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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
ECHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
COMMISSION FILE NO. 000-50508
NUVIM(R), INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 13-4083851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12 North State Route 17
Paramus, NJ 07652
(Address of principal executive offices) (Zip Code)
(201) 556-1010
(Issuers Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
At May 1, 2007, 14,532,782 shares of the registrant's Common Stock, par value
$0.00001 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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NUVIM, INC.
Quarterly Report on Form 10-QSB
Quarterly Period Ended March 31, 2007
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet -March 31, 2007 (Unaudited) 4
Statements of Operations - For the three months ended March 31, 2006 and 2007 (Unaudited) 5
Statement of Changes in Stockholders' Deficit for the three months ended March 31, 2007 (Unaudited) 6
Statements of Cash Flows for the three months ended March 31, 2006 and 2007 (Unaudited) 7
Notes to Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis or Plan of Operation 17
Item 3. Controls and Procedures 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults upon Senior Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits 34
Signatures 35
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
NUVIM, INC.
BALANCE SHEET
MARCH 31, 2007
----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 352,854
Accounts receivable, net 55,774
Inventory 157,547
Prepaid expenses and other current assets 191,641
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Total Current Assets 757,816
----------------
Equipment and furniture, net 372
Deferred offering cost 57,025
Deposits and other assets 8,147
Distribution rights 90,400
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TOTAL ASSETS $ 913,760
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of accounts payable $ 496,519
Accounts payable and accrued expenses to related parties 29,000
Accrued expenses 146,577
Accrued compensation 326,241
Rescinded series B offering payable 18,920
----------------
TOTAL CURRENT LIABILITIES 1,017,257
Other Liabilities:
Accounts payable, net of current portion 233,430
Senior notes payable - related parties, net of unamortized discount of
$32,267 at March 31, 2007 467,733
Accrued interest - senior notes payable - related parties 179,160
Stockholder loans - subordinated covertable promissory notes 150,000
Accrued interest stockholder loans 24,770
Other notes payable, net of unamortized discount of $7,650 at
December 31, 2006 112,350
Accrued Interest - other notes payable 28,317
----------------
TOTAL OTHER LIABILITIES 1,195,760
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TOTAL LIABILITIES 2,213,017
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, 120,000,000 shares authorized, $.00001 par value,
13,534,115 shares issued and outstanding at March 31, 2007 135
Additional paid-in capital 21,005,811
Accumulated deficit (22,305,203)
----------------
Total Stockholders' Deficit (1,299,257)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 913,760
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The notes to financial statements are an integral part of this statement.
4
NUVIM, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2006 2007
---------------- ----------------
Gross sales $ 271,073 $ 328,133
Less: discounts, allowances and promotional payments 94,852 87,311
---------------- ----------------
Net sales 176,221 240,822
Cost of sales 121,231 168,945
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Gross profit 54,990 71,877
Selling, general and administrative expenses 512,673 332,410
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Loss from operations (457,683) (260,533)
Other Income (Expense):
Interest expense (37,065) (20,650)
Interest income 45 --
---------------- ----------------
Total other income (expense) - net (37,020) (20,650)
---------------- ----------------
Net loss before income tax benefit (494,703) (281,183)
Income tax (expense) benefit - -
---------------- ----------------
Net loss $ (494,703) $ (281,183)
================ ================
Basic and diluted loss per share $ (0.10) $ (0.02)
================ ================
Weighted average number of common shares outstanding - basic and diluted 5,054,278 12,578,491
The notes to financial statements are an integral part of these statements.
5
NUVIM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2007
(Unaudited)
COMMON STOCK ADDITIONAL TOTAL
---------------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------ ------------ ------------ -------------- --------------
Balance at December 31, 2006 11,622,867 $ 116 $ 20,489,672 $ (22,024,020) $ (1,534,232)
Stock sold to accredited investors, net 1,533,333 15 419,185 419,200
Stock issued for accrued compensation 172,915 2 46,581 46,583
Stock issued for services 205,000 2 36,098 36,100
Employee stock based compensation 14,275 14,275
Net Loss (281,183) (281,183)
------------ ------------ ------------ -------------- --------------
Balance at March 31, 2007 13,534,115 $ 135 $ 21,005,811 $ (22,305,203) $ (1,299,257)
============ ============ ============ ============== ==============
The notes to financial statements are an integral part of this statement.
6
NUVIM, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2007
(Unaudited)
2006 2007
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Cash Flow From Operating Activities:
Net loss $ (494,703) $ (281,183)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation 226 226
Amortization of debt discount on notes payable 7,611 5,250
Stock issued for services 33,558 36,100
Employee stock based compensation 31,000 14,275
Stock issued for compensation 46,583
Provision for sales returns 94,852 87,311
Changes in Operating Assets and Liabilities:
Accounts receivable (79,192) (87,258)
Inventory (12,971) 9,382
Prepaid expenses and other current assets 94,931 (588)
Accounts payable 97,008 44,091
Accounts payable and accrued expenses to related parties (129,274) (28,606)
Accrued expenses (91,870) 26,980
Accrued compensation 157,082 (9,783)
Accrued interest - senior notes payable - related parties -- 10,000
Accrued interest - stockholder loans -- 3,000
Accrued interest - other note payable 22,825 2,400
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Net Cash Used in Operating Activities (268,917) (121,820)
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Cash Flow From Financing Activities:
Net proceeds from issuance of common stock -- 419,200
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Net Cash Provided by Financing Activities -- 419,200
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Decrease in Cash and Cash Equivalents (268,917) 297,382
Cash and Cash Equivalents at Beginning of Year 270,468 55,472
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Cash and Cash Equivalents at End of Year $ 1,551 $ 352,854
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The notes to financial statements are an integral part of these statements.
7
NUVIM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
A. Business
NuVim, Inc. (the "Company") markets and distributes ready to drink dietary
supplement beverages and powder mixes, which enhance the immune system, promote
sturdy joints and muscle flexibility and helps the body absorb calcium. The
Company distributes its products through supermarkets in approximately 14 states
in the eastern United States.
B. Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred net losses of ($281,183) and $494,703 for the
three months ended March 31, 2007 and 2006, respectively. Management also
expects operating losses to continue in 2007. The Company's continued existence
is dependent upon its ability to secure adequate financing to fund future
operations and commence profitable operations. To date, the Company has
supported its activities through equity investments, the sale of common stock,
and a line of credit through a bank of $50,000 of which there is currently none
used. During 2006, the Company addressed these concerns by selling common stock
to raise approximately $534,000, settling approximately $274,000 of principal
and interest on note and supplier debt with common stock, and issuing stock
worth approximately $266,000 to secure services. In addition, during 2006 the
Company negotiated extended terms on approximately $987,000 of notes payable,
stockholder loans, and accrued interest until January 2009. During 2007, the
Company has raised approximately $688,000, net of fees, through sales of common
stock.
It is the Company's intention to raise additional capital through additional
sales of its common stock. No assurance can be given that these funding
strategies will be successful in providing the necessary funding to finance the
operations of the Company. Additionally, there can be no assurance, even if
successful in obtaining financing, the Company will be able to generate
sufficient cash flows to fund future operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets or amounts and
classification of liabilities that might be necessary related to this
uncertainty.
8
C. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. The unaudited interim consolidated
financial statements as of March 31, 2006 and 2007 reflect all adjustments
(consisting of normal recurring accruals) which, in the opinion of management,
are considered necessary for a fair presentation of its financial position as of
March 31, 2007 and as of the result of its consolidated operations and its
consolidated cash flows for the periods ended March 31, 2006 and 2007.
The Unaudited Consolidated Statements of Operations for the three months ended
March 31, 2006 and 2007 are not necessarily indicative of results for the full
year.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, these financial statements should be read in
conjunction with the financial statements and accompanying notes included in the
Company's Current Report on Form 10KSB for the year ended December 31, 2006
filed on April 14, 2007.
9
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Net Loss Per Share
Basic loss per share has been calculated using the weighted average number of
common shares outstanding in accordance with FASB 128 "Earnings Per Share." All
potentially dilutive securities, including options, convertible notes,
convertible preferred stock and warrants have been excluded as common stock
equivalents and diluted loss per share has not been presented as such securities
are antidilutive due to the Company's net loss for all periods presented. At
March 31, 2007, the Company had warrants to purchase 7,522,514 shares of common
stock and employee stock options to purchase 2,628,647 shares of common stock
outstanding which are not included in the calculation.
B. Concentration of Risk
The Company maintains its cash balances in financial institutions located in New
Jersey, and periodically has cash balances in excess of Federal Deposit
Insurance Corporation limits. The Company distributes its products and grants
credit to its customers who are food distributors and retailers located
primarily in the eastern portion of the United States. The Company generally
does not require collateral or other security with regard to balances due from
customers. The Company extends credit to its customers in the normal course of
business and performs periodic credit evaluations of its customers, maintaining
allowances for potential credit losses.
Sales to three customers during the three months ended March 31, 2006
approximated 27%, 15% and 10% of sales. Sales to three customers during the year
ended March 31, 2007 approximated 44%, 13% and 10% of sales. A loss to one of
these customers could have a significant adverse effect on the Company's results
of operations
Accounts receivable from two customers at March 31, 2006 approximated 27%, and
16% respectively and two customers at March 31, 2007 approximated 49% and 11% of
accounts receivable.
One outside vendor manufactured all of the Company's finished goods. During the
three months ended March 31, 2006 and 2007, manufacturing costs of approximately
$39,000 and $65,000 were incurred at this vendor. Approximately $35,000 was due
to this vendor at March 31, 2007.
C. Reclassifications
Certain reclassifications were made to the presentation of the 2006 financial
statements in order to conform to the 2007 financial statements. Such
reclassifications had no effect on the prior year's results of operations.
10
D. Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123R (revised 2004),
"Share-Based Payment" which revised Statement of Financial Standards No. 123,
"Accounting for Stock-Based Compensation" This statement supersedes Opinion No.
25, "Accounting for Stock Issued to Employees." The statement addresses the
accounting for share-based payment transactions with employees, eliminates the
ability to account for share-based compensation transactions using the intrinsic
value method pursuant to APB 25 and requires that the compensation costs
relating to such transactions be recognized at fair value in the statement of
operations. The revised statement was implemented by the Company effective
January 1, 2006. The Company continued to account for stock awards issued to
non-employees under the fair value method as described in EITF 96-18 "Accounting
for Equity Investments that are issued to Other than Employees for Acquiring or
in Conjunction with Selling Goods or Services." The Company recorded $14,275 in
expense related to stock options for the three months ended March 31, 2007.
11
E. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, and
("SFAS No. 157"), which defines fair value, establishes a framework for
measuring fair value using a market participant approach, and expands
disclosures about fair value measurements. SFAS No. 157 will be effective for
the Company beginning January 1, 2008. Management is currently evaluating the
effect SFAS No. 157 will have on the Company's financial condition or results of
operations.
In July 2006, the Financial Accounting Standards Board ("FASB") has published
FASB Interpretation No. 48 ("FIN No. 48"), Accounting for Uncertainty in Income
Taxes, to address the noncomparability in reporting tax assets and liabilities
resulting from a lack of specific guidance in FASB Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, on the
uncertainty in income taxes recognized in an enterprise's financial statements.
FIN No. 48 will apply to fiscal years beginning after December 15, 2006, with
earlier adoption permitted. As of January 31, 2007 FIN 48 was adopted by the
Company and it did not have a material effect on the Company's financial
condition or results of operations or cash flows.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, "The Fair Value option for Financial Asset and Financial Liabilities -
Including an Amendment of FASB Statement No. 115" which is effective for fiscal
years beginning after November 15, 2007. This statement permits an entity to
chose to measure many financial instruments and other items at fair value at
specified election dates. Subsequent unrealized gains and losses on items for
which the fair value option has been elected will be reported in earnings. We
are currently evaluating the potential impact on this statement in connection
with our evaluation of SFAS No. 157.
NOTE 3 - STOCKHOLDERS' DEFICIT
A. Capital Stock
The Company is authorized to issue 185,000,000 shares of all classes of capital
stock, including 120,000,000 as common. The Company has authorized 65,000,000
shares of all classes of preferred stock, of which 4,875,850 shares are
designated as Series A and 50,000,000 as Series C.
12
B. Sales for Cash
On March 1 and 8, 2007, NuVim issued a total of 433,333 shares to an unrelated
accredited investor for $130,000 or $.30 per share. No commissions or fees were
paid in connection with this sale. He agreed in writing to restrictions on
resale placed with the NuVim's transfer agent and the printing of a legend on
its certificate. Because of these factors, this sale was exempt from
registration under the Securities Act as not involving a public distribution
under section 4(2) and 4(6).
On March 8, 2007, at the same time as the second purchase, three of NuVim's
outside directors, Doug Scott, Peter DeCrescenzo, and Cal Hodock purchased
50,000, 33,333, and 16,667 shares respectively at the same price totaling
$30,000 or $0.30 per share. Each director agreed in writing to restrictions on
resale placed with the NuVim's transfer agent and the printing of a legend on
its certificate. Because of these factors, this sale was exempt from
registration under the Securities Act as not involving a public distribution
under section 4(2) and 4(6).
At the end of the first quarter of 2007, NuVim received $300,000 from Julius
Baer Multistock SICAV US Stock Fund, a European Institutional Investor to
purchase 1,000,000 shares of common stock at a price of $.30 per share. NuVim
paid a commission of $30,000 to Continental Advisors SA in connection with this
sale. In addition, Continental Advisors SA received $9,000 for its expenses
without accounting for it.
All cash raised in these sales has been applied to working capital.
C. Debt and Accrued Compensation Conversion
On January 30, 2007, NuVim issued 72,915 shares of common stock in lieu of cash
for unpaid 2006 salary of approximately $14,600 due to Michael Vesey, NuVim's
former CFO. He agreed in writing to restrictions on resale placed with the
NuVim's transfer agent and the printing of a legend on its certificate. Because
of these factors, this sale was exempt from registration under the Securities
Act as not involving a public distribution under section 4(2) and 4(6).
In March 2007, NuVim issued 100,000 shares of common stock to Mr. Kundrat,
NuVim's CEO for the remaining balance of his 2006 executive bonus due him in the
amount of $32,000.
D. Stock Issued for Services
On January 29, 2007, NuVim agreed with its Secretary and General Counsel to
issue 100,000 shares of common stock as additional compensation for his services
during 2007. The services have a value of approximately $16,000. He agreed in
writing to hold
13
the shares for at least one year and to the additional restrictions on resale
placed with the NuVim's transfer agent and the printing of a legend on its
certificate. Because of these factors, this sale was exempt from registration
under the Securities Act as not involving a public distribution under section
4(2) and 4(6).
On January 29, 2007, NuVim agreed with its operations director to issue a total
of 50,000 shares of common stock as additional compensation for his services.
The shares have a value of approximately $8,000. He agreed in writing to
restrictions on resale placed with the NuVim's transfer agent and the printing
of a legend on its certificate. Because of these factors, this sale was exempt
from registration under the Securities Act as not involving a public
distribution under section 4(2) and 4(6)
On January 30, 2007 NuVim agreed with a communications expert to provide various
services for a total of 40,000 shares of common stock. The services have a value
of approximately $6,400. He agreed to restrictions on resale placed with the
NuVim's transfer agent and the printing of a legend on its certificate. Because
of these factors, this sale was exempt from registration under the Securities
Act as not involving a public distribution under section 4(2) and 4(6).
Also in March, 2007 NuVim issued 15,000 shares of common stock for services
relating to its corporate presentation materials. The services have a value of
approximately $5,700.
E. Stock Option Plan
In March 2007, the Board of Directors approved the 2007 Incentive Stock Option
Plan for the benefit of its officers, employees and consultants. The plan
authorizes the grant of 2,000,000 shares of common stock. The plan will become
effective upon approval of shareholders at the Company's annual meeting in May
of 2007.
NOTE 4 - INCOME TAXES
Based on the Company's operating losses, no provision for income taxes has been
provided for the three months ended March 31, 2006 and 2007.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
MARCH 31,
-------------------------
2006 2007
----------- -----------
Interest paid $ 1,625 $ --
14
NOTE 6 - COMMITMENTS
A. Royalty, License and Supply Agreement - Related Party
In March 2000 and amended in May 2004, the Company entered into an agreement for
the exclusive licensing rights, in specific territories, to produce and market
certain beverage products, patented and trademarked by SMBI. The agreement was
for a term of 10 years commencing on the date of the amendment, May 2004, and
provided for royalties of between 1% and 2% of net sales for the duration of the
agreement. The exclusive licensing agreement could be cancelled by SMBI if the
Company did not meet its annual purchasing commitment under the supply
agreement (see below), in which case, SMBI agrees to negotiate in good faith for
a non-exclusive supply agreement.
In January 2000 and amended in May 2004, the Company entered into a supply
agreement with SMBI for the purchase of SMBI's proprietary immune whey protein
concentrate. The agreement is for a term of 10 years, commencing on the date of
amendment, May 2004.
The license and supply agreements were subject to the Company maintaining
minimum purchases of SMBI's proprietary immune whey protein concentrate. In
April of 2007 the Company and SMBI agreed to terminate the license and supply
agreements. In April 2007, pursuant to the agreement, the Company made a final
payment of $29,000 under the agreement and no further amounts are due under the
agreement.
On April 9, 2007 the Company entered into a supply agreement with GNT nutrition
for Nutraflora, an ingredient that provides immune system enhancement and muscle
and joint flexibility enhancement. The agreement does not contain any minimum
purchase commitments or provision for the payment of royalties.
B. Lease
As of December 31, 2006, the Company does not have a lease agreement with its
landlord and is operating on a month to month basis. Rent expense is
approximately $4,800 per month.
NOTE 7 - RELATED PARTY TRANSACTIONS
Included in selling, general and administrative expenses are salaries to
immediate family members of an executive officer of the Company of approximately
$9,000 and $12,000 for the three months ended March 31, 2006 and 2007,
respectively.
15
NOTE 8 - SUBSEQUENT EVENTS
A. Sales for Cash
During April 2007, NuVim issued a total of 972,667 shares to unrelated
accredited investors for gross proceeds of approximately $292,000 or $.30 per
share. Commissions and fees of approximately $25,000 were paid in connection
with this sale.
All cash raised in these sales has been applied to working capital.
B. Stock Issued for Services
During April 2007 NuVim agreed with a communications expert to provide various
services for a total of 26,000 shares of common stock. The services have a value
of approximately $13,000.
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and related notes included elsewhere in this Quarterly Report on Form
10-QSB. This discussion contains forward-looking statements that are based on
our management's beliefs and assumptions and on information currently available
to our management. Forward-looking statements include, but are not limited to,
statements regarding:
o possible or assumed future results of operations, including statements
regarding revenue mix, cost of revenues, promotion of our products through
advertising, sampling and other programs, changes to our internal
financial controls, trends in our operating expenses and provision for
income taxes, increased costs as a result of becoming a public company and
expenses related to stock-based compensation;
o financing plans, including the adequacy of financial resources to meet
future needs;
o business strategies, including any expansion into new products;
o our industry environment, including our relationships with our significant
customers and suppliers;
o potential growth opportunities; and
o the effects of competition.
Some of our forward-looking statements can be identified by use of
words such as "may," "will," "should," "potential," "continue," "expects,"
"anticipates," "intends," "plans," "believes" and "estimates."
Forward-looking statements involve many risks, uncertainties and
assumptions. Actual results may differ materially from those expressed in the
forward-looking statements for a number of reasons, including those appearing
under the caption "Factors Affecting Operating Results" and elsewhere in this
Quarterly Report on Form 10-QSB. The cautionary statements contained or referred
to in this report should be considered in connection with any subsequent written
or oral forward-looking statements that may be issued by us or persons acting on
our three quarters. We undertake no obligation to release publicly any revisions
to any forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
We produce, market, and distribute NuVim(R) beverage dietary
supplements in Ready-to-drink and powder mix forms. NuVim utilizes the
micronutrient NutraFlora(R) and whey protein to provide important health
benefits to its consumers. Whey protein, NuVim(R)'s largest ingredient, other
than water, enhances physical performance, enhances cardiovascular health, and
17
promotes well being. NutraFlora(R) is uniquely capable of promoting health by
supporting the growth of beneficial (probiotic) bacteria which in turn provide
health benefits such as improved calcium and mineral absorption for better bone
health and a strong immune system. Studies also show that NutraFlora(R) helps
improves digestive functions, contributes to a healthy cholesterol, and
metabolism. In addition NuVim contains 100% of vitamin C, E, B12, and Zinc and
30% vitamin A of the recommended dail requirement. NuVim products contain no
fat, cholesterol, lactose, caffeine, artificial flavors or high fructose corn
syrup.
We focus on developing the NuVim(R) brand through a mix of advertising
and promotional programs that build consumer awareness, trial and repeat
purchases. The marketing consists of television advertising newspaper
advertising/advertorials, product sampling, coupon distribution, and promotional
price discounts. These marketing expenditures are essential to build the
NuVim(R) brand. We continue to test various ways to find the most cost efficient
means to use these marketing funds to increase consumer awareness, trial and
repeat purchases. We believe that these advertising and promotional activities
are critical to the growth of our business and expect to continue these programs
in the future.
We have distributed our refrigerated beverages since the year 2000 and
are in approximately 2,100 Supermarkets in the Eastern United States. In 2002
company revenues were $3.5 million. However, we eliminated most advertising and
marketing support for our product in the second half of 2002 due to a lack of
funding. We recapitalized our company in June 2005 through the conversion of
approximately $7.7 million of debt into common stock and an initial public
offering of our common stock. Since that time we have concentrated our limited
financial resources on developing and supporting distribution opportunities that
we believe will provide the greatest profitable sales expansion potential.
Additional funds raised in the first months of 2007 will help achieve these
goals.
We also developed a powder version of our product to be sold through
direct distribution such as the internet as well as retail outlets. Sales of the
product to date have not been material. We have begun a test program selling the
powder in GNC stores in the Tampa Bay area.
We have launched an equity funded print news media campaign to educate
consumers about the benefits of NuVim(R) and create market awareness for our
product. The media program which began in January 2006 and will continue through
the fourth quarter of 2007 or until the contracted amount of the newspaper
features has been completed.
We have produced a 30 second television commercial for the refrigerated
products, a 60 second television commercial for the powder product and a 5
minute educational video for the product and will air these commercials
throughout 2007 through Platinum Television Group headquartered in Deerfield
Beach Florida.
During 2006 we continued to have had limited funding to support product
sampling and advertising programs, which we believe are critical to maintain and
increase sales of our products. Therefore, we have focused our spending on
promotions in accounts that we believe will offer the greatest potential for
sales growth and expansion opportunities until we are able to raise funding for
additional marketing programs.
18
Our focus is to push forward in six areas: Increase the sales per store
in existing Wal-Mart supercenters and increase the number of Wal-Mart
distribution centers stocking the NuVim(R) 64 ounce size; support the testing
begun in the first quarter of 2007 with Kroger, the second largest US retailer;
introduce a shelf stable 12 ounce in three varieties for the 1,500 independent
shelf stable US distributors that service the nearly 700,000 points of
distribution in the away from home consumption markets like schools, cafeterias
delis, hospitals, convienience stores and other food service businesses.;
increase sales of the newly introduced powder version in three varieties through
the internet, retail sales through GNC, and fund raising programs with
non-profit organizations; increase profitable sales to current and new
supermarkets; and introduce NuVim to the military commissaries and troop
feeding.
In 2006 we launched an equity funded print news media campaign to
educate consumers about the benefits of NuVim(R) and create market awareness for
our product. The media program will continue into the fourth quarter of 2007 or
until the contracted amount of the newspaper features has been completed.
We have produced a 30 second television commercial for the refrigerated
products, a 60 second television commercial for the powder product and a 5
minute powder infomercial for the product and plan to air these commercials
2,000 times through Platinum Television Group.
Case shipments of our refrigerated product increased by 2,907 or 20%
during the first quarter of 2007 compared with the same period in the prior
year. The reasons for the increase included further expansion to additional
Wal-Mart supercenters compared with the same period last year , an increase at
Wakefern (Shoprite) supermarkets in the New York/New Jersey market during the
first quarter 2007, and new start up business at Kroger in Detroit Michigan.
During the first quarter 2007 we continued to have had limited cash to fund
product sampling and advertising programs, which we believe are critical to
maintain and increase sales of our products. Therefore, with limited funding we
are unable to support all markets and concentrate in certain markets to attain a
level of consumer sales to hold supermarket retail distribution and in some
accounts increase the number of stores carrying NuVim products until we are able
to raise cash for additional marketing programs. In the interim, advertising
program funded by the issuance of stock will continue to be important.
In late 2003 we began a test program with a single Wal-Mart
supercenter. In late 2004 the test was expanded to one Wal-Mart distribution
center, covering 43 supercenters and then a further expansion in late 2005 to
two additional distribution centers that covered most of the Wal-Mart
supercenters in the State of Florida. During the 2005 expansion, the number of
NuVim(R) varieties carried by the supercenters was increased from two to three.
Third quarter 2005 Wal-Mart sales were 8% of the total 2005 sales for that
quarter. In April 2006, we increased our distribution to two more Wal-Mart
distribution centers and in the third quarter of 2006 one more distribution
center was added. We now serve approximately 300 supercenters and seven
distribution centers in 7 states. Same store sales for Wal-Mart in the first
quarter of 2007 were up 137% compared with the same quarter in 2006. First
quarter 2007 Wal-Mart sales were 51% of total NuVim sales for this quarter. The
Wal-Mart initiative has matured much faster then the others. We expect the other
five initiatives to increase their sales contribution both absolutely and as a
percentage of the total sales.
19
SALES RESULTS
The discussion below covers selected data regarding sales for the
quarter March 31, 2007 and 2006. The data is not necessarily indicative of
continuing trends.
Sales of refrigerated beverages are expressed in unit case volume. A
"unit case" means a unit of measurement equal to 512 U.S. fluid ounces of
finished beverage (eight 64-ounce containers). Powder mix sales are expressed in
equivalent servings equal to the refrigerated case. One case of refrigerated
products has 40 servings. One box of powder mixes has 30 servings. Unit case
volume means the number of unit cases (or unit case equivalents) of beverages
directly or indirectly sold by us. Gross cases sold to the customer represent
the number of cases shipped to the customer..
UNIT CASE VOLUME/CASE SALES
THREE MONTHS ENDED
MARCH 31,
-------------------------
2007 2006
----------- -----------
Gross Cases Sold 17,654 14,747
Gross Sales $ 328,133 $ 271,073
Net Sales $ 240,822 $ 176,221
Gross sales are the amount invoiced to customers, while net sales
deduct from gross sales any payment or discount terms, promotional allowances,
slotting fees, warehouse damage and returned goods in accordance with the
Financial Accounting Standards Board Emerging Issues Task Force Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer. In some accounts
we pay slotting fees when our products are initially introduced to a new account
and run price feature promotions to encourage trials of our product. As brand
loyalty grows in a market, we anticipate that we will be able to run fewer price
promotions and will not incur the one time additional slotting fees to gain new
distribution.
17,654 cases sold represents an increase of 2,907, or 20%, for the
three months ended March 31, 2007, when compared to the same quarter in 2006. As
discussed above, we believe that the number of cases sold is due to the increase
in the number of Wal-Mart supercenters carrying the product, and the change in
product formula to lower the calories, eliminate the high fructose corn syrup
and increase whey protein to be the number one item on the ingredient list. We
also had a 50% increase in the quarter from Shoprite, New York's largest
account, 10% increase at Giant PA, new 16 ounce distribution at Giant and new
business start up with Kroger stores in Detroit.
20
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2006
Gross Sales. For the three months ended March 31, 2007, gross sales
were $328,133 an increase of $57,060 or 21% over gross sales of $271,073 for the
three months ended March 31, 2006. This 21% increase had several contributing
factors as mentioned above. We also decreased the Wal-Mart store and their
distribution centers inventory which of course decreased NuVim factory sales to
them in the first quarter. This was a one time adjustment to better control
fresh inventory and improve our product's performance within the Wal-Mart
system. During this quarter, we continued to have limited funds for advertising
and sampling programs.
Discounts, Allowances and Promotional Payments. For the three months
ended March 31, 2007, promotional allowances and discounts were $87,311, a
decrease of $7,541 from the promotional allowances and discounts of $94,852 for
the three months ended March 31, 2006. This 8.0 % decrease is reflective of our
ability to generate incremental sales for the quarter of 21% while decreasing
promotional spending. We record the price reductions, which are reimbursed by us
to the retailers, in accordance with Financial Accounting Standards Board
Emerging Issues Task Force, No. 01-09, Accounting for Consideration Given by a
Vendor to a Customer. We expect to continue to use price promotions and coupon
distribution selectively as a means to promote consumer sampling and trial of
our product into the foreseeable future. As the product further matures and a
higher percentage of users of our product are repeat purchasers, we expect
coupon expense, relative to gross sales, to decline although we will continue to
use these marketing programs when needed. Product returned after its expiration
date decreased as a percentage of sales this quarter versus the same quarter a
year ago by 1%. Total Discounts, Allowances and Promotional payments/discounts
as a percentage of gross sales decreased from 35.5% for the three months ended
March 31, 2006 to 26.6% for the three months ended March 31, 2007. This is very
positive because it is costing less to move more product off the shelf.
THREE MONTHS ENDED
MARCH 31,
--------------------- INCREASE
2007 2006 (DECREASE) PERCENTAGE
--------- --------- ---------- ----------
Discounts for timely payment $ 2,487 $ 5,894 $ (3,407) (137)%
Product returned after its expiration date 27,577 34,545 (6,968) (25)%
Promotional price allowances, coupons and other 55,574 54,413 1,161 2%
incentives
Slotting fees 1,673 --- 1,673 100%
--------- --------- ---------- ----------
Total Discounts, Allowances and Promotional Payments $ 87,311 $ 94,852 $ (7,541) 13%
========= ========= ========== ==========
Net Sales. Net sales for the three months ended March 31, 2007 were
$240,822, an increase of $64,601, or 37% above net sales of $176,221 for the
three months ended March 31, 2006. The increase in net sales is primarily
attributable to the increase in case sales and a decrease in the promotional
pricing as discussed above.
21
Cost of Sales. For the three months ended March 31, 2007, cost of sales
was $168,945 a decrease of $47,714 for the three months ended March 31, 2006.
The decrease is primarily the result of lower ingredient costs in 2007.
Gross Profit. Gross profit was $71,877 for the three months ended March
31, 2007, an increase of $16,887 from the $54,990 gross profit for the three
months ended March 31, 2006. Gross profit as a percentage of gross sales was 25%
for the three months ended March 31, 2007 compared to the 20% for the three
months ended March 31, 2006.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $332,410 for the three months ended March 31, 2007.
Selling, general, and administrative expenses during the three months ended
March 31, 2006 were $512,673. Selling, general, and administration expense
decreased $180,263 or 35%. We are still in an early stage of our development and
did show improvement versus last year same time period and expect to further
show improvement moving forward. We continue to work on increasing sales to
achieve sales volumes sufficient to generate net sales in excess of our selling,
general and administrative expenses. The decrease in selling, general and
administrative expenses is primarily due to decreases salaries by eliminating a
full time Chief Financial Officer, full time Vice President of Operations and
converting all of the selling personnel to a commission structure.
Loss from Operations. Loss from operations was $260,533 for the three
months ended March 31, 2007 compared to $457,683 for the three months ended
March 31, 2006. The entire decrease of $197,150 is due to the increase in net
sales and the decrease in selling and administration.
Interest Expense. Interest expense was $20,650 for the three months
ended March 31, 2007; a decrease of $16,415 or 44%, from interest expense of
$37,065 for the three months ended March 31, 2006. The decrease in interest
expense is primarily attributable to the retirement of one loan that was
converted to equity.
Net Loss. Net loss was $281,183 for the three months ended March 31,
2007 compared to $494,703 for the three months ended March 31, 2006, a decrease
of $213,520 due to the contribution made by increased sales and the decrease in
administrative and selling costs.
22
LIQUIDITY AND CAPITAL RESOURCES
Our operations to date have generated significant operating losses that
have been funded through the issuance of common stock and external borrowings.
We will require additional sources of outside capital to continue our
operations.
Through April 30 2007, NuVim has raised a net of $688,000 in new
working capital through the sale of common stock and has obtained services
valued at approximately $49,100 in exchange for its common stock.
We have participated in the New Jersey Economic development Authority
Tax Transfer program for the past 5 years and will again this year.
Approximately $442,000 was received from this program in December of 2006. We
have already applied for the 2007 program.
We will need to raise additional financing to pay down our obligations,
fund operating losses and to support sales and marketing programs to increase
sales of our products. If we are not able to identify additional sources of
financing, we may not be able to continue operations beyond 2007.
Net cash used in operating activities for the three months ended March
31, 2007 was $121,820 compared to cash used in operating activities of $268,917
during the same period in 2006. The decrease in cash used by operating
activities during the first three months of $147,096 was primarily attributable
to lower administrative expenses, less promotional spending, and higher
contributions from product sales. The cash consumed during the first quarter of
2006 included a one time payment of $202,000 to SMBI, the provider of the
proprietary whey protein concentrate then used in our products, in full
settlement of past due balances due to them.
Net Cash provided by financing activities during the three months ended
March 31, 2007 $419,200. Nothing was provided during the three months ended
March 31, 2006.
APPLICATION OF RECENT AND CRITICAL ACCOUNTING POLICIES AND PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB") has
published FASB Interpretation No. 48 ("FIN No. 48"), Accounting for Uncertainty
in Income Taxes, to address the noncomparability in reporting tax assets and
liabilities resulting from a lack of specific guidance in FASB Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, on
the uncertainty in income taxes recognized in an enterprise's financial
statements. FIN No. 48 will apply to fiscal years beginning after December 15,
2006, with earlier adoption permitted. As of January 31, 2007 FIN 48 was adopted
by the Company and it did not have a material effect on the Company's financial
condition or results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, and ("SFAS No. 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS No. 157 will be effective for the Company beginning January
1, 2008. Management is currently evaluating the effect SFAS No. 157 will have on
the Company's financial condition or results of operations.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, "The Fair Value option for Financial Asset and Financial
Liabilities - Including an Amendment of FASB Statement No. 115" which is
effective for fiscal years beginning after November 15, 2007. This statement
permits an entity to chose to measure many financial instruments and other items
at fair value at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be
reported in earnings. We are currently evaluating the potential impact on this
statement in connection with our evaluation of SFAS No. 157.
23
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure on contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions and conditions.
Critical accounting policies are defined as those that are reflective
of significant judgments, estimates and uncertainties and potentially result in
materially different results under different assumptions and conditions. For a
detailed discussion on the application of these and other accounting policies,
see Note 2 to our annual financial statements for the year ended December 31,
2005.
PLACEMENT AND PROMOTIONAL ALLOWANCES AND CREDITS FOR PRODUCT RETURNS
As an inducement to our customers to promote our products in preferred
locations of their stores, we provide placement and promotional allowances to
certain customers. We also provide credits for customer coupon redemptions,
consumer price reductions, and product which has not been sold by its expiration
date. These allowances and credits are reflected as a reduction of revenue in
accordance with Emerging Issues Task Force ("EITF") No. 01-9, which requires
certain sales promotions and customer allowances previously classified as
selling, general and administrative expenses to be classified as a reduction of
sales or as cost of goods sold. Provisions for promotional allowances are
recorded upon shipment and are typically based on shipments to the retailer
during an agreed upon promotional period. We expect to offer promotional
allowances at historical levels in the near future as an incentive to our
customers. One time per account slotting or placement fees are deducted from
revenue in the period paid. Provisions for coupon redemptions and product
returned that has reached its expiration date are based on historical trends.
Information such as the historical number of cases returned per unit shipped,
product shelf life, current sales volume, and coupons distributed during the
period are used to derive estimates of the required allowance. As we expand
production and introduce new
24
products, we may incur increased levels of returned goods. Also, our estimates
assume we will continue as a going concern and maintain distribution with
wholesalers and supermarkets that currently carry our product. If a supermarket
or wholesaler discontinues our product, we may experience return rates in excess
of our historical trend. This could result in material charges to future
earnings for reimbursements to our customers for returned, unsold product.
ACCOUNTS RECEIVABLE
We evaluate the collectablity of our trade accounts receivable based on
a number of factors. Accounts receivable are unsecured, non-interest bearing
obligations that are typically due from customers between 10 and 30 days of the
invoice date. We apply collections in accordance with customer remittance
advices or to the oldest outstanding invoice if no remittance advice is
presented with payment. Our overall receivables are approximately 17 days.
We estimate an allowance for doubtful accounts and revenue adjustments
based on historical trends and other criteria. We have had only one account that
could not be collected since the inception of the company in 2000. The amount
was less than $10,000. Further, as accounts receivable outstanding are deemed
uncollectible or subject to adjustment, these allowances are adjusted
accordingly. In circumstances where we become aware of a specific customer's
inability to meet its financial obligations to us, a specific reserve for bad
debts is estimated and recorded which reduces the recognized receivable to the
estimated amount we believe will ultimately be collected. In addition to
specific customer identification of potential bad debts, bad debt charges are
recorded based on our recent past history and an overall assessment of past due
trade accounts receivable outstanding. We also estimate the amount of credits
for product placement, promotion and expired product that are expected to be
issued for product sold based on an evaluation of historical trends and record
an allowance when the sale is recorded.
DISTRIBUTION RIGHTS
The Company intends to perform its annual impairment test of
distribution rights acquired with the 2006 acquisition of the remaining interest
in NuVim Powder, LLC. Such impairment testing will be performed pursuant to SFAS
No. 142 using a fair value approach. In the event this testing results in an
impairment of the distribution rights the Company could have a right down of
these rights and that right down could be material.
INFLATION
We do not believe that inflation had a significant impact on our
results of operations for the periods presented.
OFF-BALANCE SHEET TRANSACTIONS
At March 31, 2007, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
FACTORS AFFECTING OPERATING RESULTS
Investing in our shares involves a high degree of risk. You should
carefully consider the following risks, as well as the other information in this
report, before deciding whether to invest in our shares. If any of the following
risks actually occur, our business, financial condition, results of operations
and liquidity could suffer. In that event, the trading price of our shares could
decline and you might lose all or part of your investment.
25
WE WILL NEED TO RAISE ADDITIONAL CAPITAL.
We are currently operating at a loss and expect our expenses to
continue to increase as we expand our product line as well as our geographic
presence throughout the United States. To date, we have relied primarily on
financing transactions to fund operations. We could face unforeseen costs such
as an increase in transportation costs resulting from the recent significant
increases in the cost of fuel; or our revenues could fall short of our
projections because retail outlets discontinue ordering our products or for
reasons unrelated to our products, such as a revenue decline due to changes in
consumer habits and preferences or we may achieve lower margins than planned on
our products due to cost increases or competitive pricing pressure.
During the first four months of 2007, NuVim raised a net total of
$688,000 from European Institutional and United States accredited investors and
obtained an additional about $49,100 of services in exchange for common stock.
We will still continue to need additional funds to continue operations.
New sources of capital may not be available to us when we need it or may be
available only on terms we would find unacceptable. If such capital is not
available on satisfactory terms, or is not available at all, we will be unable
to continue to fully develop our business and our operations and financial
condition will be materially and adversely affected. Such a lack of additional
funding could force us to cease operations altogether. Debt financing, if
obtained, could increase our expenses and would be required to be repaid
regardless of operating results. In addition, if we raise additional funds
through the issuance of equity, equity-related or convertible debt securities,
these securities may have rights, preferences or privileges senior to those of
the rights of our ordinary shares and our shareholders may experience additional
dilution. Any such developments can adversely affect your investment in our
company, harm our financial and operating results, and cause our share price to
decline.
OUR AUDITORS HAVE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
In their report in connection with our 2006 financial statements, our
auditors included an explanatory paragraph stating that, because we have
incurred net losses and have a net capital deficiency for the years ended
December 31, 2005 and 2006, and as of March 31, 2007 (unaudited). Our continued
existence will depend in large part upon our ability to successfully secure
additional financing to fund future operations. Our initial public offering was
not sufficient to completely alleviate these concerns; the proceeds have been
adequate to fund operations to date, but we will need to raise additional
funding to continue operations. If we are not able to achieve positive cash flow
from operations or to secure additional financing as needed, we will continue to
experience the risk that we will not be able to continue as a going concern.
Our continued existence will depend in large part upon our ability to
successfully secure additional financing to fund future operations. Our initial
public offering was not sufficient to completely alleviate these concerns. If we
are not able to achieve positive cash flow from
26
operations or to secure additional financing as needed, we will continue to
experience the risk that we will not be able to continue as a going concern.
We have not had sufficient capital to operate our business for
approximately three years, and as a result, we have negotiated extended payment
terms on approximately $987,000 of notes payable, shareholder loans and accrued
interest which are due and payable upon receipt of additional financing.
These outstanding obligations may make it difficult to raise additional
financing.
OUR LIMITED OPERATING HISTORY MAKES EVALUATION OF OUR BUSINESS DIFFICULT.
We have a limited operating history and have encountered, and expect to
continue to encounter, many of the difficulties and uncertainties often faced by
early stage companies. We commenced our business operations in 1999 and began
marketing our initial products in 2000 on a limited basis. Accordingly, we have
only a limited operating history with which you can evaluate our business and
prospects. An investor in our units must consider our business and prospects in
light of the risks, uncertainties and difficulties frequently encountered by
early stage companies, including limited capital, delays in product development,
possible marketing and sales obstacles and delays, inability to gain customer
acceptance or to achieve significant distribution of our products to customers
and significant competition. We cannot be certain that we will successfully
address these risks. If we are unable to address these risks, our business may
not grow, our stock price may suffer and/or we may be unable to stay in
business.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO CONTINUE TO OPERATE AT A LOSS FOR
THE FORESEEABLE FUTURE.
Since our inception in 1999, we have incurred net losses in every year,
including net losses of $2,396,902 for the year ended December 31, 2005,
$1,778,959 for the year ended December 31, 2006 and $281,183 for the three
months ended March 31, 2007. We had a working capital deficit of $259,441 at
March 31, 2007 as compared with $506,292 as of December 31, 2006 and have
negative cash flows from operations. As a result of ongoing operating losses, we
also had an accumulated deficit of $22,305,203 and a stockholders' deficit of
$1,299,257 at March 31, 2007. We expect to incur losses until at least through
2007 and may never become profitable. We also expect that our expenses will
increase substantially for the foreseeable future as we seek to expand our
product line and sales and distribution network, implement internal systems and
infrastructure and comply with the legal, accounting and corporate governance
requirements imposed upon public companies. These ongoing financial losses may
adversely affect our stock price.
OUR CONTINUED PROGRESS DEPENDS OF CONSUMER ACCEPTANCE OF THE REFORMULATED
BEVERAGE
In the first quarter of 2007, NuVim introduced a reformulated beverage
and began producing it at a new plant. Although the new formulation maintains
the same taste, reduces calories per serving from 70 to 45, eliminates High
Fructose Corn Syrup, as an ingredient, and introduces NutraFlora(R) an active
ingredient with more, and more recent, clinical support for
27
its improvement of mineral absorption, particularly the calcium and magnesium
necessary for bone strength, reinforcing the immune system, our consumers may
not all continue to enjoy the NuVim(R) beverages and new customers attracted by
the reduced sugar and calories and the improved health benefits may not replace
all the old customers lost because of the changes.
OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF OUR PRODUCTS IN BOTH EXISTING AND NEW
MARKETING AREAS.
We intend to expand into new geographic areas and broaden our product
offerings to generate additional sales. Our refrigerated beverage products are
currently available from southern Connecticut to Miami and as far West as
Pittsburgh including such supermarket chains as ShopRite, Pathmark, A&P,
Gristedes, Food Emporium, Walbaums, , Acme Giant, Giant Eagle, Publix, Kroger
and Wal-Mart. Although marketing funds have been limited we have been able to
maintain distribution due to our loyal consumer base who have felt the NuVim
difference and continue to buy NuVim on a regular basis. The supermarket chain
accounts see NuVim as a one of a kind product that offers the consumer a
healthily choice to high sugar and high caffeine carbonated and non- carbonated
beverages. We do not know whether the level of market acceptance we have
received in our current markets for our products will be matched or exceeded in
the geographic locations we are newly serving or in other areas of the country
as we expand our distribution in the future. We also will need to raise
additional financing to support this expansion.
We can give no assurance that we will expand into new geographic areas
or successfully expand our product line. It is unlikely that we will achieve
profitability and otherwise have a successful business unless we are able to
gain market acceptance of our existing and future products over a wide
geographic area.
CONSUMERS WHO TRY OUR PRODUCTS MAY NOT EXPERIENCE THE HEALTH BENEFITS WE CLAIM,
WHICH MAY CAUSE THEM TO DISCONTINUE USING OUR PRODUCTS.
Although there is substantial clinical evidence showing that NuVim(R)`s
ingredients produce the desired results, there have been no studies of our
specific formulation. Therefore, we currently cannot confirm that the health
benefits of our products will be evident to casual consumers of our products.
Consumers may determine that drinking 12 ounces of NuVim per day for a minimum
of 30 days requires more discipline and expense than they are willing to devote.
If consumers do not use our product in the quantity or for the duration we
recommend, they may not achieve the health benefits we claim, which may cause
them to make alternative nutritional beverage and/or dietary supplement
purchasing decisions.
OUR BUSINESS MAY SUFFER FROM LACK OF DIVERSIFICATION.
Our business is centered on nutritional beverages. The risks associated
with focusing on a limited product line are substantial. If consumers do not
accept our products or if there is a general decline in market demand for, or
any significant decrease in, the consumption of nutritional beverages, we are
not financially or operationally capable of introducing alternative products
within a short time frame. As a result, such lack of acceptance or market demand
decline could cause us to cease operations.
28
EXPANSION OF OUR BUSINESS IS DEPENDENT ON OUR ABILITY TO EXPAND PRODUCTION.
We currently manufacture our refrigerated product line at Mountainside
Farms in Roxbury, New York. Our ability to expand beyond our current marketing
areas depends on, among other things, the ability to produce our product in
commercial quantities sufficient to satisfy the increased demand. Although our
present production capacity is sufficient to meet our current and short-term
future production needs, production capacity may not be adequate to supply
future needs. If additional production capacity becomes needed, it will be
necessary to engage additional co-packers or to expand production capacity at
our present co-packer facility. If we expand production at Mountainside Farms
Dairy, we risk having to pay significantly greater transportation costs to
transport our products to warehouses in other regions of the United States. Any
new co-packing arrangement raises the additional risk of higher marginal costs
than we currently enjoy since we would be required to negotiate new terms with
any new co-packer. We may not be able to pass along these higher costs to our
customers. If we are unable to pass along the higher production costs imposed by
new co-packers to our customers, we either will suffer lower gross margins and
lower profitability, once achieved, or we may be unable to expand our business
as we have planned, which could disappoint our stockholders.
OUR BUSINESS CONTAINS RISKS DUE TO THE PERISHABLE NATURE OF OUR PRODUCT.
Our current refrigerated product is a perishable beverage that has a
limited shelf-life of approximately 83 days. This restricted shelf life means
that we do not have any significant finished goods inventory and our operating
results are highly dependent on our ability to accurately forecast near term
sales in order to adjust our raw materials sourcing and production needs. When
we do not accurately forecast product demand, we are either unable to meet
higher than anticipated demand or we produce excess inventory that cannot be
profitably sold. Additionally, our customers have the right to return products
that are not sold by their expiration date. Therefore, inaccurate forecasts that
either mean that we are unable meet higher than anticipated demand or that
result in excess production, or significant amounts of product returns on any of
our products that are not sold by the expiration date could cause customer
dissatisfaction, unnecessary expense and a possible decline in profitability.
GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR BUSINESS.
Our business is subject to government regulation, principally the
United States Food and Drug Administration (the "FDA"), which regulates the
processing, formulation, packaging, labeling and advertising of dietary
products, and to a lesser extent, state governments, where state attorneys
general have authority to enforce their state consumer protection acts.
Specifically, we are subject to the Dietary Supplement and Health Education Act
("DSHEA"). Under DSHEA, dietary supplements are permitted to make "statements of
nutritional support" with notice to the FDA, but without FDA pre-approval. The
FDA does not allow claims that a dietary product may mitigate, treat, cure or
prevent disease. There can be no assurance that at some future time the FDA will
not determine that the statement of nutritional support we make on our packaging
is a prohibited claim rather than an acceptable nutritional support statement.
29
Such a determination by the FDA would require deletion of the treatment, cure or
prevention of disease claim, or, if it is to be used at all, submission by our
company and the approval by the FDA of a new drug application, which would
entail costly and time-consuming clinical studies, or revision to a health
claim, which would require demonstration of substantiated scientific evidence to
support such claim and would also consume considerable management time and
financial resources.
Our advertising of dietary supplement products is also subject to
regulation by the Federal Trade Commission (the "FTC") under the Federal Trade
Commission Act, which prohibits unfair or deceptive trade practices, including
false or misleading advertising. The FTC in recent years has brought a number of
actions challenging claims made by companies that suggest that their products
are dietary supplements. No assurance can be given that actions will not be
brought against us by the FTC or any other party challenging the validity of our
product advertising claims.
OUR BUSINESS MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS RELATING TO CONSUMER USE
OF OUR PRODUCTS.
As a marketer of beverages that are ingested by consumers, we face an
inherent risk of exposure to product liability claims if the use of our products
results in injury or our labeling contains inadequate warnings concerning
potential side effects. With respect to product liability claims, we have
obtained a $2.0 million liability insurance policy ($2.0 million per
occurrence), which we believe is adequate for our kind of business activity. The
policy contains certain exclusions that would pertain to food products such as
the additional products exclusion for bodily injury or property damage arising
out of the manufacture, handling, distribution, sale, application or use of
certain specified products (e.g., silicone, latex, and dexfenfluramine, among
others), the intended injury and the willful and intentional acts exclusions.
There can be no assurance that such insurance will continue to be available at a
reasonable cost, or, if available, that it will be adequate to cover potential
liabilities. If we are found liable for product liability claims that exceed our
coverage or are subject to a policy exclusion, such liability could require us
to pay financial losses for which we have not budgeted and may not have adequate
resources to cover. If the uninsured losses were significantly large enough to
impact our ability to continue our then-existing level of operations, we might
experience a decline in net income and earnings per share, and our stock price
might suffer. In an effort to limit any liability, we generally obtain
contractual indemnification from parties supplying raw materials or marketing
our products. Such indemnification is limited, however, by the terms of each
related contract and, as a practical matter, by the creditworthiness of the
indemnifying party.
Despite the insurance coverage that we plan on maintaining, it is
possible that we may be sued if one or more consumers believe our products have
caused them harm. While no such claims have been made to date, the results of
any such suit could result in significant financial damages to us, as well as
serious damage to the reputation and public perception of our company, even if
we are ultimately found not to be at fault.
ITEM 3. CONTROLS AND PROCEDURES.
Mr. Kundrat, NuVim's Chief Executive Officer and Chief Financial
Officer,
30
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as defined in Exchange Act Rule 13a-15(e). The term
"disclosure controls and procedures," as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange
Act) means controls and other procedures of a company that are designed to
ensure that this information is recorded, processed, summarized, and reported
within the time periods specified in the SEC's rules and forms. Disclosure
controls and procedures include controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
company's management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure.
NuVim maintains certain internal controls over financial reporting that
are appropriate, consistent with cost-benefit considerations, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. No changes effecting NuVim's internal
controls occurred during the first quarter of 2007.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are at present no legal proceedings pending against the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Sales of Common Stock for Cash
On March 1 and 8, 2007, NuVim sold a total of 433,333 shares to an
unrelated accredited investor for $130,000 or $.30 per share. No commissions or
fees were paid in connection with this sale. He agreed in writing to
restrictions on resale placed with the NuVim's transfer agent and the printing
of a legend on its certificate. Because of these factors, this sale was exempt
from registration under the Securities Act as not involving a public
distribution under section 4(2) and 4(6).
At the same time as the second purchase, three of NuVim's outside
directors, Doug Scott, Peter DeCrescenzo, and Cal Hodock purchased 50,000,
33,333, and 16,667 shares respectively at the same price totaling $$30,000 or
$0.30 per share. Each director agreed in writing to restrictions on resale
placed with the NuVim's transfer agent and the printing of a legend on its
certificate. Because of these factors, this sale was exempt from registration
under the Securities Act as not involving a public distribution under section
4(2) and 4(6).
At the end of the first quarter, NuVim received $300,000 to purchase
1,000,000 shares of common stock from Julius Baer Multistock SICAV US Stock
Fund, a European Institutional Investor, at a price of $.30 per share. NuVim
paid a commission of $30,000 to Continental Advisors SA in connection with this
sale. In addition, Continental Advisors SA received $9,000 for its expenses
without accounting for it. The purchaser represented in writing that it was an
accredited investor and it agreed in writing to restrictions on resale placed
with the NuVim's transfer agent and the printing of a legend on its certificate.
Because of these factors, this sale was exempt from registration under the
Securities Act as not involving a public distribution under section 4(2) and
4(6).
In April five investors represented by Paulsen Investment Company, Inc.
and an additional private investor purchased a total of 872,667 shares of common
stock for $261,800 or $0.30 per share. Paulson will receive a commission of
$22,680 on the 772,667 shares sold to its clients. Each purchaser represented in
writing that it was an accredited investor and it agreed in writing to
restrictions on resale placed with the NuVim's transfer agent and the printing
of a legend on its certificate. Because of these factors, this sale was exempt
from registration under the Securities Act as not involving a public
distribution under section 4(2) and 4(6).
Also in April, Montalcino, S.A., a Luxemburg based mutual fund,
purchased 100,000 shares for $30,000, a price of $.30 per share. NuVim paid a
commission of $3,000 to
32
Continental Advisors SA in connection with this sale. In addition, Continental
Advisors SA received $900 for its expenses without accounting for it. The
purchaser represented in writing that it was an accredited investor and it
agreed in writing to restrictions on resale placed with the NuVim's transfer
agent and the printing of a legend on its certificate. Because of these factors,
this sale was exempt from registration under the Securities Act as not involving
a public distribution under section 4(2) and 4(6)..
All cash raised in these sales has been applied to working capital.
Common Stock issued for Debt and Unpaid Compensation Conversions
On January 30, 2007, NuVim issued 72,915 shares of common stock in lieu
of cash for unpaid 2006 salary of approximately $14,600 due to Michael Vesey,
NuVim's former CFO. He agreed in writing to restrictions on resale placed with
the NuVim's transfer agent and the printing of a legend on its certificate.
Because of these factors, this sale was exempt from registration under the
Securities Act as not involving a public distribution under section 4(2) and
4(6).
On March 14, 2007, NuVim issued 100,000 shares of common stock to Mr.
Kundrat in lieu of the remaining $32,000 remain unpaid on his 2006 executive
bonus. He agreed in writing to restrictions on resale placed with the NuVim's
transfer agent and the printing of a legend on its certificate. Because of these
factors and his relationship to the company, this sale was exempt from
registration under the Securities Act as not involving a public distribution
under section 4(2) and 4(6).
Common Stock Issued for Services
On January 29, 2007, NuVim agreed with its Secretary and General
Counsel to issue 100,000 shares of common stock as additional compensation for
his services during 2007. The services have a value of approximately $16,000. He
agreed in writing to hold the shares for at least one year and to the additional
restrictions on resale placed with the NuVim's transfer agent and the printing
of a legend on its certificate. Because of these factors, this sale was exempt
from registration under the Securities Act as not involving a public
distribution under section 4(2) and 4(6).
Also on that date, NuVim agreed with its operations director to issue a
total of 50,000 shares of common stock as additional compensation for his
services. The shares have a value of approximately $8,000. He agreed in writing
to restrictions on resale placed with the NuVim's transfer agent and the
printing of a legend on its certificate. Because of these factors, this sale was
exempt from registration under the Securities Act as not involving a public
distribution under section 4(2) and 4(6).
January 30, 2007 NuVim agreed with a communications expert to provide
various services for a total of 40,000 shares of common stock. The services have
a value of approximately $6,400. He agreed to restrictions on resale placed with
the NuVim's transfer agent and the printing of a legend on its certificate.
Because of these factors, this sale was exempt from registration under the
Securities Act as not involving a public distribution under section 4(2) and
4(6).
33
March 14, 2007 NuVim issued 15,000 shares of common stock for services
relating to its corporate presentation materials. The services have a value of
approximately $5,700. He agreed to restrictions on resale placed with the
NuVim's transfer agent and the printing of a legend on its certificate. Because
of these factors, this sale was exempt from registration under the Securities
Act as not involving a public distribution under section 4(2) and 4(6).
Also in April, NuVim agreed with a communications expert to provide
various services for a total of 26,000 shares of common stock. The services have
a value of approximately $13,000. He agreed to restrictions on resale placed
with the NuVim's transfer agent and the printing of a legend on its certificate.
Because of these factors, this sale was exempt from registration under the
Securities Act as not involving a public distribution under section 4(2) and
4(6).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None in the third quarter 2006
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) Current Reports on Form 8-K: Filed on March 12, 2007 reporting item 3.02.
(b) The following exhibits are filed as part of this report:
Exhibit No. Description
----------- -----------------------------------------------------------------
31.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
34
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUVIM, INC.
Date: May 14, 2007 By: /s/ RICHARD P. KUNDRAT
-----------------------------
Richard P. Kundrat
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: May 14, 2007 By: /s/ RICHARD P. KUNDRAT
-----------------------------
Richard P. Kundrat
Chief Financial Officer
(Principal Financial and
Accounting Officer)
35