$NRTI Form 10-K

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read with the financial statements and accompanying notes included elsewhere in this Form 10-K and the information described under the captions “Business”, “Risk Factors ” and “Forward-Looking Statements” above. The following discussion is intended to assist the reader in understanding and evaluating our financial position.

Results of Operations for the year ended December 31, 2014 compared to the year ended December 31, 2013:

Total revenues generated from the sales of Surgex�, Bikini Ready�, SlimTrim and Martha Stewart� Essentials for the year ended December 31, 2014 totaled $1,991,688 an increase of 135% from the year ended December 31, 2013 which totaled $847,834.

At this stage in our development, revenues are not yet sufficient to cover ongoing operating expenses.

Gross profits for the year ended December 31, 2014 amounted to $520,354 for a 26% gross margin. Gross profits increased $275,526 or 113% for the year ended December 31, 2014 compared to $244,828 for the year ended December 31, 2013 with a 29% gross profit margin in 2013. The increase in gross profits and gross margin is a result of higher revenue from more brands with more retail distribution.

After deducting research and development costs of $23,944 and selling, general and administrative expenses of $7,419,867, which included an increase of $972,882 in non-cash outlays in the form of restricted stock issued for compensation, we realized an operating loss of $6,923,457. Operating losses for 2014 of $6,923,457 were up $632,524 or 10% as compared to the 2013 operating loss of $6,290,933. The overall increase was offset by approximately $323,139 decrease due to lower outside consulting fees for pro athletes and $263,314 for other experts in mass market distribution. The license expense increased approximately $379,104 compared to 2013, since 2014 was the first full year of a license agreement with minimum royalty payments. Promotion and marketing expense for the brands increased approximately $331,898 due to increase awareness. Warrant expense decreased approximately $175,000.

Other income and expense, net totaled $1,568,704 for the year ended December 31, 2014 an increase of 26% or $320,100 as compared to $1,248,604 for the year ended December 31, 2013. A net gain of $46,978 was realized in connection with debt restructuring which occurred in 2013 versus zero in 2014. In 2014 there was a gain on the fair market valuation of the derivatives in the amount of $1,167,000 versus a loss of $91,000 in 2013. These income items are offset by losses and expenses in regards to the amortization of debt discount which is $1,373,143 in 2014 an increase of $928,693 from $444,450 in 2013 due to the additional debt issued in 2014 with associated origination fees. There was a loss from the extinguishment of debt in the amount of $176,496 in 2014 versus zero in 2013. There was a loss from warrants and derivatives issued with debt greater than the carrying value in the amount of $185,000 in 2014 versus zero in 2013. Interest and financing expense was $1,001,065 in 2014 increased by $240,933 from $760,132 in 2013 due to the addition debt issued in 2014.

We sold the net operating loss carry forward for the State of New Jersey in the Technology Business Tax Certificate Transfer Program. We were approved to sell $375,645 for the year ended December 31, 2014. The proceeds were collected in January 2015 net of fees. We were approved to sell $3,357,144 for the year ended December 31, 2013. The proceeds were collected in January 2014 net of fees.

Preferred dividends of $1,371,006 for the year ended December 31, 2014 decreased 12% or $189,194 as compared to $1,560,200 for the year ended December 31, 2013. The decrease was due to the lower price of the common stock which the preferred shares are convertible into.

The net result for the year ended December 31, 2014 was a loss of $9,489,022 or $0.11 per share, compared to a loss of $5,748,092 or $0.10 per share for the prior year. Management will continue to make an effort to lower operating expenses and increase revenue. We will continue to invest in further expanding our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting our name and products. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects them to significantly decrease as a percentage of revenues as revenues increase.

Disclosure About Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Critical Accounting Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this filing.

Liquidity and Capital Resources

Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes, but cannot assure, that they can raise the appropriate funds needed to support our business plan and develop an operating, cash flow positive company. We have been operating with negative cash flows for over 12 years.

We incurred substantial net losses for the year ended December 31, 2014 and have accumulated a deficit of $92,855,018 at December 31, 2014. We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations. These factors raise substantial doubt about our ability to continue as a going concern. We have never reported Net Income.

The consolidated financial statements included herein do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should we be unable to continue as a going concern.

Our business operations generally have been financed by debt investments through promissory notes with accredited investors. During the year ended December 31, 2014 and 2013, we obtained new debt from the issuance of promissory notes that supplied the funds that were needed to finance operations during the reporting period. The new issuance of debt requires conversion of existing debt which may not be able to convert on favorable terms. Such new borrowings resulted in the receipt by us of $3,060,030 and $3,331,688, respectively. While these funds sufficed to compensate for the negative cash flow from operations they were not sufficient to build up a liquidity reserve. As a result, our financial position at December 31, 2014 showed a working capital deficit of $10,628,954. During the first three months of 2015, we obtained new financing sufficient to fund ongoing working capital requirements. We need to continue to raise funds to cover working capital requirements until we are able to raise revenues to a point of positive cash flow. For the period January 1, 2015 through April 7, 2015, we obtained new debt from the issuance of promissory notes that supplied the funds that were needed to finance operations during the that period. The recent issuance of the Debentures to Union Capital, LLC, 31 Group, LLC and Macallan Partners, LLC requires conversion of existing debt which may not be able to convert on favorable terms. Such new borrowings resulted in the receipt by us of approximately $335,000.

Pursuant to our license agreement with Martha Stewart Living Omnimedia, Inc. (“MSLO”), we are required to make minimum royalty payments totaling $2,100,000, $2,700,000, $3,200,000 and $3,800,000 for each of the years ended 2015, 2016, 2017 and 2018, respectively. We have made all requisite royalties payments through June 2014. We were not able to make the payment that was due July 1, 2014 in the amount of $450,000 nor payment due January 1, 2015 in the amount of $525,000 or the payment due April 1, 2015 in the amount of $525,000. We are in discussions with MSLO to work out terms of payment. If we are unable to come to acceptable terms, we would be in default of the terms of the license agreement.

Effects of Inflation

We are subject to price risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation risk is material to our business or our consolidated financial position, results of operations, or cash flows.