- Quarterly Report (10-Q)

Share Name	Share Symbol	Market	Type
NXT Nutritionals Holdings Inc (CE)	USOTC:NXTH	OTCMarkets	Common Stock

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

_______________

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

For the quarterly period ended September 30, 2010

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

For the transition period from ______to______.

NXT Nutritionals Holdings, Inc.

(Exact name of registrant as specified in Charter

Delaware		333-147631
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

56 Jackson Street

Holyoke, MA 01040

(Address of Principal Executive Offices)

_______________

(413) 533-9300

(Issuer Telephone number)

_______________

(Former Name or Former Address if Changed Since Last Report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 405 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 ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

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

State the number of shares outstanding of each of the issuer’s classes of common equity: as of November 15, 2010: 47,311,068 shares of common stock.

NXT NUTRITIONALS HOLDINGS, INC.

FORM 10-Q

September 30, 2010

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4T.	Control and Procedures	27

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	(Removed and Reserved)	28
Item 5.	Other Information	28
Item 6.	Exhibits	28

SIGNATURE		29

Item 1. Financial Information

NXT NUTRITIONALS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

	Page(s)

Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009		1

Consolidated Statements of Operations Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)		2

Consolidated Statements of Cash Flows Nine Months Ended September 30, 2010 and 2009 (unaudited) –		3

Notes to Consolidated Financial Statements (unaudited)		4-18

NXT Nutritionals Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets

	September 30, 2010			December 31, 2 009
	(unaudited)
Assets

Assets:
Cash	$	2,556,038		$	68,454
Accounts receivable		49,560			72,642
Inventories		500,790			150,110
Total Current Assets		3,106,388			291,206

Debt Issuance Costs - net		30,110			46,590

Total Assets	$	3,136,498		$	337,796

Liabilities and Stockholders' Deficit

Liabilities:
Accounts payable and accrued expenses	$	452,341		$	607,695
Loans payable - related parties		600,626			715,626
Loans payable - other		-			100,000
Accrued interest payable - related parties		54,520			41,125
Registration rights payable		472,808			362,453
Convertible notes payable - net of debt discount		6,517,904			-
Derivative liabilities		2,895,845			-
Total Current Liabilities		10,994,044			1,826,899

Convertible notes payable - net of debt discount		1,410,086			1,830,605
Total Long-Term Liabilities		1,410,086			1,830,605

Total Liabilities		12,404,130			3,657,504

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,
47,057,068 and 39,971,745 shares issued and outstanding, respectively		47,057			39,972
Additional paid in capital		28,676,143			24,657,084
Accumulated deficit		(37,990,832	)		(28,016,765	)
Total Stockholders' Deficit		(9,267,632	)		(3,319,708	)

Total Liabilities and Stockholders' Deficit	$	3,136,498		$	337,796

See accompanying notes to financial statements.

NXT Nutritionals Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
										(As Restated)

Sales - net of slotting fees and discounts	$	3,220		$	236,843		$	161,011		$	687,644

Cost of sales		62,831			322,546			219,512			757,204

Gross loss		(59,611	)		(85,703	)		(58,501	)		(69,560	)

General and administrative expenses		685,725			597,222			2,117,566			2,700,381

Loss from operations		(745,336	)		(682,925	)		(2,176,067	)		(2,769,941	)

Other Income (Expenses) -net
Interest expense		(5,301,479	)		(492,148	)		(8,520,059	)		(800,727	)
Interest income		3,011			-			5,770			-
Loss on extinguishment of debt		(3,726,410	)		(14,596,180	)		(3,726,410	)		(15,603,551	)
Derivative expense		-			-			(8,590,802	)		-
Change in fair market value of derivative liability		782,924			-			13,146,856			-
Registration rights expense		(85,016	)		(362,453	)		(113,355	)		(362,453	)

Total Other Income (Expenses)		(8,326,970	)		(15,450,781	)		(7,798,000	)		(16,766,731	)

Net Loss per Share	$	(9,072,306	)	$	(16,133,706	)	$	(9,974,067	)	$	(19,536,672	)

Net Loss per Common Share - Basic and Diluted	$	(0.19	)	$	(0.44	)	$	(0.22	)	$	(0.58	)

Weighted Average Number of Common Shares Outstanding – Basic and Diluted		46,589,785			36,523,113			45,103,155			33,962,232

See accompanying notes to financial statements.

NXT Nutritionals Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)

	For the Nine Months Ended September 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,974,067	)	$	(19,536,672	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt issue costs		743,467			24,090
Amortization of debt discount		7,761,635			684,417
Stock based compensation		419,680			609,840
Warrants issued as consulting fee		-			280,000
Derivative expense		8,590,802			-
Change in fair market value of derivative liability		(13,146,856	)		-
Registration rights expense		113,355			362,453
Loss on extinguishment of debt		3,726,410			15,603,551
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable		23,082			165,498
Prepaid expenses		-			(11,018	)
Inventory		(350,680	)		(146,976	)
Increase (Decrease) in:
Accounts payable and accrued expenses		(155,394	)		(13,372	)
Accrued interest payable - related parties		13,395			34,563
Accrued interest payable - convertible notes		-			48,365
Net Cash Used in Operating Activities		(2,235,171	)		(1,895,261	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible notes		5,667,743			2,576,000
Debt issuance costs paid in cash		(726,988	)		(82,300	)
Payment on loans - related parties		(215,000	)		(509,374	)
Payments on convertible notes		-			(200,000	)
Liquidated damage payment on registration rights		(3,000	)		-
Net Cash Provided By Financing Activities		4,722,755			1,784,326

Net Increase (Decrease) in Cash		2,487,584			(110,935	)

Cash - Beginning of Period		68,454			274,198

Cash - End of Period	$	2,556,038		$	163,263

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income Taxes	$	-		$	-
Interest	$	-		$	8,263

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Debt discount recorded on convertible notes	$	5,667,743		$	-
Beneficial conversion feature on convertible notes	$	-		$	2,127,700
Original issue discount	$	850,201		$	590,400
Conversion of note payable in recapitalization	$	-		$	25,000
Conversion of convertible note payable to common stock	$	1,664,210		$	204,100
Reclassification of derivative liability to paid in capital when derivative ceases to exist	$	1,942,254		$	-
Exercise of cashless warrants	$	1,510		$	-
Stock issued to settle account payable	$	-		$	70,250
Accrued interest converted to convertible notes	$	-		$	81,940

See accompanying notes to financial statements.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

Note 1 Nature of Operations and Basis of Presentation

NXT Nutritionals Holdings, Inc. ("Holdings), (formerly known as Goldvale Resources, Inc.) 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® . SUSTA® will also be sold as a stand-alone sweetener. The Company also sells non-fat yogurt smoothie products.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that may affect the amounts reported in its consolidated financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.

The financial information as of December 31, 2009 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 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 condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair statement of the results of the interim periods presented. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2009 and 2008, as presented in the Company’s Annual Report on Form 10-K/A. Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2010.

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

September 30, 2010

(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 September 30, 2010 and December 31, 2009, 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.

The United States Congress has temporarily increased the Federal Deposit Insurance Corporation (FDIC) deposit insurance from $100,000 to $250,000 per depositor. As of September 30, 2010 the Company had monies in bank accounts which exceeded the federally insured limits by $2,109,642.

Inventories

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

	September 30, 2010		December 31, 2009
Work in process	$	300,724	$	90,594
Finished goods		200,066		59,516
	$	500,790	$	150,110

Debt Issue Costs and Debt Discount

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

Fair value of financial instruments

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.

Original Issue Discount

For certain convertible debt issued in 2010 and 2009, the Company provided the debt 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.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

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 Black-Scholes option-pricing 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, 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 Black-Scholes option-pricing model. At September 30, 2010 and December 31, 2009, respectively, the Company had derivative liabilities in the amounts of $2,895,845 and $0, 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 of September 30, 2010 and December 31, 2009, 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 months ended September 30, 2010 and 2009, the Company recorded slotting fees and discounts of $18,018 and $43,910. During the nine months ended September 30, 2010 and 2009, the Company recorded slotting fees and discounts of $28,968 and $102,647.

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 September 30, 2010				Three Months September 30, 2009				Nine Months September 30, 2010				Nine Months September 30, 2009
$	132,864			$	250,120			$	457,509			$	622,742

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

Share-based payments

Generally, all forms of share-based payments, including stock option grants, 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

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 had the following potential common stock equivalents at September 30, 2010:

Convertible debt – face amount of $2,001,128, conversion price of $0.40			5,002,820
Convertible debt – face amount of $6,517,944, conversion price of $0.40			16,294,860
Common stock warrants, conversion price of $0.40 (Series “A”) and $0.60 (Series “B”)			19,735,634
Common stock warrants, conversion price of $0.40 (Series “C”)			6,517,944
Total common stock equivalents			47,551,258

The Company had the following potential common stock equivalents at September 30, 2009:

Convertible debt – face amount of $4,027,256, conversion price of $0.40			10,068,140
Common stock warrants, conversion price of $0.40 (Series “A”) and $0.60 (Series “B”)			20,112,632
Total common stock equivalents			30,180,772

Since the Company reflected a net loss for the nine months ended September 30, 2010 and 2009 and also the three months ended September 30, 2010 and 2009, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive.

Recent accounting pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) 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 a significant effect on the Company’s unaudited consolidated financial position or results of operations.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

Note 3 Going Concern and Liquidity

As reflected in the accompanying unaudited consolidated financial statements, the Company has a net loss of $9,974,067 and net cash used in operations of $2,235,171 for the nine months ended September 30, 2010; and has a working capital deficit of $7,887,656 and a stockholders’ deficit of $9,267,632.

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 may need to incur additional liabilities with certain related parties to sustain the Company’s existence.

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

The Company believes that the utilization of its unique ingredient “SUSTA” will allow new product development that will provide future positive cash flows, however, sales to date have been nominal.

The accompanying unaudited 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 Loans Payable Related Parties, Convertible Notes Payable, and Registration Rights Penalty

(A)	Private Company – Reverse Merger and Recapitalization

On October 31, 2008, the Company entered into a Share purchase agreement with NXT, LLC and Healthy Dairy, LLC. One individual serves as president of these two entities. The Company issued NXT, LLC Unitholders and Heath Dairy Unitholders 14,000,000 shares of common stock, for 100% membership interests in NXT, LLC and Healthy Dairy, LLC. NXT, LLC had nominal operations.

According to the agreement, the Company also agreed to pay $600,000 to the unitholders of Healthy Dairy, LLC and NXT, LLC within 90 days from the close of the reverse acquisition with a public shell, and an additional $600,000 within 180 days post closing.

During 2009, the Company repaid $220,000 to unit holders associated with the October 31, 2008 share exchange agreement between NXT, Inc. and Healthy Dairy, LLC and NXT, LLC. The Company still has a balance due on this portion of approximately $392,000. There are no penalties or interest being accrued on the outstanding balance. The Company has an oral waiver with the unit holders in that additional payments will be made once the Company begins to turn a profit.

(B)	Loans Payable – Related Parties

On March 7, 2008, the Company entered into a loan agreement with a former related party to borrow an amount up to $388,500, of which $120,274 was advanced, with no stated terms, during December 2007. An additional $268,226 was advanced during 2008. These loans bear interest at 6% with a default rate of interest of 12%. The loans are secured by all assets of the Company. These loans were due on March 7, 2010. The Company repaid $90,000 of these advances in May 2009, and an additional $90,000 was repaid in February 2010. On October 31, 2008, the default provisions were waived .

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

In December 2009, a Director loaned the Company $25,000. The loan bore no interest, was not secured and was due on demand. The Company repaid the $25,000 during February 2010.

The following is a summary of loans payable – related parties:

Balance – December 31, 2008	$	1,200,010
Advances		25,000
Repayments		(509,384	)
Balance – December 31, 2009		715,626
Repayments		(115,000	)
Balance – September 30, 2010	$	600,626

(C)	Loans Payable – Other

On December 30, 2009, the Company issued a $100,000 unsecured promissory note to a third party. The note bore 10% interest and was repaid in February 2010.

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

On February 26, 2010, the Company completed a secured convertible notes and warrants offerings, which was modified and amended on September 1, 2010. The notes originally matured 15 months after the original issue date, but were modified and amended to an August 1, 2011 maturity. The principal of the notes was $6,517,944 with an original issue discount of $850,201. The gross proceeds raised were $5,667,743, of which the Company received approximately $4,940,755 in net proceeds. The Company paid $726,988 in debt issuance costs. The Notes contained the following features:

i.	Conversion price at issuance: $1.00

ii.	Modified conversion price as of September 1, 2010: $0.40

iii.

Registration rights – 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.

iv.	Original issue discount- 15% over the 15 month maturity of the notes. This amount was expensed in full as of September 1, 2010, the effective date of the Modification and Amendment Agreement

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

The Company also issued the note holders one stock purchase warrant with a maturity of 5 years and a $1.25 exercise price, which was modified and amended to $0.40. The stock purchase warrants contain cashless exercise provisions. The Company issued a total of 6,517,944 stock purchase warrants in this offering.

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 Black-Scholes valuation model.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

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

Fair value at the issuance dates for conversion feature and warrants issued on the 2010 Original Issue Discount Senior Secured Convertible Note Offering	$	14,258,545
Mark to market adjustments for the six months ended June 30, 2010:		(12,363,932	)
Mark to market adjustment for the period July 1, 2010 to September 1, 2010, the date of the Modification and Amendment Agreement of the debt instruments :		47,641
Reclassification to paid in capital when derivative liability ceases to exist at September 1, 2010		(1,942,254	)
Fair value of the modified and amended debt instrument at September 1, 2010		3,726,410
Mark to market adjustments for the for the Period September 1, 2010 to September 30, 2010		(830,565	)
Derivative liability balance at September 30, 2010	$	2,895,545

The Company recorded the fair value of the derivative liabilities to debt discount to the extent of the face amount of the notes and expensed immediately the remaining value of the derivative as it exceeded the face amount of the note. The Company recorded a derivative expense at issuance in the amount of $8,590,802.

The fair value of the derivative liabilities at issuance was based upon the following management assumptions:

Exercise price	$1.00 - $1.25
Expected dividends	0%
Expected volatility	200%
Expected term: conversion feature	1.25 years
Expected term: warrants	5 years
Risk free interest rate	0.35% - 2.3%

Extinguishment

The Company determined that the Modification and Amendment of the debt instruments on September 1, 2010, resulted in debt instruments being exchanged with substantially different terms and applied debt extinguishment accounting, resulting in a $3,726,410 loss on extinguishment of debt. The Company compared the present value of both old and new debt as well as the fair value of the warrants granted in the new offering. The Company determined that the present value of the cash flows associated with the new debt instruments exceeded the present value of the old debt instruments by more than 10%.

Mark to Market

At September 30, 2010, the Company remeasured the derivative liabilities, and recorded a fair value adjustment of $(830,565). The following management assumptions were considered:

Exercise price	$0.40
Expected dividends	0%
Expected volatility	200%
Risk fee interest rate	0.26 – 1.27%
Expected life of conversion features	0.84 years
Expected life of Series C Warrants	4.39 – 4.41 years

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

(E)	Convertible Debt and Warrants

1.	2008 Convertible Debt

$800,000 bridge notes (“2008 debt”) bearing interest at 10%. These notes were due one year from issuance and were secured by all assets of the Company. The notes were convertible at $0.40/share, or 2,000,000 shares of common stock. The notes are subject to mandatory conversion if, at any time after closing, a reverse acquisition with a public shell company and prior to the maturity dates of these convertible notes, the Company completes a private placement (“new financing”) of convertible debt financing of between $2,000,000 - $5,000,000. On August 27, 2009, the Company closed the new financing, and exceeded the $2,000,000 minimum raise.

b.	The $800,000 of convertible notes were issued with Series “A” warrants with the following provisions:

i.	2,000,000 warrants

ii.	Conversion price of $0.40/share

iii.	Expiration of 5 years

c.	Of the total, in March 2009, $200,000 of principal and $7,918 of accrued interest was repaid. The remaining principal and interest of $648,260 was converted into a new offering, see below regarding mandatory conversions.

2.	2009 Convertible Debt was issued under the same terms as the 2008 convertible debt. (“2009 debt #1)

a.	$595,000 in additional bridge notes.

b.	The $595,000 of convertible notes were issued with Series “A” warrants with the following provisions:

i.	1,487,500 warrants

ii.	Conversion price of $0.40/share

iii.	Expiration of 5 years

c.	The remaining principal and interest of $628,629 was converted into a new offering, see below regarding mandatory conversions.

3.	Debt discount associated with 2009 debt #1

In connection with convertible debt issued in 2009 debt #1, the Company has determined that fair value is applicable for these conventional convertible debt instruments. The Company first determined the fair value of the warrants based upon the following management assumptions:

Expected dividends	0%
Expected volatility	125%
Expected term	5 years
Risk free interest rate	1.93% - 2.84%

After computing the fair value of the warrants, the Company determined the relative fair value of the convertible debt and the related effective conversion price. The Company’s effective conversion price for a portion of these issuances of convertible debt was below market price.

The Company recorded a beneficial conversion feature in connection with the issuance of these notes in the amount of $150,000. Upon mandatory conversion on August 27, 2009, the Company amortized the remaining portion of the unamortized debt discount associated with the beneficial conversion features totaling $150,000.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

4.	New offering

a.	Any debt, plus accrued interest would be converted at 130%. The premium is 30%, which includes 3 years of simple interest at 10%, this is an original issue discount that is amortized over the life of the debt

b.	Maturity date of debt is three years from issuance.

c.	Secured by all assets of the Company.

d.	Debt holder would receive Series “A” and Series “B” warrants

i.	Warrants of both series are computed as the face amount of the debt converted. Warrant coverage is 100% for both series. Originally issued warrants were cancelled and replaced in connection with this offering (see below regarding extinguishment).

ii.	Conversion price is $0.40 for Series “A” and $0.60 for Series “B”.

iii.	Expiration of 5 years

e.	The new offering has no stated interest, and no debt discount was computed since no proceeds were raised.

5.	Mandatory Conversions (see Note 4(E)(1)(A) above)

a.	On August 27, 2009, the 2008 debt and 2009 debt #1 were converted into a new offering since the Company raised the minimum $2,000,000.

b.	Principal of $1,195,000 and accrued interest of $81,890, totaling $1,276,890, and was converted into:

i.	New debt instrument with a face amount, inclusive of the original issue discount totaling $1,659,956 ($1,276,890 x 130%), convertible at $0.40/share

ii.	4,149,890 Series “A” warrants, conversion price of $0.40/share

iii.	4,149,890 Series “B” warrants, conversion price of $0.60/share

iv.	2,987,500 Series “A” warrants were cancelled

6.	2009 Convertible Debt was issued under the same terms as the 2009 convertible debt #1. (“2009 debt #2)

a.	$2,571,400 notes. These notes were due three years from issuance and were secured by all assets of the Company. The notes were convertible at $0.40/share, or 6,428,500 shares of common stock.

b.	The $2,571,400 of convertible notes were issued with Series “A” and “B” warrants with the following provisions:

i.	6,428,500 Series “A” warrants, conversion price of $0.40/share.

ii.	6,428,500 Series “B” warrants, conversion price of $0.60/share.

iii.	Expiration of 5 years

On August 10, 2009, a convertible note holder converted principal in the amount of $204,100 into 510,250 shares of the Company’s common stock at a conversion rate of $0.40. On September 23, 2009, a convertible note holder converted principal in the amount of $30,000 into 75,000 shares of the Company’s common stock at a conversion rate of $0.40. On August 10, 2009, a convertible note holder partially converted principal and interest in the amount of $331,918 into 829,795 shares of the Company’s common stock at a conversion rate of $0.40.

d.	During the nine months ended September 30, 2010, 15 note holders converted principal in the amount of $1,664,210 into 4,163,524 shares of the Company’s common stock at a conversion rate of $0.40.

7.	Debt discount associated with 2009 debt #2

In connection with convertible debt issued in 2009 debt #2, the Company has determined that fair value is applicable for these conventional convertible debt instruments. The Company first determined the fair value of the warrants based upon the following management assumptions:

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

Expected dividends	0%
Expected volatility	125%
Expected term	5 years
Risk free interest rate	1.93% - 2.84%

The Company recorded a beneficial conversion feature in connection with the issuance of these notes in the amount of $2,131,000 and recorded an original issue discount of $590,400.

(F)	Registration Rights Penalty

In connection with the issuance of the 2010 Convertible Debt, all convertible note holders were entitled to liquidated damages, which provide for a payment in cash equal to a maximum of 6% of the total offering price for all debt proceeds raised. The Company was required to file an S-1 registration statement 30 days after the offering closed. The closing date of the offering was February 26, 2010; therefore the 30th day was March 28, 2010.

The Company filed a registration on Form S-1 with the Securities Exchange Commission on April 21, 2010. The Company has accrued for the liquidated damages as follows and as of September 30, 2010, the registration has not been declared effective:

Balance as of December 31, 2009				$	362,453

Gross proceeds raised	$	5,667,743

Penalty for late filing of registration statement		0.50	%		28,339

Penalty for not being declared effective		1.5	%		85,016

Less: payments made					(3,000	)
Balance as of September 30, 2010				$	472,808

(G)	Debt Issuance Costs

In connection with raising convertible debt during the nine months ended September 30, 2010, the Company paid debt issue costs to placement agent, and escrow incurred legal fees in the amount of $726,988. During the nine months ended September 30, 2010, the Company fully amortized ($726,988) the debt issuance costs due to the modification and extinguishment of the convertible debt, reference Note 4(D) .

In connection with raising convertible debt, the Company paid debt issue costs to a family member of the Chairman of the Board totaling $82,300. During the nine months ended September 30, 2010, the Company amortized $16,480. The Company amortized $35,710 during the year ended December 31, 2009. The remaining $30,110 will be amortized over the remaining maturity of the debt.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

Note 5 Fair Value

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 nine months ended September 30, 2010, 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		Total at September 30, 2010
Derivative Liabilities	$	-	$	2,895,845	$	-	$	2,895,845
Total	$	-	$	2,895,845	$	-	$	2,895,845

There were no financial instruments accounted for at fair value at December 31, 2009.

Note 6 Stockholders Deficit

(A)	Common Stock

On April 22, 2009, the Company entered into a 3 year agreement with a celebrity spokesperson. In return for the ability to use the celebrity’s name and likeness, the Company agreed to issue the celebrity 400,000 shares of the Company’s common stock, having a fair value of $440,000 ($1.10/share), based upon the quoted closing trading price. These shares were vested fully upon issuance. The Company also agreed to pay the celebrity $50,000 which was paid in full on September 6, 2010.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

On November 30, 2009, the Company entered into an agreement with a celebrity spokesperson in return for the ability to use the celebrity’s name and likeness. The term of the agreement is effective from March 1, 2010 to February 28, 2011. In consideration, the Company agreed to issue the celebrity 20,000 fully vested shares of the Company’s common stock on March 1, 2010. Beginning April 2010, the Company will issue the celebrity 20,000 shares of the Company’s common stock per month for five consecutive months. Based upon the quoted closing trading prices of the following dates, the shares had a fair value of: $0.38/share as of April 30, $0.24/share as of May 28, $0.22/share as of June 30, 2010, $0.22/share as of July 1, 2010, and $0.17/share as of August 1, 2010 respectively.

On December 2, 2009, the Company entered into an agreement with a celebrity spokesperson in return for the ability to use the celebrity’s name and likeness, the Company agreed to issue the celebrity 3,000,000 shares of the Company’s common stock. The shares vest over a period as follows: 1,000,000 shares on December 2, 2009, 1,000,000 shares each on December 31, 2011 and 2012. On December 2, 2009, the Company issued the first 1,000,000 shares of common stock, having a fair value of $2,280,000 ($2.28/share) based upon the quoted closing trading price.

On March 30, 2010, the Company entered into a Settlement Agreement and Mutual General Release with a vendor. In accordance with the terms of the settlement agreement, the vendor agreed to cancel the letter of engagement with the Company which provided for a 450,000 share issuances for past and future services, in return, the Company issued 300,000 shares of the Company’s common stock, having a fair value of $183,000 ($0.61/share), based upon the quoted closing trading price.

On June 14, 2010, the Company issued a consultant 50,000 shares of the Company’s common stock for services to be rendered, having a fair value of $11,650 ($0.23/share), based upon the quoted closing trading price. In addition, the Company will pay the consultant the greater of $5,000 per month or 5% of net sales of all products sold based on the agreement provisions.

On July 1, 2010, the Company issued a consultant 30,000 shares of the Company’s common stock for services to be rendered, having a fair value of $6,600 ($0.22/share), based upon the quoted closing trading price. In addition, the Company will pay the consultant the greater of $5,000 per month or 5% of net sales of all products sold based on the agreement provisions.

On September 21, 2010, the Company entered into an agreement with a celebrity spokesperson. The term of the agreement expires on December 31, 2012. In return for the ability to use the celebrity’s name and likeness, the Company agreed to issue the celebrity 250,000 shares of the Company’s common stock, having a fair value of $53,750 ($0.22/share), based upon the quoted closing trading price. These shares were vested fully upon issuance. The Company also agreed to issue the celebrity an additional 250,000 shares on December 31, 2011 and an additional 250,000 shares on December 31, 2012. The Company also agreed to pay the celebrity $6,250/month from September 2010 through December 31, 2011 and $16,667/month during 2012.

During the nine months ended September 30, 2010, 4 warrant holders exercised 2,171,147 stock purchase warrants utilizing the cashless exercise provision for 1,509,799 shares of the Company’s common stock.

(B)

Warrants

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

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

	Warrants			Weighted Average Exercise Price

Outstanding – December 31, 2009		21,906,781		$	0.50
Exercisable – December 31, 2009		21,906,781		$	0.50
Granted		6,517,944		$	0.40
Exercised		(2,171,147	)	$	0.40
Forfeited/Cancelled		-		$	-
Outstanding – September 30, 2010		26,253,578		$	0.72
Exercisable – September 30, 2010		26,253,578		$	0.72

Warrants Outstanding				Warrants Exercisable

Range of	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
exercise price
$0.40 - $0.60	26,253,578	3.76 years	$0.51	26,253,578	$0..51

At September 30, 2010 and December 31, 2009, the total intrinsic value of warrants outstanding and exercisable was $0 and $20,080,402, respectively.

Note 7 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 that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

Note 8 Employment Agreements

On February 12, 2009, the Company entered into two employment agreements with its Chief Executive Officer and Chief Financial Officer. The terms of the agreements are as follows:

(1)

CEO

● 3 year term

● $120,000 annual salary

(2)

CFO

● 2 year term

●

200,000 shares of the Company’s common stock, having a fair value of $2,000 ($0.01/share), based upon the fair value of services rendered to third parties for services rendered. These shares will vest 25,000 shares per quarter. As of September 30, 2010, the CFO vested in the first 175,000 shares of the stock award.

●

$3,250/month for financial service preparation and an hourly rate for engagements in addition to financial statement preparation. The fees are paid to an accounting firm where the CFO is an employee.

(3)

COO

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

On January 26, 2010, the Company entered into an employment agreement with its Chief Operating Officer. The terms of the agreements are as follows:

●	3 year term

●	$20,000 monthly base salary of which 50% may be deferred until the termination of the contract or a change in control. The Company deferred the $90,000 during the nine months ended June 30, 2010.

●	Stock compensation which vests as follow:

i.	400,000 shares of the Company’s common stock As of September 30, 2010, the COO has vested in the first 160,000 shares of the stock award. The Company recorded an expense of $37,960 or ($0.24/share) during the nine months ended September 30, 2010.

ii.	500,000 shares of the Company’s common stock vesting 40,000 share shall vest on each of June 1, 2011, August 1, 2011, September 1, 2011, October 1, 2011, November 1, 2011, and the remaining shares shall fully vest on December 1, 2011.

iii.	500,000 shares of the Company’s common stock shall be granted on or before January 1, 2011, vesting fully on December 31, 2011

iv.	500,000 shares of the Company’s common stock shall be granted on or before January 1, 2012, vesting fully on December 31, 2012

(4)	Executive Vice President and Director

On September 23, 2010, the Company entered into an employment agreement with its Executive Vice President. The employment agreement had an effective date of January 1, 2010. The terms of the agreements are as follows:

·	3 Year Term

·	$9,500 monthly base salary

·	Participation in bonus compensation program, maximum bonus of 100% annual salary

·	Stock compensation as follows:

i.	25,000 monthly from August 1, 2010 through October 31, 2010; of which the first two 25,000 share issuances were granted during the period ended September 30, 2010 at a value of $0.33/share and $0.24/share, respectively.

ii.	Additional 180,000 shares of the Company’s common stock shall be granted on December 31, 2010

iii.	180,000 shares shall be granted during the year ended December 31, 2011

iv.	180,000 shares shall be granted during the year ended December 31, 2012

(5)	Consulting Contract – Research and Development

On July 30, 2010, the Company entered into an employment agreement with its Executive Vice President. The employment agreement had an effective date of June 1, 2010. The terms of the agreements are as follows:

·	2.5 Year Term

·	$9,375 monthly compensation

·	Quarterly bonus fee up to $1,875/month if certain deliverables are met

·	Stock compensation as follows:

i.	300,000 shares of the Company’s common stock on the date the agreement is exercised, valued at $51,000 or $0.17/share.

ii.	Additional 20,000 shares of the Company’s common stock on the date the agreement is exercised, valued at $3,400 or $0.17/share.

iii.	Additional 60,000 shares are to be granted quarterly though December 31, 2012.

NXT Nutritionals Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2010

(unaudited)

Note 9 Subsequent Events

On October 8, 2010, the Company issued a consultant 200,000 shares for services rendered at a fair value of $42,000 ($0.21/share) based upon the quoted closing price trading price. The consultant is related to a member of the Company’s board of directors.

On October 21, 2010, an Original Issue Discount Senior Secured Noteholder converted $80,000 in principal into 200,000 shares of the Company’s common stock at an conversion rate of $0.40.

Note 10 Restatement

In response to comments made by the Securities and Exchange Commission, the Company analyzed the recapitalization as of February 12, 2009, the date the Company entered into a share exchange agreement with a public shell company. The Company determined that a restatement was necessary in order to properly recast share activity in accordance with FASB ASC paragraph 805-40-45-2(d).

As a result, the Company restated outstanding share balances as of December 31, 2007, December 31, 2008, and included a share total as of February 12, 2009 to reflect the shares outstanding of the legal parent as of the date of the transaction. The Company also restated earnings per share as of September 30, 2009.

For the nine months ended September 30, 2009 -

	As Restated		Adjustments			As Previously Filed

Weighted average common shares outstanding		33,962,232		(2,014,417	)		35,976,649

Item 2. Management’s Discussion and Analysis or Plan of Operation

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/A for the year ended December 31, 2009, 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.

COMPANY OVERVIEW

Business

Operating through our wholly owned subsidiary NXT Nutritionals, Inc., NXT Nutritionals Holdings, Inc. (hereinafter referred to as the “Company,” “we,” “us,’ and “our”) is 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 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 are focused on expanding the distribution of SUSTA™ to the retail marketplace nationwide, expanding the Healthy Diary® product line from the east coast to nationwide reach, and eventually expanding the Healthy Dairy® to include product lines such as cup yogurt and ice cream. We will continue to seek additional distributors of our products to expand the access to our products to our end customers.

We have undertaken an aggressive marketing campaign and trial program. Additionally, more traditional levers in the retail sales channel like advertising, trade incentives, price promotions, couponing, and demonstrations are being employed. 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 have engaged 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.

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

We have funded our operations to date on 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 ninety five thousand dollars ($65,000) convertible into shares of our common stock at a conversion price of $.40 per share, (ii) five year Series A Warrants to purchase 100% of the common stock underlying the Debenture at an exercise price of $.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.

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 (the “Notes”) convertible into shares of our common stock at a conversion price of $1.00 per share, and (ii) a number of five-year Series C warrants(the “Warrants”) exercisable for 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 principal amount of each Note 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 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 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.

RESULTS OF OPERATIONS

The following table sets forth the summary income statement for the nine months ended September 30, 2010 and 2009 (unaudited) :

	Nine months ended
	September 30, 2010			September 30, 2009 (As restated)
Sales – net of slotting fees and discounts	$	161,011		$	687,644
Gross Loss	$	(58,501	)	$	(69,560	)
General and administrative expenses	$	(2,117,566	)	$	(2,700,381	)
Other Expenses -- net	$	(7,798,000	)	$	(16,766,731	)
Net Loss	$	(9,974,067	)	$	(19,536,672	)
Net Loss per Share – Basic and Diluted	$	(0.22	)	$	(0.58	)

For the nine months ended September 30, 2010 and 2009, the Company reported a net loss of $(9,974,067), or $(0.22) per share and net loss of $(19,536,672) or $(0.58) per share, respectively. The change in net loss between the nine months ended September 30, 2010 and 2009 was primarily attributable to following significant events:

●

The Company is shifting from sales to grocery chains to the food service category. We are yet to record sales from this change in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company had experienced limited sales on the SUSTA product during 2009, but approximately 56% of 2010 sales were derived from the natural sweetener product. Net sales decreased by approximately $526,633 for the nine months ended September 30, 2010 as compared to September 30, 2009. The corresponding cost of sales decreased in line with the decrease in sales.

●	Advertising expense decreased by approximately $165,000.

●	Stock based compensation decreased by approximately $470,000.

●

The Company incurred a loss on extinguishment of debt in the amount of $3,726,410 during the nine months ended September 30, 2010. This loss was associated with the Modification and Amendment Agreement by and between the Company and the investors in the 2010 Original Issue Discount Senior Convertible Note issuance.

●

In addition to the loss on extinguishment, the Company also fully amortized the discounts associated with the 2010 Original Issue Discount Senior Convertible Note issuance. This amortization resulted in expenses of $6,517,904 being fully amortized to interest expense during the nine months ended September 30, 2010.

●	The Company incurred a loss on extinguishment of debt in the amount of $15,603,551 during the nine months ended September 30, 2009. This loss was recognized when the 2009 bridge investors converted into the new offering which was closed on August 27, 2009.

Other income and expenses – net and was also effected by the recording of the derivative expense of $(8,590,802) and the change in fair market value of the derivative liability in the amount of $13,146,856 in relation to the accounting associated with embedded derivatives in the 2010 secured convertible note offering. The change in fair value was primarily attributable to the significant decrease in the Company’s per share value as quoted on the Over-the Counter Bulletin Board

Sales: Sales decreased by approximately 76.6% to $161,011 during the nine months ended September 30, 2010, from $687,644 during the corresponding nine months ended September 30, 2009 . The Company is shifting from sales to grocery chains to the food service category . We are yet to record sales from this change in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company had experienced limited sales on the SUSTA product during 2009, but approximately 56% of 2010 sales were derived from the natural sweetener product. Net revenues decreased by approximately $526,633 for the nine months ended September 30, 2010 as compared to the same period ended September 30, 2009. The corresponding cost of sales decreased in line with the decrease in revenue. The Company is challenged with current pricing of our cost of sales and we are actively trying to lower both our manufacturing costs and our ultimate sales price to the consumer.

Gross Loss: Gross loss decreased by approximately of $11,000 during the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. This decrease is primarily attributable to offering significant discounts and favorable terms with our distributors and customers in an effort to maintain and increase brand awareness as well. The Company also realized an increase in the cost of raw materials during the nine months ended September 30, 2010 as compared to September 30, 2009.

General and Administrative Expense: General and administrative expenses decreased by 21.6% during the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009. During the nine months ended September 30, 2009, the Company completed a reverse acquisition with a public shell company. The Company incurred significant fees to complete this transaction. During the nine months ended September 30, 2010, an increase in professional fees related to investor relations and directors’ fees was offset by a significant decrease in accounting, consulting and legal fees which were significantly higher in the comparative quarter of 2009 based on the above noted reverse merger. The Company also issued approximately $890,000 in stock based compensation during the nine months ended September 30, 2009 as compared to $420,000 during the comparable nine months ended September 30, 2010.

Other Expenses - net: Other income and expenses – net decreased by approximately $8,968,731 to $(7,798,000) for the nine months ended September 30, 2010 as compared to $(16,766,731) during the corresponding nine months ended September 30, 2009.

●

●	During the nine months ended September 30, 2009 the Company recorded a loss on extinguishment of debt of $15,603,551 when bridge investors converted into a new offering which was closed on August 27, 2009.

●

The following table sets forth the summary income statement for the three months ended September 30, 2010 and 2009 (unaudited) :

	Three months ended
	September 30, 2010			September 30, 2009
Sales – net of slotting fees and discounts	$	3,220		$	236,843
Gross Loss	$	(59,611)		$	(85,703)
General and administrative expenses	$	(685,725)		$	(597,222)
Other Income Expenses - net	$	(8,326,970)		$	(15,450,781	)
Net Loss	$	(9,072,306	)	$	(16,133,706	)
Net Loss per Share - Basic	$	(0.19	)	$	(0.44	)

For the three months ended September 30, 2010 and 2009, the Company reported a net loss of $(9,072,306), or $(0.19) per share and net loss of $(16,133,706) or $(0.44) per share, respectively. The change in net loss between the three months ended September 30, 2010 and 2009 was primarily attributable to following significant events:

●

The Company is shifting from sales to grocery chains to the food service category. We are yet to record sales from this change in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company had experienced limited sales on the SUSTA product during 2009, but approximately 56% of 2010 sales were derived from the natural sweetener product. Net sales decreased by approximately $231,000 for the three months ended September 30, 2010 as compared to September 30, 2009. The corresponding cost of sales decreased in line with the decrease in sales.

●	Advertising expense decreased by approximately $119,000.

●

The Company incurred a loss on extinguishment of debt in the amount of $3,726,410 during the three months ended September 30, 2010. This loss was associated with the Modification and Amendment Agreement by and between the Company and the investors in the 2010 Original Issue Discount Senior Convertible Note issuance.

●

In addition to the loss on extinguishment, the Company also fully amortized the discounts associated with the 2010 Original Issue Discount Senior Convertible Note issuance. This amortization resulted in expenses of $4,684,150 being fully amortized to interest expense during the three months ended September 30, 2010.

·	The Company incurred a loss on extinguishment of debt in the amount of $14,596,130 during the three months ended September 30, 2009. This loss was recognized when the 2009 bridge investors converted into the new offering which was closed on August 27, 2009.

Other income and was also effected by the recording of the change in fair market value of $782,924 in relation to the accounting associated with embedded derivatives in the 2010 secured convertible note offering. The change in fair value was primarily attributable to the significant decrease in the Company’s per share value as quoted on the Over-the Counter Bulletin Board

Sales: Sales decreased approximately by 98.6% to $3,220 during the three months ended September 30, 2010, down from $236,843 during the corresponding three months ended September 30, 2009. The Company is shifting from sales to grocery chains to the food service category. We are yet to record sales from this change in focus. The Company also launched the natural sweetener product (SUSTA) on April 30, 2009. The Company had experienced limited sales on the SUSTA product during 2009, but approximately 50% of 2010 sales were derived from the natural sweetener product. Net revenues decreased by approximately $231,000 for the three months ended September 30, 2010 as compared to September 30, 2009. The corresponding cost of sales decreased in line with the decrease in sales.

Gross Loss: Gross loss decreased by approximately of $26,000 during the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. This decrease is primarily attributable to offering significant discounts and favorable terms with our distributors and customers in an effort to maintain and increase brand awareness as well. The Company also realized an increase in the cost of raw materials during the three months ended September 30, 2010 as compared to September 30, 2009.

General and Administrative Expense: General and administrative expenses increased 14.8% during the three months ended September 30, 2010, as compared to the three months ended September 30, 2009. During the three months ended September 30, 2009, the Company completed a reverse acquisition with a public shell company. The Company incurred significant fees to complete this transaction. During the three months ended September 30, 2010, an increase in professional fees related to investor relations and directors’ fees was offset by a significant decrease in accounting, consulting and legal fees which were significantly higher in the comparative quarter of 2009 based on the above noted reverse merger. The Company also issued approximately $16,950 in stock based compensation during the three months ended September 30, 2009 as compared to $177,000 during the comparable three months ended September 30, 2010.

Other Income and Expenses: Other income and expenses increased by approximately $7,123,811 to $(8,326,970) for the three months ended September 30, 2010 as compared to $(15,450,781) during the corresponding three months ended September 30, 2009.

●

In addition to the loss on extinguishment, the Company also fully amortized the discounts associated with the 2010 Original Issue Discount Senior Convertible Note issuance. This amortization resulted in expenses of $4,684,150 being fully amortized to interest expense during the three months ended September 30, 2010.

●	During the three months ended September 30, 2009 the Company recorded a loss on extinguishment of debt of $14,596,130 when bridge investors converted into a new offering which was closed on August 27, 2009.

●

Other income and was also effected by the recording of the change in fair market value of $7,829,246 in relation to the accounting associated with embedded derivatives in the 2010 secured convertible note offering. The change in fair value was primarily attributable to the significant decrease in the Company’s per share value as quoted on the Over-the Counter Bulletin Board.

Going Concern : As shown in the accompanying unaudited condensed consolidated financial statements, the Company incurred a net loss of $(9,974,067) during the nine months ended September 30, 2010 and had a stockholders’ deficit of $9,267,632. In addition, the Company uses convertible notes and cash raises in order to fund operations. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. Management of the Company plans to address this concern by doing the following:

●	Raising additional debt and/or equity capital convertible note offerings

●	Securing favorable raw material and manufacturing rates with our vendors

●	Continuing to increase brand awareness for Healthy Dairy Yogurt Smoothies and the SUSTA table top sweetener.

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. As illustrated above, the Company has already been successful in setting its plan in action and looks forward to further progress as the year progresses.

Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at September 30, 2010 compared to December 31, 2009.

	September 30, 2010 (unaudited)		December 31, 2009			Increase/ (Decrease)
Current Assets	$	3,106,388	$	291,206		$	2,815,182
Current Liabilities	$	10,994,044	$	1,826,899		$	9,167,145
Working Capital Deficit	$	(7,887,656)	$	(1,535,693	)	$	(6,351,963)

As of September 30, 2010, we had a working capital deficit of $7,887,656 as compared to a working capital deficit of $1,535,693 as of December 31, 2009, a decrease of $6,351,963.

The decrease is the result of several factors. The Company closed on the offering of Original Issue Discount Senior Convertible Notes in February 2010, increasing current assets accordingly. The Company has since exhausted approximately $2,200,000 in operating activities. The Company recorded these notes at a face amount of approximately $6,517,000 which is recognized as a current liability. In addition, the Company recognizes $2,895,845 for the derivative liabilities embedded in the 2010 Original Issue Discount Senior Convertible Notes.

Net cash used for operating activities for the nine months ended September 30, 2010 and 2009 was $(2,235,171) and $(1,895,261), respectively.

Net cash obtained through all financing activities for the nine months ended September 30, 2010 was $4,722,755 as compared to $1,784,326 for the nine months ended September 30, 2009.

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

In January 2010, the Financial Accounting Standards Board ("FASB") issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update 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. This update will become effective for the Company with the interim and annual reporting period beginning January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update will not have a material effect on the Company's consolidated financial statements.

In January 2010, the Financial Accounting Standards Board (FASB) 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 a significant effect on the Company’s consolidated financial position or results of operations.

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 condensed 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, 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 Black-Scholes option-pricing 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 Black-Scholes option-pricing model.

Beneficial Conversion Features - For convertible debt issued in 2009, the convertible feature of the convertible notes (See Note 5 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.

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 4T. Evaluation of Disclosure Controls and Procedures

a) Evaluation of Disclosure Controls. Our Chief Executive Officer and Chief Financial and Accounting Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter ended September 30, 2010 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on his evaluation, the CEO concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules based on the material weakness described below:

1.	We are currently in the process of formally documenting internal controls. This process is expected to be complete on or before December 31, 2010.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b) Changes in internal control over financial reporting. In order to rectify our ineffective disclosure controls and procedures, we are developing a plan to ensure that all information will be recorded, processed, summarized and reported accurately, and as of the date of this report, we have taken the following steps to address the above-referenced material weaknesses in our internal control over financial reporting:

	1.	educate our management personnel to comply with the disclosure requirements of Securities Exchange Act of 1934 and Regulation S-K;
	2.	enhance management oversight of accounting and reporting functions in the future.
	3.	access and evaluate our internal control environment, and implement and proceed with formally documenting our controls.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the nine months ended September 30, 2010, 4 warrant holders exercised 2,171,147 stock purchase warrants utilizing the cashless exercise provision for 1,509,799 shares of our common stock.

Item 3. Defaults Upon Senior Securities.

None

Item 4. (Removed and Reserved).

Item 5. Other Information.

None

Item 6. Exhibits

(a) Exhibits

31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Principal Executive Officer furnished 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 Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

		NXT NUTRITIONALS HOLDINGS, INC.
		Registrant

Date: November 15 , 2010		By: /s/ Francis McCarthy
		Francis McCarthy
		President, and Chief Executive Officer

Date: November 15 , 2010		By: /s/ David Briones
		David Briones
		Chief Financial Officer

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NXTH NXT Nutritionals Holdings Inc (CE)