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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 June 30, 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 August 13, 2007, 14,604,782 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 JUNE 30, 2007
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet -June 30, 2007 (Unaudited) 3
Statements of Operations - For the three and six months ended June 30, 2007 and 2006 (Unaudited) 4
Statement of Changes in Stockholders' Deficit for the six months ended June 30, 2007 (Unaudited) 5
Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 17
Item 3. Controls and Procedures 33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 3. Defaults upon Senior Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 36
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUVIM, INC.
BALANCE SHEETS
JUNE 30, 2007
-------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 151,880
Accounts receivable, net 12,267
Inventory 186,021
Prepaid expenses and other current assets 107,392
-------------
Total Current Assets 457,560
-------------
Equipment and furniture, net 146
Deferred offering cost 57,025
Deposits and other assets 8,147
Distribution rights 90,400
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TOTAL ASSETS $ 613,278
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of accounts payable $ 304,251
Accrued expenses 146,577
Accrued compensation 305,244
Rescinded series B offering payable 18,920
-------------
TOTAL CURRENT LIABILITIES 774,992
Other Liabilities:
Accounts payable, net of current portion 224,429
Senior notes payable - related parties, net of
unamortized discount of $27,867 at June 30, 2007 472,133
Accrued interest - senior notes payable - related parties 189,160
Stockholder loans - subordinated covertable promissory notes 150,000
Accrued interest stockholder loans 27,770
Other notes payable, net of unamortized discount of $6,800 at
June 30, 2007 113,200
Accrued Interest - other notes payable 30,717
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TOTAL OTHER LIABILITIES 1,207,409
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TOTAL LIABILITIES 1,982,401
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, 120,000,000 shares authorized, $.00001
par value, 14,532,782 shares issued and outstanding at June 30, 2007 145
Additional paid-in capital 21,613,115
Accumulated deficit (22,982,383)
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Total Stockholders' Deficit (1,369,123)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 613,278
=============
The notes to financial statements are an integral part of this statement.
3
NUVIM, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2006 2007 2006 2007
----------- ----------- ----------- -----------
Gross sales $ 327,079 $ 347,170 $ 598,152 $ 675,303
Less: discounts, allowances and
promotional payments 21,707 114,924 116,559 202,235
----------- ----------- ----------- -----------
Net sales 305,372 232,246 481,593 473,068
Cost of sales 187,969 224,592 309,200 393,537
----------- ----------- ----------- -----------
Gross profit 117,403 7,654 172,393 79,531
Selling, general and administrative
expenses 491,399 677,381 1,004,072 1,009,791
----------- ----------- ----------- -----------
Loss from operations (373,996) (669,727) (831,679) (930,260)
Other Income (Expense):
Interest expense (36,473) (20,974) (73,538) (41,624)
Interest income 0 0 45
Gain on forgiveness of A/P 8,803 13,521 8,803 13,521
----------- ----------- ----------- -----------
Total other income (expense) - net (27,670) (7,453) (64,690) (28,103)
----------- ----------- ----------- -----------
Net loss before income tax benefit (401,666) (677,180) (896,369) (958,363)
Income tax (expense) benefit (200) - (200) -
----------- ----------- ----------- -----------
Net loss ($ 401,866) ($ 677,180) ($ 896,569) ($ 958,363)
=========== =========== =========== ===========
Basic and diluted loss per share ($ 0.04) ($ 0.05) ($ 0.13) ($ 0.07)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - basic and diluted 9,209,259 14,532,782 7,131,769 13,517,338
The notes to financial statements are an integral part of this statement.
4
NUVIM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED June 30, 2007
(Unaudited)
Additional Total
Common Stock 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)
Stock sold to accredited investors, net 972,667 10 264,610 264,620
Stock issued for services 26,000 0 13,000 13,000
Employee stock based compensation 329,694 329,694
Net Loss (677,180) (677,180)
------------ ------------ ------------ ------------ --------------
Balance at June 30, 2007 14,532,782 $ 145 $ 21,613,115 ($22,982,383) ($ 1,369,123)
============ ============ ============ ============ ==============
The notes to financial statements are an integral part of this statement.
5
NUVIM, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED June 30, 2006 AND 2007
(Unaudited)
2006 2007
---------- ----------
Cash Flow From Operating Activities:
Net loss ($ 896,569) ($ 958,363)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation 452 452
Amortization of debt discount on notes payable 14,029 10,500
Stock issued for services 201,985 49,100
Employee stock based compensation 65,000 343,969
Stock issued for compensation 46,583
Gain on forgiveness of accounts payable (8,803) (13,521)
Provision for sales returns 116,559 106,977
Changes in Operating Assets and Liabilities:
Accounts receivable (150,642) (63,417)
Inventory (47,080) (19,092)
Prepaid expenses and other current assets (84,118) 83,661
Accounts payable (45,450) (201,261)
Accrued expenses (167,871) 26,980
Accrued compensation 188,655 (30,780)
Accrued interest 45,610 30,800
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Net Cash Used in Operating Activities (768,243) (587,412)
---------- ----------
Cash Flow From Financing Activities:
Payment of notes payable (6,000)
Net proceeds from issuance of common stock 533,875 683,820
---------- ----------
Net Cash Provided by Financing Activities 527,875 683,820
---------- ----------
(Decrease) Increase in Cash and Cash Equivalents (240,368) 96,408
Cash and Cash Equivalents at Beginning of Period. 270,468 55,472
---------- ----------
Cash and Cash Equivalents at End of Period. $ 30,100 $ 151,880
========== ==========
The notes to financial statements are an integral part of this statement.
6
NUVIM, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 $677,180 and $401,866 for the
three months ended June 30, 2007 and 2006, and $958,363 and $896,569 for the six
months ended June 30 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 $684,000, 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.
7
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 June 30, 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
June 30, 2007 and as of the result of its consolidated operations and its
consolidated cash flows for the periods ended June 30, 2006 and 2007.
The Unaudited Consolidated Statements of Operations for the three and six months
ended June 30, 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.
8
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
June 30, 2007, the Company had warrants to purchase 7,522,514 shares of common
stock and employee stock options to purchase 3,646,147 shares of common stock
outstanding, respectively, 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 four customers during the six months ended June 30, 2006 approximated
45% and 13% and 37% and 14% of sales, respectively. Sales to two customers
during the six months ended June 30, 2007, and one customer for the three months
ended June 30, 2007, approximated 45% and 13% and 54% of sales, respectively. 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 June 30, 2006 approximated 52% and
18%, and three customers at June 30, 2007 approximated 25%, 17% and 11% of
accounts receivable, respectively.
One outside vendor manufactured all of the Company's finished goods. During the
three months ended June 30, 2006 and 2007, manufacturing costs of approximately
$48,000 and $71,000 were incurred at this vendor. During the six months ended
June 30, 2006 and 2007, manufacturing costs of approximately $85,000 and
$135,000 were incurred at this vendor. Approximately $8,000 was due to this
vendor at June 30, 2007.
9
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.
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 has been 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 and
$343,969 in expense related to stock options for the three and six months ended
June 30, 2007.
10
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 September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans-- an amendment of FASB
Statements No. 87, 88, 106, and 132(R) ("SFAS No. 158"). SFAS No. 158 requires
companies to recognize the over-funded or under-funded status of their defined
benefit postretirement plans as an asset or liability and to recognize changes
in that funded status in the year in which the changes occur through
comprehensive income. The Company adopted SFAS No. 158 on December 31, 2006. The
adoption of SFAS No. 158 did not have any effect 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 specific 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.
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.
11
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 approximately $9,000 for its
expenses.
During April 2007, NuVim issued a total of 972,667 shares of common stock to
unrelated accredited investors for gross proceeds of approximately $291,800 or
$.30 per share. Commissions and fees of approximately $27,000 were paid in
connection with this sale. The investors 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.
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).
12
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 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.
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. 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).
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 became
effective upon approval of shareholders at the Company's annual meeting in May
of 2007. On May 17, 2007 the Company issued approximately options to purchase
1,050,000 shares of common stock at prices ranging from $0.40 to $0.44 per share
to officers, Directors, employees and advisors to the Company.
13
NOTE 4 - INCOME TAXES
Based on the Company's operating losses, no provision for income taxes has been
provided for the three and six months ended June 30, 2006 and 2007.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Six Months Ended
June 30,
------------------
2006 2007
-------- --------
Interest paid $ 1,625 $ -
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 does 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.
14
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 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 June 30, 2006 and 2007, and
$18,000 and $24,000 for the six months ended June 30, 2006 and 2007,
respectively.
15
NOTE 8 - SUBSEQUENT EVENTS
Only July 12, 2007, NuVim issued 72,000 shares of common stock to its
consultant, James Schnorf, for services to be rendered having a value of
$18,000.
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), minerals, vitamins 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
17
cardiovascular health, and 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 daily
requirement. NuVim products contain no fat, cholesterol, lactose, caffeine,
artificial flavors or high fructose corn syrup. As we move forward each year, we
try to discover additional ingredients that can deliver health benefits and not
compromise the NuVim great taste to help us make NuVim the best thing you can
drink.
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, promotional
price discounts, and a newly formed consumer NuVim(R) e-mail health newsletter
that is distributed to consumers throughout the US every three weeks.
NutraFlora(R) through their public relations firm is also developing and airing
news segments that include the NuVim(R) health benefits. 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 our marketing funds to
increase consumer awareness, trial and repeat purchases. We believe that these
advertising and promotional activities are critical to the long term 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 and in essence restarted the company. 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. We continue to test with high potential
retailers like Wal-Mart, Kroger, regional supermarket chains and will find other
avenues of high volume and profitable business like the military, schools,
colleges and hospital groups. We do not expect that all of these tests will
culminate in success, but will pursue each one in the best efficient manner to
determine their viability. 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. Initial results have shown poor
execution by the GNC retailer at both the company owned and franchise stores.
18
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.
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, colleges,
cafeterias, delis, hospitals, convenience stores and other food service
businesses.; increase sales of the newly introduced powder version in three
varieties through the internet, retail sales, 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. We continue to talk with other companies that provide synergy for a
possible merger opportunity and now that the shelf stable products are closer to
introduction we are reviewing export sales.
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. Both the 30 second and 60 second
commercials are aired monthly on selected programs in several markets each
month. These airing of the commercials are part of the equity deal that we made
with PTG previously.
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. 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 almost 300
supercenters and seven distribution centers in 6 states. Same store sales for
Wal-Mart from February through June were up 85%. Wal-Mart sales are tracked from
their system starting in February because that is the beginning of their fiscal
year.
19
SALES RESULTS
The table set forth below discloses selected data regarding sales for
the quarter and the half year ended June 30, 2007 and 2006. The data is not
necessarily indicative of continuing trends.
Sales of 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). 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
prior to any returned cases containing product that has not been sold by its
expiration date.
UNIT CASE VOLUME/CASE SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2006 2007 2006 2007
---------- ---------- ---------- ----------
Gross Cases Sold 17,785 19,037 32,532 36,643
Gross Sales $ 327,079 $ 347,170 598,152 675,303
Net Sales $ 305,372 $ 232,246 481,593 473,068
Case shipments of our refrigerated product increased by 4,111 and 1,252
or 11 % and 7%, respectively, during the first half and second quarter of 2007
compared with the same periods in the prior year. The reasons for the six month
changes were increases in Wal-Mart same store sales of 90% and increases to
Wal-Mart distribution centers of 48% an increase of 22% at Shoprite the largest
supermarket chain in New York, an increase at Giant, largest account in
Harrisburg of 16%, and increase with the largest chain in Pittsburgh Giant Eagle
of 12% and even sales at Acme Philadelphia. Off setting the increases were
reductions in sales to accounts that have proven unprofitable and a reduction in
the Wal-Mart distribution center and store inventory to approximately 1.6 weeks
at both store level and distribution centers. This reduction of 47% at the
distribution centers and 11% at store level helps Wal-Mart control their costs
and assist in keeping the freshest product on the shelf. Even though same store
retail sales increased by 90%, NuVim cases sold to the distribution centers were
lessened due to the 47% warehouse reduction in inventory.
.
RESULTS OF OPERATIONS
Results of operations for the three months ended June 30, 2007 compared to the
three months ended June 30, 2006
20
Gross Sales. For the three months ended June 30, 2007, gross sales were
$347,170, an increase of $20,091 or 6% over gross sales of $327,079 for the
three months ended June 30, 2006. The increase in gross sales is primarily
attributable to the increase in Wal-Mart sales and selected other accounts as
stated above.
Discounts, Allowances and Promotional Payments. For the three months
ended June 30, 2007, promotional allowances and discounts were $114,924, an
increase of $93,217 from the promotional allowances and discounts of 21,707 for
the three months ended June 30, 2006. This increase is primarily attributable to
higher promotional monies spent against price discounts to attract new customers
to the NuVim franchise during the quarter when juice product prices had an
escalation in retail prices due to the juice manufacturing issues in California
and Florida. We expect that we gained new users that hopefully have broadened
the base of regular NuVim users.
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. Total Discounts, Allowances and
Promotional payments as a percentage of gross sales increased from 7% for the
three months ended June 30, 2006 to 33% for the three months ended June 30,
2007.
THREE MONTHS ENDED INCREASE
JUNE 30, (DECREASE) PERCENTAGE
-------------------------------------------------------
2007 2006
------------ ------------
Discounts for timely payment $ 2,719 $ 3,629 $ (910) (25)%
Product returned after its expiration date 29,675 6,029 23,646 392%
Promotional price allowances, coupons and other incentives 80,203 11,197 69,006 616%
Slotting fees 2,327 852 1,475 173%
------------ ------------ ------------ ----------
Total Discounts, Allowances and Promotional Payments $ 114,924 $ 21,707 $ 93,217 429%
============ ============ ============ ==========
Net Sales. Net sales for the three months ended June 30, 2007 were
$232,246, a decrease of $73,126, or 24% below net sales of $305,372 for the
three months ended June 30, 2006. The decrease in net sales is primarily
attributable to the increase in promotional spending in an attempt to gain more
consumer trials during this period of higher orange juice and other juice
product retail prices as discussed above. According to the acceptable
accounting practices the marketing expenditures related to discounting the price
to the consumer including special price promotions and coupon expenses must be
reduced from gross sales to determine net sales.
21
Cost of Sales. For the three months ended June 30, 2007, cost of sales
was $224,592, an increase of $36,623, or 19% higher than cost of sales of
$187,969 for the three months ended June 30, 2006. Cost of sales as a percentage
of gross sales increased due to the case sales increase and excluding the powder
costs which are stated at inventory cost versus replacement cost the second
quarter costs were the same on a per case basis as the first quarter. Cost of
sales includes approximately $23,000 of expense related to NuVim powder product
that was used for sampling purposes and generated little or no revenue.
Gross Profit. Gross profit was $7,654 for the three months ended June
30, 2007, a decrease of $109,749 from the gross profit of $117,403 for the three
months ended June 30, 2006. Gross profit as a percentage of gross sales was 2.2%
for the three months ended June 30, 2007 compared to 35.8% for the three months
ended June 30, 2006. The decrease in gross profit as a percentage of gross sales
was primarily due to increase in promotion price reductions to the consumer to
help build consumer trial at the feature pricing versus other products in the
juice section and sampling costs related to the powder product. Without the
unusual, one-time powder promotion expense, the Gross Profit would have been
about $30,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $677,381 for the three months ended June 30, 2007,
an increase of $185,982, or 38% from selling, general and administrative
expenses of $491,399 for the three months ended June 30, 2006. The increase is
entirely attributable to non cash compensation expense of $330,000 related to
stock options issued in the three months ended June 30, 2007. Selling, general
and administrative expenses exceeded net sales in both periods as we increased
sampling, and advertising to help build the long term franchise. Administrative
cost decreased by $145,279 or 36% versus first quarter 2006.
Loss from Operations. Loss from operations was $669,727 for the three
months ended June 30, 2007 compared to $373,996 for the three months ended June
30, 2006. The increase is due to non cash compensation expense of $330,000
related to stock options issued in the three months ended June 30, 2007.
Interest Expense. Interest expense was $20,974 for the three months
ended June 30, 2007; a decrease of $15,499, or 43%, from interest expense of
$36,473 for the three months ended June 30, 2006. The decrease in interest
expense is primarily attributable to the retirement of indebtedness.
Net Loss. Net loss was $677,180 for the three months ended June 30,
2007 compared to $401,866 for the three months ended June 30, 2006. The $275,314
increase in net loss was primarily attributable to increase in non cash
compensation expense, (stock option expense) despite the lower administrative
costs, elimination of royalty payments, decrease in distribution and reclaim
costs and lower interest expense.
Results of operations for the six months ended June 30, 2007 compared to the six
months ended June 30, 2006
22
Gross Sales. For the six months ended June 30, 2007, gross sales were
$675,303, an increase of $77,151, or 13% higher than gross sales of $598,152 for
the six months ended June 30, 2006. The increase in gross sales for six months
is primarily attributable the increases at Wal-Mart, Shoprite, Giant , Giant
Eagle and new sales at Kroger and GNC. The first six months of 2006 was the best
performance in several years and we managed to beat that by 13%.
Discounts, Allowances and Promotional Payments. For the six months
ended June 30, 2007, promotional allowances and discounts were $202,235, an
increase of $85,676 or 74%, from the promotional allowances and discounts of
$116,559 for the six months ended June 30, 2006. This increase is primarily
attributable to higher feature activity to gain consumer trial at discounted
feature pricing while juice and juice related pricing was at their highest in
several years. 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. Product returned after its expiration
date increased despite the higher sales volume discussed above.
SIX MONTHS ENDED INCREASE
JUNE 30, (DECREASE) PERCENTAGE
-------------------------------------------------------
2007 2006
------------ ------------
Discounts for timely payment $ 5,215 $ 9,523 $ (4,308) (45)%
Product returned after its expiration date 59,486 65,110 (5,624) (9)%
Promotional price allowances, coupons and other incentives 133,533 41,073 92,460 225%
Slotting fees 4,000 853 3,147 368%
------------ ------------ ------------ -----------
Total Discounts, Allowances and Promotional Payments $ 202,235 $ 116,559 $ 85,676 74%
============ ============ ============ ===========
Net Sales. Net sales for the six months ended June 30, 2007 were
$473,068, a decrease of $8,525, or 1.7% lower than net sales of $481,593 for the
six months ended June 30, 2006. The decrease in net sales is primarily
attributable to the increase in discount feature activity discussed above.
Cost of Sales. For the six months ended June 30, 2007, cost of sales
was $393,537, an increase of $84,337, or 27% higher than cost of sales of
$309,200 for the six months ended June 30, 2006. Cost of sales as a percentage
of gross sales increased to 58% for the six months ended June 30, 2007, compared
to 52% for the six months ended June 30, 2006. The increase in cost of sales as
a percentage of gross sales was primarily the result of higher price discount
allowances. Cost of sales includes approximately $23,000 of expense related to
NuVim powder product that was used for sampling purposes and generated little or
no revenue.
23
Gross Profit. Gross profit was $79,531 for the six months ended June
30, 2007, a decrease of $92,862 from the $172,393 gross profit for the six
months ended June 30, 2006. Gross profit as a percentage of gross sales was 12%
for the six months ended June 30, 2007 compared to the gross profit of
approximately 29% for the six months ended June 30, 2006. The decrease in gross
profit as a percentage of gross sales was primarily due to the higher price
discounts and promotional allowances and sampling costs related to the powder
product. Without the unusual, one-time powder promotion expense, the Gross
Profit would have been about $110,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,009,791 for the six months ended June 30, 2007,
an increase of $5,719, or 1% from selling, general and administrative expenses
of $1,004,072 for the six months ended June 30, 2006. Selling, general and
administrative expenses for the six months ended June 30, 2007 include non cash
compensation expense of approximately $344,000 related to stock options issued
during the period. Selling, general and administrative expenses exceeded net
sales in both periods as we are still in an early stage of our development and
have not achieved sales volumes sufficient to generate net sales in excess of
our selling, general and administrative expenses.
Loss from Operations. Loss from operations was $930,260 for the six
months ended June 30, 2007 compared to $831,679 for the six months ended June
30, 2006. The $98,581 increase in loss from operations was primarily
attributable to the lower gross profit and higher selling, general and
administrative expenses described above. The increase is primarily due to
$330,000 of option expense not reflected in the comparable period for last year.
Interest Expense. Interest expense was $41,624 for the six months ended
June 30, 2007; a decrease of 31,914, or 44%, from interest expense of $73,538
for the six months ended June 30, 2006. The decrease in interest expense is
primarily attributable to the retirement of indebtedness.
Net Loss. Net loss was $958,363 for the six months ended June 30, 2007
compared to $896,569 for the six months ended June 30, 2006. The $61,794
increase in net loss was primarily attributable to the factors discussed above.
Without the option expense, the net loss would have been cut by about $270,000.
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 approximately $684,000
in new working capital through the sale of common stock and has obtained
services valued at approximately $49,000 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.
24
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 six months ended June 30,
2007 was $587,412, compared to cash used in operating activities of $768,243
during the same period in 2006. The decrease in cash used by operating
activities during the first six months of 2007 was primarily attributable to
lower loss before non cash compensation costs.
Cash from financing activities primarily represents net proceeds from
the sale of common stock of $683,820 and $533,875 for the six months ended June
30, 2007 and 2006, respectively.
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.
25
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.
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.
26
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 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 collectibility 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.
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 June 30, 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.
27
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.
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 six months of 2007, NuVim raised a net total of
$684,000 from European Institutional and United States accredited investors and
obtained an additional about $49,000 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 June 30, 2007 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.
28
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 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 $770,000 of notes payable 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 $677,180 and $958,363 for
the three and six months, respectively, ended June 30, 2007. We had a working
capital deficit of $317,432 at June 30, 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 $22,982,383 and
a stockholders' deficit of $1,369,123 at the end of the second quarter. 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.
29
OUR CONTINUED PROGRESS DEPENDS OF CONSUMER ACCEPTANCE OF THE REFORMULATED
BEVERAGE
In the second 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 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.
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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.
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.
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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. 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.
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ITEM 3. CONTROLS AND PROCEDURES.
The Mr. Kundrat, NuVim's Chief Executive Officer and Chief Financial
Officer, 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 half of 2007.
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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 for Cash
In April 2007 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 Continental Advisors SA in connection with this sale. In addition,
Continental Advisors SA received $900 for its expenses. 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 of the cash was used for working capital.
Common Stock Issued for Services
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
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ITEM 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On May 9, 2007, NuVim held its Annual Shareholders Meeting. At that
meeting, the five incumbent directors, Richard P. Kundrat, Stanley Moger, Calvin
Hodock, Peter V. DeCrescenzo, and Doug Scott were all re-elected. Each received
7,013,241 votes while the votes of 5,911 shares were withheld. The shareholders
also approved the 2007 Stock Option Plan by a vote of 4,639, 763 in favor and
60.039 opposed.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) Current Reports on Form 8-K: None
(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.
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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: August 14 , 2007 By: /s/ RICHARD P. KUNDRAT
--------------------------------------------
Richard P. Kundrat
Chief Executive Officer and Chairman of
the Board
(Principal Executive Officer)
Date: August 14 , 2007 By: /s/ RICHARD P. KUNDRAT
--------------------------------------------
Richard P. Kundrat
Chief Financial Officer
(Principal Financial and Accounting Officer)
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