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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
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 November 8, 2007, 14,670,782 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 SEPTEMBER 30, 2007
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet -September 30, 2007 (Unaudited) 3
Statements of Operations - For the three and nine months ended
September 30, 2007 and 2006 (Unaudited) 4
Statement of Changes in Stockholders' Deficit for the nine months ended
September 30, 2007 (Unaudited) 5
Statements of Cash Flows for the nine months ended
September 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 34
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
Signatures 36
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUVIM, INC.
BALANCE SHEETS
SEPTEMBER 30,
2007
-------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 0
Accounts receivable, net 33,439
Inventory 203,054
Prepaid expenses and other current assets 131,093
-------------
Total Current Assets 367,586
-------------
Equipment and furniture, net 100
Deposits and other assets 8,147
Distribution rights 90,400
-------------
TOTAL ASSETS $ 466,233
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank line of credit $ 23,500
Current portion of accounts payable 335,040
Accrued expenses 204,526
Accrued compensation 301,449
Rescinded series B offering payable 18,920
-------------
TOTAL CURRENT LIABILITIES 883,435
Other Liabilities:
Accounts payable, net of current portion 212,429
Senior notes payable - related parties, net of unamortized discount of
$19,743 at September 30, 2007 480,257
Accrued interest - senior notes payable - related parties 199,160
Stockholder loans - subordinated covertable promissory notes 150,000
Accrued interest stockholder loans 30,770
Other notes payable, net of unamortized discount of $5,950 at
September 30, 2007 114,050
Accrued Interest - other notes payable 33,117
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TOTAL OTHER LIABILITIES 1,219,783
-------------
TOTAL LIABILITIES 2,103,218
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, 120,000,000 shares authorized, $.00001 par value,
14,640,782 shares issued and outstanding at September 30, 2007 146
Additional paid-in capital 21,597,364
Accumulated deficit (23,234,495)
-------------
Total Stockholders' Deficit (1,636,985)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 466,233
=============
The notes to financial statements are an integral part of this statement.
3
NUVIM, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SEPT 30, NINE MONTHS ENDED SEPT 30,
--------------------------- ---------------------------
2006 2007 2006 2007
------------ ------------ ------------ ------------
Gross sales $ 366,804 $ 248,818 $ 964,956 $ 924,121
Less: discounts, allowances and
promotional payments 110,141 68,782 226,700 271,017
------------ ------------ ------------ ------------
Net sales 256,663 180,036 738,256 653,104
Cost of sales 204,110 108,539 513,310 502,076
------------ ------------ ------------ ------------
Gross profit 52,553 71,497 224,946 151,028
Selling, general and administrative
expenses 605,782 299,235 1,609,854 1,309,026
------------ ------------ ------------ ------------
Loss from operations (553,229) (227,738) (1,384,908) (1,157,998)
Other Income (Expense):
Interest expense (19,326) (24,374) (92,864) (65,998)
Interest income (45) 0 0 0
Gain on forgiveness of Accounts
Payable 7,000 0 15,803 13,521
------------ ------------ ------------ ------------
Total other income (expense) - net (12,371) (24,374) (77,061) (52,477)
------------ ------------ ------------ ------------
Net loss before income tax benefit (565,600) (252,112) (1,461,969) (1,210,475)
Income tax (expense) benefit 0 0 (200) -
------------ ------------ ------------ ------------
Net loss $ (565,600) $ (252,112) $ (1,462,169) $ (1,210,475)
============ ============ ============ ============
Basic and diluted loss per share $ (0.05) $ (0.02) $ (0.18) $ (0.09)
============ ============ ============ ============
Weighted average number of common
shares outstanding - basic and
diluted 10,584,946 14,604,382 8,282,828 13,893,019
The notes to financial statements are an integral part of these statements.
4
NUVIM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 2,506,000 25 683,795 0 683,820
Costs related to sales of stock 0 0 (57,025) 0 (57,025)
Stock issued for accrued compensation 172,915 2 46,581 0 46,583
Stock issued for services 339,000 3 76,097 0 76,100
Employee stock based compensation 358,244 358,244
Net Loss 0 0 0 (1,210,475) (1,210,475)
------------- ------------- ------------- ------------- -------------
Balance at September 30, 2007 14,640,782 $ 146 $ 21,597,364 $ (23,234,495) $ (1,636,985)
============= ============= ============= ============= =============
The notes to financial statements are an integral part of this statement.
5
NUVIM, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2007
(Unaudited)
2006 2007
------------ ------------
Cash Flow From Operating Activities:
Net loss $ (1,462,169) $ (1,210,475)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation 678 498
Amortization of debt discount on notes payable 14,029 19,474
Stock issued for services 204,917 73,800
Employee stock based compensation 306,109 358,244
Stock issued for compensation
Gain on forgiveness of accounts payable (15,803)
Provision for sales returns 226,700 202,235
Changes in Operating Assets and Liabilities:
Accounts receivable (266,786) (179,847)
Inventory 1,467 (36,125)
Prepaid expenses and other current assets 16,263 59,960
Accounts payable (60,651) (193,693)
Accrued expenses (170,371) 108,429
Accrued compensation 303,330 12,008
Accrued interest 62,010 46,200
------------ ------------
Net Cash Used in Operating Activities (840,277) (739,292)
------------ ------------
Cash Flow From Financing Activities:
Payment of notes payable (6,000)
Related party advance 30,000
Bank borrowings 51,200
Net proceeds from issuance of common stock 503,875 683,820
------------ ------------
Net Cash Provided by Financing Activities 579,075 683,820
------------ ------------
(Decrease) Increase in Cash and Cash Equivalents (261,202) (55,472)
Cash and Cash Equivalents at Beginning of Year 270,468 55,472
------------ ------------
Cash and Cash Equivalents at End of Year $ 9,266 $ 0
------------ ------------
The notes to financial statements are an integral part of these statements.
6
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 $252,112 and $565,600 for the
three months ended September 30, 2007 and 2006, and $1,210,475 and $1,462,969
for the nine months ended September 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 approx $24,000 is
outstanding at Sept. 30, 2007. 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 September 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
September 30, 2007 and as of the result of its consolidated operations and its
consolidated cash flows for the periods ended September 30, 2006 and 2007.
The Unaudited Consolidated Statements of Operations for the three and nine
months ended September 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
December 31, 2006 and September 30, 2007, the Company had warrants to purchase
7,022,514 shares of common stock and employee stock options to purchase
3,646,147 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 one customer approximated 59% of sales for the three months ended
September 30, 2006 and 2007. Sales to two customers accounted for 45% and 11% of
sales for the nine months ended September 30, 2006. Sales to one customer
accounted for 52% of sales during the nine months ended September 30, 2007. 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 September 30, 2006 approximated 51%
and 21%, and at September 30, 2007 approximated 45% and 26%, of accounts
receivable, respectively.
One outside vendor manufactured all of the Company's finished goods. During the
three months ended September 30, 2006 and 2007, manufacturing costs of
approximately $68,000 and $42,000 were incurred at this vendor. During the nine
months ended September 30, 2006 and 2007, manufacturing costs of approximately
$153,000 and $177,000 were incurred at this vendor.
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
approximately $14,000 and $358,000 in expense related to stock options for the
three and nine months ended September 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, 20007 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.
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 $9,000 for its expenses
without accounting for it.
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 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. 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).
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,
13
this sale was exempt from registration under the Securities Act as not involving
a public distribution under section 4(2) and 4(6).
On 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 $18,720. 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).
During September 2007 the Company issued 36,000 shares of common stock to
accredited investors for services. The stock had a fair value of approximately
$5,980. 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.
NOTE 4 - INCOME TAXES
Based on the Company's operating losses, no provision for income taxes has been
provided for the three and nine months ended September 30, 2006 and 2007.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Nine Months Ended
September 30,
-----------------
2006 2007
-------- --------
Interest paid $ 1,625 $ -
Taxes paid - -
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 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.
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
In August, 2007, the Company entered into a lease agreement for office space
with a term of 3 1/2 years and monthly rent expense of approximately $3,100 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 September 30, 2006 and 2007, and
$21,000 and $36,000 for the nine months ended September 30, 2006 and 2007,
respectively.
15
NOTE 8 - SUBSEQUENT EVENTS
None
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 chilled and shelf stable ready-to-drink beverages and powder
mixes. 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
17
performance, enhances cardiovascular health, and promotes well being.
NutraFlora(R), a prebiotic fiber is uniquely capable of promoting health by
supporting the growth of beneficial (probiotic) bacteria which in turn provide
health benefits such as an enhanced immune system and improved calcium and
mineral absorption for better bone health. 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.
During the third quarter, we began production of a shelf stable version
of our beverages in the same flavors as the chilled versions. Offered in single
serve 12 ounce bottles, distribution is targeted to convenience stores, K
through 12 school systems, colleges, and hospitals. NuVim(R)'s breakthrough is
the result of three years work to develop a shelf stable product which
duplicates the great taste of the refrigerated products and brings the consumer
the same wonderful health benefits.
As the products are introduced to the schools and hospitals it is
expected that they will be met with high acceptance as a contribution to curbing
obesity and diabetes, conditions that have reached epidemic proportions.
The US has over 5,500 hospitals with 5 million employees and 700,000
physicians as well as 41 million students ages 5 through 14 and over 35 million
students in high schools and colleges. These institutions are the initial
targets on which NuVim(R) will focus its network of commissioned sales brokers.
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 NuVim(R)'s 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 2,000 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 September 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
18
developing and supporting distribution opportunities that we believe will
provide the greatest profitable sales expansion potential. We continue to sell
to high potential retailers like Wal-Mart, and, regional supermarket chains. We
conducted a test in the Detroit area with Kroger stores with the goal of either
expanding the test or developing a co-branding strategy with Kroger. That test
has been stopped at least through 2007. We will find other avenues of high
volume and profitable business like the military commissaries, military troop
feeding, 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 conducted a test program selling the
powder in GNC stores in the Tampa Bay area. Results showed poor execution by the
GNC retailer both the company owned and franchise stores and therefore the test
was discontinued.
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. The commercials run every week in selected markets on tightly
targeted television programs. Platinum Television airs these commercials as part
our 2005 stock deal and our on going relationship with them.
During 2007 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 eight areas:
o Increase the sales per store in existing Wal-Mart supercenters.
o Increase the number of Wal-Mart distribution centers stocking the
NuVim(R) 64 ounce size.
o Increase the business with the current profitable supermarket chain
store groups.
o Gain at least a test distribution to the military commissaries with the
goal of getting distribution of the 64 ounce product in all 168
commissaries.
o Work with the Department of Defense to develop troop feeding.
o Introduce our new shelf stable 12 ounce beverages in three varieties to
the K through 12 school systems, colleges and universities, hospitals,
health clubs, and convenience stores.
19
o Increase sales of the powder mixes through the Company web-site,
supplement retail chains and home shopping networks.
o Accesses to the food service markets with the shelf stable products
through beer distributors and the independent non-alcoholic
distributors.
We continue to talk with other private beverage companies that provide
synergy for a possible merger opportunity. We have reviewed several potential
candidates in 2007.
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
We are now in distribution in approximately 300 Wal-Mart supercenters in North
Carolina, South Carolina, Florida, Alabama, Georgia and a couple of stores in
Mississippi
SALES RESULTS
The table set forth below discloses selected data regarding sales for
the quarter and the nine months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2006 2007 2006 2007
---------- ---------- ---------- ----------
Gross Cases Sold 20,248 12,857 52,790 48,878
Gross Sales $ 366,804 $ 248,818 $ 964.596 $ 924,121
Net Sales $ 256,663 $ 180,036 $ 738,256 $ 653,104
20
Case shipments of our refrigerated product decreased by 3,912 and 7,391 or 6 %
and 37%, respectively, during the first three quarters and the third quarter of
2007 compared with the same periods in the prior year. The reasons for the nine
month and three month declines were the elimination of accounts that did not
offer the possibility of future profits and less promotional spending. However,
despite the reduced spending in the first nine months, we are having success
with those accounts that we want to continue to nurture. For example, nine month
case sales at Wal-Mart increased 10%, Giant Food markets in Pennsylvania
increased 37%, and Giant Eagle supermarkets in Western Pennsylvania increased
19%.
RESULTS OF OPERATIONS
Results of operations for the three months ended September 30, 2007 compared to
the three months ended September 30, 2006
Gross Sales. For the three months ended September 30, 2007, gross sales
were $248,818, a decrease of $117,986 or 32% over gross sales of $366,804 for
the three months ended September 30, 2006. The decrease in gross sales is
primarily attributable NuVim's decision to close marginal accounts offset by an
increase in Wal-Mart sales and selected other accounts as stated above and a
decrease promotional discounts.
Discounts, Allowances and Promotional Payments. For the three months
ended September 30, 2007, promotional allowances and discounts were $68,782, a
decrease of $41,359 from the promotional allowances and discounts of $110,141
for the three months ended September 30, 2006. This decrease is primarily
attributable to lower returns of product after expiration date and less price
based promotion.
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 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
increased primarily due to the lower sales volume discussed above. Total
Discounts, Allowances and Promotional payments as a percentage of gross sales
decreased from 30% for the three months ended September 30, 2006 to 26% for the
three months ended September 30, 2007.
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------- INCREASE
2007 2006 (DECREASE) PERCENTAGE
---------- ---------- ---------- ----------
Discounts for timely payment $ 1,562 $ 3,629 $ (2,067) (56.9)%
Product returned after its expiration date 31,169 39,375 (8,206) (20.8)%
Promotional price allowances, coupons and other incentives 32,051 67,137 (35,086) (52.2)%
Slotting fees 4,000 -0- 4,000 )%
---------- ---------- ---------- ----------
Total Discounts, Allowances and Promotional Payments $ 68,782 $ 110,141 $ (41,359) (37.6)%
========== ========== ========== ==========
21
Net Sales. Net sales for the three months ended September 30, 2007 were
$180,036, a decrease of $76,627, or 30% below net sales of $256,663 for the
three months ended September 30, 2006. The decrease in net sales is primarily
attributable to the elimination of unprofitable accounts and reduced price
discounting.
Cost of Sales. For the three months ended September 30, 2007, cost of
sales was $108,539, a decrease of $95,571 or 47% from the cost of sales of
$204,110 for the three months ended September 30, 2006. This reduction exceeds
percentage reduction in both Gross and Net Sales. Cost of sales as a percentage
of gross sales decreased due to the continued control of production and
distribution costs.
Gross Profit. Gross profit was $71,497 for the three months ended
September 30, 2007, a increase of $18,944 from the gross profit of $52,553 for
the three months ended September 30, 2006. Gross profit as a percentage of gross
sales was 28% for the three months ended September 30, 2007 compared to 14% for
the three months ended September 30, 2006. Gross Profit increased despite the
reduction in Net Sales. The increase in gross profit as a percentage of gross
sales was primarily due to less promotional spending, improved production and
distribution cost control.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $299,235 for the three months ended September 30,
2007, a decrease of $306,547, or 51% from selling, general and administrative
expenses of $605,782 for the three months ended September 30, 2006. This is the
result of continued economies in the executive suite and a difference in the
timing of option grants, which imposes a large non-cash expense.
Loss from Operations. Loss from operations was $227,738 for the three
months ended September 30, 2007 compared to $553,229 for the three months ended
September 30, 2006. The decrease is due to improved Gross Profit and different
timing of non cash compensation expense related to stock options.
Interest Expense. Interest expense was $24,374 for the three months
ended September 30, 2007; an increase of $5,048, or 26%, from interest expense
of $19,326 for the three months ended September 30, 2006.
Net Loss. Net loss was $252,112 for the three months ended September
30, 2007 compared to $565,600 for the three months ended September 30, 2006. The
$313,448 decrease in net loss is due to improved Gross Profit and different
timing of non cash compensation expense related to stock options.
22
Results of operations for the nine months ended September 30, 2007 compared to
the nine months ended September 30, 2006
Gross Sales. For the nine months ended September 30, 2007, gross sales
were $924,121, a decrease of $40,835, or 4% lower than gross sales of $964,956
for the nine months ended September 30, 2006. The decrease for the year to date
is primarily due to NuVim's decision of close out marginal accounts during the
third quarter offset by an increase in gross sales for nine months is primarily
attributable the increases at Wal-Mart, Giant, and Giant Eagle.
Discounts, Allowances and Promotional Payments. For the nine months
ended September 30, 2007, promotional allowances and discounts were $271,017, an
increase of $44,317 or 20%, from the promotional allowances and discounts of
$226,700 for the nine months ended September 30, 2006. This increase is
primarily attributable to increased promotional activities during the first half
of the year offset by reduced product returns.
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 matures and a higher
percentage of users of our product are repeat purchasers, we expect coupon
expense, relative to gross sales, to decline. Total Discounts, Allowances and
Promotional payments as a percentage of gross sales increased from 23% for the
nine months ended September 30, 2006 to 29% for the nine months ended September
30, 2007.
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------- INCREASE
2007 2006 (DECREASE) PERCENTAGE
---------- ---------- ---------- ----------
Discounts for timely payment $ 6,777 $ 9,523 $ (2,746) 28.8%
Product returned after its expiration date 90,655 104,486 (13,831) 13.2%
Promotional price allowances, coupons and other incentives 169,585 111,719 57,866 51.8%
Slotting fees 4,000 972 3,328 342.4%
---------- ---------- ---------- ----------
Total Discounts, Allowances and Promotional Payments $ 271,017 $ 226,700 $ 44,317 19.5%
========== ========== ========== ==========
Net Sales. Net sales for the nine months ended September 30, 2007 were
$653,104, a decrease of $85,152, or 11% lower than net sales of $738,256 for the
nine months ended September 30, 2006. The decrease in net sales is a combination
of the elimination of marginal accounts and an increase in promotional
activities.
Cost of Sales. For the nine months ended September 30, 2007, cost of
sales was $502,076, a decrease of $11,234, or 2% lower than cost of sales of
$513,310 for the nine months ended
23
September 30, 2006. Cost of sales as a percentage of gross sales was 54% for the
nine months ended September 30, 2007, compared with 53% for the nine months
ended September 30, 2006.
Gross Profit. Gross profit was $151,028 for the nine months ended
September 30, 2007, a decrease of $73,918 from the $224,946 gross profit for the
nine months ended September 30, 2006. Gross profit as a percentage of gross
sales was 16% for the nine months ended September 30, 2007 compared to the gross
profit of approximately 23% for the nine months ended September 30, 2006. The
decrease in gross profit amount and as a percentage of gross sales was primarily
due to the higher price discountsin the first half offset by the lower cost of
goods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,309,026 for the nine months ended September 30,
2007, a decrease of $300,828, or 19% from selling, general and administrative
expenses of $1,609,854 for the nine months ended September 30, 2006. Selling,
general and administrative expenses for the nine months ended September 30, 2007
include non cash compensation expense of $460,321, compared to $326,000 related
to stock options issued during the same period last year. 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. The decrease in selling, general and administrative expenses is due to
decreases in payroll and related expenses, elimination of royalty, insurance
premium and office related expenses.
Loss from Operations. Loss from operations was $1,157,998 for the nine
months ended September 30, 2007 compared to $1,384,908 for the nine months ended
September 30, 2006. The $226,910 decrease in loss from operations was primarily
attributable to the reduction in administrative expenses offset by the decline
in Gross Profit. On a nine month cash basis the net loss was $674,510 which does
not fully reflect changes made in the late second and third quarters.
Interest Expense. Interest expense was $65,998 for the nine months
ended September 30, 2007; a decrease of $26,866, or 29%, from interest expense
of $92,864 for the nine months ended September 30, 2006. The decrease in
interest expense is primarily attributable to the retirement of indebtedness.
Net Loss. Net loss was $1,210,475 for the nine months ended September
30, 2007 compared to $1,462,169 for the nine months ended September 30, 2006.
The $251,964 decrease in net loss was primarily attributable to the factors
discussed above.
24
LIQUIDITY AND CAPITAL RESOURCES
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 September 30 2007, NuVim has raised a net of $684,000 in new
working capital through the sale of common stock and has obtained services
valued at approximately $34,000 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 and will receive approximately
$175,000 in December of 2007.
We will need to raise additional financing to, 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 nine months ended
September 30, 2007 was $762,792 compared to cash used in operating activities of
$840,277 during the same period in 2006. The decrease in cash used by operating
activities during the first nine months of 2007 was primarily attributable to
lower loss before non cash compensation costs.
Cash from financing activities represents net proceeds from the sale of
common stock of $683,820 and $503,875 for the nine months ended September 30,
2007 and 2006, respectively.
APPLICATION OF RECENT AND CRITICAL ACCOUNTING POLICIES AND PRONOUNCEMENTS
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, 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 will adopt SFAS No. 158 on December 31, 2006.
The adoption of SFAS No. 158 is not expected to have a material effect on the
Company's financial
25
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. The adoption of FIN 48 is not expected to have a material effect on
the Company's financial condition or results of operations.
In February 2007, the FASB issued FASB Statement No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115" (SFAS 159). This Statement provides
companies with an option to measure, at specified election dates, many financial
instruments and certain other items at fair value that are not currently
measured at fair value. A company that adopts SFAS 159 will report unrealized
gains and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date. This Statement also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. This Statement is effective for fiscal years
beginning after November 15, 2007, which for us is the first quarter of fiscal
2009. We do not believe that the adoption of SFAS 159 will have a material
impact on our results of operations or financial condition.
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,
2006.
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
26
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 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
outstanding.
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.
27
OFF-BALANCE SHEET TRANSACTIONS
At September 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.
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 nine months of 2007, NuVim raised a net total of about
$684,000 from European Institutional and United States accredited investors and
obtained an additional $76,300 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 September 30, 2007. Our
28
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 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 $820,000 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 $252,112 and $1,210,475 for
the three and nine months, respectively, ended September 30, 2007. We had a
working capital deficit of $515,849 at September 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
$23,234,495 and a stockholders' deficit of 1,636,985 at the end of the third
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
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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 third 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, 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.
30
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
31
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. 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.
32
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.
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. Based upon their evaluation of its disclosure controls and
procedures, the Company's chief executive and the chief financial officer have
concluded that, as of September 30, 2007 and as of the date of filing, the
controls, and procedures were effective at a reasonable assurance level and will
continue to operate as designed.
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 three quarters of 2007.
33
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
None during the third quarter
Common Stock Issued for Services
In July, NuVim agreed with a communications expert to provide various
services for a total of 36,000 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.
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.
34
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.
35
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: November 14, 2007 By: /s/ RICHARD P. KUNDRAT
---------------------------------------------
Richard P. Kundrat
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: November 14, 2007 By: /s/ RICHARD P. KUNDRAT
---------------------------------------------
Richard P. Kundrat
Chief Financial Officer
(Principal Financial and Accounting Officer)
36