NXRA Nextera Enterprises Inc (CE)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

Commission file number 000-25995

NEXTERA ENTERPRISES, INC.

(Name of Registrant as Specified in its Charter)

(818) 902-5537

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, $0.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by rule 405 of the Securities Act. YES  o   NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  o   NO  x (1)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x   NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). YES o   NO x

As of June 30, 2007 (the last business day of the registrant’s recently completed second fiscal quarter), the aggregate market value of the registrant’s Class A Common Stock held by non-affiliates of the registrant was approximately $3,854,779, based on the closing price of the Company’s Class A Common Stock as quoted on the OTC Bulletin Board on June 30, 2007 of $0.18 per share. The quotations on the OTC Bulletin Board reflect  inter-dealer  prices,  without  retail  mark-up, mark-down or commission and may not represent actual transactions.

As of March 31, 2008, 38,692,851 shares of registrant’s Class A Common Stock, $0.001 par value, were outstanding and 3,844,200 shares of registrant’s Class B Common Stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

(1) The registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act, because as of January 1, 2008 it had fewer than 300 shareholders of record.

TABLE OF CONTENTS

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Forward Looking Statements

The following discussion contains “forward-looking statements.” Forward-looking statements give our current expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use words such as “may,” “could,” “will”, “continue,” “should,” “would”, “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these forward-looking statements include statements relating to future actions or the outcome of financial results. From time to time, we also may provide oral or written forward-looking statements in other materials released to the public. Any or all of the forward-looking statements in this annual report and in any other public statements may turn out to be incorrect. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Our actual results may differ materially from those stated or implied by such forward-looking statements.

Factors that could cause our actual results to differ materially include, but are not limited to:

New factors emerge from time to time, and it is not possible for us to predict all these factors nor can we assess the impact of these factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.

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PART I

As used in this report, the terms “Nextera,” “Company,” “we,” “our,” “ours”, and “us” refer to Nextera Enterprises, Inc, a Delaware corporation, or Nextera, and our wholly owned subsidiaries.

ITEM 1.                     Business

Overview

Nextera Enterprises, Inc. was incorporated in the state of Delaware in 1997. On March 9, 2006, Nextera, through W Lab Acquisition Corp., our wholly owned subsidiary, acquired substantially all of the assets of Jocott Enterprises, Inc., which we refer to as Jocott in this report, which formerly operated under the name “Woodridge Labs, Inc.”  We refer to this acquisition and all related transactions in this report as the Transaction. Subsequently, our wholly owned subsidiary was renamed Woodridge Labs, Inc. As used in this report, the term “Woodridge” refers to Jocott for all periods prior to March 9, 2006 and to our wholly owned subsidiary Woodridge Labs, Inc. from and after March 9, 2006. Prior to the acquisition of the Woodridge assets, we had no business operations for the period from November 29, 2003 through March 8, 2006. Woodridge’s financial results have only been included for the period subsequent to the March 9, 2006 acquisition.

In connection with the acquisition of the Woodridge Labs business on March 9, 2006, we entered into a senior secured credit facility, which was subsequently amended in March 2007, April 2007 and November 2007. We refer to our amended senior secured credit facility in this report as the Credit Agreement. The Credit Agreement originally consisted of a $10.0 million fully-drawn term loan, of which approximately $9.5 million was outstanding at December 31, 2007, and a four-year $5.0 million revolving credit facility. Under the terms of the April 2007 amendment, the revolving credit facility was reduced to $2.75 million, which was fully drawn at December 31, 2007.

Under the terms of the November 2007 amendment, we obtained a bridge loan credit facility aggregating $2.5 million. The bridge loan facility must be repaid with cash balances in excess of $500,000 through the final maturity of May 31, 2008. Outstanding borrowings under the term loan must be repaid in four quarterly payments, commencing March 31, 2008, with a final payment due on March 31, 2009, the maturity date of the term loan. The maturity date for the revolving credit facility is also March 31, 2009.  The Credit Agreement, as amended, also contains certain restrictive financial covenants, including minimum consolidated earnings before interest, taxes, depreciation and amortization (or, EBITDA), minimum purchase order levels and maximum corporate overhead, as defined therein.

On March 31, 2008, an installment of principal of the term loans in an aggregate amount equal to $250,000, which we refer to as the March 31 Installment, became due and payable under the Credit Agreement.  The March 31 Installment remains unpaid.  Additionally, we have furnished the lenders of the Credit Agreement with financial information showing that we failed to comply with the minimum consolidated EBITDA financial covenant that applied to the measurement period ending January 31, 2008.  As a consequence of the failure to pay the March 31 Installment, and the failure to comply with this financial covenant, events of default have occurred under the Credit Agreement.  No cure periods or grace periods are applicable to these events of default.  The events of default have not been waived and are continuing under the Credit Agreement.  Note 15 to the accompanying consolidated financial statements describes a proposed transaction to satisfy the obligations under the Credit Agreement, but we cannot be assured that the proposed transaction will be consummated on the terms described therein or at all.

As shown in the accompanying consolidated financial statements, we have incurred recurring net losses and have an accumulated deficit of $175.5 million, stockholders’ deficit of $4.2 million and a working capital deficiency of $12.8 million as of December 31, 2007.  Additionally, as described above and in more detail in Notes 8 and 15 to the accompanying consolidated financial statements, we are in default of our Credit Agreement and on April 16, 2008, we executed a non-binding Letter of Intent to sell substantially all of the assets of our sole operating subsidiary, Woodridge, to a company owned by the secured lenders in satisfaction of the obligations under the Credit Agreement.  Should the proposed sale described in Note 15 be consummated, we would be left with no operating assets to generate cash flows.  Should the proposed sale not be consummated, we would seek alternative debt or equity financing.  To the extent alternative financing was not available, we would likely need to cease operations.  These factors raise substantial doubt about our ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classification of liabilities that may result for the outcome of this uncertainty.

Woodridge, our sole operating business, is an independent developer and marketer of branded consumer products that offer simple, effective solutions to niche personal care needs. Since its formation in 1996, Woodridge has built its reputation and market position by identifying and exploiting underdeveloped opportunities within the personal care market, and by commercializing distinctive, branded products that are intended to directly address the specific demands of niche applications. In addition to its flagship Vita-K Solution product line, Woodridge has created a portfolio of other existing and development-stage consumer products, covering a wide range of uses and applications.

Our products are marketed at retail under the following core brands: Vita-K Solution®, DermaFreeze365™, Ellin LaVar Textures™, Heavy Duty™, Skin Appetit™, 40 Carrots™, Virtual Laser™, Psssssst®, Stoppers-4®, Bath Lounge™, Vita-C2™, Firminol-10® and TurboShave®. With our portfolio of products, we offer consumers affordable alternatives to expensive dermatologist treatments, while also offering retailers profitable and in-demand products. Our products can currently be found in over 22,000 retail locations across the United States and Canada. For the fiscal year ended December 31, 2007, our top customers included Walgreens, CVS, and Rite-Aid.

All of our manufacturing, production and onsite assembly are presently outsourced to third-parties, allowing us to focus on our core strength of discovering, developing and marketing niche personal care products. Most of our material warehousing and distribution functions are handled in-house and supervised by Woodridge management.

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Products

We have a diverse portfolio of products sold under a variety of brands. Each product seeks to provide a symptom-specific solution to a common skin or other personal care condition. We believe that the success of our products can be attributed to (i) our effectiveness in delivering the desired benefits, (ii) the value proposition offered to consumers based on the products’ quality and price point, and (iii) the attractiveness of our packaging.

Our major brands are described below:

Vita-K Solution

Vita-K Solution is marketed as a line of symptom-specific products that utilize vitamin K to provide cosmetic remedies. Since its retail launch in 1998, the Vita-K Solution brand continues to be our top selling product line with the greatest number of individual products. Gross sales for the Vita-K Solution product line comprised 42% and 37% of total Woodridge gross sales for 2007 and 2006, respectively.

Woodridge introduced its Vita-K Solution for Spider Veins in 1998. Woodridge has established Vita-K Solution as an important skin care brand for retailers, and has further penetrated the market with the launch of additional Vita-K Solution products that target other common skin ailments. Currently, we market multiple products under the Vita-K Solution brand, including: Vita-K Solution for Spider Veins; Vita-K Solution for Dark Circles; Vita-K Solution for Blotchy Skin; Vita-K Solution for Bruises; Vita-K Solution for Stretch Marks; Vita-K Solution for Sun Spots; Vita-K Solution At Home Microdermabrasion Kit; Vita-K Pre-Kini; and Vita-K Solution for Deep Facial Lines.

DermaFreeze 365

DermaFreeze365 Instant Line Relaxing Formula is marketed as an anti-line and wrinkle cream based on GABA-BIOX technology that was launched by Woodridge during the first quarter of 2005. The product offers consumers the benefits of two anti-aging compounds:  Gamma-Amino Butyric Acid, a new ingredient in modern skin care technology, and BioxiLift which is believed to produce a cumulative reduction in the appearance of fine lines and wrinkles. We currently offer DermaFreeze products for the face, neck and chest, and lip areas and have several DermaFreeze365 brand extensions currently in development. The DermaFreeze 365 product line represented 26% and 29% of the gross sales of the Woodridge business in 2007 and 2006, respectively.

On March 13, 2007, Woodridge initiated a voluntary recall of all lots of its DermaFreeze365™ Instant Line Relaxing Formula (UPC Codes 6-05923-36501-6, 6-05923-36502-3 and 6-05923-10563-6) and DermaFreeze365™ Neck & Chest (UPC Code 6-05923-36503-0) products. This recall was a result of certain products from two lots testing positive for the Pseudomonas aeruginosa bacteria, exposure to which may result in potential illness for persons who are immuno-compromised. Woodridge Labs is working with the third party manufacturer of the affected products to identify the source of the contamination in order to ensure that DermaFreeze365™ Instant Line Relaxing Formula and Neck & Chest products will be safe for future use. We have made a provision for the recall in our consolidated financial statements as of and for the year ended December 31, 2006 included in this report whereby net sales were reduced by $2.3 million and inventories were written down by $0.3 million. Additionally, customer charge-backs related to 2007 sales of the affected products approximated $0.6 million in 2007.

Ellin LaVar Textures

Ellin LaVar Textures was created by celebrity stylist Ellin LaVar to address the health and condition of hair and scalp on a daily basis. Ellin LaVar Textures was introduced in March 2005 and was designed exclusively for those who struggle with hair that is coarse, dry, curly or frizzy. We acquired the 12 piece line in May of 2006 and entered into an exclusive agreement to sell the Ellin LaVar brand to CVS. Ellin LaVar Textures products include: OptiMoist Shampoo, SatinSoft Conditioner, LiquidGlass, PenetratingBalm, ReconstructMasque, ThermMist, NourishOil, DetangleMist, LiquidMotion, InstantShine, ScalpRx, and NaturalControl. We started shipping Ellin LaVar products to CVS in January 2007 and the line represented 8% of the gross sales of the Woodridge business in 2007.

Skin Appetit

Skin Appétit was developed in connection with renowned nutritionist Keri Glassman, MS, RD, CDN, as the recipe for ageless skin. Skin Appétit products are formulated with an exclusive Nutrx8Complex which contains eight extracts including blueberries, cantaloupe, red grapes, creamy yogurt, wild honey, figs, walnuts and dark cocoa chocolate, as well as other ingredients, such as vitamin B5, vitamin E, macadamia seed oil, vitamin C, aloe and tea tree oil. Ms. Glassman is the president of KKG Body Fuel Enterprises, Inc., a nutrition counseling and consulting practice, and the founder and president of KeriBar, a nutrition snack bar company. Keri is also the author of nutritional diet books. The Skin Appétit product line was introduced in December of 2007.

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Psssssst

In December 2002, Woodridge acquired the Psssssst trademark and formulation from Procter & Gamble, or P&G, as part of Woodridge’s strategy to revive and reintroduce niche-oriented orphan brands through Woodridge’s sales and marketing network. Psssssst is marketed as a dry shampoo product delivered in an aerosol spray formulation. The product was originally marketed by P&G in the 1970s as a shampoo alternative, but was slowly phased-out in the mid-1980s. After several of Woodridge’s top retail customers identified a significant continuing, yet unmet, demand for the Psssssst product line, Woodridge acquired the technology from P&G and began distributing Psssssst to retailers during the first quarter of 2003. Currently we have several brand extensions to Psssssst in development.

Sales, Marketing and Distribution

We market our products to major drug, food and mass-merchandise retail chains through a dedicated team of internal sales managers, as well as a sales force of independent sales representatives. We have four primary objectives, which underlie our sales and marketing strategy: (i) service and protect existing customer accounts; (ii) expand product distribution by winning new customer accounts; (iii) promote increased awareness of our brands and product attributes; and (iv) maintain and strengthen our market position.

We have an established national sales and distribution network that covers substantially all of our existing mass drug, grocery and other retail customers. At present, we maintain relationships with over 20 sales representative agencies located in key markets across the U.S. This sales representative agency network provides us with a sales force of over 50 specialized sales professionals. We believe that our combined internal and external sales and marketing network is well-positioned to expand our penetration of existing accounts, and to penetrate new accounts and distribution channels.

We regularly participate in various co-operative marketing programs with retailers to further enhance consumer awareness of our products and brands. At times, we work directly with retailers to design the plan-o-grams, or drawings illustrating product placement, for our brands, as well as to develop in-store displays, special events, promotional activities and marketing campaigns for our products. These programs are designed to obtain or enhance distribution at the retail level and to provide incentives to consumers at the point-of-purchase. We also utilize consumer promotions, such as direct mail programs and on-package offers, to encourage consumer demand for our products.

Sales to customers are generally made pursuant to purchase orders, and as a result we do not have a material order backlog. Consistent with customary practice in the packaged goods industry, we accept authorized returns of un-merchandisable, defective or discontinued products from our major customers.

Customers

Our principal customers include chain drugstores, mass volume retailers, national mass merchandisers and grocery chains. In the year ended December 31, 2007, our three largest customers represented approximately 69% of our gross sales, and have all been our customers for at least five years.

Our products are predominately sold in the drugstore channel, and we have developed a strategic working relationship with our drugstore channel customers. Our customer relationships provide us with a number of important benefits, such as facilitating new product introductions and access to adequate shelf space.

Our principal customer relationships in the year ended December 31, 2007 included Walgreens, CVS, and Rite Aid, who accounted for 19%, 13%, and 37% of gross sales, respectively. No other customer accounted for more than 10% of gross sales in the year ended December 31, 2007. As is customary in the personal care industry, we generally do not enter into long-term or exclusive contracts with our customers. Sales to customers are generally made pursuant to purchase orders, and as a result none of our customers are under an obligation to continue purchasing products from us in the future. We expect that Walgreens, CVS, and Rite Aid and a small number of other customers will continue to account for a large portion of our net sales.

New Product Development

We strive to maintain the value of our existing products, and to achieve increased market penetration, through aggressive product line and brand extensions. Furthermore, our growth strategy includes an increased emphasis on new product development, both through extending our core brands and through expanding our presence into new product categories. To achieve these objectives, we rely on internal market research as well as outside product developers to identify new product formulations and line extensions that we believe will address consumer needs and demands. Historically, Woodridge has used internal personnel for product development along with contracted consultants. All new product concepts are researched before launch, and, to the extent necessary or required, undergo independent clinical testing.

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Manufacturing and Production

We use third-party resources for all of our manufacturing and production requirements. We believe that contract manufacturing helps maximize our flexibility and responsiveness to industry and consumer trends, while helping to minimize the need for significant capital expenditures. We select contract manufacturers based on an evaluation of several factors, including manufacturing capacity, access to raw materials, quality control disciplines, research and development capabilities, regulatory compliance, timely delivery, management, financial strength and competitive pricing.

Our primary contract manufacturers provide comprehensive services from product development through manufacturing and filling of compounds, and are responsible for such matters as ongoing quality testing and procurement of certain raw materials. Typically, final boxing and packaging of our products is performed at our distribution facility in Panorama City, California. All of our products are manufactured on a purchase order basis and we do not have any long-term obligations or commitments.

We continually evaluate our existing supply relationships to ensure that we utilize the most cost-effective, flexible and strategically appropriate arrangements available. We also continually evaluate opportunities to improve efficiencies and reduce costs by either outsourcing or insourcing certain areas of the product production cycle. Furthermore, we actively work to develop alternative supply and distribution relationships, and believe that future changes in supplier relationships would not have a material adverse effect on our operations.

Competition

The personal care industry is highly competitive, characterized by a fragmented universe of industry players. Many other companies, both large and small, manufacture and sell products that are similar to our personal care products, including major retail customers that sell “private label” or “house” brands. Sources of competitive advantage include product quality and effectiveness, brand identity, advertising and promotion, product innovation, distribution capability and price.

Many of our principal competitors are well-established firms that are more diversified and have substantially greater financial and marketing resources than we do. Major competitors principally include large consumer products companies, such as Procter & Gamble, Unilever, KAO Corporation, and L’Oreal, and over-the-counter pharmaceutical companies, such as Pfizer and Johnson & Johnson, as well as a large number of companies with revenues of less than $100 million. Many of our competitors are able to make significantly greater expenditures for product development, advertising, promotion and marketing in order to achieve and maintain both consumer and trade acceptance of their personal care products. In addition, the personal care industry is subject to rapidly changing consumer preferences and industry trends.

Part of our strategy to offset the level of competition is to develop products and brands that focus on niche markets or sub-segments of larger markets. By focusing on narrow market segments, we believe we are able to limit the degree of competition we face, as larger competitors may focus less on these smaller niche markets and market sub-segments.

Growth Strategy

We are continually exploring new opportunities to increase our market presence and enhance our financial performance. To this end, we have identified several specific growth opportunities, including, but not limited to: (i) developing additional product lines and brands and increasing the range of products sold under our current top-selling brands; (ii) expanding distribution by seeking to increase shelf space with existing retail customers, and to gain shelf space at new retailers, particularly mass volume retailers and grocery chains; (iii) identifying, acquiring and reinvigorating orphan trademarks and brands that hold untapped growth potential; (iv) initiating more comprehensive advertising and promotional campaigns in support of our brands; and (v) expanding opportunistically into other distribution channels and into international markets.

Intellectual Property

We have registered, or have pending applications for the registration of, our Vita-K Solution®, DermaFreeze 365®, Ellin LaVar Textures™, Skin Appetit™, 40 Carrots™, Virtual Laser™, Psssssst®, Stoppers-4®, Bath Lounge™, Firminol-10®, TurboShave®, GABA-BIOX™, GABA-BIOX Lifting Complex™, Pre-Kini™, The Skin Firming Miracle in a Bottle™, Under Eyebryten™, Wrinkl-eez™ and other trademarks and brand names in the United States, as well as in certain foreign countries. We have an exclusive license from the University of Medicine and Dentistry of New Jersey with respect to U.S. Patent #6,187,822 regarding topical vitamin K delivery systems that was filed on June 11, 1999 and expires 20 years from that date. We also have a patent pending in the United States for Gamma-Amino Butyric Acid Composition, U.S. Patent Application #11/072184.

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We believe our position in the marketplace depends to a significant extent upon the goodwill engendered by our trademarks, trade dress and brand names, and, therefore, considers trademark protection to be important to our business. Accordingly, we actively monitor the market for our products to ensure that our trademarks and other intellectual property are not infringed upon.

Government Regulation

Currently, none of our products require pre-market approval from any regulatory body. However, all of the current and future products that we market are potentially subject to regulation by government agencies, such as the U.S. Food and Drug Administration, the Federal Trade Commission, and various federal, state and/or local regulatory bodies. In the event that any future regulations were to require approval for any of our products, or should require approval for any planned products, we intend to take all necessary and appropriate steps to obtain such approvals.

Employees

As of December 31, 2007, we had 27 employees, of whom 24 were full-time employees and 3 were part-time employees. None of our employees are represented by a union or subject to a collective bargaining agreement. We believe that our relations with our employees are good.

Segments and Geographical Information

We operate in a single market segment. As of and for the years ended December 31, 2007, substantially all of our revenues and long-lived assets related to operations in the United States.

Seasonality

Seasonality has not generally had a significant impact on our gross sales.

Inflation

We believe that inflation has not had a material effect on our results of operations.

Availability of Public Reports

As soon as is reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports, are available free of charge on our internet website at http://www.nextera.com .  Information contained on our website is not part of this report. They are also available free of charge on the SEC’s website at http://www.sec.gov . In addition, any materials filed with the SEC may be read by the public at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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ITEM 1A.            Risk Factors

You should carefully consider, among other potential risks, the following risk factors as well as all other information set forth or referred to in this report before purchasing shares of our common stock. Investing in our common stock involves a high degree of risk. If any of the following events or outcomes actually occurs, our business operating results and financial condition would likely suffer. As a result, the trading price of our common stock could decline, and you may lose all or part of the money you paid to purchase our common stock.

There is substantial doubt about our ability to continue as a going concern.

We have suffered recurring losses from operations and had an accumulated deficit of $175.5 million, a stockholder’s deficiency of $4.2 million and a working capital deficit of $12.8 million that raises substantial doubt about our ability to continue as a going concern. Also, as described in more detail below and in Note 8 to the accompanying consolidated financial statements, we are in default of our Credit Agreement.  Additionally, Note 15 to the accompanying consolidated financial statements describes a proposed transaction to sell substantially all of the Woodridge assets in order to satisfy our obligations under the Credit Agreement. Should the sale be consummated, we would be left with no operating assets to generate cash flows. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

We are currently in default of the terms of our Credit Agreement.

In connection with the acquisition of the Woodridge Labs business on March 9, 2006, we entered into a Credit Agreement, which was subsequently amended in March 2007, April 2007 and November 2007.  The Credit Agreement originally consisted of a $10.0 million fully-drawn term loan, of which approximately $9.5 million was outstanding at December 31, 2007, and a four-year $5.0 million revolving credit facility.  Under the terms of the April 2007 amendment, the revolving credit facility was reduced to $2.75 million, which was fully drawn at December 31, 2007.

Under the terms of the November 2007 amendment, we obtained a bridge loan credit facility aggregating $2.5 million. The bridge loan facility must be repaid with cash balances in excess of $500,000 through the final maturity of May 31, 2008. Outstanding borrowings under the term loan must be repaid in four quarterly payments, commencing March 31, 2008, with a final payment due on March 31, 2009, the maturity date of the term loan. The maturity date for the revolving credit facility is also March 31, 2009.  The Credit Agreement, as amended, also contains certain restrictive financial covenants, including minimum consolidated EBITDA, minimum purchase order levels and maximum corporate overhead, as defined therein.

On March 31, 2008, an installment of principal of the term loan in an aggregate amount equal to $250,000 became due and payable under the Credit Agreement.  The March 31 Installment remains unpaid.  Additionally, we have furnished the lenders of the Credit Agreement with financial information showing that we failed to comply with the minimum consolidated EBITDA financial covenant applicable to the measurement period ending January 31, 2008.  As a consequence of the failure to pay the March 31 Installment, and the failure to comply with this financial covenant, events of default have occurred under the Credit Agreement.  No cure periods or grace periods are applicable to these events of default.  The events of default have not been waived and are continuing under the Credit Agreement.  Note 15 to the accompanying consolidated financial statements describes a proposed transaction to satisfy the obligations under the Credit Agreement, but we cannot be assured that the proposed transaction will be consummated on the terms described therein or at all.

Nextera is a holding company with no business operations of its own.

Nextera is a holding company with no business operations of its own. Nextera’s only material assets are the outstanding capital stock of Woodridge, Nextera’s wholly owned subsidiary, through which Nextera conducts its business operations. Nextera is dependent on the earnings and cash flows of, and dividends and distributions from, Woodridge to pay Nextera’s expenses incidental to being a public holding company. Woodridge may not generate sufficient cash flows to pay dividends or distribute funds to Nextera because, for example, Woodridge may not generate sufficient cash or net income or the proposed transaction described in Note 15 to the accompanying consolidated financial statements may result in the sale of substantially all of the Woodridge assets.

All of the shares of Woodridge stock are pledged and substantially all of Woodridge’s assets are subject to liens to secure obligations under the Credit Agreement.

All of the shares of the capital stock of Woodridge held by Nextera are pledged and substantially all of Woodridge’s assets are subject to liens to secure Woodridge’s obligations under the Credit Agreement.  A foreclosure upon the shares of Woodridge’s common stock or its assets would result in us being unable to continue our operations and would have a material adverse effect on our business and results of operations.

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Our stock price may be volatile and you could lose all or part of your investment.

We expect that, due to, among other things, the risks described herein, the market price of our common stock will continue to be volatile.  The market price for our common stock may also be affected by our ability to meet investors’ or securities analysts’ expectations. Any failure to meet these expectations, even slightly, may result in a decline in the market price of our common stock.  Furthermore, because our common stock has limited volume, the stock price may be subject to extreme volatility based on a limited number of transactions. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources.

We initiated a voluntary recall of certain of our DermaFreeze365™ products and the effects of the recall may have a material adverse effect on our business, operations and financial condition.

On March 13, 2007, Woodridge initiated a voluntary recall of all lots of its DermaFreeze365™ Instant Line Relaxing Formula (UPC Codes 6-05923-36501-6, 6-05923-36502-3 and 6-05923-10563-6) and DermaFreeze365™ Neck & Chest (UPC Code 6-05923-36503-0) products. This recall was a result of certain products from two lots testing positive for the Pseudomonas aeruginosa bacteria, exposure to which may result in potential illness for persons who are immuno-compromised. As a result of the recall, we were required to obtain $4.5 million in additional funding from Mounte LLC, or Mounte, our majority stockholder, and from Jocott. To the extent that we cannot replace the sales lost as a result of the recall or experience additional adverse effects (financial or operational) from the recall, there may be a material adverse effect on our business and results of operations.

Future product recalls or safety concerns could adversely impact our results of operations.

We may be required to recall certain of our products in the future should they be mislabeled, contaminated or damaged. We also may become involved in lawsuits and legal proceedings if it is alleged that the use of any of our products causes injury or illness. A future product recall or an adverse result in any such litigation could have a material adverse effect on our operating and financial results. We also could be adversely affected if consumers in our principal markets lose confidence in the safety and quality of our products.

The loss of key personnel and the difficulty of attracting and retaining qualified personnel could harm our business and results of operations.

Our success depends heavily upon the continued contributions of our senior management and employees, particularly Mr. Millin (Nextera’s president and the president and chief executive officer of Woodridge), many of whom would be difficult to replace. Mr. Millin has been the principal managing officer of Woodridge for more than ten years, and the future success of the Woodridge business will depend on his continued service and attention to the business. If key employees terminate their employment with us, our business may be significantly and adversely affected.

We depend on a limited number of customers for a large portion of our net sales and the loss of one or more of these customers could reduce our net sales.

We rely on major drugstore chains and mass merchandisers for the sales of our products. During the year ended December 31, 2007, our three largest customers represented approximately 69% of our gross sales. We expect that for future periods a small number of customers will, in the aggregate, continue to account for a large portion of our net sales. As is customary in the consumer products industry, none of our customers is under an obligation to continue purchasing products from us in the future. The loss of one or more of our customers that accounts for a significant portion of our net sales, or any significant decrease in sales to these customers or any significant decrease in our retail display space in any of these customers’ stores, including as a possible result of the March 13, 2007 product recall, could reduce our net sales and therefore could have a material adverse effect on our business, financial condition and results of operations.

We face significant competition within our industry, and we are not as financially strong or large as many of our competitors.

We are not financially as strong or as large as some of the major companies against whom we compete. Our competitors vary depending upon product categories. Many of our principal competitors are large, well-established firms that are more diversified and have substantially greater financial and marketing resources than we do. Major competitors principally

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include large consumer products companies, such as Procter & Gamble, Unilever, KAO Corporation, L’Oreal and over-the-counter pharmaceutical companies, such as Pfizer and Johnson & Johnson, as well as a large number of companies with revenues of less than $100 million. Many of these companies have greater resources than we do to devote to marketing, sales, research and development and acquisitions. As a result, they have a greater ability to undertake more extensive research and development, marketing and product promotion, and have more aggressive pricing policies, and may be more successful than we are in gaining and increasing shelf space at retail outlets. We cannot predict with accuracy the timing or impact of the introduction of competitive products or their possible effect on our sales. It is possible that our competitors may develop new or improved products to treat the same conditions as our products or make technological advances reducing their cost of production so that they may engage in price competition through aggressive pricing policies to secure a greater market share to our detriment. These competitors also may develop products that make our current or future products obsolete. Any of these events could significantly harm our business, financial condition and results of operations, including reducing our market share, gross margins and cash flows.

Many of our major competitors have global reach and international production, distribution, marketing and sales capabilities. As a result, they have a much greater ability than we do to expand product sales and distribution in international markets and to capture and increase market share in international markets. We may be unsuccessful in expanding into international markets, and this could significantly harm our business, financial condition and results of operations.

Inability to anticipate changes in consumer preferences may result in decreased demand for products, which could have an adverse impact on our future growth and operating results

Our success depends in part on our ability to respond to current market trends and to anticipate the desires of consumers. Changes in consumer preferences, and our failure to anticipate, identify or react to these changes could result in reduced demand for our products, which could in turn cause our operating results to suffer.

We may be unsuccessful in developing and introducing new products or in expanding our existing product lines.

Our industry is highly competitive. Our future success and ability to effectively compete in the marketplace and to maintain our revenue and gross margins requires us to continue to identify, develop and introduce new products and product lines in a timely and cost-efficient manner. We may not be successful in identifying, developing and introducing new products, or in leveraging the success of or expanding existing product lines, which may have a material adverse effect on the business and prospects of our future. Many of our principal competitors are large, well-established firms that are more diversified and have substantially greater resources than we do to devote to new product development and promotion.

Any business disruption due to natural disasters or other catastrophic events could adversely impact our financial performance

If natural disasters or other catastrophic events occur in the U.S., such events may disrupt operations, distribution and other aspects of our business. In the event of such incidents, our business and financial performance could be adversely affected.

We rely on others to manufacture our products and for testing and quality control, and disruptions to our manufacturing supply chain or failures in quality control could materially and adversely affect our future sales and financial condition.

Currently, we outsource our entire product manufacturing and production needs. We rely on outside manufacturers to provide us with an adequate and reliable supply of our products on a timely basis. We also rely on our outside manufacturers to provided testing and quality control with respect to our products. A failure by our outside manufacturer of our DermaFreeze365™ products resulted in the recall of certain of these products as described elsewhere in these Risk Factors and in this Annual Report on Form 10-K. Loss of a supplier, failures in testing or quality control, or any difficulties that arise in the supply chain, including a recall of products, could have a material adverse impact on our business and results of operations and significantly affect our inventories and supply of products available for sale. We do not have alternative sources of supply for all of our products. If a primary supplier of any of our core products is unable to fulfill our requirements for any reason, it could reduce our sales, margins and market share, as well as harm our overall business and financial results. If we are unable to supply sufficient amounts of our products on a timely basis, our revenues and market share could decrease and, correspondingly, our profitability could decrease.

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We may be subject to claims of infringement regarding products or technologies that are protected by trademarks, patents and other intellectual property rights.

Woodridge has historically created individual brand names to identify each of its personal care product lines. Our products may also be formulated using novel chemical compounds, processes or technologies. In the crowded personal care products industry, third parties often own similar brand names, or may own patents on chemical formulas or manufacturing processes or other technologies. Our success depends on our ability to operate without infringing upon the proprietary rights of others and prevent others from infringing upon our trademarks, trade dress, patent rights and other intellectual property rights. If third parties believe we have infringed upon their proprietary rights, they may assert infringement claims against us from time to time based on our general business operations or specific product lines. Woodridge or retailers who sell Woodridge products may also engage in advertising which compares Woodridge’s products to products of third parties. As a result, third parties may assert infringement claims against us from time to time based on specific advertisements or marketing claims.

If we are subject to an adverse judgment regarding infringement of the proprietary rights of others, we may be forced to discontinue selling affected products under their existing brands, or may need to remove such product from stores and rebrand such products, all of which may have a material adverse effect on our results of operations.

To service our indebtedness and fund our working capital requirements, we will require significant amounts of cash.

Our ability to make payments on our indebtedness will depend upon our relationship with our lenders, our future operating performance and our ability to generate cash flow in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings, including available borrowings under our Credit Agreement (if any), will be available to us in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. If the cash flow from our operating activities is insufficient, we may take actions, such as delaying or reducing capital expenditures, attempting to restructure or refinance our indebtedness prior to maturity, and seeking additional equity capital. Any or all of these actions may be insufficient to allow us to service our debt obligations. Further, we may be unable to take any or all of these actions on commercially reasonable terms, or at all.

Our ability to utilize our net operating loss carryforwards may be limited or eliminated in its entirety.

As of December 31, 2007, we had approximately $61.2 million of federal net operating loss carryforwards that begin to expire in 2021, for which a 100% valuation allowance has been recorded. The utilization of the net operating loss carryforwards in the future is dependent upon our having U.S. federal taxable income. Prior to the acquisition of the Woodridge business, we had no business operations and were unable to generate U.S. federal taxable income to utilize the net operating loss carryforwards. Even following the acquisition of the Woodridge business, there can be no assurance that we will be able to generate taxable income in the future. Furthermore, the likelihood of an annual limitation on our ability to utilize the net operating loss carryforwards to offset future U.S. federal taxable income is increased by (1) the issuance of common stock, certain convertible preferred stock, options, warrants, or other securities exercisable for common stock, (2) changes in the equity ownership occurring in the last three years and (3) potential future changes in the equity ownership. The amount of an annual limitation can vary significantly based on factors existing at the date of an ownership change. A substantial portion of our net operating loss was used to offset our federal tax liability, other than the alternative minimum tax, generated by the sale of Nextera’s economic consulting business in 2003. If the net operating loss carryforwards were determined to be subject to annual limitations prior to its utilization to offset the taxable gain from the sale of Nextera’s economic consulting business, our federal tax liability and the net operating loss carryforwards could be materially different and our financial position could be adversely affected. Such limitations could have a material adverse impact on our financial condition, results of operations and cash flows.

Our common stock does not trade on an established trading market, which makes our common stock more difficult to trade and more susceptible to price volatility.

The delisting of our Class A Common Stock from the Nasdaq SmallCap Market may make our Class A Common Stock more difficult to trade, harm our business reputation and adversely affect our ability to raise funds in the future.

Our Class A Common Stock was delisted from the Nasdaq SmallCap Market on November 28, 2003 due to our failure to have an operating business after the sale of our economic consulting business. As a result of the delisting, our common stock may be more difficult to trade and we may suffer harm to our general business reputation and have greater difficulty in the future raising funds in the capital markets. Each of these consequences could have a material adverse effect on our business, results of operations and financial condition. We currently do not meet Nasdaq’s initial listing requirements to be re-listed on the Nasdaq SmallCap Market (now known as Nasdaq Capital Market) because, among other things, we do not satisfy the minimum bid price requirement.

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Mounte (successor to Krest, LLC, Knowledge Universe LLC and Knowledge Universe, Inc.) controls 65.1% of the voting power of our stock and can control all matters submitted to our stockholders. Its interests may be different from yours.

Mounte owns 8,810,000 shares of Class A Common Stock, 3,844,200 shares of Class B Common Stock, 56,370 shares of our Series A Preferred Stock, and 15,752 shares of our Series B Preferred Stock, which combined represents approximately 65.1% of the voting power of our outstanding common and preferred stock as of December 31, 2007. The Class A Common Stock entitles its holders to one vote per share, and the Class B Common Stock entitles its holders to ten votes per share, on all matters submitted to a vote of our stockholders, including the election of the members of the board of directors. Holders of Series A Preferred Stock are entitled to 151 votes per share, which equals the number of whole shares of Class A Common Stock into which one share of Series A Preferred Stock is convertible.  Holders of Series B Preferred Stock are entitled to one vote per share.  Accordingly, Mounte will be able to determine the disposition of all matters submitted to a vote of our stockholders, including mergers, transactions involving a change in control and other corporate transactions and the terms thereof. In addition, Mounte will be able to elect all of our directors. This control by Mounte could materially adversely affect the market price of the Class A Common Stock or delay or prevent a change in control of our company.

Provisions in our charter documents and Delaware law may delay or prevent an acquisition of Nextera, which could decrease the value of our common stock.

Provisions of our certificate of incorporation and bylaws and provisions of Delaware law could delay, defer or prevent an acquisition or change of control of Nextera or otherwise decrease the price of our common stock. These provisions include:

·    authorizing our board of directors to issue additional preferred stock;

·    prohibiting cumulative voting in the election of directors;

·    limiting the persons who may call special meetings of stockholders;

·    prohibiting stockholder actions by written consent; and

·        establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

ITEM 2.                     Properties

We currently lease a total of approximately 53,000 square feet at a facility in Panorama City, California for our corporate headquarters and distribution center. This lease expires in November 2011. We believe that this facility will provide us with adequate space for growth for the next several years. In addition, we lease approximately 3,300 square feet of office space in Boston, Massachusetts, related to our former corporate headquarters, which we are currently subleasing. The Boston lease expires in July 2008.

ITEM 3.                     Legal Proceedings

From time to time we are involved in legal proceedings, claims and litigation arising in the ordinary course of business, the outcome of which, in the opinion of management, would not have a material adverse effect on us.

ITEM 4.                     Submission of Matters to a Vote of Security Holders

None.

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PART II

ITEM 5.                     Market for Registrant’s Common Equity and Related Stockholder Matters

Our Class A Common Stock, $0.001 par value per share, traded on the over-the-counter market pink sheets under the symbol “NXRA.PK” from January 1, 2005 through April 16, 2006 and on the OTC Bulletin Board thereafter under the symbol “NXRA.OB”. The following table sets forth the high bid quotation and the low bid quotation, as quoted by the Pink Sheets LLC and as reported by the OTC Bulletin Board, in each of the four quarters of fiscal 2007 and 2006. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of March 31, 2008 there were 38,692,851 shares of Class A Common Stock outstanding held by approximately 215 holders of record (excluding stockholders for whom shares are held in a “nominee” or “street” name) and 3,844,200 shares of Class B Common Stock outstanding held by one holder of record.

We have never paid or declared any cash dividends on our Common Stock and do not intend to pay dividends on our Common Stock in the foreseeable future. The terms of our Credit Agreement restrict our ability to declare or pay dividends. We intend to retain any earnings for use in any potential acquisition and operation of a business.

Recent Sales of Unregistered Securities

On June 15, 2007, Nextera issued to Mounte and Jocott 15,169 and 10,113 shares, respectively, of Series B Preferred Stock in partial payment of all outstanding principal and accrued interest owed to Mounte and Jocott pursuant to individual promissory notes executed in connection with a Funding Agreement between Nextera, Woodridge, Mounte and Jocott.  In connection with the issuance of the Series B Preferred Stock, Nextera also issued a Class A Common Stock Purchase Warrant to each of Mounte and Jocott. Under the terms of such warrants, Nextera granted Mounte and Jocott the right to purchase 3,033,945 and 2,022,630 shares, respectively, of Nextera’s Class A Common Stock at an exercise price of $0.50 per share, exercisable at any time at the option of the holder. Each transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the Securities Act, and Rule 506 of Regulation D. The terms of these transactions are described in more detail in Notes 3 and 11 to the accompanying consolidated financial statements.

On July 24, 2007, Nextera issued 200,000 shares of  Class A Common Stock and a stock option to purchase 400,000 shares of Class A Common Stock to KKG Body Fuel Enterprises, Inc., in exchange for promotional services from Keri Glassman, the president of KKG Body Fuel Enterprises, Inc. This transaction was exempt from registration pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D.

The issuances of these shares were exempt because they were private sales made without general solicitation or advertising exclusively to “accredited investors” as defined in Rule 501 of Regulation D. Further, the certificates issued bear legends providing, in substance, that the securities represented by the certificate have been acquired for investment only and may not be sold, transferred or assigned in the absence of an effective registration statement or opinion of counsel that registration is not required under the Securities Act.

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ITEM 6.                    Selected Financial Data

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”), we are not required to provide the information required by this item.

ITEM 7.                     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Nextera was formed in 1997 and had historically focused on building a portfolio of consulting companies through multiple acquisitions. Nextera formerly offered services in three practice areas: technology consulting, human capital consulting, and economic consulting. Nextera exited the technology consulting business during the latter half of 2001 and sold the human capital consulting business in January 2002. In November 2003, Nextera and its direct and indirect subsidiaries sold substantially all of the assets used in our economic consulting business and, as a result of such sale, we ceased to have business operations. Accordingly, all results from our former consulting operations have been classified as discontinued operations.

Acquisition of Woodridge Business

On March 9, 2006, we, through W Lab Acquisition Corp., our wholly owned subsidiary, acquired substantially all of the assets of Jocott pursuant to an asset purchase agreement, which agreement we refer to as the Purchase Agreement in this report. Prior to the acquisition of the Woodridge assets, we had no business operations for the period from November 29, 2003 through March 8, 2006. Woodridge’s financial results have only been included for the period subsequent to March 9, 2006. The Woodridge business currently comprises our sole operating business.

The purchase price for the Woodridge business was comprised of:

·    $23.2 million in cash, including $0.8 million of acquisition expenses paid to third parties;

·        8,467,410 unregistered restricted shares of Nextera’s Class A Common Stock constituting approximately 20% of the total outstanding common stock of Nextera immediately after such issuance, which shares were issued to Jocott and had a value of $4.2 million on the date of the Transaction; and

·        the assumption of a promissory note of Jocott in the principal amount of $1.0 million, which assumed debt was paid in full by us on the closing date of the Transaction.

$2.0 million of the cash portion of the purchase price was held in escrow until March 2007 at which time $0.5 million was withdrawn from the escrow account and distributed to Nextera by Jocott as a deposit under an Indemnity Deposit Agreement entered into between Nextera, Woodridge and Jocott on March 29, 2007, in connection with the recall of certain DermaFreeze365 ^TM products sold by Woodridge.  An additional $1.5 million was withdrawn from the escrow account in April 2007 and these funds were also distributed to Nextera by Jocott as a deposit under a separately executed Funding Agreement entered into between Nextera, Mounte and Jocott on April 16, 2007. Under the terms of the Funding Agreement, Nextera and Woodridge will keep the irrevocable deposit in full satisfaction of certain claims for indemnification that Nextera or Woodridge may have against the sellers under the Purchase Agreement. The payment of any remaining indemnification obligations of Jocott was also secured through September 2007 by a pledge of the unregistered restricted shares of Nextera’s Class A Common Stock issued to Woodridge in connection with the Purchase Agreement.

LaVar Acquisition

On May 23, 2006, Woodridge entered into a purchase agreement with LaVar Holdings, Inc., whereby Woodridge acquired the exclusive worldwide license rights, along with certain assets and proprietary rights, to the Ellin LaVar Textures ^TM hair care product line and brand name. The total purchase price, which includes approximately $0.1 million of deal costs, was approximately $0.5 million. Woodridge is required to pay a royalty to LaVar Holdings, Inc. with respect to certain sales of products under the trademarks acquired from it.

Heavy Duty Acquisition

On March 8, 2007, Woodridge entered into a purchase agreement with Heavy Duty Company and Alexandra Volkmann, whereby Woodridge acquired certain assets, including the Heavy Duty ^TM and other trademarks and a copyright. The total purchase price, which includes approximately $0.1 million of deal costs, was approximately $0.3 million. Woodridge will pay a royalty to Heavy Duty Company with respect to certain future sales of products under the trademarks acquired from Heavy Duty Company and Alexandra Volkmann.

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KKG Body Fuel Enterprises License Agreement

On June 21, 2007, we entered into an Intellectual Property License Agreement with KKG Body Fuel Enterprises, Inc. and Keri Glassman, whereby we acquired certain rights and licenses to use various trademarks names and slogans. The consideration consisted of a non-refundable guaranteed royalty payment of $0.1 million in the first year and minimum royalty payments of $0.1 million in each of the next three years.

Additionally, on June 25, 2007 we entered into an Independent Contractor Agreement with KKG Body Fuel Enterprises which provides a monthly fee of $5,000 plus expenses, a stock issuance of 200,000 shares of our Class A Common Stock and a stock option to purchase 400,000 shares of our Class A Common Stock in exchange for promotional services from Keri Glassman.  The effective date of the agreement is July 24, 2007.

Results of Operations

The following table sets forth our results of operations (excluding discontinued operations) for the year ended December 31:

Comparison of the Year Ended December 31, 2007 and the Year Ended December 31, 2006

Net Sales . Sales are recorded net of estimated returns and other allowances. The provision for sales returns represents management’s estimate of future returns based on historical experience and considering current external factors and market conditions.  Net sales for the year ended December 31, 2007 in creased $0.46 million, or 6%, to $7.9 million from $7.5 million for the year ended December 31, 2006 .   The 2006 net sales include a $2.3 million charge for returns related to the March 2007 voluntary recall of certain DermaFreeze365™ products sold during 2006. The increase in net sales for 2007 is due primarily to the decrease in the current year of recall charge-backs, offset by the decrease in gross sales of $1.9 million.

Gross Profit .  Gross profit for the year ended December 31, 2007 increased $1.9 million, or 85% to $4.0 million from $2.2 million for the year ended December 31, 2006.  The gross margin for the year ended December 31, 2007 was 50.7% compared to 29.1% for 2006. Included within gross profit for the year ended December 31, 2006  was a $1.4 million charge associated with the amortization of the step up to fair value in the inventory acquired from Woodridge, as required by SFAS No. 142, “ Goodwill and Other Intangible Assets,” or SFAS 142.  Eliminating the prior year step up to fair value charge of $1.4 million, the comparative gross profit for the year ended December 31, 2007 would have increased $0.45 million, or 13% over 2006, with comparative gross margins of 50.7% and 47.8%, respectively.  The improvement in gross profit is due primarily to a decrease in charges for inventory reserves during the year ended December 31, 2007 compared to 2006.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses for the year ended December 31, 2007  decreased $0.39 million, or 5%, to $7.4 million from $7.8 million for 2006. The decrease is due to decreased spending for selling, advertising and travel expense and a decrease in office and facility costs related to the transfer of the corporate offices from Boston, offset by an increase in professional services and labor related costs

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Impairment charge .  For the year ended December 31, 2007, we recorded a $10.9 million impairment charge related to a write-down of our goodwill and other intangible assets.

Interest Expense .  Interest expense was $1.8 million for the year ended December 31, 2007 compared to $1.0 million for the year ended December 31, 2006. The increase in interest expense related to the a full year incurring interest in 2007 as compared to the $13.0 million of debt that we established under our Credit Agreement that we entered into on March 9, 2006.  Our debt bears interest at the London Interbank Offering Rate or LIBOR plus 4.50%.  Additionally, in 2007, we expensed approximately $359,000 of deferred financing charges given the uncertainty of the maturity status of our Credit Agreement.

Other Income .  For the year ended December 31, 2007, we recorded approximately $0.9 million of other income from the elimination of a long-standing liability related to a subsidiary that was dissolved in 2007.

Income Taxes.  An income tax benefit of $0.6 million was recorded for the year ended December 31, 2007 as compared to a $0.2 million tax expense in 2006.  The tax benefit in 2007 primarily related to the expiration of a previously recorded tax contingency and the write-off of goodwill that was previously deducted for tax purposes.  In 2006, due to the uncertainty of the reversal of the goodwill timing difference, the deferred tax liability generated by the goodwill tax deduction was not offset against our deferred tax assets, and the related tax expense was recorded.

Comparison of the Year Ended December 31, 2006 and the Year Ended December 31, 2005

Net Sales.  Sales are recorded net of estimated returns and other allowances. The provision for sales returns represents management’s estimate of future returns based on historical experience and considering current external factors and market conditions. Net sales for the year ended December 31, 2006 were $7.5 million. Net sales for 2006 reflect the operating results of the Woodridge business from the March 9, 2006 acquisition date forward. During 2005, we had no business operations and no sales. The 2006 net sales include a $2.3 million charge for expected returns related to the March 2007 voluntary recall of certain DermaFreeze365™ products sold in 2006.

Gross Profit.   Gross profit for 2006 reflects the operating results of the Woodridge business from the March 9, 2006 acquisition date forward. Gross profit for the year ended December 31, 2006 was $2.2 million. The gross margin for the year ended December 31, 2006 was 29.1%. Included within gross profit for the year ended December 31, 2006 is a $1.4 million charge associated with the amortization of the step-up to fair value in the inventory acquired from Woodridge, as required by SFAS 141. Additionally, the 2006 gross profit includes a $0.2 million charge for inventory write-downs related to the March 2007 voluntary recall of certain DermaFreeze365™ products included in physical inventories at December 31, 2006. Excluding the inventory step-up charge and the recall charge, the gross margin for 2006 would have been approximately 65%, which is in the range we anticipate for our gross margin in the next several quarters. During the year ended December 31, 2005, we had no business operations and no gross profit.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses increased $5.7 million, to $7.8 million for the year ended December 31, 2006 from $2.1 million for the year ended December 31, 2005.  The increase in selling, general and administrative expenses from 2005 was almost entirely attributable to the expenses of the Woodridge business which were approximately $5.1 million. Selling, general and administrative expenses represented 104% of net sales for the year ended December 31, 2006. The selling, general and administrative expenses for the year ended December 31, 2006 as a percentage of net sales were adversely affected by not having business operations until March of 2006 and incurring $0.3 million in severance costs associated with relocating our corporate headquarters to California.

Interest Income.   Interest income decreased to $0.2 million for the year ended December 31, 2006 from $0.3 million for the year ended December 31, 2005. The decrease was due to the use of $11.8 million of cash on March 9, 2006 to acquire the Woodridge business, partially offset by an increase in the interest rate earned on cash balances.

Interest Expense.   Interest expense was $1.0 million for the year ended December 31, 2006. The interest expense was attributable to the $13.0 million of debt that we incurred under our Credit Agreement that we entered into on March 9, 2006. Substantially all of our debt under our Credit Agreement bore interest at LIBOR plus 3.75% during 2006. During the year ended December 31, 2006, our average debt outstanding was $12.4 million at an effective rate of 10.08% per annum, of which 0.84% relates to the amortization of financing costs. During the year ended December 31, 2005, we had no interest expense.

Income Taxes.   We recorded a $0.2 million deferred tax expense for the year ended December 31, 2006 to provide for goodwill which is deductible for tax purposes but not for book purposes. Due to the uncertainty of the reversal of the goodwill timing difference, the deferred tax liability generated by the goodwill tax deduction has not been offset against our deferred tax assets, which are primarily net operating losses. We expect to recognize a deferred tax expense of $0.3 million on a yearly basis in the future. No federal tax benefit was recorded for the loss incurred during the year ended December 31, 2006. We did record de minimis state tax expense in 2005.

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Liquidity and Capital Resources

As shown in the accompanying consolidated financial statements in this Annual Report on Form 10-K, we have incurred recurring net losses and have an accumulated deficit of $175.5 million, stockholder’s deficiency of $4.2 million and a working capital deficit of $12.8 million as of December 31, 2007.  Additionally, as described in more detail in Notes 8 and 15 to the accompanying consolidated financial statements, we are in default of our Credit Agreement and on April 16, 2008, we executed a non-binding Letter of Intent to sell substantially all of the assets of our sole operating subsidiary, Woodridge, to a company owned by the secured lenders in satisfaction of the under the Credit Agreement.  Should the proposed sale be consummated, we would be left with no operating assets to generate cash flows. Should the proposed sale not be consummated, we would seek alternative debt or equity financing.  To the extent alternative financing was not available, we would likely need to cease operations. These factors raise substantial doubt about our ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classification of liabilities that may result for the outcome of this uncertainty.

Net cash used in operating activities was $6.3 million for the year ended December 31, 2007 compared to $1.3 million for 2006. The primary component of net cash used in operating activities in 2007 was a $15.4 million net loss, a $1.3 million decrease in other long-term liabilities and a $2.0 accounts payable primarily related to the reduction of reclassified accounts receivable credits balances resulting from the provision for returns expected from the March 2007 recall originally recorded in the 2006 financial statements, offset by approximately $12.8 million of non-cash charges (primarily related to the intangible asset impairment charge, amortization of intangible assets, an inventory write-down, deferred taxes, and stock-based compensation).

Net cash provided by investing activities was $1.7 million for the year ended December 31 , 2007 primarily related to proceeds received from the escrow account used in the acquisition of the Woodridge business.  The cash used in investing activities of $23.4 million from the year ended December 31, 2006 substantially related to the original acquisition of the Woodridge business and to a much lesser extent, the purchase of property, plant and equipment, and the purchase of the Ellin LaVar brand.

Net cash provided by financing activities was $ 4.1 million and $10.2 million for the years ended December 31 , 2007 and 2006, respectively. In 2007, we had net additional borrowing on credit facilities under our Credit Agreement of $4.1 million.  In 2006, $13.0 million was obtained under our Credit Agreement, which included a $10.0 million fully drawn term loan and a $5.0 million revolving credit facility ($3.0 million of which was drawn at the closing of the Woodridge acquisition) and we subsequently repaid $0.8 million of our revolving credit facility and $0.5 million of our term loan.

Senior Secured Credit Facility

We entered into a Credit Agreement on March 9, 2006 for a $15.0 million senior secured credit facility, which was originally comprised of a $10.0 million fully-drawn term loan and a four-year $5.0 million revolving credit facility. The Credit Agreement was subsequently amended on March 29, 2007, April 17, 2007 and again on November 6, 2007.

The administrative agent for the lenders under the Credit Agreement determined that, as of March 29, 2007, certain events of default under the Credit Agreement had occurred as a consequence of the breach by Nextera and Woodridge of certain financial covenants as of December 31, 2006. Under an Amendment and Forbearance Agreement, the lenders agreed, during the forbearance period, to forbear the exercise of any and all rights and remedies to which the lenders are or may become entitled as a result of the default. The forbearance period began on March 29, 2007 and ended on April 30, 2007.

On April 17, 2007, we entered into an amendment agreement under the Credit Agreement (the “Second Amendment”). Under the terms of the Second Amendment, the revolving credit facility was reduced from $5.0 million to $2.75 million.

On November 6, 2007, we again entered into an amendment agreement under the Credit Agreement (the “Third Amendment”). Under the terms of the Third Amendment, we obtained a bridge loan credit facility aggregating $2.5 million. Pursuant to the Third Amendment, the bridge loan facility, the term loan and the revolving credit facility will bear interest at the London Interbank Offered Rate (“LIBOR”) plus 5.0%, or bank base rate plus 4.0%, as selected by us. Outstanding borrowings under the bridge loan facility must be repaid with cash balances in excess of $500,000 through the final maturity of May 31, 2008. Outstanding borrowings under the term loan must be repaid in four quarterly payments, commencing March 31, 2008, with a final payment due on March 31, 2009, the maturity date of the term loan. The maturity date for the revolving credit facility is also March 31, 2009.

The Credit Agreement, as amended, contains certain restrictive financial covenants, including minimum consolidated EBITDA, minimum purchase order levels and maximum corporate overhead, as defined therein.  The obligations of Woodridge, as borrower, under the Credit Agreement are guaranteed by Nextera and all of the direct and indirect domestic subsidiaries of Woodridge and Nextera.

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On March 31, 2008, an installment of principal of the term loans in an aggregate amount equal to $250,000 became due and payable under the Credit Agreement.  The March 31 Installment remains unpaid.  Additionally, we have furnished the administrative agent of the Credit Agreement with financial information showing that, as of January 31, 2008, we failed to comply with the minimum consolidated EBITDA financial covenant applicable to the measurement period ending January 31, 2008.  As a consequence of the failure to pay the March 31 Installment, and the failure to comply with this financial covenant, events of default have occurred under the Credit Agreement (collectively, “Specified Events of Default”).  No cure periods or grace periods are applicable to the Specified Events of Default.  The Specified Events of Default have not been waived and are continuing under the Credit Agreement. Accordingly, all amounts outstanding under the Credit Agreement have been classified as current liabilities in the accompanying balance sheet as of December 31, 2007.  Note 15 to the accompanying consolidated financial statements describes a proposed transaction to satisfy the obligations under the Credit Agreement, but we cannot be assured that the proposed transaction will be consummated on the terms described therein or at all.

We have an interest rate collar agreement to hedge the LIBOR interest rate risk on $5.0 million of the term loan. Under the terms of this agreement, we will pay a 6% fixed rate if the three-month LIBOR rate exceeds 6% and in return will receive the three-month LIBOR rate. In addition, if the three-month LIBOR rate falls below 5%, we will pay a 5% fixed rate and in return will receive the three-month LIBOR rate. The effect of this agreement is therefore to convert the floating three-month LIBOR rate to a fixed rate if the three-month LIBOR rate exceeds 6% or falls below 5%. The three-month LIBOR rate received under the agreement will substantially match the rate paid on the term loan since term loan currently bears interest at the six-month LIBOR rate. The fair value of the collar was ($97,000) at December 31, 2007.

Certain Contractual Obligations, Commitments and Contingencies

The following summarizes our significant contractual obligations and commitments at December 31, 2007 that impact its liquidity.

We have no other material commitments.

Off Balance Sheet Arrangements

We have not entered into any off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

New Accounting Standards

Please refer to Note 2 of the Notes to the consolidated financial statements for a discussion of new accounting pronouncements and the potential impact to our consolidated results of operations and consolidated financial position.

Critical Accounting Policies

Our significant accounting policies are described in Note 2 to the consolidated financial statements. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the realizability of outstanding accounts receivable and deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates under different assumptions or conditions.

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We have identified the following critical accounting policies based on significant judgments and estimates used in determining the amounts reported in our consolidated financial statements and have discussed the development and selection of such critical accounting policies with the Audit Committee of the board of directors.

Going Concern .   As shown in the accompanying consolidated financial statements, we have incurred recurring net losses and have an accumulated deficit of $175.5 million, stockholders’ deficit of $4.2 million and a working capital deficiency of $12.8 million as of December 31, 2007.  Additionally, as described in more detail in Notes 8 and 15, we are in default of our Credit Agreement and on April 16, 2008, we executed a non-binding Letter of Intent to sell substantially all of the assets of our sole operating subsidiary, Woodridge, to a company owned by the secured lenders in satisfaction of the obligations under the Credit Agreement.  Should the proposed sale described in Note 15 be consummated, we would be left with no operating assets to generate cash flows.  Should the proposed sale not be consummated, we would seek alternative debt or equity financing.  To the extent alternative financing was not available, we would likely need to cease operations.

Revenue Recognition.  Sales are recognized when title and risk of loss transfers to the customer, the sales price is fixed or determinable and collectibility of the resulting receivable is probable. Sales are recorded net of estimated returns and other allowances. The provision for sales returns represents management’s estimate of future returns based on historical experience and considering current external factors and market conditions.

Allowances for Sales Returns and Markdowns.  Our sales return accrual is a subjective critical estimate that has a direct impact on reported net sales. As is customary in the industry, we grant certain of our customers, subject to our authorization and approval, the right to either return products or to receive a markdown allowance for certain promotional product. Upon sale, we record a provision for product returns and markdowns estimated based on our historical and projected experience, economic trends and changes in customer demand. There is considerable judgment used in evaluating the factors influencing the allowance for returns and markdowns, and therefore additional allowances in any particular period may be needed. The types of known or anticipated events that we have considered, and will continue to consider, include, but are not limited to, the solvency of our customers, store closings by retailers, changes in the retail environment, including mergers and acquisitions, and our decision to continue or support new and existing products. Actual sales returns and markdowns may differ significantly, either favorably or unfavorably, from our estimates.

Provisions for Inventory Obsolescence.  We record a provision for estimated obsolescence of inventory. Our estimates consider the cost of inventory, forecasted demand, the estimated market value, the shelf life of the inventory and our historical experience. If there are changes to these estimates, additional provisions for inventory obsolescence may be necessary.

Goodwill and Other Intangible Assets.  Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Other intangible assets principally consist of purchased royalty rights and trademarks. Goodwill and other intangible assets that have an indefinite life are not amortized.

On an annual basis, or sooner if certain events or circumstances warrant, we test goodwill and other intangible assets for impairment. To determine the fair value of these intangible assets, there are many assumptions and estimates used that directly impact the results of the testing. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose. To mitigate undue influence, we use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management.

Deferred tax assets.  As of December 31, 2007, we had net operating losses of approximately $61.2 million that begin to expire in 2021, for which a 100% valuation allowance has been recorded. The realization of these assets is based upon estimates of future taxable income. A full valuation allowance against the net operating loss carryforwards, along with all other deferred tax assets, has been established to reflect the uncertainty of the recoverability of this asset. The valuation allowance will be reviewed periodically to determine its appropriateness. The utilization of this asset in the future is dependent upon our having U.S. federal taxable income. Prior to the Transaction, we had no operations and did not generate any U.S. taxable income to utilize the net operating loss carryforwards. Even after the Transaction, there can be no assurance that we will be able to generate taxable income. Furthermore, the likelihood of an annual limitation on our ability to utilize the net operating loss carryforwards to offset future U.S. federal taxable income is increased by (1) the issuance of certain convertible preferred stock, options, warrants, or other securities exercisable for common stock, (2) changes in the equity ownership occurring in the last three years and (3) potential future changes in the equity ownership. The amount of an annual limitation can vary significantly based on factors existing at the date of an ownership change. A substantial portion of the net operating loss has been used to offset our U.S. federal tax liability, other than alternative minimum tax, generated by the sale of the economic consulting business.

ITEM 7a. Quantitative and Qualitative Disclosure of Market Risk.

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.

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ITEM 8.                                  Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Nextera Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of Nextera Enterprises, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ (deficit) equity and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nextera Enterprises, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that Nextera Enterprises, Inc. will continue as a going concern.  As more fully described in Note 2 to the consolidated financial statements, the Company has incurred recurring operating losses, an accumulated and total stockholders’ deficit and a working capital deficiency. In addition, the Company is also in default of its Credit Agreement. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

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Nextera Enterprises, Inc.

Consolidated Balance Sheets

(Dollar amounts in thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

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Nextera Enterprises, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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NEXTERA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICT) EQUITY

(Amounts in thousands, except per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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Nextera Enterprises, Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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NEXTERA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007

1.                  Nature of Business

On March 9, 2006, Nextera Enterprises, Inc. (“the Company” or “Nextera”), through a wholly owned subsidiary, acquired substantially all of the assets of Jocott Enterprises, Inc. (“Jocott”), formerly Woodridge Labs, Inc. Subsequently, the wholly owned subsidiary was renamed Woodridge Labs, Inc. As used herein, the term “Woodridge” refers to Jocott for all periods prior to March 9, 2006 and to Nextera’s wholly owned subsidiary Woodridge Labs, Inc. from and after March 9, 2006. Prior to the acquisition of the Woodridge assets, Nextera had no business operations for the period from November 29, 2003 through March 8, 2006. Woodridge’s financial results have only been included for the period subsequent to the acquisition, March 9, 2006.

Woodridge, Nextera’s sole operating business, is an independent developer and marketer of branded consumer products that offer solutions to niche personal care needs. Brands sold by Woodridge include Vita-K Solution, DermaFreeze 365™, Ellin LaVar Textures™, Skin Appetit™, 40 Carrots™, Virtual Laser™, Psssssst®, Stoppers-4®, Bath Lounge™, Vita-C2™, Firminol-10® and TurboShave®.

Mounte LLC (“Mounte,” successor to Krest, LLC, Knowledge Universe LLC and Knowledge Universe, Inc.) controls a majority of the voting power of the Company’s equity securities through its ownership of the Company’s Class A Common Stock, Class B Common Stock, Series A Cumulative Convertible Preferred Stock and  Series B Cumulative Non-Convertible Preferred Stock.

2.                  Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Going Concern

As shown in the accompanying consolidated financial statements, the Company has incurred recurring net losses and has an accumulated deficit of $175.5 million, stockholders’ deficit of $4.2 million and a working capital deficiency of $12.8 million as of December 31, 2007.  Additionally, as described in more detail in Notes 8 and 15, the Company is in default of its Credit Agreement and on April 16, 2008, the Company executed a non-binding Letter of Intent to sell substantially all of the assets of its sole operating subsidiary, Woodridge, to a company owned by the secured lenders in satisfaction of the obligations of Woodridge and the Company under the Credit Agreement.  Should the proposed sale described in Note 15 be consummated, the Company would be left with no operating assets to generate cash flows.  Should the proposed sale not be consummated, the Company would seek alternative debt or equity financing.  To the extent alternative financing was not available, the Company would likely need to cease operations.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classification of liabilities that may result for the outcome of this uncertainty.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and demand deposit accounts.  The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value.

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Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents in various financial institutions with high credit ratings and, by policy, limits the amount of credit exposure to any one financial institution.

Concentrations of credit risk with respect to accounts receivable exists due to a limited number of customers that make up the Company’s customer base. Three customers accounted for 79% of gross accounts receivable as of December 31, 2007. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains allowances for doubtful accounts for specifically identified estimated losses resulting from the inability of its customers to make required payments. Gross sales (net sales prior to customer deductions) to the Company’s three largest customers made up 69% of total gross sales in 2007.

Revenue Recognition, Allowances for Sales Returns and Markdowns

Sales are recognized when title and risk of loss transfer to the customer, the sales price is fixed or determinable and the collection of the resulting receivable is probable. Sales are recorded net of estimated returns and other allowances. The provision for sales returns represents management’s estimate of future returns based on historical experience and considering current external factors and market conditions.

The sales-return accrual is a subjective critical estimate that has a direct impact on reported net sales.  As is customary in the industry, the Company grants certain of its customers, subject to authorization and approval, the right to either return products or to receive a markdown allowance for certain promotional product. Upon sale, the Company records a provision for product returns and markdowns estimated based on historical and projected experience, economic trends and changes in customer demand. There is considerable judgment used in evaluating the factors influencing the allowance for returns and markdowns, and therefore additional allowances in any particular period may be needed.  The types of known or anticipated events that the Company has considered, and will continue to consider, include, but are not limited to, the solvency of its customers, store closings by retailers, changes in the retail environment, including mergers and acquisitions, and the Company’s decision to continue or support new and existing products. Actual sales returns and markdowns may differ significantly, either favorably or unfavorably, from these estimates.

Advertising, Promotion and Marketing

All costs associated with advertising, promoting and marketing (including promotions, direct selling, co-op advertising and media placement) of Company products are expensed as incurred and charged to selling, general and administrative expense. Advertising and promotion expenses were approximately $1.2 million and $1.9 million for the years ended December 31, 2007 and 2006, respectively.

Shipping and Handling Costs

Substantially all costs of shipping and handling of products to customers are included in selling, general and administrative expense.  Shipping and handling costs were approximated $0.4 million and $0.5 million for the years ended December 31, 2007 and 2006, respectively.

Inventories

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

Provisions for Inventory Obsolescence

The Company records a provision for estimated obsolescence of inventory. These estimates consider the cost of inventory, forecasted demand, the estimated market value, the shelf life of the inventory and our historical experience. If there are changes to these estimates, additional provisions for inventory obsolescence may be necessary.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment is provided on the straight line method based on the estimated lives of the assets. The principal estimated useful lives used in computing depreciation and amortization, are as follows:

Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the asset.

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Accounting for Acquisitions and Intangible Assets

  The Company has accounted for its acquisitions under the purchase method of accounting for business combinations. Under the purchase method of accounting, the costs, including transaction costs, are allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income. For example, different classes of assets will have useful lives that differ and the useful life of property, plant and equipment acquired will differ substantially from the useful life of brand licenses and trademarks. Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset, net income in a given period may be higher.

Determining the fair value of certain assets and liabilities acquired is judgmental in nature and often involves the use of significant estimates and assumptions. One of the areas that require more judgment is determining the fair value and useful lives of intangible assets. To assist in this process, the Company often obtains appraisals from independent valuation firms for certain intangible assets.

The Company’s intangible assets primarily consist of customer relationships, non-compete covenants, exclusive brand licenses and trademarks. The value of the intangible assets, including customer relationships and other intangibles, is exposed to future adverse changes if the Company experiences declines in operating results or experiences significant negative industry or economic trends. The Company periodically reviews intangible assets, at least annually or more often as circumstances dictate, for impairment and the useful life assigned using the guidance of applicable accounting literature.

Long-Lived Assets

The Company reviews for the impairment of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Deferred Financing Costs

The Company has incurred costs in connection with its credit agreement. Costs directly associated with financings are capitalized as deferred financing costs and are amortized over the weighted average life of the long-term credit facility.

Basic and Diluted Earnings Per Common Share

The Company presents two earnings per share amounts, basic earnings per common share and diluted earnings per common share. Basic earnings per common share includes only the weighted average shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. The dilutive effects of options, warrants and convertible securities are added to the weighted average shares outstanding in computing diluted earnings per common share. For the years ended December 31, 2007 and 2006, basic and diluted earnings per common share are the same due to the antidilutive effect of potential common shares outstanding.

Income Taxes

At any one time the Company’s tax returns for many tax years are subject to examination by U.S. Federal, foreign, and state taxing jurisdictions. The Company establishes tax liabilities in accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized in the financial statements unless it is more-likely-than-not to be sustained. The Company adjusts these tax liabilities, as well as the related interest and penalties, based on the latest facts and circumstances, including recently published rulings, court cases, and outcomes of tax audits. To the extent our actual tax liability differs from our established tax liabilities for unrecognized tax benefits, the Company’s effective tax rate may be materially impacted. While it is often difficult to predict the final outcome of, the timing of, or the tax treatment of any particular tax position or deduction, the Company believes that its tax balances reflect the more-likely-than-not outcome of known tax contingencies.  There are no income tax examinations currently in process.

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Share-Based Compensation

All share-based payments to employees, including the grant of employee stock options, are recognized in the condensed consolidated financial statements based on their fair value. Compensation cost for awards that vest will not be reversed if the awards expire without being exercised. The fair value of stock options is determined using the Black-Scholes option-pricing model. Compensation costs for awards are amortized using the straight-line method. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions are based on or determined from external data and other assumptions are derived from historical experience. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.

The Company relies on its historical experience and post-vested termination activity to provide data for estimating its expected term for use in determining the fair value of its stock options. The Company currently estimates its stock volatility by considering its historical stock volatility experience and other key factors. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the input to the Black-Scholes model. The Company estimates forfeitures using its historical experience. The estimates of forfeitures will be adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from their estimates.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, receivables, short-term payables and the debt under its Credit Agreement. The carrying amounts of cash, receivables, and short-term payables approximate fair value due to their short-term nature.  The carrying amounts of the debt under the Credit Agreement approximates fair value based on interest rates currently available.

Other Income

For the year ended December 31, 2007, the Company recorded approximately $0.9 million of other income from the elimination of a long-standing liability related to a subsidiary that was dissolved in 2007.

Comprehensive Loss

Other than the net loss incurred during the years ended December 31, 2007 and 2006, there were no additional other components of comprehensive loss.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) Statement No. 157, Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value measurements. SFAS 157 applies whenever other statements require or permit assets or liabilities to be measured at fair value and is effective for fiscal years beginning after November 15, 2007.  In December 2007, the FASB released a proposed FASB Staff Position (FSP SFAS 157b – Effective Date of FASB Statement No. 157) which, if adopted, would delay the effective date of SFAS No. 157 for all non-financial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of SFAS 157 are not expected to have a material impact on the Company’s consolidated financial statements.

In February 2007, the F ASB issued SFAS 159, “ The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115 .” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of SFAS 159 on the Company’s consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”) and Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 141(R) and SFAS 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity.  Both statements are effective for fiscal years beginning after December 15, 2008. Statement 141(R) will be applied to business combinations occurring after the effective date. Statement 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. The Company has not determined the effect, if any, the adoption of SFAS 141(R) and SFAS 160 will have on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities .” This standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact, if any, that this statement will have on its disclosures related to hedging activities.

3.                  Acquisitions

Woodridge Labs, Inc

On March 9, 2006, the Company, through W Lab Acquisition Corp., its wholly owned subsidiary, acquired substantially all of the assets of Jocott Enterprises, Inc., which is referred to as Jocott in these financial statements. Jocott formerly operated under the name “Woodridge Labs, Inc.”  The assets of Jocott were acquired pursuant to an asset purchase agreement, which agreement is referred to as the Purchase Agreement in these financial statements. The acquisition of the assets of Jocott and all related transactions are referred to in these financial statements as the Transaction. Subsequently, W Lab Acquisition Corp. was renamed Woodridge Labs, Inc. As used in these financial statements, the term “Woodridge” refers to Jocott for all periods prior to March 9, 2006 and to our wholly owned subsidiary Woodridge Labs, Inc. from and after March 9, 2006. The financial results of Woodridge from March 9, 2006 through December 31, 2006 have been included within the financial results for the year ended December 31, 2006.

The purchase price comprised:

·        $23.2 million in cash, including $0.8 million of acquisition expenses paid to third parties;

·        8,467,410 unregistered restricted shares of Nextera’s Class A Common Stock constituting approximately 20% of the total outstanding common stock of Nextera immediately after such issuance, which shares were issued to Jocott. Such shares had a value of $4.2 million on the date of the Transaction; and

·        the assumption of a promissory note of Jocott in the principal amount of $1.0 million, which assumed debt was paid in full by the Company on the closing date of the Transaction.

$2.0 million of the cash portion of the purchase price was held in escrow until March 2007 at which time $0.5 million was withdrawn from the escrow account and distributed to Nextera by Jocott as a deposit under an Indemnity Deposit Agreement entered into between Nextera, Woodridge and Jocott on March 29, 2007. An additional $1.5 million was withdrawn from the escrow account in April 2007 and these funds were also distributed to Nextera by Jocott as a deposit under a separately executed Funding

Agreement entered into between Nextera, Mount and Jocott on April 16, 2007. Under the terms of the Funding Agreement, Nextera and Woodridge will keep the irrevocable deposit in full satisfaction of certain claims for indemnification that Nextera or Woodridge may have against the sellers under the Purchase Agreement. The payment of any remaining indemnification obligations of Jocott was also secured through September 2007 by a pledge of the unregistered restricted shares of Nextera’s Class A Common Stock issued to Woodridge in connection with the Purchase Agreement. The acquisition was accounted for under the purchase method of accounting in accordance with SFAS No. 141 (SFAS 141), “ Business Combinations .”  Under the purchase method of accounting, the total estimated purchase price is allocated to the net tangible and intangible identifiable assets and liabilities based on their estimated relative fair values. The excess purchase price over those assigned values was recorded as goodwill. Goodwill recorded as a result of this acquisition is deductible for tax purposes. The purchase price allocation follows:

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The 2006 net loss and loss from continuing operations includes a $2.6 million charge for expected returns and a write-down of inventories related to the March 2007 voluntary recall of certain DermaFreeze365™ products sold by Woodridge in 2006 or included in physical inventories at December 31, 2006.

LaVar Acquisition

On May 23, 2006, Woodridge entered into a purchase agreement with LaVar Holdings, Inc., whereby Woodridge acquired the exclusive worldwide license rights, along with certain assets and proprietary rights, to the Ellin LaVar Textures™ hair care product line and brand name. The total purchase price, which includes approximately $0.1 million of deal costs, was approximately $0.5 million. Woodridge is required to pay a royalty to LaVar Holdings, Inc. with respect to certain sales of products under the trademarks acquired from it.

Heavy Duty Acquisition

On March 8, 2007, Woodridge entered into a purchase agreement with Heavy Duty Company and Alexandra Volkmann, whereby Woodridge acquired certain assets, including the Heavy Duty™ and other trademarks and a copyright. The total purchase price, which includes approximately $0.1 million of deal costs, was approximately $0.3 million. Woodridge will pay a royalty to Heavy Duty Company with respect to certain future sales of products under the trademarks acquired from Heavy Duty Company and Alexandra Volkmann.

KKG Body Fuel Enterprises License Agreement

On June 21, 2007, the Company entered into an Intellectual Property License Agreement with KKG Body Fuel Enterprises, Incorporated and Keri Glassman, whereby we acquired certain rights and licenses to use various trademarks names and slogans. The consideration consisted of a non-refundable guaranteed royalty payment of $0.1 million in the first year and minimum royalty payments of $0.1 million in each of the next three years.

Additionally, on June 25, 2007 the Company entered into an Independent Contractor Agreement with KKG Body Fuel Enterprises which provides a monthly fee of $5,000 plus expenses, a stock issuance of 200,000 shares of our Class A Common Stock and a stock option to purchase 400,000 shares of our Class A Common Stock in exchange for promotional services from Keri Glassman.  The effective date of the agreement is July 24, 2007.

4.                  Inventories

Inventories consist of the following:

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5.               Intangible Assets

Intangible assets consist of the following:

The value of the intangible assets, including customer relationships and other intangibles, is exposed to future adverse changes if the Company experiences declines in operating results or experiences significant negative industry or economic trends. The Company periodically reviews intangible assets, at least annually or more often as circumstances dictate, for impairment and the useful life assigned using the guidance of applicable accounting literature.  As described in Note 15, the Company executed a non-binding Letter of Intent (“LOI”) to sell substantially all of the assets of its sole operating subsidiary, Woodridge, including the underlying intangible assets in satisfaction of the obligations of Woodridge and the Company under its Credit Agreement.  Based on the terms of the LOI, the Company determined that the carrying amount of goodwill and other intangible assets were not recoverable as carrying amounts exceeded the fair value. The terms of the LOI were used to determine the implied fair value of goodwill and intangible assets.  Based of this implied fair value, an impairment loss charge of $10.9 million was recognized in December 2007.

6.                  Property and Equipment

Property and equipment consists of the following:

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7.                  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following: