:

Balance as of December 31, 2010	$	25,548
Amortization of debt issue costs during three months ended March 31, 2011		(4,462	)
Amortization of debt issue costs during three months ended June 30, 2011		(8,973	)
Balance as of March 31, 2011	$	21,086
Balance as of June 30, 2011	$	16,575

Note 5 Fair Value

Disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

The Company has categorized its assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP.

The levels of fair value hierarchy are as follows:

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

The following are the major categories of liabilities measured at fair value on a nonrecurring basis during the ~~three~~six months ended ~~March~~June 3130, 2011, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

Level 1: Quoted Prices in Active Markets for Identical Liabilities

Level 2: Significant Other Observable Inputs

Level 3: Significant Unobservable Inputs

Derivative Liabilities

132,~~645,852~~402

Total

132,~~645,852~~402

The following are the major categories of liabilities measured at fair value on a nonrecurring basis during the year ended December 31, 2010, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2011

(unaudited)

	Level 1: Quoted Prices in Active Markets for Identical Liabilities		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs
Derivative Liabilities	$	-	$	2,986,900	$	-
Total	$	-	$	2,986,900	$	-

Note 6 Stockholders Deficit

(A)	Common Stock

During the ~~three~~six months ended ~~March~~June 3130, 2011, the Company issued 510,000 shares to officers of the Company ~~285,000 shares~~ for services rendered, ~~in accordance with their respective employment agreements,~~ at a fair value of $6594,~~550~~805 ($~~0.21~~009 - $0.2524/share), based upon the quoted closing price trading price.

During the ~~three~~six months ended ~~March~~June 3130, 2011, the Company issued ~~a consultant~~ 60,000 shares to a consultant for services rendered, at a fair value of $12,600 ($0.21/share), based upon the quoted closing price trading price.

(B) Stock Options

On November 12, 2010, the Company adopted the 2010 Incentive Stock Plan (“the Plan”). The total number of shares of stock which may be purchased or granted directly by options, stock awards or restricted stock purchase offers, or purchased indirectly through exercise of options granted under the Plan shall not exceed 30,000,000 plus an increase of an the first day of each fiscal year, beginning in 2010. The Plan indicates that the exercise price of an award is equivalent to the market value of the Company’s common stock on the grant date.

On November 12, 2010, the Company's board of directors authorized the issuance of 8,495,000 and 7,265,000 stock options for fiscal year 2010 and fiscal year 2011, respectively, having a total fair value of $3,467,194, which vest over a 4 year term. These options expire between November 12, 2020 and November 12, 2021.

The following is a summary of the Company’s stock option activity:

	Options	~~Options~~	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	~~Weighted Average Exercise Price~~	Aggregate Intrinsic Value	~~Weighted Average Remaining Contractual Life~~		~~Aggregate Intrinsic Value~~
Balance – December 31, 2010 – outstanding	15,760,000		~~15,760,000~~$ 0.22		$	~~0.22~~$ -			$	-
Balance – December 31, 2010 – exercisable	15,760,000		~~15,760,000~~$ 0.22		$	~~0.22~~$ -			$	-
Granted	-		$ -		$	-
Exercised	-		$ -		$	-
Forfeited	-		$ -		$	-
Balance – March 31, 2011 – outstanding			15,760,000		$	0.22		9.65 years	$	-
Balance – June 30, 2011 – outstanding	15,760,000		$ 0.22	9.40 years		$ -
Balance - March 31, 2011 – exercisable			2,123,750		$	0.22		9.65 years	$	-
Balance - June 30, 2011 – exercisable	2,123,750		$ 0.22	9.40 years		$ -
Grant date fair value of options granted – 2011			$ -		$	-
Weighted average grant date fair value – 2011			$ -		$	-
Outstanding options held by related parties – 2011	15,760,000		~~15,760,000~~
Exercisable options held by related parties – 2011	2,123,750		~~2,123,750~~
Fair value of stock options granted to related parties - 2011	$ -	$	-

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2011

(unaudited)

The following is a summary of the Company’s warrant activity:

	Warrants	~~Warrants~~Weighted Average Exercise Price		~~Weighted Average Exercise Price~~
Outstanding – December 31, 2010	27,231,269	$ 0.51	~~27,231,269~~	$	~~0.51~~
Exercisable – December 31, 2010	27,231,269	$ 0.51	~~27,231,269~~	$	~~0.51~~
Granted	-	$ -	-	$	-
Exercised	-	$ -	-	$	-
Forfeited/Cancelled	-	$ -	-	$	-
Outstanding – March 31, 2011			27,231,269	$	0.51
Outstanding – June 30, 2011	27,231,269	$ 0.51
Exercisable – March 31, 2011			27,231,269	$	0.51
Exercisable – June 30, 2011	27,231,269	$ 0.51

Warrants Outstanding				Warrants Exercisable						~~Warrants Exercisable~~
Range of exercise price				Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
Range of	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$	0.51				27,231,269		3.27 years	$	0.51		27,231,269	$	0.51
exercise price
$0.51	27,231,269	3.02 years	$0.51	27,231,269	$0.51

At ~~March~~June 3130, 2011 and December 31, 2010, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

Note 7 Commitments and Contingencies

Litigations, Claims and Assessments

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. ~~However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.~~ The Company is currently not aware of any such legal proceedings or claims that itthey ~~believes~~believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

Note 8 Subsequent Event

On September 6, 2011, the Company entered into a Third Modification and Amendment Agreement with the holders of more than sixty-seven (67%) percent of the aggregate number of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Under the terms of the Amendment, the commencement of monthly redemption date of the 2010 Notes is extended to October 1, 2011. In addition, the Third Modification Agreement provides that the holders of the 2010 Notes will forebear and take no action to enforce the terms of the 2010 Notes for a period of sixty (60) days following the effectiveness of the Third Modification Agreement, including any reduction of the Conversion Price of the 2010 Notes or reduction in the exercise price of the Warrants as provided in the Second Modification Agreement. The sixty (60) day time period is intended to allow the Company to acquire additional financing on terms and conditions acceptable to the Company and subject to the consent of the holders.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2011

(unaudited)

Note 8 Concentrations

(A) Accounts Receivable

Customer	March 31, 2011	December 31, 2010
A	39%	37%
B	39%	-%
C	10%	8%
D	1%	51%

(B) Sales

Customer	March 31, 2011	March 31, 2010
A	64%	-%
B	15%	-%
C	-%	21%
D	-%	20%

Vendor	March 31, 2011	December 31, 2010
A	24%	29%
B	28%	2%

(D) Purchases

Vendor	March 31, 2011	March 31, 2010
A	21%	-%
B	22%	35%
C	19%	37%
D	-%	22%

Note 9 Subsequent Event

From April 1, 2011 through May 16, 2011, one convertible note holder converted principal and of $40,000, into 100,000 shares of the Company’s common stock at a conversion rate of $0.40.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify forward-looking statements, including statements regarding our ability to continue to create innovative technology products, our ability to continue to generate new business based on our sales and marketing efforts, referrals and existing relationships, our financing strategy and ability to access the capital markets and other risks discussed in our Risk Factor section included in our Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the “SEC”). We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

OVERVIEW

Operating through NXT Nutritionals, we are engaged in developing and marketing of a proprietary, patent-pending, all–natural, healthy sweetener sold under the brand name SUSTA™ and other food and beverage products. SUSTA™ is being sold as a stand-alone product and it is the common ingredient for all of our products. We also market and sell a line of yogurt smoothies sold under the brand name Healthy Dairy® which is enhanced by the revolutionary taste and nutritious ingredients contained in SUSTA™. Our mission is to provide consumers with unique, healthy, delicious products that promote a healthier lifestyle and combat obesity and diabetes.

We have previously been focused on expanding the distribution of SUSTA™ to the retail marketplace nationwide ~~and~~, and expanding the Healthy Diary® product line from the east coast to nationwide reach,. Eventually, ~~and~~the ~~eventually~~Company plans on expanding the Healthy Dairy® brand to include product lines such as cup yogurt and ice cream. Currently we have changed our business focus of Healthy Dairy away from selling to the grocery chains and to focus on the food service category.

WeWith ~~have~~regard ~~undertaken~~to anSusta, ~~aggressive~~we ~~marketing~~have ~~campaign~~undertaken ~~and trial program. Additionally, more~~ traditional levers in the retail sales channel. The ~~like~~Company has employed advertising, internet communications, trade incentives, price promotions, ~~couponing,~~ and ~~demonstrations are being employed~~couponing. We are targeting consumer food and beverage companies to incorporate SUSTA™ into their products to provide a healthy alternative to sugar, artificial sweeteners and other natural sweeteners that do not provide the nutritional and health benefits of SUSTA™. We also plan to continue to utilize our three high profile celebrity spokespersons, including Eddie George, Blair Underwood and Dara Torres, to help drive awareness of SUSTA™ by appearing in commercials, making public appearances, heading our cause marketing campaign and appearing on popular television shows.

With regard to the sale of Healthy Dairy, the Company has received approval from the United States Navy to be on the Navy’s standard daily core menu. The Company has also been approved to sell its Healthy Dairy smoothies to the United States Naval Academy at Annapolis, Maryland and the United States Air Force Academy. The Company plans on expanding its sale of Healthy Dairy to all branches of the United States Military and the other United States Military Academies. To date, sales of Healthy Dairy are at an early stage and will need to increase dramatically to meet the Company’s expectations and business plans. The Company has retained the services of business owned and operated by retired U.S. Military veterans to support the Company’s growth objectives in the United States Military. In order to satisfy future expected orders from the various Military branches and academies, the Company will need additional financing, including a working capital line of credit. Any such financing is subject to the consent from third parties, such as holders of the 2010 Notes (see below).

In the future we also plan to utilize celebrity spokespersons, including Dara Torres, to help drive awareness of SUSTA™ and Healthy Dairy by appearing in commercials, making public appearances, heading our cause marketing campaign and appearing on popular television shows.

We have funded our operations to date through private placement offerings of our securities. On August 27, 2009, we completed a private offering of an aggregate subscription amount of $3,173,000 through the issuance of investment units to certain accredited investors. Each investment unit had a purchase price of $50,000 and consisted of (i) a three year Debentures in the amount of $65,000 convertible into shares of our common stock at a conversion price of $0.40 per share, (ii) five year Series A Warrants to purchase 100% of the common stock underlying the Debenture at an exercise price of $0.40 per share, and (iii) five year Series B Warrants to purchase 100% of the common stock underlying the Debenture at an exercise price of $0.60 per share.

1514

On February 26, 2010, we closed on a private placement offering by raising total gross proceeds of $5,667,743, through the sale of (i) 0% Original Issue Discount Senior Secured Convertible Notes convertible into shares of our common stock at a conversion price of $1.00 per share, and (ii) a number of five-year Warrants exercisable into a number of shares of common stock equal to 100% of the number of common shares underlying the Notes at an exercise price of $1.25 per share to certain accredited investors (the “2010 Notes”). The principal amount of each ~~Note~~of the 2010 Notes is 115% of the subscription proceeds received.

On September 1, 2010, we entered into a modification and amendment agreement (the “Modification Agreement”) with purchasers holding approximately 87% of the aggregate number of (1) the 2010 Notes, (2) the Warrants, and (3) the shares of common stock underlying the Notes and the Warrants, pursuant to which the commencement of monthly redemption date of the 2010 Notes is extended to December 1, 2010 and the holders of the Notes and the Warrants, we may now pay the monthly redemption of the Notes in common stock even if the monthly redemption price described in the Notes is less than $0.40. In addition, pursuant to the Modification Agreement, the conversion price of the Notes and the exercise price of the Warrants are both reduced to $0.40 per share.

On December 6, 2010 we entered into a second modification and amendment agreement (the “Second Modification Agreement”) with the Purchasers (the “Purchasers”) holding approximately 91% of the aggregate number of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Pursuant to the Amendment, the commencement of monthly redemption date of the Notes is extended to September 1, 2011, the maturity date of the Notes is extended to December 31, 2011 and the original issue discount is amended such that the principal amount equals each investor’s subscription amount multiplied by 1.60. In addition the conversion price can be adjusted on the following events:

(i) First Quarter 2011 Form 10-Q. If the Company’s filing of its March 31, 2011 Form 10-Q with the Securities and Exchange Commission does not disclose revenue of at least $5 million for the first three months of 2011, then the Conversion Price of the Notes will decrease by $.03 on the fifth (5th) trading day after the Company files its March 31, 2011 Form 10-Q. Notwithstanding the foregoing, if, during the five (5) trading days following the filing of the March 31, 2011 Form 10-Q, the average closing bid price is $.60 or better, the aggregate trading volume of Company common stock is at least 1.5 million shares and all of the shares underlying the Notes may be sold pursuant to an effective registration statement or Rule 144 (and the Company is then in compliance with the current public information required under Rule 144), then no adjustment to the Conversion Price will be made hereunder. As of March 31, 2011, the Conversion Price of the note was modified from $0.40 to $0.37.

(ii) Second Quarter 2011 Form 10-Q. If the Company’s filing of its June 30, 2011 Form 10-Q with the Securities and Exchange Commission does not disclose revenue of at least $8 million for the first six months of 2011, then the Conversion Price of the Notes will be adjusted to equal the lesser of (i) the then effective Conversion Price and (ii) ninety (90%) percent of the average closing bid price during the five (5) trading Days following the filing of the June 30, 2011 Form 10-Q, such adjustment, if any, to occur on the fifth (5th) trading day following the Company’s filing of its June 30, 2011 Form 10-Q. Notwithstanding the foregoing, if, during the five (5) trading Days following the filing of the June 30, 2011 Form 10-Q, the average closing bid price is $.60 or better, the aggregate trading volume of Company common stock is at least 1.5 million shares and all of the shares underlying the Notes may be sold pursuant to an effective registration statement or Rule 144 (and the Company is then in compliance with the current public information required under Rule 144), then no adjustment to the Conversion Price will be made hereunder.

~~The~~On September 6, 2011, the Company ~~continues~~entered into a Third Modification and Amendment Agreement (the “Third Modification Agreement”) with the Purchasers holding more than sixty-seven (67%) percent of the aggregate number of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Pursuant to ~~explore~~the ~~potential~~Amendment, ~~expansion~~the ~~opportunities~~commencement inof monthly redemption date of the ~~industry~~2010 inNotes ~~order~~is extended to ~~boost~~October ~~sales~~1, ~~while~~2011, ~~leveraging~~In ~~distribution~~addition, ~~systems~~the Third Modification Agreement provides that the holders of the 2010 Notes will forebear and take no action to ~~consolidate~~enforce ~~lower~~the ~~costs~~terms of the 2010 Notes for a period of sixty (60) days following the effectiveness of the Third Modification Agreement, including any reduction of the Conversion Price of the 2010 Notes or reduction in the exercise price of the Warrants as provided in the Second Modification Agreement. The sixty (60) day time period is intended to allow the Company to acquire additional financing on terms and conditions acceptable to the Company and subject to the consent of the Purchasers

1615

RESULTS OF OPERATIONS

Results of Operations

Summary of Statement of Operations for the Three Months Ended ~~March~~June 3130, 2011 and 2010 (unaudited):

	Three months ended
	March 31, 2011			March 31, 2010
	June 30, 2011			June 30, 2010
Sales – net of slotting fees and discounts	$	5034,~~190~~754		$	~~108~~49,~~734~~057
Gross Profit (Loss)	$	(741,~~940~~764	)	$	~~(11~~13,~~990~~100	)
General and Administrative Expenses	$	(1502,~~064,646~~398	)	$	(~~849~~582,~~770~~071	)
Other Income (Expense)	$	951,974		$	(2,376,567	)
Other Income - Net	$	1,517,025		$	2,905,537
Net Loss	$	(187,612	)	$	(3,238,327	)
Net Income	$	1,012,863		$	2,336,566
Net Loss per Common Share – Basic and Diluted	$	(0.00	)	$	(0.08	)
Net Income per Common Share – Basic	$	0.02		$	0.05

For the three months ended ~~March~~June 3130, 2011 and 2010, the Company reported a net ~~loss~~income of ~~$(187~~1,~~612)~~012,863 or $(0.~~00)~~02 per share and a net ~~loss~~income of ~~$(3~~2,~~238~~336,~~327)~~566 or $(0.~~08)~~05 per share, respectively. The change in net ~~loss~~income between the three months ended ~~March~~June 3130, 2011 and 2010 was primarily attributable to the following:

The Company has shifted its Healthy Dairy sales focus from sales to grocery chains to the food service category. We have only recorded a limited number of Healthy Dairy sales since this shift in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company has experienced limited sales on the SUSTA product.

· Gross sales for the three months ended ~~March~~June 3130, 2011 asand ~~compared to~~ the three months ended ~~March~~June 3130, 2010 were comparable,. ~~but~~The ~~the~~ Company ~~recorded~~is ~~slotting~~yet ~~fees~~to ~~and~~significantly ~~customer~~execute ~~discounts~~upon ~~of approximately $62,000 during~~ the ~~three~~shift ~~months~~in ~~ended~~focus ~~March~~from ~~31,~~grocery ~~2011~~chains ~~as compared~~ to ~~approximately $9,000 in slotting and customer discounts in~~ the ~~corresponding~~food ~~three~~service ~~months ended March 31, 2010~~category.

· General and administrative expenses ~~increased~~decreased by approximately 2514% during the three months ended ~~March~~June 3130, 2011 as compared to the corresponding three months ended ~~March~~June 3130, 2010. The ~~increase~~decrease is primarily attributable to ~~the~~a ~~Company’s~~decline ~~development~~in ~~and~~both ~~roll~~stock ~~out~~base ~~the~~compensation ~~4 ounce yogurt cup,~~ and ~~increased~~professional ~~marketing efforts to build brand and product awareness~~fees.

· Other income ~~(expenses)~~- ~~increased~~net decreased significantly during the three months ended ~~March~~June 3130, 2011 as compared to the corresponding three months ended ~~March~~June 3130, 2010. The ~~increase~~decrease is primarily attributable to a decrease in interest expense. The Company fully accreted the debt discount recorded on the 2010 convertible note offering during 2010. The Company also recorded significant derivative expenses during the three months ended ~~March~~June 3130, 2010. The decreases were offset myby a major decrease in the change in fair market value of the derivative liability during the three months ended ~~March~~June 3130, 2011 as compared to the corresponding three months ended ~~March~~June 3130, 2010.

Going Concern: As reflected in the accompanying unaudited interim consolidated financial statements, the Company has a net loss of $187,612 and net cash used in operations of $1,003,965 for the three months ended March 31, 2011; and has a working capital deficit of $10,205,643 and a stockholders’ deficit of $11,550,409.16

~~The~~Summary ~~ability~~ of ~~the~~Statement ~~Company to continue its operations is dependent on management's plans, which include the raising~~ of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.Operations ~~The~~for ~~Company believes that it will be required to restructure~~ the ~~terms~~Six ofMonths ~~its~~Ended ~~existing~~June ~~indebtedness~~30, in2011 ~~order to attract additional capital~~ and to2010 avoid a default under the terms of this indebtedness. The Company is currently engaged in discussions with various third parties concerning a possible investment in the Company. These discussions are preliminary in nature and there can be no assurance that any of them will result in an additional funding.(unaudited):

The Company will require additional funding to meet its working capital obligations and to finance the growth of its current and expected future operations. The Company believes its current available cash along with anticipated revenues will not be sufficient to meet its working capital needs unless the Company’s obtains additional funding in the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

	Six months ended
	June 30, 2011			June 30, 2010
Sales – net of slotting fees and discounts	$	84,944		$	157,791
Gross Profit (Loss)	$	(76,704	)	$	1,110
General and Administrative Expenses	$	(1,567,044	)	$	(1,431,841	)
Other Income - Net	$	2,468,999		$	528,970
Net Income (Loss)	$	825,251		$	(901,761	)
Net Income (Loss) per Common Share – Basic	$	0.02		$	(0.02	)

For the six months ended June 30, 2011 and 2010, the Company reported a net income of 825,251 or $0.02 per share and a net loss of $(901,761) or $(0.02) per share, respectively. The change in net income (loss) between the six months ended June 30, 2011 and 2010 was primarily attributable to the following:

·	Sales for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 decreased by 56%. The Company is yet to significantly execute upon the shift in focus from grocery chains to the food service category.

General and administrative expenses increased by approximately 9% during the six months ended June 30, 2011 as compared to the corresponding six months ended June 30, 2010. The increase is primarily attributable to the Company’s development and roll out the 4 ounce yogurt cup, and increased marketing efforts to build brand and product awareness. The increase is offset by a decrease in both stock base compensation and professional fees.

Other income - net increased significantly during the six months ended June 30, 2011 as compared to the corresponding six months ended June 30, 2010. The increase is primarily attributable to a decrease in interest expense. The Company fully accreted the debt discount recorded on the 2010 convertible note offering during 2010. The Company also recorded significant derivative expenses during the six months ended June 30, 2010. The decreases were offset by a major decrease in the change in fair market value of the derivative liability during the six months ended June 30, 2011 as compared to the corresponding six months ended June 30, 2010.

Liquidity and Capital Resources

Going Concern: As reflected in the accompanying unaudited interim consolidated financial statements, the Company has a loss from operations of $1,643,748 and net cash used in operations of $1,593,047 for the six months ended June 30, 2011; and has a working capital deficit of $8,831,516 and a stockholders’ deficit of $9,919,892.

The ability of the Company to continue its operations is dependent on management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company also believes that it will be required to restructure the terms of its existing indebtedness in order to attract additional capital and to avoid a default under the terms of this indebtedness. The Company is currently engaged in discussions with various third parties concerning a possible investment in the Company and with the current holders of the Company’s indebtedness regarding the modification of the terms of the indebtedness. These discussions are all preliminary in nature and there can be no assurance that any of them will result in an additional funding or the successful restructuring of the Company’s debt.

The Company will require additional funding to meet its working capital obligations and to finance the growth of its current and expected future operations. The Company believes its current available cash along with anticipated revenues are insufficient to meet its working capital needs unless the Company’s obtains additional funding in the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

~~Liquidity~~The following table summarizes total current assets, liabilities and ~~Capital~~working ~~Resources~~capital at June 30, 2011 compared to December 31, 2010.

The following table summarizes total current assets, liabilities and working capital at March 31, 2011 compared to December 31, 2010.

	June 30, 2011			December 31, 2010			Increase/ Decrease
	(unaudited)
Current Assets	$	940,685		$	2,212,843		$	(1,272,158	)
Current Liabilities	$	9,772,201		$	13,289,048		$	(3,516,847	)
Working Capital (Deficit)	$	(8,831,516	)	$	(11,076,205	)	$	(2,244,689	)

	March 31, 2011			December 31, 2010			Increase/ Decrease
	(unaudited)
Current Assets	$	1,439,630		$	2,212,843		$	(773,213	)
Current Liabilities	$	11,645,273		$	13,289,048		$	1,643,775
Working Capital (Deficit)	$	(10,205,643	)	$	(11,076,205	)	$	870,562

As of June 30, 2011, we had a working capital deficit of $8,831,516 as compared to a working capital deficit of 11,076,205 as of December 31, 2010, an increase of 2,244,689.

AsThe increase is primarily a result of ~~March~~a ~~31,~~decrease ~~2011,~~in wecurrent ~~had~~liabilities, specifically a ~~working~~decrease ~~capital~~in ~~deficit~~derivative ofliabilities ~~$(10~~and a decrease in convertible notes,~~205,643)~~ asprimarily ~~compared~~due to aconvertible ~~working~~noteholders ~~capital~~converting ~~deficit~~to ofcommon ~~$(11,076,205)~~stock asduring ofthe ~~December~~six 31months ended June 30, ~~2010~~2011. These decreases in current liabilities were partially offset by a decrease in current assets, anspecifically ~~increase~~a ofdecrease ~~870~~in cash by approximately $1,~~562~~600,000.

~~The~~Net ~~increase~~cash isused ~~primarily~~for aoperating ~~result~~activities offor athe ~~decrease~~six inmonths ~~current~~ended ~~liabilities~~June 30, ~~specifically~~2011 aand ~~decrease~~2010 inwas ~~derivative~~$(1,595,786) ~~liabilities~~ and ~~a decrease in convertible notes~~$(1,364,072), ~~primarily~~respectively. During ~~due~~the tosix ~~convertible~~months ~~noteholders~~ended ~~converting~~June to30, ~~common~~2011, ~~stock during~~ the ~~three~~Company ~~months~~used ~~ended~~cash ~~March~~to ~~31,~~build ~~2011. These~~inventories ~~decreases~~and into ~~current~~further ~~liabilities~~develop ~~were~~the ~~partially~~4 ~~offset~~ounce byyogurt acup ~~decrease~~and into ~~current~~market ~~assets,~~and ~~specifically~~build abrand ~~decrease~~awareness inof ~~cash~~the byproduct ~~approximately $1,000,000~~line.

Net cash ~~used~~obtained ~~for~~through ~~operating~~all financing activities for the ~~three~~six months ended ~~March~~June 3130, 2011 ~~and 2010~~ was $~~(1,003,965)~~0 as ~~and~~compared to $~~(741~~4,~~205)~~725,755 ~~respectively. During~~for the ~~three~~six months ended ~~March~~June 3130, ~~2011~~2010, ~~the~~specifically ~~Company~~attributable ~~used cash~~ to ~~build inventories and to further develop~~ the 42010 ~~ounce~~Convertible ~~yogurt~~Note ~~cup and to market and build brand awareness of the product line~~Offering.

Net cash obtained through all financing activities for the three months ended March 31, 2011 was $0 as compared to $4,725,755 for the three months ended March 31, 2010, specifically attributable to the 2010 Convertible Note Offering.

The Company continues to explore potential expansion opportunities in the industry in order to boost sales, while leveraging distribution systems to consolidate lower costs.

Recent Accounting Pronouncements

InThere ~~January~~are ~~2010,~~no ~~the~~recent ~~Financial~~accounting ~~Accounting~~pronouncements ~~Standards~~that ~~Board~~are ~~(FASB)~~expected ~~issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, “Fair Value Measurements” ("ASC 820")~~ to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have aan ~~significant~~ effect on the Company’s ~~consolidated~~ financial ~~position or results of operations~~statements.

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-29, Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 affects any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-29 to have an effect on its financial position, results of operations or cash flows.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 2 of our unaudited interim consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Use of Estimates, Going Concern Consideration – The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Among the estimates we have made in the preparation of the financial statements is an estimate of our projected revenues, expenses and cash flows in making the disclosures about our liquidity in this report. As an early stage company, many variables may affect our estimates of cash flows that could materially alter our view of our liquidity and capital requirements as our business develops. Our consolidated financial statements have been prepared assuming we are a “going concern”. No adjustment has been made in the consolidated financial statements which could result should we be unable to continue as a going concern.

Share-Based Compensation - US GAAP requires public companies to expense employee share-based payments (including options, warrants, restricted stock units and performance stock units) based on fair value. We must use our judgment to determine key factors in determining the fair value of the share-based payment, such as volatility, forfeiture rates and the expected term in which the award will be outstanding.

Derivative Financial Instruments - Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Binomial Lattice Model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the binomial option-pricing model.

Debt Issue Costs and Debt Discount -These items are amortized over the life of the debt to interest expense. If a conversion, extinguishment or repayment of the underlying debt occurs, a proportionate share of these amounts is immediately expensed.

2019

Beneficial Conversion Feature - For convertible debt issued in 2009, the convertible feature of the convertible notes (See Note 4 to our consolidated financial statements) indicated a rate of conversion that was below market value. As a result, the Company recorded a "beneficial conversion feature" ("BCF") and related debt discount.

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount from the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt. Upon issuance, the convertible debt instruments had an effective conversion rate per share in excess of the market price per share.

Revenue recognition - The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition and records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured. There is no stated right of return for products.

Sales are recognized upon shipment of products to customers. The Company allows deductions in the form of credits for products unsold during its shelf life which is on average 3 to 4 months. The Company’s reserve for accounts receivable takes these potential future credits into consideration. Expenses such as slotting fees, sales discounts, and reclamation are accounted for as a direct reduction to revenues.

OFF-BALANCE SHEET ARRANGEMENTS:

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable because we are a smaller reporting company.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer (“CEO”), who also serves as the Company’s Principal Financial Officer (“PFO”), to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

We carried out an evaluation, under the supervision and with the participation of our management, including our CEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended ~~March~~June 3130, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2120

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

There is no pending litigation against NXT Nutritionals Holdings, Inc., or any of the subsidiaries of NXT Nutritionals Holdings, Inc.

Item 1A. Risk Factors

In addition to the other information set forth in this report, information regarding risks affecting the Company appears in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. These are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that management currently considers to be non-material may in the future adversely affect the Company’s business, financial condition and operating results. There have been no material changes to our risk factors since the filing of the Company’s Form 10-K.

Item 25. ~~Unregistered~~ ~~Sales~~Other ~~of Equity Securities.~~Information

~~During~~On September 6, 2011, the ~~quarter~~Company ~~ended~~entered ~~March~~into 31a Third Modification and Amendment Agreement (the “Third Modification Agreement”) with the Purchasers holding more than sixty-seven (67%) percent of the aggregate number of (1) the 2010 Notes, (2) Series C warrants and (3) the shares of common stock underlying the Notes and the Series C Warrants. Pursuant to the Amendment, the commencement of monthly redemption date of the 2010 Notes is extended to October 1, 2011, In addition, the ~~Company~~Third ~~issued~~Modification ~~shares~~Agreement provides that the holders of ~~its~~the ~~common~~2010 ~~stock~~Notes inwill forebear and take no action to enforce the terms of the 2010 Notes for a period of sixty (60) days following ~~transaction~~the ~~which~~effectiveness ~~was~~of ~~not~~the ~~registered~~Third Modification ~~under~~Agreement, including any reduction of the ~~Securities~~Conversion ~~Act~~Price of ~~1933,~~the 2010 Notes or reduction in the exercise price of the Warrants as ~~amended:~~provided in the Second Modification Agreement. The sixty (60) day time period is intended to allow the Company to acquire additional financing on terms and conditions acceptable to the Company and subject to the consent of the Purchasers

On each of January 1, 2011, February 1, 2011 and March 1, 2011, the Company issued 95,000 shares (or an aggregate of 285,000 shares) to its executive officers pursuant to the terms of their employment agreements with the Company. These shares were issued in reliance upon the exemption for registration set forth in Section 4(2) of the Securities Act of 1933, as amended.

On each of March 1, 2011, the Company issued 60,000 shares to a consultant in exchange for services to the Company the terms of a consulting agreement. These shares were issued in reliance upon the exemption for registration set forth in Section 4(2) of the Securities Act of 1933, as amended.

Item 6. Exhibits

10.1			Third Modification and Amendment Agreement by and among NXT Nutritional Holdings, Inc. and Purchasers identified on the signature page thereto, dated September 6, 2011.
31.1			Certification of Chief Executive Officer, pursuant to Rule 13a – 14(a).
31.2			Certification of Chief Financial Officer, pursuant to Rule 13a – 14(a).
32.1			Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

2221

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NXT NUTRITIONALS HOLDINGS, INC.

Date:	~~May~~September 1613, 2011	By:	/s/ Francis McCarthy
		Name:	Francis McCarthy
		Title:	Chief Executive Officer
Date:	~~May~~September 1613, 2011	By:	/s/ David Briones
		Name:	David Briones
		Title:	Chief Financial Officer

2322

Exhibit Index

Exhibit No.		Description
10.1		Third Modification and Amendment Agreement by and among NXT Nutritional Holdings, Inc. and Purchasers identified on the signature page thereto, dated September 6, 2011.
31.1		Certification of Chief Executive Officer, pursuant to Rule 13a – 14(a).
31.2		Certification of Chief Financial Officer, pursuant to Rule 13a – 14(a).
32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filing Compare · NXT Nutritionals Holdings, Inc.