**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

(Mark One)

**x****  QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended June 30, 2007**

**OR**

**o****  TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from             to**

**CommissionFile Number 000-25995**

**NEXTERAENTERPRISES, INC.**

(Exact name ofregistrant as specified in its charter)

| **Delaware**                     |   | **95-4700410**          |
|----------------------------------|--------|-------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer        |
| incorporation or  organization)  |   | Identification  Number) |

 

**14320 Arminta Street, PanoramaCity, California, 91402**

(Address ofprincipal executive office, including zip code)

**(818) 902-5537**

(Registrant’stelephone number, including area code)

Indicateby check mark whether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. YES x NO  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Exchange Act Rule 12b-2.

Largeaccelerated filer  o Acceleratedfiler  o Non-accelerated filer x

Indicate by check mark whether theregistrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

YES o NO  x

Asof August 7, 2007, 38,692,851sharesof registrant’s Class A Common Stock, $0.001 par value, were outstanding and3,844,200 shares of registrant’s Class B Common Stock, $0.001 par value, wereoutstanding.

 

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**NEXTERA ENTERPRISES, INC.**

**Quarterly Report on Form 10-Q**

**for theQuarter Ended June 30, 2007**

**INDEX**
| PART I. FINANCIAL  INFORMATION |       |                                                                                                                           |
|--------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|
|                           |       |                                                                                                                           |
| Item 1.                        |       | Financial  Statements.                                                                                                         |   |   |
|                           |       |                                                                                                                           |   |   |
|                           |       | Condensed  Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 31,  2006                                  |   |   |
|                           |       |                                                                                                                           |   |   |
|                           |       | Condensed  Consolidated Statements of Operations for the Three Months and Six Months  Ended June 30, 2007 and 2006 (unaudited) |   |   |
|                           |       |                                                                                                                           |   |   |
|                           |       | Condensed  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007  and 2006 (unaudited)                  |   |   |
|                           |       |                                                                                                                           |   |   |
|                           |       | Notes  to Unaudited Condensed Consolidated Financial Statements                                                                |   |   |
|                           |       |                                                                                                                           |   |   |
| Item 2.                        |       | Management's  Discussion and Analysis of Financial Condition and Results of Operations.                                        |   |   |
|                           |       |                                                                                                                           |   |   |
| Item 3.                        |       | Quantitative  and Qualitative Disclosures About Market Risk.                                                                   |   |   |
|                           |       |                                                                                                                           |   |   |
| **Item 4.**                    | ** ** | **Controls and  Procedures.**                                                                                                  |   |   |
|                           |       |                                                                                                                           |   |   |
| PART II. OTHER  INFORMATION    |       |                                                                                                                           |
|                           |       |                                                                                                                           |   |   |
| Item 1A.                       |       | Risk Factors.                                                                                                                  |   |   |
|                           |       |                                                                                                                           |   |   |
| Item 2.                        |       | Unregistered  Sales of Equity Securities and Use of Proceeds.                                                                  |   |   |
|                           |       |                                                                                                                           |   |   |
| Item 4.                        |       | Submission  of Matters to a Vote of Security Holders.                                                                          |   |   |
|                           |       |                                                                                                                           |   |   |
| Item  6.                       |       | Exhibits.                                                                                                                      |   |   |
|                           |       |                                                                                                                           |   |   |
|                           |       | Signatures.                                                                                                                    |   |   |
|                           |       |                                                                                                                           |
| Exhibit 4.1                    |       |                                                                                                                           |
| Exhibit 4.2                    |       |                                                                                                                           |
| Exhibit 4.3                    |       |                                                                                                                           |
| Exhibit 4.4                    |       |                                                                                                                           |
| Exhibit 10.1                   |       |                                                                                                                           |
| Exhibit 10.2                   |       |                                                                                                                           |
| Exhibit 31.1                   |       |                                                                                                                           |
| Exhibit 31.2                   |       |                                                                                                                           |
| Exhibit 32.1                   |       |                                                                                                                           |
| Exhibit 32.2                   |       |                                                                                                                           |

 

2

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**PART I****                   FINANCIALINFORMATION**

**ITEM 1.****                 FINANCIALSTATEMENTS.**

**NexteraEnterprises, Inc.**

**CondensedConsolidated Balance Sheets**

**(Amountsin thousands, except share amounts)**
| ** **                                                                                                                                                               | ** ** | **June 30, 2007  (Unaudited)** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                                               |       |                                     |       |                        |       |
| Current assets:                                                                                                                                                          |       |                                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                               |       | $                                        | 108        |                        | $          | 597 |   |
| Inventories                                                                                                                                                              |       | 1,911                                    |       | 2,595                       |       |
| Due from  supplier                                                                                                                                                       |       | —                                   |       | 127                         |       |
| Prepaid expenses  and other current assets                                                                                                                               |       | 471                                      |       | 260                         |       |
| Total current assets                                                                                                                                                     |       | 2,490                                    |       | 3,579                       |       |
|                                                                                                                                                                     |       |                                     |       |                        |       |
| Property and equipment,  net                                                                                                                                             |       | 265                                      |       | 284                         |       |
| Goodwill                                                                                                                                                                 |       | 8,969                                    |       | 10,969                      |       |
| Intangible assets, net                                                                                                                                                   |       | 12,589                                   |       | 12,827                      |       |
| Other assets                                                                                                                                                             |       | 508                                      |       | 484                         |       |
| Total assets                                                                                                                                                             |       | $                                        | 24,821     |                        | $          | 28,143 |   |
|                                                                                                                                                                     |       |                                     |       |                        |       |
| **Liabilities and Stockholders’  Equity**                                                                                                                           |       |                                     |       |                        |       |
| Current liabilities:                                                                                                                                                     |       |                                     |       |                        |       |
| Accounts payable  and accrued expenses                                                                                                                                   |       | $                                        | 2,544      |                        | $          | 4,364 |   |
| Current portion  of long-term debt                                                                                                                                       |       | 500                                      |       | —                      |       |
| Total current  liabilities                                                                                                                                               |       | 3,044                                    |       | 4,364                       |       |
|                                                                                                                                                                     |       |                                     |       |                        |       |
| Long-term debt, net of  current portion                                                                                                                                  |       | 9,000                                    |       | 11,718                      |       |
|                                                                                                                                                                     |       |                                     |       |                        |       |
| Deferred taxes                                                                                                                                                           |       | 356                                      |       | 236                         |       |
| Other long-term liabilities                                                                                                                                              |       | 1,334                                    |       | 1,334                       |       |
| Commitments and  contingencies                                                                                                                                           |       | —                                   |       | —                      |       |
|                                                                                                                                                                     |       |                                     |       |                        |       |
| Redeemable Preferred  Stock, $0.001 par value. Liquidation preference of $100 per share:                                                                                 |       |                                     |       |                        |       |
| Series B  Cumulative Non-Convertible, 200,000 authorized shares designated, 25,355 and  0 issued and outstanding at June 30, 2007 and December 31, 2006,  respectively.  |       | 1,889                                    |       | —                      |       |
| Series C  Cumulative Non-Convertible, 200,000 authorized shares designated, none  outstanding at June 30, 2007 and December 31, 2006.                                    |       | —                                   |       | —                      |       |
|                                                                                                                                                                     |       |                                     |       |                        |       |
| Stockholders’ equity:                                                                                                                                               |       |                                     |       |                        |       |
| Preferred Stock,  $0.001 par value, 10,000,000 shares authorized. Liquidation preference of  $100 per share:                                                             |       |                                     |       |                        |       |
| Series A  Cumulative Convertible, 600,000 authorized shares designated, 54,445 and  52,429 issued and outstanding at June 30, 2007 and December 31, 2006,  respectively. |       | 5,445                                    |       | 5,243                       |       |
| Class A Common  Stock, $0.001 par value, 95,000,000 shares authorized, 38,492,851shares  issued and outstanding at June 30, 2007 and December 31, 2006, respectively     |       | 38                                       |       | 38                          |       |
| Class B Common  Stock, $0.001 par value, 4,300,000 shares authorized, 3,844,200 shares issued  and outstanding at June 30, 2007 and December 31, 2006, respectively      |       | 4                                        |       | 4                           |       |
| Additional  paid-in capital                                                                                                                                              |       | 165,779                                  |       | 165,218                     |       |
| Accumulated  deficit                                                                                                                                                     |       | (162,068                                 | )          | (160,012                    | )          |
| Total stockholders’  equity                                                                                                                                         |       | 9,198                                    |       | 10,491                      |       |
| Total liabilities and stockholders’ equity                                                                                                                          |       | $                                        | 24,821     |                        | $          | 28,143 |   |

 

See Notes toCondensed Consolidated Financial Statements

3

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**NexteraEnterprises, Inc.**

**CondensedConsolidated Statements of Operations**

**(Amountsin thousands, except share amounts; unaudited)**
| ** **                                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Net sales                                                     |       | $                                               | 2,958      |                                          | $          | 3,564 |   | $ | 5,392 |   | $ | 4,660 |   |
| Cost of sales                                                 |       | 1,075                                           |       | 1,817                                         |       | 2,200 |   | 2,357 |   |
| Gross profit                                                  |       | 1,883                                           |       | 1,747                                         |       | 3,192 |   | 2,303 |   |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Selling, general and  administrative expenses                 |       | 2,017                                           |       | 2,318                                         |       | 4,014 |   | 3,530 |   |
| Amortization of  intangible assets                            |       | 275                                             |       | 152                                           |       | 532 |   | 183 |   |
| Operating loss                                                |       | (409                                            | )          | (723                                          | )          | (1,354 | ) | (1,410 | ) |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Interest income                                               |       | —                                          |       | 30                                            |       | 6 |   | 155 |   |
| Interest expense                                              |       | (309                                            | )          | (313                                          | )          | (591 | ) | (387 | ) |
| Other income                                                  |       | 2                                               |       | —                                        |       | 2 |   | — |   |
| Loss from continuing  operations before income taxes          |       | (716                                            | )          | (1,006                                        | )          | (1,937 | ) | (1,642 | ) |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Provision for income  taxes                                   |       | 60                                              |       | —                                        |       | 120 |   | 29 |   |
| Loss from continuing  operations                              |       | (776                                            | )          | (1,006                                        | )          | (2,057 | ) | (1,671 | ) |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Income from  discontinued operations                          |       | —                                          |       | 35                                            |       | — |   | 35 |   |
| Net loss                                                      |       | (776                                            | )          | (971                                          | )          | (2,057 | ) | (1,636 | ) |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Preferred stock  dividends                                    |       | (102                                            | )          | (90                                           | )          | (210 | ) | (174 | ) |
| Net loss applicable to  common stockholders                   |       | $                                               | (878       | )                                             | $          | (1,061 | ) | $ | (2,267 | ) | $ | (1,810 | ) |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Net loss per common  share, basic and diluted                 |       |                                            |       |                                          |       |   |   |   |   |
| Continuing  operations                                        |       | $                                               | (0.02      | )                                             | $          | (0.03 | ) | $ | (0.05 | ) | $ | (0.05 | ) |
| Discontinued  operations                                      |       | (—                                         | )          | (—                                       | )          | (— | ) | (— | ) |
| Net loss per  common share, basic and diluted                 |       | $                                               | (0.02      | )                                             | $          | (0.03 | ) | $ | (0.05 | ) | $ | (0.05 | ) |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Weighted average common shares outstanding, basic and diluted |       | 42,337                                          |       | 42,337                                        |       | 42,337 |   | 39,139 |   |

 

See Notes toCondensed Consolidated Financial Statements

4

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**NexteraEnterprises, Inc.**

**CondensedConsolidated Statements of Cash Flows**

**(Amountsin thousands; unaudited)**
| ** **                                                                   | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| **Operating activities**                                                     |       |                                          |       |   |   |
| Net loss                                                                     |       | $                                             | (2,057     | ) | $ | (1,636 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                          |       |   |   |
| Depreciation                                                                 |       | 31                                            |       | 24 |   |
| Amortization of  intangible assets                                           |       | 532                                           |       | 183 |   |
| Provision for  allowances and returns                                        |       | 176                                           |       | — |   |
| Inventory  write-down                                                        |       | 130                                           |       | — |   |
| Deferred taxes                                                               |       | 120                                           |       | — |   |
| Stock based  compensation                                                    |       | 141                                           |       | 98 |   |
| Gain on sale of  fixed assets                                                |       | (2                                            | )          | — |   |
| Change in  operating assets and liabilities:                                 |       |                                          |       |   |   |
| Accounts receivable                                                          |       | (1,200                                        | )          | (506 | ) |
| Inventories                                                                  |       | 554                                           |       | 982 |   |
| Prepaid expenses  and other assets                                           |       | (242                                          | )          | (55 | ) |
| Accounts payable  and accrued expenses                                       |       | (669                                          | )          | 290 |   |
| Net cash used in  operating activities                                       |       | (2,486                                        | )          | (620 | ) |
|                                                                         |       |                                          |       |   |   |
| **Investing activities**                                                     |       |                                          |       |   |   |
| Cash recovered from  acquisition escrow                                      |       | 2,000                                         |       | — |   |
| Acquisition of  business, net of cash acquired                               |       | —                                        |       | (23,232 | ) |
| Purchase of  intellectual property and licensing agreement                   |       | (275                                          | )          | — |   |
| Purchase of fixed  assets                                                    |       | (10                                           | )          | (14 | ) |
| Net cash (used in)  /provided by investing activities                        |       | 1,715                                         |       | (23,246 | ) |
|                                                                         |       |                                          |       |   |   |
| **Financing activities**                                                     |       |                                          |       |   |   |
| Borrowing (payments)  under revolving credit facility                        |       | (2,218                                        | )          | 2,500 |   |
| Borrowings under term  note                                                  |       | —                                        |       | 10,000 |   |
| Payment of note  acquired in acquisition                                     |       | —                                        |       | (1,000 | ) |
| Payment of debt  issuance costs                                              |       | —                                        |       | (490 | ) |
| Proceeds from issuance  of note payable                                      |       | 2,500                                         |       | — |   |
| Net cash provided by  financing activities                                   |       | 282                                           |       | 11,010 |   |
|                                                                         |       |                                          |       |   |   |
| Net decrease in  cash and cash equivalents                                   |       | (489                                          | )          | (12,856 | ) |
|                                                                         |       |                                          |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 597                                           |       | 15,043 |   |
| Cash and cash  equivalents at end of period                                  |       | $                                             | 108        |   | $ | 2,187 |   |
|                                                                         |       |                                          |       |   |   |
| **Supplemental Disclosure of Cash  Flow Information**                        | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Cash paid during  the period for:                                            | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Conversion of  note payable to preferred stock                               |       | $                                             | 2,500      |   | — |   |
| Interest                                                                     |       | 591                                           |       | 387 |   |
| Income Taxes                                                                 |       | 1                                             |       | — |   |

 

See Notes toCondensed Consolidated Financial Statements

5

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**NEXTERA ENTERPRISES, INC.**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**1.****             ****Basis of Presentation**

Theaccompanying unaudited condensed consolidated financial statements of NexteraEnterprises, Inc. (“Nextera” or the “Company”) for the three months and sixmonths ended June 30, 2007 and 2006 have been prepared in accordance withgenerally accepted accounting principles for interim financial information andwith the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included.  Operating results for the six-month periodended June 30, 2007 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2007.

Thecondensed consolidated balance sheet as of December 31, 2006 has been derivedfrom the audited financial statements at that date but does not include all ofthe information and footnotes required by U.S. generally accepted accountingprinciples for complete financial statements.

Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto, together withmanagement’s discussion and analysis of financial condition and results ofoperations, contained in the Company’s Annual Report on Form 10-K filed by theCompany with the Securities and Exchange Commission on April 17, 2007.

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

Woodridge,Nextera’s sole operating business, is an independent developer and marketer ofbranded consumer products that offer solutions to niche personal careneeds.  Brands sold by Woodridge includeVita-K Solution, DermaFreeze 365TM, Ellin LaVar TexturesTM, Heavy DutyTM, Virtual laserTM, Pssssst®, Bath LoungeTM, Vita-C2TM, firminol-10® and Turboshave®.

Mounte LLC (successor to Krest, LLC,Knowledge Universe LLC and Knowledge Universe, Inc., “Mounte”)******controls a majority of the votingrights of the Company’s equity securities through its ownership of the Company’sClass A Common Stock, Class B Common Stock and Series A CumulativeConvertible Preferred Stock (“Series A Preferred”).

The accompanying condensed consolidated financial statementshave been prepared on the basis that the Company is a going concern.  In March 2007, the Company voluntarilyrecalled certain products in its DermaFreeze365TM product line, resulting in adjustments toaccounts receivable and inventory of $2.5 million and $0.2 million,respectively.  Primarily as a result of these factors, the Companynegotiated revisions to its financial covenants for 2007 with its lender (seefootnote 8).  The Company was successful in revising its financialcovenants to provide for the deferral of certain covenants until 2008, as wellas reducing the thresholds of other covenants that remain in effect throughout2007.  Further, the Company entered into various agreements with certainof its shareholders to obtain $4.5 million in additional subordinated financingwhich was funded during March and April 2007 (see footnote 8).  TheCompany’s forecast for 2007 anticipates compliance with all required financialcovenants throughout 2007; however, management of the Company can provide noassurances that such compliance can be maintained.  Should future eventsoccur that are not now anticipated, the Company could be in violation of someor all of its covenants in 2007.

**2.****             ****Significant AccountingPolicies**

***Principles of Consolidation***

The condensed consolidated financialstatements include the accounts of the Company and its subsidiaries.Significant intercompany accounts and transactions have been eliminated in theconsolidation.

6

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***Use of Estimates***

The preparation of condensedconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements andthe 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 anddemand deposit accounts. The Company considers all highly liquid investmentswith maturity of three months or less when purchased to be cash equivalents.Cash equivalents are stated at cost, which approximates market value.

***Concentration of Credit Risk***

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

Concentrations of credit risk with respect to accountsreceivable exist due to a limited number of customers that make up the Company’scustomer base. Three customers accounted for 76% of gross accounts receivableas of June 30, 2007. The Company performs ongoing credit evaluations of itscustomers and generally does not require collateral. The Company maintainsallowances for doubtful accounts for specifically identified estimated lossesresulting from the inability of its customers to make required payments. Grosssales (net sales prior to customer deductions) to the Company’s three largestcustomers made up 83% and 35% of total gross sales for the three-month andsix-month periods ending June 30, 2007.

***Revenue Recognition,******Allowances for Sales Returnsand Markdowns***

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

The sales-returnaccrual is a subjective critical estimate that has a direct impact on reportednet sales.  As is customary in the industry, the Company grants certain ofits customers, subject to authorization and approval, the right to eitherreturn products or to receive a markdown allowance for certain promotionalproduct. Upon sale, the Company records a provision for product returns andmarkdowns estimated based on historical and projected experience, economictrends and changes in customer demand. There is considerable judgment used inevaluating the factors influencing the allowance for returns and markdowns, andtherefore additional allowances in any particular period may be needed.  The types of known or anticipated events thatthe Company has considered, and will continue to consider, include, but are notlimited to, the solvency of its customers, store closings by retailers, changesin the retail environment, including mergers and acquisitions, and the Company’sdecision to continue or support new and existing products. Actual sales returnsand markdowns may differ significantly, either favorably or unfavorably, fromthese estimates.

***Advertising, Promotion andMarketing***

All costs associated with advertising, promoting andmarketing (including promotions, direct selling, co-op advertising and mediaplacement) of Company products are expensed as incurred and charged to selling,general and administrative expense.  Forthe three months ended June 30, 2007 and 2006, advertising and promotionexpenses were $0.2 million and $0.7 million, respectively.  For the six months ended June 30, 2007 and2006, advertising and promotion expenses were $0.6 million and $1.0million, respectively

***Shipping and Handling Costs***

Substantiallyall costs associated with shipping and handling of products to customers areincluded in selling, general and administrative expense. For the three monthsended June 30, 2007 and 2006, shipping and handling costs were approximately$0.1 million and $0.1 million, respectively. For the six months ended June 30,2007 and 2006, shipping and handling costs were approximately $0.2 million and$0.2 million, respectively.

7

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***Inventories***

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

***Provisions for Inventory Obsolescence***

The Companyrecords a provision for estimated obsolescence of inventory. These estimatesconsider the cost of inventory, forecasted demand, the estimated market value,the shelf life of the inventory and historical experience. If there are changesto these estimates, additional provisions for inventory obsolescence may benecessary.

***Propertyand Equipment***

Property and equipment are stated at cost.  Depreciation of property and equipment isprovided on the straight line method based on the estimated lives of theassets.  The principal estimated usefullives used in computing depreciation and amortization are as follows:
| Equipment and vehicles  |   | 3 - 5 years |   |
|-------------------------|--------|-------------|--------|
| Furniture and  fixtures |   | 3 - 5 years |   |
| Software                |   | 3 years     |   |

 

Leasehold improvements are amortizedover the shorter of the life of the lease or the estimated useful life of theasset.

***Accounting for Acquisitions andIntangible Assets***

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

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

Determining the fairvalue of certain assets and liabilities acquired is judgmental in nature andoften involves the use of significant estimates and assumptions. One of theareas that requires more judgment is determining the fair value and usefullives of intangible assets. To assist in this process, the Company oftenobtains appraisals from independent valuation firms for certain intangibleassets.

The Company’s intangibleassets 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 futureadverse changes if the Company experiences declines in operating results orexperiences significant negative industry or economic trends. The Companyperiodically reviews intangible assets, at least annually or more often ascircumstances dictate, for impairment and the useful life assigned using theguidance of applicable accounting literature.

***Long-LivedAssets***

The Company reviews forthe impairment of long-lived assets to be held and used whenever events orchanges in circumstances indicate that the carrying amount of such assets maynot be fully recoverable. Measurement of an impairment loss is based on thefair value of the asset compared to its carrying value. Long-lived assets to bedisposed of are reported at the lower of carrying amount or fair value lesscosts to sell.

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***DeferredFinancing Costs***

The Company has incurred costs inconnection with its credit agreement. Costs directly associated with financings are capitalized as deferredfinancing costs and are amortized over the weighted average life of thelong-term credit facility.

***Basicand Diluted Earnings Per Common Share***

The Company presents two earnings pershare amounts: the basic earnings per common share and the diluted earnings percommon share. Basic earnings per common share includes only the weightedaverage shares outstanding and excludes any dilutive effects of options,warrants and convertible securities. The dilutive effects of options, warrantsand convertible securities are added to the weighted average shares outstandingin computing diluted earnings per common share. For the three and six-monthperiods ended June 30, 2007 and 2006, basic and diluted earnings per commonshare are the same due to the antidilutive effect of potential common sharesoutstanding.

***IncomeTaxes***

The Company adopted theprovisions of Financial Accounting Standards Board (“FASB”) Interpretation No.48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB StatementNo. 109” (“FIN 48”), on January 1, 2007.  The impact of adopting FIN48 was not material to the Company’s financial position or results ofoperations.  Total unrecognized taxbenefits as of January 1, 2007 were $0.4 million, excluding the federal benefitson state tax positions and federal and state benefits on interest which havebeen recorded as deferred income taxes.

The unrecognized tax benefitsare subject to examination through September 2007. Tax years 2003 through 2006and 2002 through 2006 are subject to examination by the federal and statetaxing authorities, respectively.  There are no income tax examinationscurrently in process.

We recognize interest andpenalties related to uncertain tax positions in income tax expense which wereinsignificant for the three months ended June 30, 2007.

For the three months and sixmonths ended June 30, 2007, there were no material changes from the date ofadoption.

***Share-BasedCompensation***

All share-based payments toemployees, including the grant of employee stock options, are recognized in thecondensed consolidated financial statements based on their fair value.Compensation cost for awards that vest will not be reversed if the awardsexpire without being exercised. The fair value of stock options is determinedusing the Black-Scholes option-pricing model. Compensation costs for awards areamortized using the straight-line method. Option pricing model inputassumptions such as expected term, expected volatility and risk-free interestrate impact the fair value estimate. Further, the forfeiture rate impacts theamount of aggregate compensation. These assumptions are subjective andgenerally require significant analysis and judgment to develop. When estimatingfair value, some of the assumptions are based on or determined from externaldata and other assumptions are derived from historical experience. Theappropriate weight to place on historical experience is a matter of judgment,based on relevant facts and circumstances.

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

***Comprehensive Loss***

Other than the net loss incurred during the three-month periods endedJune 30, 2007 and 2006, there were no additional material other components ofcomprehensive loss.

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***Recently Issued Accounting Pronouncements***

In September 2006, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) Statement No. 157, “*FairValue Measurements,”*(“SFAS 157”). SFAS 157 establishes asingle authoritative definition of fair value, sets out a framework formeasuring fair value, and expands on required disclosures about fair valuemeasurement. SFAS 157 is effective for financial statements issued forfiscal years beginning after November 15, 2007, and interim periods withinthose years. Early adoption is permitted. The Company plans to adoptSFAS No. 157 in the first quarter of its 2008 fiscal year. Theprovisions of SFAS 157 are not expected to have a material impact on theCompany’s consolidated financial statements.

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS 159, “*The Fair Value Option for Financial Assets and Financial Liabilities —Including an amendment of FASB Statement No. 115”* (“SFAS 159”). SFAS159 permits entities to choose to measure many financial instruments andcertain other items at fair value. This statement is effective as of thebeginning 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’sconsolidated financial statements.

***Reclassifications***

Certain reclassifications were made to the 2006financial statements in order that they may be consistent with the 2007presentation.

**3.****             ****Acquisitions**

***Woodridge Labs, Inc***

OnMarch 9, 2006, the Company, through W Lab Acquisition Corp., the Company’s whollyowned subsidiary, acquired substantially all of the assets of JocottEnterprises, Inc (“Jocott”). Jocott formerly operated under the name “WoodridgeLabs, Inc.”  The assets of Jocott wereacquired pursuant to an asset purchase agreement, which agreement is referredto as the “Woodridge Asset Purchase Agreement” in these financialstatements.  The acquisition of theassets of Jocott and all related transactions are referred to in thesefinancial statements as the “Woodridge Transaction.”  Subsequently, W Lab Acquisition Corp. wasrenamed Woodridge Labs, Inc.  As used inthese financial statements, the term “Woodridge” refers to Jocott for allperiods prior to March 9, 2006 and to the Company’s wholly owned subsidiaryWoodridge Labs, Inc. from and after March 9, 2006.  Woodridge’s financial results have only beenincluded for the period subsequent to the acquisition date, March 9, 2006.

Thepurchase price comprised:

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

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

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

$2.0million of the cash portion of the purchase price was originally placed inescrow through September 2007. On March 29, 2007, Nextera, Woodridge andJocott entered into an Indemnity Deposit Agreement, under which  $0.5 million was withdrawn from the escrowaccount that was established in connection with the Woodridge Transaction andsuch funds were paid to Nextera by Jocott as a deposit to be held by Nexteraand Woodridge pending any final determination under which Jocott was obligatedunder the Woodridge Asset Purchase Agreement to indemnify Woodridge or Nexterafor damages in connection with the March 2007 product recall of certainDermaFreeze365TM products sold by Woodridge.

Nextera,Woodridge, Mounte and Jocott entered into a Funding Agreement, dated April 16,2007 (“Funding Agreement”), whereby Jocott paid as an additional irrevocableindemnity deposit, an amount equal to $1.5 million. The additional deposit wasalso made by withdrawing such amount from the escrow account that wasestablished in connection with the Woodridge Transaction. The parties agreedthat the terms and conditions of the Funding Agreement will govern both theoriginal and additional indemnity deposits. The Jocott deposit of $2.0 millionwill not

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bear interest andNextera and Woodridge may use the deposit funds to satisfy any liabilities,obligations or other requirements of either or both of Nextera and Woodridge.The deposits will be deemed to be in satisfaction and payment in full of anyand all past, present and future claims for indemnification for any breaches ofany of the representations and warranties pursuant to the Woodridge AssetPurchase Agreement that originally would have survived for only eighteen monthsfollowing the closing date of the Woodridge Transaction, but does not apply toany claims for breaches of any representations or warranties that survivebeyond the eighteen month period. The deposits are the sole and exclusiveproperty of Nextera and Nextera has no liability or obligation to account foror return or refund any portion of the deposits or any earnings on thedeposits.  Accordingly, the entire $2.0million was recorded as a reduction of the purchase price and therefore areduction of goodwill related to the Woodridge Transaction in March 2007.

The Woodridge Transactionwas accounted for under the purchase method of accounting in accordance withSFAS No. 141, “*Business Combinations*” (“SFAS 141”)  Under the purchase method of accounting, thetotal estimated purchase price is allocated to the net tangible and intangibleidentifiable assets and liabilities based on their estimated relative fairvalues. The excess purchase price over those assigned values was recorded asgoodwill. Goodwill recorded as a result of this acquisition is deductible fortax purposes. The final purchase price allocation is as follows (in thousands):
| Current assets            |   | $      | 4,559  |   |
|---------------------------|--------|--------|--------|--------|
| Long-term assets          |   | 389    |   |
| Goodwill                  |   | 8,969  |   |
| Intangible  assets        |   | 13,000 |   |
| Total assets  acquired    |   | $      | 26,917 |   |
| Less liabilities  assumed |   | 1,703  |   |
|                      |   | $      | 25,214 |   |

 

The following tablesets forth the unaudited pro forma results in thousands, except for share data,of the Company’s operations for the six months ended June 30, 2006 as if theacquisition of Woodridge had been completed on January 1, 2006. Theunaudited pro forma results are not indicative of what the actual results wouldhave been had the acquisition been completed on January 1, 2006 nor do theypurport to indicate the results of the future operations of Nextera.
|                                                                    | ** ** | **Six months  ended**  | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                         | ** ** | **June 30, 2006** | ** ** |
| Net sales                                                          |       | $                           | 6,839      |   |
| Loss from  continuing operations before income taxes               |       | (428                        | )          |
| Net loss                                                           |       | (393                        | )          |
| Preferred stock  dividends                                         |       | (174                        | )          |
| Net loss  applicable to common stockholders                        |       | $                           | (567       | ) |
| Weighted average  common shares outstanding—basic and diluted |       | 42,337                      |       |
| Basic and diluted loss  per share                                  |       | $                           | (0.01      | ) |

 

Theamortization of the inventory step-up, which represents an increase to the inventoryto reflect its fair value (less selling profit) and results in an increase incost of sales upon the sale of the inventory, has been excluded from the pro forma amounts as the costs arenon-recurring.

***LaVarAcquisition***

OnMay 23, 2006, Woodridge entered into a purchase agreement with LaVar Holdings,Inc. (the LaVar Purchase Agreement), whereby Woodridge acquired the exclusiveworldwide license rights, along with certain other assets and proprietaryrights, to the Ellin LaVar TexturesÔhair care product line and brand name. The total purchase price, which includes approximately $0.1 million ofnon-recurring transactions costs, was approximately $0.5 million. Under

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theterms of the LaVar Purchase Agreement, Woodridge will pay a royalty to LaVarHoldings, Inc. with respect to certain future sales of products under theacquired trademarks.

***Heavy DutyAcquisition***

OnMarch 8, 2007, Woodridge entered into a purchase agreement with Heavy DutyCompany (the Heavy Duty Purchase Agreement), whereby Woodridge acquired theexclusive worldwide license rights, along with certain other assets andproprietary rights, to the Heavy DutyÔpersonal care product line and brand name. The total purchase price, which includes approximately $0.1 million oftransactions costs, was approximately $0.3 million. Under the terms of theHeavy Duty Purchase Agreement, Woodridge will pay a royalty to the Heavy DutyCompany with respect to certain future sales of products under the acquiredtrademarks.

**4.****             ****Inventories**

Inventories, net of provision for obsolescence, consistof the following: 
|                | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **     | ** ** | **(In thousands)** | ** ** |
|           |       |                    |       |                        |       |
| Raw materials  |       | $                       | 1,114      |                        | $          | 1,217 |   |
| Finished goods |       | 797                     |       | 1,378                       |       |
|           |       | $                       | 1,911      |                        | $          | 2,595 |   |

 

**5.****             ****Intangible Assets**

Intangibleassets consist of the following:
|                                 | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **(In thousands)** | ** ** |
|                            |       |                    |       |                        |       |
| Goodwill                        |       | $                       | 8,969      |                        | $          | 10,969 |   |
|                            |       |                    |       |                        |       |
| Trademarks and  brands          |       | 2,200                   |       | 2,200                       |       |
| Covenant not to  compete        |       | 1,600                   |       | 1,600                       |       |
| Customer  relationships         |       | 9,200                   |       | 9,200                       |       |
| Licensing  agreements           |       | 754                     |       | 489                         |       |
| Other                           |       | 36                      |       | 64                          |       |
|                            |       | 13,790                  |       | 13,553                      |       |
| Less:  accumulated amortization |       | 1,201                   |       | 726                         |       |
| Intangible assets, net          |       | $                       | 12,589     |                        | $          | 12,827 |   |

 

The intangible assets,other than the covenant not to compete, are amortized over their estimateduseful lives, which range from 10-20 years. The covenant not to compete isamortized over its contractual life of 9 years.

Theestimated intangible amortization expense for the next five years is asfollows:
|            | ** ** | **Amortization Expense** | ** ** |
|------------|------------|-------------------------------|------------|
| ** ** | ** ** | **(In thousands)**       | ** ** |
|       |       |                          |       |
| 2007       |       | $                             | 488        |   |
| 2008       |       | 933                           |       |
| 2009       |       | 933                           |       |
| 2010       |       | 933                           |       |
| 2011       |       | 933                           |       |
| 2012       |       | 933                           |       |
| Thereafter |       | 7,436                         |       |
|            |            |                               |            |  |

 

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**6.****             ****Property and Equipment**

Propertyand equipment are stated at cost and are summarized by major classification asfollows:
|                                 | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **(In thousands)** | ** ** |
|                            |       |                    |       |                        |       |
| Equipment                       |       | $                       | 148        |                        | $          | 182 |   |
| Tools and dies                  |       | 102                     |       | 85                          |       |
| Software                        |       | 17                      |       | 25                          |       |
| Furniture and  fixtures         |       | 37                      |       | 53                          |       |
| Leasehold  Improvements         |       | 19                      |       | 19                          |       |
|                            |       | 323                     |       | 364                         |       |
| Less:  accumulated depreciation |       | 58                      |       | 80                          |       |
| Property and equipment,  net    |       | $                       | 265        |                        | $          | 284 |   |

 

**7.      Accounts Payable and Accrued Expenses**

Accounts payable and accrued expensesconsist of the following:
|                                               | ** ** | **June 30,  2007** | ** ** | **December 31,   2006** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-----------------------------------|------------|
| ** **                                    | ** ** | **(In thousands)** | ** ** |
|                                          |       |                    |       |                              |       |
| Trade accounts  payable                       |       | $                       | 812        |                              | $          | 1,717 |   |
| Accrued credit  customer balances             |       | 1,150                   |       | 1,859                             |       |
| Accrued payroll  and compensation             |       | 120                     |       | 129                               |       |
| Accrued legal,  audit and annual report costs |       | 136                     |       | 134                               |       |
| Accrued  severance                            |       | —                  |       | 270                               |       |
| Accrued interest                              |       | 63                      |       | 65                                |       |
| Accrued  commission                           |       | 50                      |       | —                            |       |
| Other                                         |       | 213                     |       | 190                               |       |
|                                          |       | $                       | 2,544      |                              | $          | 4,364 |   |

 

**8.****             ****Financing Arrangements**

Inconnection with the acquisition of substantially all of the assets of Jocott,Nextera and Woodridge (as borrower) entered into a credit agreement onMarch 9, 2006 for a $15.0 million senior secured credit facility, whichwas originally comprised of a $10.0 million fully-drawn term loan and afour-year $5.0 million revolving credit facility (the “Credit Agreement”). TheCredit Agreement was subsequently amended on March 29, 2007 and again onApril 17, 2007.

EffectiveMarch 29, 2007, Nextera, Woodridge, the administrative agent for thelenders, and the lenders, entered into an amendment and forbearance agreement(the “Amendment and Forbearance Agreement”). The Amendment and ForbearanceAgreement amended and modified certain terms of the original Credit Agreement.Under the terms of the Amendment and Forbearance Agreement, the date by whichNextera and Woodridge were required to deliver Nextera’s audited consolidatedfinancial statements as of and for the year ended December 31, 2006 andrelated certificates and reports to the administrative agent was postponed fromMarch 31, 2007 to April 30, 2007. Additionally, a principal payment of$250,000 that was due on March 31, 2007 was postponed to April 30, 2007.

Theadministrative agent for the lenders under the Credit Agreement determinedthat, as of March 29, 2007, certain events of default under the CreditAgreement (which events of default are referred to as the “Specified Events ofDefault” in these financial statements) had occurred as a consequence of thebreach by Nextera and Woodridge of certain financial covenants as ofDecember 31, 2006. Under the Amendment and Forbearance Agreement, thelenders agreed, during the forbearance period, to forbear the exercise of anyand all rights and remedies to which the lenders are or may become entitled asa result of the Specified Events of Default. The forbearance period began onMarch 29, 2007 and ended on April 30, 2007.

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OnApril 17, 2007, Nextera, Woodridge, the administrative agent and thelenders entered into an amendment agreement under the Credit Agreement (the “SecondAmendment”). Under the terms of the Second Amendment, the revolving creditfacility was reduced from $5.0 million to $2.75 million. Pursuant to the SecondAmendment, the term loan and the revolving credit facility bear interest at theLondon Interbank Offered Rate (“LIBOR”) plus 4.50 percent, or bank base rateplus 3.25 percent, as selected by Woodridge, with the rate subject toadjustment after delivery of the Company’s compliance certificate for thefiscal quarter ending June 30, 2007, based on the Company’s consolidatedadjusted leverage ratio. Outstanding borrowings under the term loan must berepaid in 13 quarterly payments, commencing March 31, 2008, and are in theamount of $250,000 each in 2008, $312,500 each in 2009, $437,500 each in 2010,with a final payment due on March 31, 2011, the maturity date of the termloan. The maturity date for the revolving credit facility is March 31,2010. The commitment fee on the revolving credit facility is payable quarterlyat a rate of 0.50% of the unused amount of the revolving credit facility perannum. The Company paid an amendment fee of 0.25% of the total credit facilityin connection with the Second Amendment.

TheCompany has an interest rate collar agreement to hedge the LIBOR interest raterisk on $5.0 million of the term loan. Under the terms of this agreement, theCompany will pay a 6% fixed rate if the three-month LIBOR rate exceeds 6% andin return will receive the three-month LIBOR rate. In addition, if thethree-month LIBOR rate falls below 5%, the Company will pay a 5% fixed rate andin return will receive the three-month LIBOR rate. The effect of this agreementis therefore to convert the floating three-month LIBOR rate to a fixed rate ifthe three-month LIBOR rate exceeds 6% or falls below 5%. The three-month LIBORrate received under the agreement will substantially match the rate paid on theterm loan since term loan currently bears interest at the six-month LIBOR rate.The fair value of the collar was immaterial at June 30, 2007.

Theobligations of Woodridge, as borrower, under the Credit Agreement areguaranteed by Nextera and all of the direct and indirect domestic subsidiariesof Woodridge and Nextera existing from time to time (other than NexteraBusiness Performance Solutions Group, Inc., Nextera Canada Co. and NexteraEconomics, Inc.), which are referred to as the “Subsidiary Guarantors” inthese financial statements. In addition, Nextera, Woodridge and the SubsidiaryGuarantors are party to a security agreement and a pledge agreement, whichcreate security and pledge interests with respect to substantially all presentand future property of Nextera, Woodridge and the Subsidiary Guarantors.

Underthe Credit Agreement, as amended, Nextera and Woodridge are subject to certainlimitations, including limitations on their ability: to incur additional debtor sell assets, with restrictions on the use of proceeds; to make certaininvestments and acquisitions; to grant liens; and to pay dividends and makecertain other restricted payments. In addition, Woodridge will be required toprepay principal amounts outstanding under certain circumstances if it issuesdebt or equity, sells assets or property, receives certain extraordinary receiptsor generates excess cash flow. The Credit Agreement also contains certainrestrictive financial covenants, including minimum consolidated EBITDA, maximumconsolidated leverage ratio, minimum fixed charge coverage ratio, maximumconsolidated capital expenditures and maximum corporate overhead.  Under the terms of the Second Amendment, therestrictive financial covenants with respect to minimum consolidated EBITDA,maximum consolidated leverage ratio, minimum fixed charge coverage ratio andmaximum corporate overhead were amended and a new minimum liquidity covenantwas added.

TheCredit Agreement, as amended, prohibits Woodridge from making any dividends orother distributions to Nextera until the later of (1) the administrativeagent’s receipt of Nextera’s audited consolidated financial statements for theyear ending December 31, 2007, or (2) the administrative agent’sreceipt of a compliance certificate evidencing that Woodridge’s Maximum TotalLeverage Ratio (as defined in the Credit Agreement) has been reduced to 2.75xor less. In the event that these conditions are satisfied, then Woodridge wouldbe allowed to make dividend and other payments to Nextera provided that:(a) Woodridge remains in compliance with all financial covenants under theCredit Agreement on a pro forma basis after taking into account the dividendsor other distributions made to Nextera, (b) no other defaults exist beforeor after the making of any dividends or other distributions to Nextera, and(c) such dividends or other distributions (which are payable in equalquarterly amounts) in the aggregate do not exceed $1.125 million in 2008 and$1.5 million thereafter. However, beginning in 2008 and even if the conditionsdescribed in the foregoing clauses (a), (b) and (c) are not satisfied,Woodridge is permitted to make dividends or other distributions to Nextera inan amount not in excess of 50% of its Excess Cash Flow (as defined in theCredit Agreement), provided that no default would occur under the CreditAgreement as a result of the making of the dividends or other distributions.

Uponthe occurrence of certain events of default, Woodridge’s obligations under theCredit Agreement may be accelerated and the lending commitments terminated.Such events of default include, but are not limited to: (i) the failure ofWoodridge to pay principal or interest when due, (ii) Woodridge’s breachor failure to perform any of the covenants or obligations set forth in theCredit Agreement, which for certain covenants and obligations is subject to a 30-daycure period, (iii) the acceleration of certain other indebtedness ofWoodridge, (iv) a filing of a petition in bankruptcy by Woodridge,(v) the entry of a judgment or a court order against Woodridge in excessof certain specified dollar thresholds, (vi) a reduction below certainlevels in the ownership or economic interests of our existing

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significantstockholders in the aggregate or (vii) Mr. Millin ceasing to be amember of Nextera’s board of directors or the chief executive officer ofWoodridge prior to March 9, 2010, except for certain specified reasons.

Long-termdebt consists of the following (in thousands):

|                                          | ** ** | **June 30,  2007** | ** ** |
|------------------------------------------|------------|-------------------------|------------|
| Term loan                                |       | $                       | 9,500      |   |
| Revolving credit  facility               |       | —                  |       |
|                                     |       | 9,500                   |       |
| Less: Current  portion of long-term debt |       | 500                     |       |
|                                     |       | $                       | 9,000      |   |

 

Future principal payments required in accordance withthe terms of the Credit Agreement are as follows (in thousands):

| Twelve months ending  June 30, |   |   |   |
|-------------------------------------|--------|--------|--------|
| 2008                                |   | $      | 500    |   |
| 2009                                |   | 1,125  |   |
| 2010                                |   | 1,500  |   |
| 2011                                |   | 6,375  |   |
|                                |   | $      | 9,500  |   |

 

***FundingAgreement and Note Conversion Agreements***

OnApril 16, 2007, Nextera, Woodridge, Mounte and Jocott entered into aFunding Agreement (the “Funding Agreement”). Under the terms of the FundingAgreement, Mounte and Jocott loaned to Nextera the principal sums of $1.5million and $1.0 million respectively, pursuant to individual promissory notes.The notes accrued interest at an annual rate of 7% with principal originallypayable at the maturity date of April 1, 2012. Nextera was prohibited frompaying interest in cash on these notes under the terms of its Credit Agreement.Accordingly, interest was accrued and added to the principal balance of thenotes. The notes, including accrued interest, were exchanged in connection withthe Note Conversion Agreement discussed below.

The Funding Agreement provides, subject to (i) anyrequired consents or approvals of the lenders under the Credit Agreement and ofany other persons whose consent or approval is required at the time under anycredit or other contract or agreement to which Nextera, Woodridge or any oftheir affiliates is a party, (ii) any required consent of the holders of theoutstanding Series A Preferred, and (iii) the approval of the Board; that, inthe event that Nextera’s earnings before interest, taxes, depreciation andamortization (“EBITDA”) for a fiscal year is greater than or equal to $7.0million or is greater than or equal to $12.0 million for any two consecutivefiscal years, or any event happens that results in the exchange or redemptionof, or payment of a liquidation preference with respect to, any of Nextera’soutstanding preferred stock (the “Triggering Event”), Nextera will take thefollowing actions:

a)              Within15 business days after the occurrence of a Triggering Event, Nextera will issueto Jocott shares of  CumulativeNon-convertible Series B Preferred Stock (“Series B Preferred”) in addition to theshares of Series B Preferred issued in connection with the Note ConversionAgreement, at a price equal to $100 per share. The number of such additional shares to be issued to Jocott will beequal to the quotient obtained by dividing (i) the sum of (A) $1,000,000, plus(B) the Appreciation Amount defined below, by (ii) 100, and rounding down to thenearest whole share.  Such shares ofSeries B Preferred will be issued to Jocott in consideration of Jocott’sirrevocable payment of the $2.0 million indemnity deposit and Jocott’scompromise and settlement of the past, pending and future specified claims. The“Appreciation Amount” means an amount equal to a deemed appreciation equal to(1) $1,000,000, multiplied by (2) seven percent (7%) per annum, compoundedannually, calculated from the date that Jocott loans the funds to Nexterapursuant to the promissory note issued by Jocott until the date of the anyissuance of the additional shares of Series B Preferred to Jocott.

b)             Within15 business days after the occurrence of a Triggering Event, Nextera will alsoissue to Jocott the same number of shares of Series C CumulativeNon-Convertible Preferred Stock (“Series C Preferred”) of Nextera as the numberof additional shares of Series B Preferred issued to Jocott.  The Series C Preferred will (i) be issued ata price equal to $100 per share, (ii) have a liquidation preference equal to$100 per share and (iii) provide for a 7% paid-in-kind dividend.  The Series C Preferred will not be convertible into any other securities of Nexteraand the Series C Preferred will rank (i) junior to the Series A Preferred as tothe payment of dividends and as to the distribution of assets upon liquidation,dissolution or winding up, and (ii) on a parity with the Series B Preferred asto the payment of dividends and the Special Redemption Right noted below, butrank junior to the Series B Preferred as to the distribution of assets uponliquidation, dissolution or 

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winding up. The Series C Preferred will be structured so as to complywith any applicable restrictions in any credit or other contract or agreementto which Nextera, Woodridge or any of their affiliates is a party.  Such shares of Series C Preferred will beissued to Jocott in consideration of Jocott’s irrevocable payment of the $2.0million indemnity deposit and Jocott’s compromise and settlement of the past,pending and future specified claims.

c)              Nexterawill grant to the holders of Series A Preferred, Series B Preferred and SeriesC Preferred the right (the “Special Redemption Right”), the exercise of whichis conditioned upon the occurrence of a Triggering Event, the request of theholders and the approval of the Company’s board of directors,  to redeem all or a portion of the shares ofthe Preferred Stock held by such holders at a redemption price equal to $100per share (plus any applicable accrued but unpaid dividends on the shares soredeemed).  The Special Redemption Rightof the holders of Series A Preferred will be senior and prior to the SpecialRedemption Rights of the holders of Series B Preferred and Series C Preferred,and the Special Redemption Rights of the holders of Series B Preferred andSeries C Preferred will be on a parity with each other.

Additionally,under the provisions of the Funding Agreement, in connection with and at thetime of the issuance of any Series B Preferred and/or Series CPreferred, Nextera issued warrants to purchase Nextera’s Class A CommonStock at an exercise price of $0.50 per share (the “Warrants”) to the holder ofsuch Series B Preferred and/or Series C Preferred. The number ofshares of Nextera’s Class A Common Stock for which such warrants areexercisable is equal to (i) with respect to notes redeemed or exchangedfor Series B Preferred , the product of (A) the outstanding principalbalance plus all accrued but unpaid interest that was redeemed or exchanged,multiplied by (B) two (2); (ii) 2,000,000 shares with respect to theSeries B Preferred Stock issued upon the occurrence of a Triggering Event(when and if such Series B Preferred is issued), and (iii) 2,000,000shares with respect to the Series C Preferred issued upon the occurrenceof a Triggering Event (when and if such Series C Preferred is issued). TheWarrants will have a ten (10) year term and have customary piggybackregistration rights and anti-dilution rights and other rights with respect tospecified events, all as determined by Nextera’s board of directors.

OnJune 15, 2007, Nextera entered into a Note Conversion Agreement wherebyNextera exchanged all outstanding principal and accrued interest owed to Mounteand Jocott pursuant to individual promissory notes executed in connection withthe Funding Agreement for 15,169 and 10,113 shares, respectively, of Nextera’sSeries B Preferred together with a cash payment in lieu of fractional shares.The Series B Preferred Stock was issued at a price of $100 per share, hasa liquidation preference of $100 per share, provides for a 7% per annumcumulative paid-in-kind dividend, and entitles its holders to a number of votesequal to the number of shares held. The Series B Preferred Stock is notconvertible into any other securities of Nextera and ranks junior to theSeries A Preferred Stock as to the payment of dividends, the issuance of aspecial redemption, and the distribution of assets upon liquidation, dissolutionor winding up. The Series B Preferred Stock is structured so as to qualifyas “Permitted Equity Interests” as such term is defined in Nextera’s CreditAgreement, as amended.

Inconnection with the issuance of the issuance of the Series B Preferred Stock,Nextera issued a Class A Common Stock Purchase Warrant to, each of Mounteand Jocott, pursuant to the terms of a Funding Agreement. Under such Warrants,Nextera granted Mounte and Jocott the right to purchase 3,033,945 and 2,022,630shares, respectively, of Nextera’s Class A Common Stock at an exerciseprice of $0.50 per share, exercisable at any time at the option of the holder.The warrants have a ten-year term and have customary piggyback registrationrights and anti-dilution rights with respect to specified events. The fairvalue of the warrants has been determined to be $647 thousand. This amount wascalculated using the Black-Scholes pricing model with the followingassumptions: 118.9% volatility; expected term of 10 years; 5.10% risk-freerate; and 0% dividend.

TheSeries B Preferred is classified as mezzanine equity as the Redemption Rightsare effectively redeemable at the option of the holders and are not solelywithin the control of the issuer.  Theinitial carrying amount of the Series B Preferred is the fair value atissuance.  The Series B Preferred willnot be accreted to the redemption value of $2.5 million until redemption isconsidered probable. The 7% paid-in-kind dividend accrues to the carrying valueof the Series B Preferred.

**9.****             ****Share-BasedCompensation**

For the three months ended June30, 2007 and 2006, the compensation cost charged against income was $0.1million and $0.06 million, respectively. For the six months ended June 30, 2007and 2006, the compensation cost charged against income was $0.2 million and$0.1 million, respectively. As of June 30, 2007, there were approximately $0.2million of unrecognized compensation costs related to non-vested share-basedarrangements granted under the Company’s Amended and Restated 1998 EquityParticipation Plan (the “Plan”). Those costs are expected to be recognized overa weighted-average period of approximately one year.

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During the three months endedJune 30, 2007, the Company granted stock options for an aggregate of 213,668shares of Class A Common Stock under the Plan. The weighted-average grant-datefair value of options granted was $0.13 per share based on the Black-Scholesoption-pricing model. The options expire ten years from the date of grant.

The weighted-average grant datefair value of options granted during the six months ended June 30, 2007 wasestimated on the grant date using the Black-Scholes option-pricing model withthe assumptions noted in the following table.  Expected volatilities arebased on historical volatility of the Common Stock and other factors.  Theexpected term of options represents the period of time that options granted areexpected to be outstanding and is derived from historical terms and otherfactors.  The risk-free rate for periods within the contractual life ofthe option is based on the U.S. Treasury yield curve in effect at the time ofgrant.
|                           | ** ** | **Three months ended  June 30, 2007** | ** ** |
|---------------------------|------------|-----------------------------------------------------------|------------|
| Risk-free  interest rates |       | 4.75%  - 5.10%                                            |       |
| Expected lives  (years)   |       | 3 -  5                                                    |       |
| Expected  volatility      |       | 58.3%  - 118.9%                                           |       |
| Dividend rate             |       | 0%                                                        |       |

 

***Stock Option Activity***

Options granted, exercised, expired and forfeited under thePlan are as follows:
| **Stock Options**                                | ** ** | **Shares** | ** ** | **Weighted  Average Exercise  Price Per Share** | ** ** | **Weighted-Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value (1)** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|
| Outstanding at December  31, 2006                     |       | 6,552,267  |       | $                                                              | 1.62       |                                                   |       |                                         |       |   |
| Granted                                               |       | 1,251,168  |       | 0.27                                                           |       |                                                   |       |                                         |       |
| Exercised                                             |       | —     |       | —                                                         |       |                                                   |       |                                         |       |
| Forfeited or  expired                                 |       | 1,375,000  |       | 1.25                                                           |       |                                                   |       |                                         |       |
| Options Outstanding at  June 30, 2007                 |       | 6,428,435  |       | $                                                              | 1.44       |                                                   | 6.0        |                                         | $          | — |   |
| Options vested and  expected to vest at June 30, 2007 |       | 6,282,918  |       |                                                           |       |                                                   |       |                                         |       |
| Options exercisable at June 30, 2007                  |       | 5,125,518  |       | $                                                              | 1.69       |                                                   | 5.0        |                                         | $          | — |   |

 

The weighted-average grant-datefair value of options granted during the six months ended June 30, 2007 and2006 were $0.15 and $0.35, respectively. Intrinsic value is defined as thedifference between the relevant current market value of the underlying common stockand the grant price for options with exercise prices less than the marketvalues on such dates. There were no options exercised during the three monthsended June 30, 2007 and 2006.

Options are granted at anexercise price equal to the fair market value at the date of grant. Informationregarding stock options outstanding as of June 30, 2007 is as follows:
| ** **                                 | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                   | ** ** |
|--------------------------------------------|------------|------------------------------|------------|------------------------------------------------|------------|
| **Range of Exercise Price** | ** ** | **Shares**                   | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| $0.16 - $ 1.00                        |       | 3,451,168                    |       | $                                              | 0.43       |   | 7.8 |   | 2,148,251 |   | $ | 0.43 |   |
| $1.01 - $ 3.00                        |       | 2,762,267                    |       | $                                              | 2.00       |   | 3.3 |   | 2,762,267 |   | $ | 2.00 |   |
| $3.01 and up                               |       | 215,000                      |       | $                                              | 10.32      |   | 2.3 |   | 215,000 |   | $ | 10.32 |   |
|                                       |       | 6,428,435                    |       | $                                              | 1.44       |   | 6.0 |   | 5,125,518 |   | $ | 1.69 |   |

 

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**10.****        ****Income Taxes**

Forthe three and six months ended June 30, 2007, our provision for federal andstate taxes amounted to $60,000 and $0.1 million, respectively. The effectiveincome tax rate reflects the book to tax difference from goodwillamortization.  Additionally, income taxbenefits from the available net operating losses are not reflected in the 2007and 2006 provisions as the realization of these benefits is not deemed morelikely than not.

**11.****        ****Commitments and Contingencies**

TheCompany, from time to time, is subject to certain asserted claims arising inthe ordinary course of business. The Company intends to vigorously assert itsrights and defend itself in any litigation that may arise from such claims.While the ultimate outcome of these matters could affect the results ofoperations of any one quarter or year when resolved in future periods, andwhile there can be no assurance with respect thereto, management believes thatafter final disposition, any financial impact to the Company would not bematerial to the Company’s financial position and results of operations orliquidity.

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**ITEM 2.****                ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.**

***As used in this report, the terms“we,” “our,” “ours” and “us” refer to Nextera Enterprises, Inc, a DelawareCorporation, or Nextera, and its wholly owned subsidiaries.  In addition, the term “Woodridge” refers toJocott for all periods prior to March 9, 2006, and to Woodridge Labs, Inc., awholly owned subsidiary of Nextera, from and after March 9, 2006, unless thecontext indicates otherwise.***

**Cautionary Note Regarding Forward-Looking Statements**

*Thefollowing discussion contains “forward-looking statements.” Forward-lookingstatements give our current expectations or forecasts of future events. Thesestatements can be identified by the factthat they do not relate strictly to historic or current facts. They usewords such as “may,” “could,” “will,” “continue,” “should,” “would,” “anticipate,”“estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other wordsand terms of similar meaning in connection with any discussion of futureoperating or financial performance. In particular, these forward-lookingstatements include statements relating to future actions or the outcome offinancial results. From time to time, we also may provide oral or writtenforward-looking statements in other materials released to the public. Any orall of the forward-looking statements in this annual report and in any otherpublic statements may turn out to be incorrect. They can be affected byinaccurate assumptions or by known or unknown risks and uncertainties.Consequently, no forward-looking statement can be guaranteed. Our actualresults may differ materially from those stated or implied by suchforward-looking statements.*

*Factors that could cause our actual results to differmaterially include, but are not limited to:*

·       the effects of thevoluntary recall of certain of our DermaFreeze365TM products on our business,operations and financial condition;

·       retention of our keypersonnel, particularly Mr. Millin, and our ability to attract and retainother personnel critical to our business;

·       our ability to develop andintroduce new products in a highly competitive marketplace and successfullyexecute market expansion plans;

·       the impact of competitionwithin our markets, and our ability to compete against companies that arelarger and more well-established than we are or that have significantly greaterresources than we do;

·       our reliance on thirdparties for all of our product manufacturing requirements;

·       the loss of any of oursignificant customers, as our sales are concentrated among a relatively smallnumber of customers;

·       claims against us forinfringement of intellectual property;

·       our ability to repay theindebtedness and comply with the covenants under our senior secured creditfacilities; and

·       other factors disclosed in Nextera’sAnnual Report on Form 10-K for the year ended December 31, 2006 under theheading “Item 1A. Risk Factors.”

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

****Overview****

TheManagement’s Discussion and Analysis of Financial Condition and Results ofOperations is designed to enable the reader of our financial statements toassess material changes in financial condition and results of operationsbetween the three months and six months ended June 30, 2007 and the threemonths and six months ended June 30, 2006.

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Nexterawas incorporated in the state of Delaware in 1997. On March 9, 2006,Nextera, through W Lab Acquisition Corp., our wholly owned subsidiary, acquiredsubstantially all of the assets of Jocott Enterprises, Inc., which werefer to as Jocott in this report, which formerly operated under the name “WoodridgeLabs, Inc.”  We refer to thisacquisition 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 periodsprior to March 9, 2006 and to our wholly owned subsidiary WoodridgeLabs, Inc. from and after March 9, 2006. Prior to the acquisition ofthe Woodridge assets, we had no business operations for the period fromNovember 29, 2003 through March 8, 2006. Woodridge’s financialresults have only been included for the period subsequent to the March 9,2006 acquisition.

Woodridge,our sole operating business, is an independent developer and marketer ofbranded consumer products that offer simple, effective solutions to nichepersonal care needs. Since its formation in 1996, Woodridge has built itsreputation and market position by identifying and exploiting underdevelopedopportunities within the personal care market, and by commercializingdistinctive, branded products that are intended to directly address thespecific demands of niche applications. In addition to its flagship Vita-KSolution product line, Woodridge has created a portfolio of other existing anddevelopment-stage consumer products, covering a wide range of uses andapplications.

Ourproducts are marketed at retail under the following core brands: Vita-KSolution®, DermaFreeze365TM,Ellin LaVar TexturesTM, Heavy DutyTM, Virtual LaserTM, Psssssst®, Stoppers-4®, Bath LoungeTM, Vita-C2TM, Firminol-10® and TurboShave®. With our portfolio of products, weoffer consumers affordable alternatives to expensive dermatologist treatments,while also offering retailers profitable and in-demand products. Our productscan currently be found in over 22,000 retail locations across the United Statesand Canada. For the fiscal year ended December 31, 2006, our top customersincluded Walgreens, CVS, and Rite-Aid.

Allof our manufacturing, production and onsite assembly are presently outsourcedto third-parties, allowing us to focus on our core strength of discovering,developing and marketing niche personal care products. Most of our materialwarehousing and distribution functions are handled in-house and supervised byWoodridge management.

***ProductRecall***

OnMarch 13, 2007, our wholly-owned subsidiary, Woodridge, initiated avoluntary recall of certain of its DermaFreeze365TM products. This recall was aresult of certain limited lots testing positive for the *Pseudomonas**aeruginosa* bacteria. We made a provisionfor the recall in our consolidated financial statements as of and for the yearended December 31, 2006 whereby net sales and accounts receivable werereduced by $2.3 million and inventories were written down by $0.2 millionthrough a charge to cost of sales. Additionally, we made an additionalprovision of $0.2 million during the three-month period ended March 31, 2007for the expected customer charge-backs related to 2007 sales of the affectedproducts.  No additional provisions havebeen made for the recall during the three-month period ended June 30, 2007.

***SecuredCredit Facility***

Inconnection with the acquisition of the Woodridge business on March 9,2006, we entered into a senior secured credit facility, which was subsequentlyamended in March 2007 and in April 2007. We refer to our amendedsenior secured credit facility in this report as the Credit Agreement. TheCredit Agreement originally consisted of a $10 million fully-drawn term loan,of which approximately $9.5 million was outstanding at December 31, 2006,and a four-year $5.0 million revolving credit facility, of which approximately$2.2 million was outstanding on December 31, 2006. Under the terms of theApril 2007 amendment, the revolving credit facility was reduced to $2.75million.  During the three-month periodended June 30, 2007 we paid down the outstanding balance of the revolvingcredit facility.  At June 30, 2007, $2.75million is available to be drawn, subject to meeting certain conditions asdescribed under the “Financing Arrangements” to the Note to Unaudited CondensedConsolidated Financial Statements.

***Heavy Duty Acquisition***

OnMarch 8, 2007, we entered into a purchase agreement with Heavy DutyCompany and Alexandra Volkmann, whereby we acquired certain assets, includingthe Heavy DutyTM and other trademarks and a copyright. The total purchase price,which includes approximately $0.1 million of deal costs, was approximately $0.3million. We will pay a royalty to Heavy Duty Company with respect to certainfuture sales of products under the trademarks acquired from Heavy Duty Companyand Alexandra Volkmann.

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***KKG BodyFuel Foods License Agreement***

OnJune 21, 2007, we entered into an Intellectual Property License Agreementwith KKG BodyFuel Foods Enterprises, Incorporated and Keri Glassman, whereby weacquired certain rights and licenses to use various trademarks names andslogans. The consideration consisted of a non-refundable guaranteed royaltypayment of $0.1 million in the first year and minimum royalty payments of $0.1million in each of the next three years.

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

**Comparison of the Three Months Ended June 30, 2007and 2006**

*Net Sales*. Sales are recorded net ofestimated returns and other allowances. The provision for sales returnsrepresents management’s estimate of future returns based on historicalexperience and considering current external factors and market conditions.  Net sales for the three months ended June 30,2007 decreased $0.6 million, or 17%, to $3.0 million from $3.6million for the same period last year.  The net sales decrease in the current period related to a decrease inunit quantities shipped of 12%, as well as an average unit price decrease of14%.

*Gross Profit*.  Gross profit for the three months ended June30, 2007 increased $0.1 million, or 8% to $1.9 million from $1.8 million forthe same period last year.  Includedwithin gross profit for the period ended June 30, 2006 is a $1.0 million chargeassociated with the amortization of the step up to fair value in the inventoryacquired from Woodridge, as required by SFAS 142.  Eliminating the prior year step up to fairvalue charge of $1.0 million, the comparative gross profit for the three-monthsended June 30, 2007 decreased $0.9 million, or 32% from $0.8 million for the sameperiod last year.  The decline in grossprofit is due to the sales of lower margin products, increased freight andlabor costs as well as an increase in charges for inventory reserves during thethree-months ended June 30, 2007.

*Selling, General andAdministrative Expenses.*  Selling, general and administrative expensesfor the three months ended June 30, 2007 decreased $0.3 million, or 23%, to$2.0 million from $2.3 million for the same period last year. The decrease isdue to decreased spending for selling and advertising expense of $0.6 millionoffset by an increase in legal and accounting professional service fees, costsand labor related costs of $0.3 million.

*Amortization of IntangibleAssets.*  Amortization of intangible assets for thethree months ended June 30, 2007 increased to $0.3 million or, 81%, from $0.2million for the same period last year.

*Interest Expense*. Interest expense remains flat at $0.3 million for the three months endedJune 30, 2007 and for the same period last year.  The interest expense is attributable to thecredit facility that we entered into on March 9, 2006 to partially fund theWoodridge acquisition.  Our debt bearsinterest at LIBOR plus 4.50 percent.

*Provision for Income Taxes*.  For the three months ended June 30, 2007, ourprovision for federal and state taxes amounted to $60,000 compared to none forthe same period in 2006.  The effectiveincome tax rate reflects the book to tax difference from goodwillamortization.  Additionally, income taxbenefits from the available net operating losses are not reflected in the 2007and 2006 provisions as the realization of these benefits is not deemed morelikely than not.

**Comparison of the Six Months Ended June 30, 2007and 2006**

*Net Sales*. Sales are recorded net ofestimated returns and other allowances. The provision for sales returnsrepresents management’s estimate of future returns based on historicalexperience and considering current external factors and market conditions.  Net sales for the six months ended June 30,2007 increased $0.7 million, or 16%, to $5.4 million from $4.7million for the same period last year. Net sales for the six monthsended June 30, 2006 reflect the operating results of the Woodridge businessonly from the March 9, 2006 acquisition to June 30, 2006. The2007 net sales include a $0.2 million charge for expected returnsrelated to the March 2007 voluntary recall of certain DermaFreeze365TM productssold during the six months ended June 30, 2007.

*Gross Profit*.  Gross profit for the six months ended June30, 2007 increased $0.9 million, or 39% to $3.2 million from $2.3 million forthe same period last year.  Gross profitin the 2006 period only includes operating activity for the post-Woodridgeacquisition period from March 9, 2006 to June 30, 2006. The 2007 gross profitincludes a $0.2 million

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chargefor expected returns related to the March 2007 product recall of relatedproducts sold during the six months ended June 30, 2007.  Included within gross profit for the periodended June 30, 2006 is a $1.3 million charge associated with the amortizationof the step up to fair value in the inventory acquired from Woodridge, asrequired by SFAS 142.

*Selling, General andAdministrative Expenses.*  Selling, general and administrative expensesfor the six months ended June 30, 2007 increased $0.5 million, or 14% to $4.0million from $3.5 million for the same period last year. Selling, general andadministrative expenses for the six months ending June 30, 2006 reflect theoperating results of the Woodridge business only from the March 9, 2006acquisition to June 30, 2006. The increase is due to higher spending for legaland accounting professional services of $0.4 million, higher spending for laborand consulting cost of $0.3 million and higher facilities cost of $0.2 million,offset by lower spending for advertising and other sales related costs.

*Amortization of IntangibleAssets.*  Amortization of intangible assets for the sixmonths ended June 30, 2007 increased $0.3 million to $0.5 million from $0.2million for the same period last year. The increase from the 2006 relates tothe full-six months amortization of the intangible assets acquired as part ofthe Woodridge acquisition.

*Interest Expense*. Interest expense for the six months ended June 30, 2007 increased $0.2million, or 53% to $0.6 million from $0.4 million for the same period lastyear.  The interest expense isattributable to the credit facility that we entered into on March 9, 2006 topartially fund the Woodridge acquisition. Our debt bears interest at LIBOR plus 4.50 percent.

*Income Taxes*.  For the six months ended June 30, 2007, ourprovision for federal and state taxes amounted to $0.1 million compared to $29,000for the same period in 2006.  Theeffective income tax rate reflects the book to tax difference from goodwillamortization.  Additionally, income taxbenefits from the available net operating losses are not reflected in the 2007and 2006 provisions as the realization of these benefits is not deemed morelikely than not.

**Liquidity and Capital Resources**

Consolidated working capital was($0.6) million on June 30, 2007, compared with working capital of ($0.8)million on December 31, 2006.  Included in workingcapital were cash and cash equivalents of $0.1 million and $0.6 million on June30, 2007 and December 31, 2006, respectively.

Netcash used in operating activities was $2.5 million for the six months endedJune 30, 2007. Included in the net cash used in operating activities was thenet loss of $2.0 million. Non-cash operating charges including depreciation,amortization, compensation expense and reserves were $1.1 million were offsetby $1.6 million of cash used in changes in operating assets and liabilities.

Netcash provided in investing activities was $1.7 million for the sixmonths ended June 30, 2007, $2.0 million relating to cash receivedfrom the Woodridge acquisition escrow account, offset by $0.3 million relatingto the purchase of the Heavy Duty intellectual property and issuance costs.

Netcash provided in financing activities was $0.3 million for the sixmonths ended June 30, 2007, $2.5 million relating to cash recoveredfrom the issuance of a note payable, offset by $2.2 million relating to thepaydown of the revolving credit agreement.

Our primary source of liquidity isour cash and cash equivalents, our cash generated from operations, andavailability under our revolving credit facility.  We believethat our current cash on hand and sources of cash are sufficient to meet allexpenditures over the next twelve months.  The cash generated by the operations ofWoodridge and borrowed by Woodridge under the revolving credit facility issubject to restrictions as to the amount of funds that may be paid through adividend to Nextera to pay corporate expenses.  We believe that additional liquidity sources,if necessary, could be obtained by borrowing funds from a third party orraising equity through a public or private transaction, although these aresubject to restrictions under our Credit Agreement as amended.

OnApril 17, 2007, we entered into an amendment agreement under the CreditAgreement (the “Second Amendment”). Under the terms of the Second Amendment,the revolving credit facility was reduced from $5.0 million to $2.75 million.Pursuant to the Second Amendment, the term loan and the revolving creditfacility bear interest at the London Interbank Offered Rate (“LIBOR”) plus 4.50percent, or bank base rate plus 3.25 percent, as selected by us, with the ratesubject to adjustment after delivery of our compliance certificate for thefiscal quarter ending June 30,

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2007,based on our consolidated adjusted leverage ratio. Outstanding borrowings underthe term loan must be repaid in 13 quarterly payments, commencingMarch 31, 2008, and are in the amount of $250,000 each in 2008, $312,500each in 2009, $437,500 each in 2010, with a final payment due on March 31,2011, the maturity date of the term loan. The maturity date for the revolving creditfacility is March 31, 2010. The commitment fee on the revolving creditfacility is payable quarterly at a rate of 0.50% of the unused amount of therevolving credit facility per annum. We paid an amendment fee of 0.25% of thetotal credit facility in connection with the Second Amendment.

Wehave 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 a6% fixed rate if the three-month LIBOR rate exceeds 6% and in return willreceive the three-month LIBOR rate. In addition, if the three-month LIBOR ratefalls below 5%, we will pay a 5% fixed rate and in return will receive thethree-month LIBOR rate. The effect of this agreement is therefore to convertthe floating three-month LIBOR rate to a fixed rate if the three-month LIBORrate exceeds 6% or falls below 5%. The three-month LIBOR rate received underthe agreement will substantially match the rate paid on the term loan sinceterm loan currently bears interest at the six-month LIBOR rate. The fair valueof the collar was immaterial at June 30, 2007.

Underthe Credit Agreement, as amended, we are subject to certain limitations,including limitations on our ability: to incur additional debt or sell assets,with restrictions on the use of proceeds; to make certain investments andacquisitions; to grant liens; and to pay dividends and make certain otherrestricted payments. In addition, we will be required to prepay principalamounts outstanding under certain circumstances if it issues debt or equity,sells assets or property, receives certain extraordinary receipts or generatesexcess cash flow. The Credit Agreement also contains certain restrictivefinancial covenants, including minimum consolidated EBITDA, maximum consolidatedleverage ratio, minimum fixed charge coverage ratio, maximum consolidatedcapital expenditures and maximum corporate overhead.  Under the terms of the Second Amendment, therestrictive financial covenants with respect to minimum consolidated EBITDA, maximumconsolidated leverage ratio, minimum fixed charge coverage ratio and maximumcorporate overhead were amended and a new minimum liquidity covenant was added.

Uponthe occurrence of certain events of default, our obligations under the CreditAgreement may be accelerated and the lending commitments terminated. Suchevents of default include, but are not limited to: (i) our failure  to pay principal or interest when due,(ii) our breach or failure to perform any of the covenants or obligationsset forth in the Credit Agreement, which for certain covenants and obligationsis subject to a 30-day cure period, (iii) the acceleration ofcertain other indebtedness, (iv) a filing of a petition in bankruptcy byus, (v) the entry of a judgment or a court order against us in excess ofcertain specified dollar thresholds, (vi) a reduction below certain levelsin the ownership or economic interests of our existing significant stockholdersin the aggregate or (vii) Mr. Millin ceasing to be a member of ourboard of directors or chief executive officer prior to March 9, 2010,except for certain specified reasons.

***FundingAgreement and Note Conversion Agreements***

OnApril 16, 2007, we entered into a Funding Agreement with Woodridge, Mounteand Jocott (the “Funding Agreement”). Under the terms of the Funding Agreement,Mounte and Jocott loaned us the principal sums of $1.5 million and $1.0 millionrespectively, pursuant to individual promissory notes. The notes accruedinterest at an annual rate of 7% with principal originally payable at thematurity date of April 1, 2012. We were prohibited from paying interest incash on these notes under the terms of its Credit Agreement. Accordingly,interest was accrued and added to the principal balance of the notes. Thenotes, including accrued interest, were exchanged in connection with the NoteConversion Agreement discussed below.

The Funding Agreement provides, subject to (i) anyrequired consents or approvals of the lenders under the Credit Agreement and ofany other persons whose consent or approval is required at the time under anycredit or other contract or agreement to which Nextera, Woodridge or any oftheir affiliates is a party, (ii) any required consent of the holders of theoutstanding Series A Preferred, and (iii) the approval of the Board; that, inthe event that Nextera’s earnings before interest, taxes, depreciation andamortization (“EBITDA”) for a fiscal year is greater than or equal to $7.0million or is greater than or equal to $12.0 million for any two consecutive fiscalyears, or any event happens that results in the exchange or redemption of, orpayment of a liquidation preference with respect to, any of Nextera’soutstanding preferred stock (the “Triggering Event”), Nextera will take thefollowing actions:

d)             Within15 business days after the occurrence of a Triggering Event, Nextera will issueto Jocott shares of Cumulative Non-convertible Series B Preferred Stock(“Series B Preferred”) in addition to the shares of Series B Preferred issuedin connection with the Note Conversion Agreement, at a price equal to $100 pershare.  The number of such additionalshares to be issued to Jocott will be equal to the quotient obtained bydividing (i) the sum of (A) $1,000,000, plus (B) the Appreciation Amountdefined below, by (ii) 100, and rounding down to the nearest whole share.  Such shares

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of Series B Preferred will be issued to Jocott in consideration ofJocott’s irrevocable payment of the $2.0 million indemnity deposit and Jocott’scompromise and settlement of the past, pending and future specified claims. The“Appreciation Amount” means an amount equal to a deemed appreciation equal to(1) $1,000,000, multiplied by (2) seven percent (7%) per annum, compoundedannually, calculated from the date that Jocott loans the funds to Nexterapursuant to the promissory note issued by Jocott until the date of the anyissuance of the additional shares of Series B Preferred to Jocott.

e)              Within15 business days after the occurrence of a Triggering Event, Nextera will alsoissue to Jocott the same number of shares of Series C CumulativeNon-Convertible Preferred Stock (“Series C Preferred”) of Nextera as the numberof additional shares of Series B Preferred issued to Jocott.  The Series C Preferred will (i) be issued ata price equal to $100 per share, (ii) have a liquidation preference equal to$100 per share and (iii) provide for a 7% paid-in-kind dividend.  The Series C Preferred will not be convertible into any other securities of Nexteraand the Series C Preferred will rank (i) junior to the Series A Preferred as tothe payment of dividends and as to the distribution of assets upon liquidation,dissolution or winding up, and (ii) on a parity with the Series B Preferred asto the payment of dividends and the Special Redemption Right noted below, butrank junior to the Series B Preferred as to the distribution of assets uponliquidation, dissolution or winding up. The Series C Preferred will bestructured so as to comply with any applicable restrictions in any credit orother contract or agreement to which Nextera, Woodridge or any of theiraffiliates is a party.  Such shares ofSeries C Preferred will be issued to Jocott in consideration of Jocott’sirrevocable payment of the $2.0 million indemnity deposit and Jocott’scompromise and settlement of the past, pending and future specified claims.

f)                Nexterawill grant to the holders of Series A Preferred, Series B Preferred and SeriesC Preferred the right (the “Special Redemption Right”), the exercise of whichis conditioned upon the occurrence of a Triggering Event, the request of theholders and the approval of the Company’s board of directors,  to redeem all or a portion of the shares ofthe Preferred Stock held by such holders at a redemption price equal to $100per share (plus any applicable accrued but unpaid dividends on the shares soredeemed).  The Special Redemption Rightof the holders of Series A Preferred will be senior and prior to the SpecialRedemption Rights of the holders of Series B Preferred and Series C Preferred,and the Special Redemption Rights of the holders of Series B Preferred andSeries C Preferred will be on a parity with each other.

Additionally,under the provisions of the Funding Agreement, in connection with and at thetime of the issuance of any Series B Preferred and/or Series CPreferred, Nextera will issue warrants to purchase Nextera’s Class ACommon Stock at an exercise price of $0.50 per share (the “Warrants”) to theholder of such Series B Preferred and/or Series C Preferred. Thenumber of shares of Nextera’s Class A Common Stock for which such warrantswill be exercisable will be equal to (i) with respect to notes redeemed orexchanged for Series B Preferred , the product of (A) the outstandingprincipal balance plus all accrued but unpaid interest that was redeemed orexchanged, multiplied by (B) two (2); (ii) 2,000,000 shares withrespect to the Series B Preferred Stock issued upon the occurrence of aTriggering Event (when and if such Series B Preferred is issued), and(iii) 2,000,000 shares with respect to the Series C Preferred issuedupon the occurrence of a Triggering Event (when and if such Series CPreferred is issued). The Warrants will have a ten (10) year term and havecustomary piggyback registration rights and anti-dilution rights and otherrights with respect to specified events, all as determined by Nextera’s boardof directors.

OnJune 15, 2007, we entered into a Note Conversion Agreement whereby weexchanged all outstanding principal and accrued interest owed to Mounte andJocott pursuant to individual promissory notes executed in connection with theFunding Agreement for 15,169 and 10,113 shares, respectively, of Nextera’sSeries B Preferred together with a cash payment in lieu of fractional shares.The Series B Preferred Stock was issued at a price of $100 per share, hasa liquidation preference of $100 per share, provides for a 7% per annumcumulative paid-in-kind dividend, and entitles its holders to a number of votesequal to the number of shares held. The Series B Preferred Stock is notconvertible into any other securities of Nextera and ranks junior to theSeries A Preferred Stock as to the payment of dividends, the issuance of aspecial redemption, and the distribution of assets upon liquidation,dissolution or winding up. The Series B Preferred Stock is structured soas to qualify as “Permitted Equity Interests” as such term is defined in ourCredit Agreement, as amended.

Inconnection with the issuance of the issuance of the Series B PreferredStock, we also issued a Class A Common Stock Purchase Warrant to, each ofMounte and Jocott, pursuant to the terms of a Funding Agreement. Under suchWarrants, we granted Mounte and Jocott the right to purchase 3,033,945 and2,022,630 shares, respectively, of Nextera’s Class A Common Stock at anexercise price of $0.50 per share, exercisable at any time at the option of theholder. The warrants have a ten-year term and have customary piggyback registrationrights and anti-dilution rights with respect to specified events. The fairvalue of the warrants has been determined to be $647 thousand. This amount wascalculated using the Black-Scholes pricing model with the followingassumptions: 118.9% volatility; expected term of 10 years; 5.10% risk-freerate; and 0% dividend.

TheSeries B Preferred is classified as mezzanine equity as the Redemption Rightsare effectively redeemable at the option of the holders and are not solelywithin the control of the issuer.  Theinitial carrying amount of the Series B Preferred is the fair value atissuance.  The Series B Preferred willnot be accreted to the redemption value of $2.5 million until redemption isconsidered probable. The 7% paid-in-kind dividend accrues to the carrying valueof the Series B Preferred.

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**Certain Contractual Obligations, Commitments andContingencies**

Thefollowing summarizes our significant contractual obligations and commitments atJune 30, 2007 that impact our liquidity.
| ** **                       | ** ** | **Payments due by Period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations** | ** ** | ** **                                | ** ** | **Less than 1** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in thousands)**          | ** ** | **Total**                                 | ** ** | **year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5 years** | ** ** |
|                             |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt                   |       | $                                         | 9,500      |   | $ | 500 |   | $ | 2,625 |   | $ | 6,375 |   | $ | — |   |
| Leases                           |       | 1,815                                     |       | 450 |   | 862 |   | 503 |   | — |   |
| Total                            |       | $                                         | 11,315     |   | $ | 950 |   | $ | 3,487 |   | $ | 6,878 |   | $ | — |   |

 

**Off Balance Sheet Arrangements**

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

**Critical Accounting Policies**

Our discussion andanalysis of our financial condition and results of operations are based uponour condensed consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosures of contingent assets and liabilities.

Webelieve the accounting policies below represent our critical accountingpolicies. See our Annual Report on Form 10-K for the year ended December 31,2006 for a detailed discussion on the application of these and other accountingpolicies.

***Revenue Recognition,******Allowances for Sales Returnsand Markdowns**—*** Werecognize sales when title and risk of loss transfers to the customer, thesales price is fixed or determinable and collection of the resulting receivableis probable. Sales are recorded net of estimated returns and other allowances.Our provision for sales returns represents management’s estimate of futurereturns based on historical experience and considering current external factorsand market conditions.

Our sales-returnaccrual is a subjective critical estimate that has a direct impact on reportednet sales.  As is customary in the industry, we grant certain of ourcustomers, subject to authorization and approval, the right to either returnproducts or to receive a markdown allowance for certain promotional product.Upon sale, we record a provision for product returns and markdowns estimatedbased on our historical and projected experience, economic trends and changesin customer demand. There is considerable judgment used in evaluating thefactors influencing the allowance for returns and markdowns, and thereforeadditional allowances in any particular period may be needed.  The types of known or anticipated events thatwe have considered, and will continue to consider, include, but are not limitedto, the solvency of our customers, store closings by retailers, changes in theretail environment, including mergers and acquisitions, and our decision tocontinue or support new and existing products. Actual sales returns andmarkdowns may differ significantly, either favorably or unfavorably, from theseestimates.

***Provisions for Inventory Obsolescence**—***We record a provision for estimated obsolescence ofinventory. These estimates consider the cost of inventory, forecasted demand,the estimated market value, the shelf life of the inventory and historicalexperience. If there are changes to these estimates, additional provisions forinventory obsolescence may be necessary.

***Accounting for Acquisitions andIntangible Assets**—*****We have accounted for our acquisitions under the purchasemethod of accounting for business combinations. Under the purchase method ofaccounting, the costs, including transaction costs, are allocated to theunderlying net assets, based on their respective estimated fair values. Theexcess of the purchase price over the estimated fair values of the net assetsacquired is recorded as goodwill.

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

Determining the fairvalue of certain assets and liabilities acquired is judgmental in nature andoften involves the use of significant estimates and assumptions. One of theareas that requires more judgment is determining the fair value and usefullives of intangible assets. To assist in this process, we often obtainappraisals from independent valuation firms for certain intangible assets.

Our intangible assetsprimarily consist of customer relationships, non-compete covenants, exclusivebrand licenses and trademarks. The value of the intangible assets, includingcustomer relationships and other intangibles, is exposed to future adversechanges if we experience declines in operating results or experience significantnegative industry or economic trends. We periodically review intangible assets,at least annually or more often as circumstances dictate, for impairment andthe useful life assigned using the guidance of applicable accountingliterature.

***Long-LivedAssets******—***We review for the impairment of long-lived assets to be held and used wheneverevents or changes in circumstances indicate that the carrying amount of suchassets may not be fully recoverable. Measurement of an impairment loss is basedon the fair value of the asset compared to its carrying value. Long-livedassets to be disposed of are reported at the lower of carrying amount or fairvalue less costs to sell.

**ITEM 3.****                ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

**Interest Rate Risk**

Asof June 30, 2007, we had $9.5 million in floating rate debt under the termloan of our Credit Agreement. Changes in interest rates would not significantlyaffect the fair value of our outstanding indebtedness. Our term loan currentlybears interest at the six-month LIBOR rate plus 4.50%. Our revolving creditfacility bears interest at different rates, ranging from one-month andthree-month LIBOR plus 4.50% to base rate plus 3.25%. We have an interest ratecollar agreement pertaining to $5.0 million of our term loan with respectto the three-month LIBOR rate, which effectively caps the rate at 6% andprovides for a 5% floor. Assuming the outstanding balance on our floating rateindebtedness remains constant over a year, a 100 basis point increase in theinterest rate would decrease pre-tax income and cash flow by approximately$0.12 million.

**Foreign Currency Risk**

Weare not currently exposed to foreign currency risk because we do not currentlyhave material business operations in foreign countries and related sales andexpenses

**ITEM 4.****                ****CONTROLS AND PROCEDURES.**

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our reports under the SecuritiesExchange Act of 1934, as amended, and the rules and regulations thereunder, isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms and that suchinformation is accumulated and communicated to management, including ourPresident and Chief Financial Officer, as appropriate, to allow for timelydecisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

Asrequired by SEC Rule 13a-15(b), we carried out an evaluation, under thesupervision and with the participation of our management, including ourPresident and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures as of the end of the periodcovered by this report. Based on the

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foregoing, ourPresident and Chief Financial Officer concluded that our disclosure controlsand procedures were effective at the reasonable assurance level as of June 30,2007.

Therehave been no changes in our internal controls over financial reporting duringour most recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal controls over financial reporting**.**

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**PART II — OTHER INFORMATION**

**ITEM 1A.****                    RISK FACTORS.**

Risk factors describing the major risks to ourbusiness can be found under Item 1A, “Risk Factors,” in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006, from which Item 1A.is hereby incorporated by reference. There has been no material change in ourrisk factors from those previously discussed in the Annual Report on Form 10-K.

**ITEM 2.****                             UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

OnJune 15, 2007, Nextera issued shares of Series B Preferred and a Class A CommonStock Purchase Warrant to each of Mounte and Jocott pursuant to the terms ofthe Funding Agreement, which transactions were exempt from registrationpursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506of Regulation D.  Nextera previouslydisclosed these transactions in a Current Report on Form 8-K dated June 12,2007 filed with the SEC on June 18, 2007, which disclosure is incorporatedherein by reference.

**ITEM 4.          SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

OnJune 29, 2007, an annual meeting of the stockholders of Nextera was held in VanNuys, California. At the meeting, each director that was a member of the Boardof Directors immediately prior to the Annual Meeting was re-elected, with theexception of Michael P. Muldowney. The matters voted upon and the votes cast at the annualmeeting were as follows:
| Election of Directors | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|---------------------------------|------------|--------------------|------------|-------------------------|------------|
| Ralph Finerman                  |       | 66,668,145         |       | 379,346                 |       |
| Steven B. Fink                  |       | 66,640,420         |       | 407,071                 |       |
| Keith D. Grinstein              |       | 66,685,795         |       | 361,696                 |       |
| Alan B. Levine                  |       | 66,685,795         |       | 361,696                 |       |
| Stanley E. Maron                |       | 66,628,708         |       | 418,783                 |       |
| Joseph J. Millin                |       | 66,668,095         |       | 379,396                 |       |
| Richard V. Sandler              |       | 66,654,258         |       | 393,233                 |       |
| Scott J. Weiss                  |       | 66,668,095         |       | 379,396                 |       |

 
| **Other Matters Voted Upon**                                                                                                               | ** ** | **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|-----------------|------------|
| —  Amendment of our Third Amended  and Restated Certificate of Incorporation to amend certain provisions of  Article Five, Section 5.3 thereof. |       | 66,639,185         |       | 128,486                |       | 279,820         |       |
|                                                                                                                                                      |       |               |       |                   |       |            |       |
| —  Amendment of our  Third Amended and Restated Certificate of Incorporation to effect a reverse  stock split.                                  |       | 66,558,820         |       | 217,646                |       | 271,025         |       |

 

**ITEM 6.****                            ****EXHIBITS.**
| (a)   Exhibits |   |                                                                                                                 |
|-------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|
| 4.1(1)                        |   | Note Conversion Agreement between Nextera  Enterprises, Inc. and Mounte LLC dated as of June 15, 2007.               |
| 4.2(1)                        |   | Note Conversion Agreement between Nextera  Enterprises, Inc. and Jocott Enterprises, Inc. dated as of June 15, 2007. |
| 4.3(1)                        |   | Class A Common Stock Purchase Warrant issued to  Mounte LLC dated as of June 15, 2007.                               |
| 4.4(1)                        |   | Class A Common Stock Purchase Warrant issued to  Jocott Enterprises, Inc. dated as of June 15, 2007.                 |
| 10.1(2)                       |   | Amendment Agreement under the Woodridge Labs Credit  Agreement dated as of                                           |

 

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|         |   | April 17, 2007 by and among Nextera Enterprises,  Inc., Woodridge Labs, Inc., the lenders party thereto and NewStar Financial,  Inc. (as administrative agent for the lenders). |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2(2) |   | Funding Agreement dated as of April 16, 2007 by and  among Nextera Enterprises, Inc., Woodridge Labs, Inc., Mounte LLC and Jocott  Enterprises, Inc.                            |
| 31.1 *  |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                          |
| 31.2*   |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                          |
| 32.1*** |   | Section 1350 Certification                                                                                                                                                      |
| 32.2*** |   | Section 1350 Certification                                                                                                                                                      |

 

(1)                                        Filedas an exhibit to Nextera’s Current Report on Form 8-K dated June 12, 2007 filedwith the SEC on June 18, and incorporated herein by reference.

(2)                                        Filed as an exhibit to Nextera’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2006 filed with theSEC on April 17, 2007, and incorporated herein by reference.

*                                               Filed herewith.

***                                 Furnished solely to accompany thisquarterly report pursuant to 18 U.S.C. § 1350, and not filed for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended, and is not to beincorporated by reference into any filing of Nextera Enterprises, Inc., whethermade before or after the date hereof, regardless of any general incorporationlanguage in such filing.

**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                       |   | NEXTERA ENTERPRISES, INC.     |
|-----------------------|--------|-------------------------------|
|                  |   | (Registrant)                  |
|                  |   |                          |
|                  |   |                          |
| Date: August 13, 2007 |   | By:                           | /s/ Joseph J. Millin |   |
|                  |   | Joseph J. Millin              |
|                  |   | President                     |
|                  |   | (Principal Executive Officer) |
|                  |   |                          |
| Date: August 13, 2007 |   | By:                           | /s/ Antonio Rodriquez |   |
|                  |   | Antonio Rodriquez             |
|                  |   | Chief Financial Officer       |
|                  |   | (Principal Financial Officer) |

 

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