UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2008
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
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NUVIM(R), INC.
(Exact name of registrant as specified 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 registrant (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 a check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
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Large accelerated filer / / Accelerated filer / /
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Non-accelerated filer / / Smaller reporting company /X/
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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 1, 2008, 16,361,959 shares of the registrant's Common Stock, par value
$0.00001 per share, were outstanding.
1
NUVIM, INC.
Quarterly Report on Form 10-Q
Quarterly Period Ended June 30, 2008
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet - June 30, 2008 (Unaudited) 3
Statements of Operations - For the three and six months ended June 30, 2008 and 2007 (Unaudited) 4
Statement of Changes in Stockholders' Deficit for the six months ended June 30, 2008 (Unaudited) 5
Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4T. Controls and Procedures 22
PART II - Other Information
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 30
Item 6. Exhibits 30
Signatures 31
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NUVIM, INC.
BALANCE SHEETS
June 30 December 31,
---------------------------------
2008 2007
----------- -----------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $0 $14,814
Accounts receivable, net 15,887 17,594
Inventory 176,394 205,456
Prepaid expenses and other current assets 18,362 28,620
----------- -----------
Total Current Assets 210,643 266,484
----------- -----------
Equipment and furniture, net - 54
Deposits and other assets 6,206 6,206
Distribution rights 90,400 90,400
----------- -----------
TOTAL ASSETS $307,249 $363,144
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank line of credit $49,263 $46,663
Advance from Officer 25,000 -
Current portion of accounts payable 247,131 $386,165
Accrued expenses 141,901 117,094
Accrued compensation 133,250 373,533
Rescinded series B offering payable 18,920 18,920
Other notes payable, net of unamortized discount of $3,400 at
June 30, 2008 and $5,100 at December 31, 2007 136,600 114,900
Accrued Interest - other notes payable 40,317 35,518
----------- -----------
TOTAL CURRENT LIABILITIES 792,382 1,092,793
----------- -----------
Other Liabilities:
Accounts payable, net of current portion 206,430 206,429
Deferred officers compensation 352,283
Senior notes payable - related parties, net of unamortized discount of
$0 at June 30, 2008 and $11,619 at Decemer 31, 2007 500,000 488,381
Accrued interest - senior notes payable - related parties 229,160 209,160
Stockholder loans - subordinated covertable promissory notes 150,000 150,000
Accrued interest stockholder loans 39,770 33,770
----------- -----------
TOTAL OTHER LIABILITIES 1,477,643 1,087,740
----------- -----------
TOTAL LIABILITIES 2,270,025 2,180,533
----------- -----------
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, 120,000,000 shares authorized, $.00001 par value,
16,361,959 shares issued and outstanding at June 30, 2008 and 14,740,782
shares issued and outstanding at December 31, 2007 163 147
Additional paid-in capital 22,030,624 21,655,862
Accumulated deficit (23,993,563) (23,473,398)
----------- -----------
Total Stockholders' Deficit (1,962,776) (1,817,389)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $307,249 $363,144
=========== ===========
3
NUVIM, INC.
STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Gross sales 156,707 347,170 340,690 675,303
Less: discounts, allowances and promotional payments 49,492 114,924 108,483 202,235
----------- ----------- ----------- -----------
Net sales 107,215 232,246 232,207 473,068
Cost of sales 86,925 224,592 191,454 393,537
----------- ----------- ----------- -----------
Gross profit 20,290 7,654 40,753 79,531
Selling, general and administrative
expenses 252,709 677,381 529,164 1,009,791
----------- ----------- ----------- -----------
Loss from operations (232,419) (669,727) (488,411) (930,260)
Other Income (Expense):
Interest expense (20,805) (20,974) (51,635) (41,624)
Gain on settlement of accounts payable
19,881 13,521 19,881 13,521
----------- ----------- ----------- -----------
Total other income (expense) - net (924) (7,453) (31,754) (28,103)
----------- ----------- ----------- -----------
Net loss before income tax benefit (233,343) (677,180) (520,165) (958,363)
----------- ----------- ----------- -----------
Net loss (233,343) (677,180) (520,165) (958,363)
=========== =========== =========== ===========
Basic and diluted loss per share (.01) (.05) (.03) (.07)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - basic and diluted 16,189,130 14,532,782 15,523,633 13,517,338
=========== =========== =========== ===========
4
NUVIM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED June 30, 2008
(unaudited)
Common Stock Additional Total
-------------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
---------- ------ ----------- ------------- -------------
Balance at December 31, 2007 14,740,782 $147 $21,655,862 ($23,473,398) ($1,817,389)
Stock sold to accredited investors, net 441,177 4 74,996 - 75,000
Stock issued for services 524,000 5 89,975 - 89,980
Stock issued for accounts payable 656,000 7 131,193 - 131,200
Employee stock based compensation - - 78,598 - 78,598
Net Loss - - - (520,165) (520,165)
---------- ------ ----------- ------------- -------------
Balance at June 30, 2008 (unaudited) 16,361,959 $163 $22,030,624 ($23,993,563) ($1,962,776)
========== ====== =========== ============= =============
5
NUVIM, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
--------------------------------
2008 2007
----------- -----------
(unaudited) (unaudited)
Cash Flow From Operating Activities:
Net loss ($520,165) ($958,363)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 54 452
Amortization of debt discount on notes payable 13,319 10,500
Stock issued for services 89,975 49,100
Employee stock based compensation 78,598 343,969
Stock issued for compensation - 46,583
Gain on settlement of accounts payable (19,881) (13,521)
Provision for discounts, allowances and promotional
payments 108,483 106,977
Changes in Operating Assets and Liabilities:
Accounts receivable (106,776) (63,417)
Inventory 29,062 (19,092)
Prepaid expenses and other assets 10,258 83,661
Accounts payable 12,053 (201,261)
Accounts payable and accrued expenses - related party -
Accrued expenses 24,807 26,980
Accrued compensation 112,000 (30,780)
Accrued interest 30,799 30,800
----------- -----------
Net Cash Used in Operating Activities (137,414) (587,412)
----------- -----------
Cash Flow From Financing Activities:
Related party advance 25,000 -
Other borrowing 20,000
Bank borrowings 2,600 -
Net proceeds from issuance of common stock 75,000 683,820
----------- -----------
Net Cash Provided by Financing Activities 122,600 683,820
----------- -----------
(Decrease) Increase in Cash and Cash Equivalents (14,814) 96,408
Cash and Cash Equivalents at Beginning of Period 14,814 55,472
----------- -----------
Cash and Cash Equivalents at End of Period $- $151,880
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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
joint and muscle health, and help the body absorb vitamins and minerals,
especially calcium. In addition to the four major health benefits, Nu\Vim has
100% of the daily requirements of vitamins C, E, B12, and zinc as well as all 9
key amino acids, anti-oxidant vitamins, with only 45 calories per 8 ounce
serving. NuVim has no high fructose corn syrup, fat, cholesterol, lactose,
caffeine, or artificial flavors or colors. The Company distributes its products
through supermarkets, Wal-Mart supercenters, military commissaries, and hospital
cafeterias in approximately 12 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 $233,343 and $520,165 for the
three and six months ended March 31, 2008 and $677,180 and $958,363 for the
three and six months ended March 31, 2007, respectively. Management also expects
operating losses to continue in 2008. 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 borrowings and equity investments. During 2007,
the Company raised net proceeds of $683,000 through the sale of equity
securities. During 2008, the company has raised approximately $75,000 from the
sale of its equity securities.
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.
C. BASIS OF PRESENTATION
7
The unaudited 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 financial
statements as of June 30, 2008 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, 2008
and as of the result of its operations and its cash flows for the periods ended
June 30, 2008 and 2007.
The Unaudited Statements of Operations for the three and six months ended June
30, 2007 and 2008 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, 2007.
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, 2007 and June 30, 2008, the Company had warrants to purchase
7,013,800 and 6,999,398 shares of common stock, respectively, and employee stock
options to purchase 3,746,147 and 4,296,147 shares of common stock outstanding
which are not included in the calculation.
B. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the recorded amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
C. Reclassifications
Certain reclassifications were made to the presentation of the 2008 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 $26,549 and $52,049 in expenses related to stock options for the
three and six months ended June 30, 2008. Such amount is included in General and
administrative expenses at June 30, 2008.
E. Recent Accounting Pronouncements
FASB 161 - Disclosures about Derivative Instruments and Hedging Activities
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In March 2008, the FASB issued FASB Statement No. 161, which amends and
expands the disclosure requirements of FASB Statement No. 133 with the intent
to provide users of financial statements with an enhanced understanding of;
how and why an entity uses derivative instruments, how the derivative
instruments and the related hedged items are accounted for and how the
related hedged items affect an entity's financial position, performance and
cash flows. This Statement is effective for financial statements for fiscal
years and interim periods beginning after November 15, 2008. Management
believes this Statement will have no impact on the financial statements of
the Company once adopted.
NOTE 3 - STOCKHOLDERS' DEFICIT
A. Sales for Cash
In March 2008, the Company issued 294,118 shares of common stock and 147,059
warrants to purchase shares of common stock at $.25 each to an individual for
$50,000 in cash.
9
In April 2008, the Company issued 147,059 shares of common stock and 73,529
warrants to purchase shares of common stock at $.25 each to an individual for
$25,000 in cash.
B. Stock Issued for Services
In February and March 2008, the Company issued 410,000 shares of common stock
and 25,000 warrants to purchase shares of common stock at $.25 each. These
shares and warrants were issued for services and were expensed at the then fair
market value of the shares issued or the value of the services tendered. The
amount expensed at March 31, 2008 was $82,000.
In May 2008, the Company issued 114,000 shares of common stock for services with
a fair value of $7,980.
C. Stock Issued for Accounts Payable
In April 2008, the Company entered into an agreement to issue 656,000 shares of
common stock and a $20,000 note payable due on January 15th, 2009 for the
satisfaction of a $161,081 trade payable. The Company recorded a gain of $19,881
on the transaction, representing the excess of the amount of the accounts
payable retired over the fair value of the note and stock.
NOTE 4 - 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 $18,000 for the three and six month periods ended June 30, 2008 and
$9000 and $12,000 for the three and six month periods ended June 30, 2007.
In March 2008, an officer of the Company loaned the Company $25,000. The loan
bears no interest and is due on demand.
In March 2008 an officer of the Company deferred $352,283 of accrued
compensation, representing the officer's unpaid 2006 and 2007 salary and 2007
bonus. The deferrals are to be paid no earlier than January 2011. The Board
approved a deferral agreement pursuant to which in January 2011 the officer may
either demand payment in cash or accept shares of common stock computed at $0.20
per share, the closing price on the day the Board approved the deferral, in lieu
thereof.
The entertainer Dick Clark and Stanley Moger hold $500,000 of NuVim's Senior
Debt, due to mature in January 2009. They also held warrants to purchase a total
of 1,015,000 shares of NuVim common stock at prices ranging from $0.35 to $2.00.
In exchange for an extension of the payment of the principal and interest of the
Senior Debt to January 2011 and the cancelation of all of the existing warrants,
NuVim agreed to issue five year warrants to purchase a total of 755,000 shares
of NuVim common
10
stock at $0.10. As a result of this extension, the payment of the principal and
interest of $150,000 of Shareholders debt has also been extended to January
2011.
NOTE 5 - SUBSEQUENT EVENTS
In July 2008, an Officer and Director of the Company lent the Company $20,000.
In August 2008, a Director lent the Company $20,000. Both loans mature
March 31, 2009 and bear interest at the rate of 8% per annum, payable quarterly.
The Board of Directors approved both transactions.
11
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-Q. 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-Q. 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 refrigerated and shelf stable ready-to-drink beverages and powder mixes.
NuVim utilizes the prebiotic fiber 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
12
performance, enhances cardiovascular health, and promotes well being.
NutraFlora(R), a prebiotic fiber is uniquely capable of promoting health
supported by clinical studies 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 of 2007, we ran a production test run of a shelf
stable version of our beverages in the same flavors as the chilled versions. In
the first quarter 2008 we commercially produced these products and began to
offer them for sale. Sold in single serve 12 ounce bottles, distribution is
targeted primarily to, K through 12 school systems, colleges, and hospital and
business cafeterias. Selected convenience store groups will be a secondary
target. 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, colleges, and
business/hospital cafeterias 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. Because the limited number of beverages
selections offered in these points of distribution the ability for NuVim to gain
consumer awareness and trial is much higher and at less marketing costs then it
would be in outlets where the number of single serve beverages offered is much,
much greater. For instance in a large convenience store the number of beverages
offered could exceed 300 versus a school, college or hospital/business cafeteria
where the total number of beverages in the cooler would be only 10 or 12.
The US has over 5,500 hospitals with 5 million employees including
700,000 physicians. There are 41 million students in K through 12 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
representatives.
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 also develops and airs news
segments that include NuVim(R)'s health benefits. The television program Eye On
America hosted by Greg Gumbel featuring NuVim products and their health benefits
has aired nationally and regionally during the May and June.and will have repeat
airings in the third quarter. The NuVim segment on Eye On America includes
interviews from nationally known nutritional experts Ruth Carey and Coni Francis
13
Each marketing program adds to building the brand and these expenditures
are essential to maintain the distribution and 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 over 1,000 Supermarkets in the Eastern United States. In late 2003 we
began a test program with a single Wal-Mart supercenter. We are now in
distribution in approximately 120 Wal-Mart supercenters in Florida.
In the second quarter of 2008 we began distribution of our refrigerated
beverage in US Military Base Commissaries. There are approximately 170
commissaries in the United States, each serving a US Military Base. In April
2008, we made our first shipments to two distribution centers serving 36
commissaries. These commissaries serve as the supermarket for our active and
retired military personnel and their families, now stock all three NuVim(R)
flavors in 64 ounce containers. We have and will continue to support the
commissary business with on site sampling and couponing. Initial sales results
are positive and we are striving to gain distribution in a larger percentage of
the commissaries by the end of the year.
We continue to sell to high potential retailers like Wal-Mart and
regional supermarket chains and seek other avenues of high volume and profitable
business like the military troop feeding, army hospitals, Veteran's hospitals,
military Post Exchanges, schools, colleges and hospital/business groups. In the
second half of the year we will begin programs to drive sales of both the powder
mixes and the shelf stable single serve 12 ounce through our web-site store.
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 2008 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
of our 2005 stock deal and our on going relationship with them. We have a
commitment from PTG to air approximately 1,100 of these commercials during 2008.
In 2008 we have had very limited funds to support any marketing
activities especially the essential product sampling and advertising programs,
which we believe are critical to maintain and increase sales of our products.
Therefore, we used the small amount of funds available 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. For this reason sales have fallen in 2008 as we adjust our
distribution system in the Northeast to improve per case profitability and we
have also reduced the marketing area we are serving for Wal-Mart. Despite the
reductions we have a solid footprint in the military, Wal-Mart, several
supermarket chains and now have been able to launch the single serve 12 ounce
products. We also expect that we will enter the lemonade and tea categories to
move the company from a strictly nutracuetical beverage company to one that also
is in the higher volume thirst quenching
14
categories of tea and lemonade. These new products will deliver the same health
benefits of our refrigerated products with the exception of the whey protein.
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/stores stocking the
NuVim(R) 64 ounce size.
o Increase the business with the current profitable supermarket chain store
groups.
o Expand from the military commissary base of 36 to all 170 commissaries in
the United States and further expand commissary distribution to the US
bases worldwide
o Begin a 2008 test with the Department of Defense for using NuVim in troop
feeding, army hospitals, veterans hospitals and the post exchange stores.
o Introduce our new shelf stable 12 ounce beverages in three varieties to
the K through 12 school systems, colleges and universities,
hospital/business cafeterias, health clubs, and selected convenience
stores.
o Sell the shelf stable 12 ounce from the NuVim web-site store at a
delivered price of approximately $2.75 per bottle (currently selling at
www.nuvim.com) o Increase sales of the powder mixes through the Company
web-site, nutritional supplement retail chains and home shopping
networks.
o Gain accesses to the food service markets with the shelf stable products
through beer distributors and the independent non-alcoholic distributors.
o Open the export market with the 12 ounce shelf stable products.
We continue to talk with other private beverage companies that provide
synergy for a possible merger opportunity. We reviewed several potential
candidates in the first half of 2008.
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 in
2008 in selected programs like Eye on America, The Health Forum, The Competitive
Edge and Today's Family. The 30 second commercials are aired monthly and will
continue throughout the year 1,100 times. Eye on America will also run a 5
minute segment featuring NuVim(R). The segment aired on CNN Headline news and
Region News Networks beginning in the second quarter. Exclusive interviews with
nutrition experts Ruth Carey R.D. LD and Coni Francis Ph.D. will discuss the
lifetime benefits of drinking NuVim.
Sales Results
The table set forth below discloses selected data regarding sales for the
quarter and the six months ended June 30, 2008 and 2007. 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
15
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,
------------------------- -------------------------
2008 2007 2008 2007
---- ---- ---- ----
Gross Cases Sold 8,312 19,037 18,247 36,643
Gross Sales $ 156,707 $ 347,170 $ 340,690 $ 675,303
Net Sales $ 107,215 $ 232,246 $ 232,207 $ 473,068
Case shipments of our refrigerated product decreased by 10,725 and 18,396 or 57%
and 51%, respectively, during the second quarter and the first half of 2008
compared with the same periods in the prior year. The reasons for the three
month and six month declines were the elimination of accounts that did not offer
the possibility of future profits, a reduction in the number of Wal- Mart stroes
serviced and less promotional spending. The new military commissary business has
begun to show the improvement in the trend of declining sales. We expect this
improvement to continue at a much increased rate in the third and fourth
quarter. The improvement is anticipated due to the sales at the new business in
the military commissaries and also the single serve 12 ounce and some sales of
lemonade and tea products. We have experienced a substantial restructure of our
business in the first half of this year to prepare the company for these new
future sales opportunities. A bright note that in the same store sales on the
same varieties basis in the Wal-Mart Acradia distribution center we increased
store sales by 16% and through the stores through the Winterhaven distribution
center same store sales per variety increased 10%.
Results of Operations
Results of operations for the three months ended June 30, 2008 compared to the
three months ended June 30, 2007
Gross Sales. For the three months ended June 30, 2008, gross sales were
$156,707, a decrease of $190,463 or 55% over gross sales of $347,170 for the
three months ended June 30, 2007. The decrease in gross sales is primarily
attributable NuVim's decision to close marginal accounts and the decrease in the
number of Wal-Mart stores serviced offset somewhat in this quarter by the new
military commissary business.
Discounts, Allowances and Promotional Payments. For the three months
ended June 30, 2008, promotional allowances and discounts were $49,492 a
decrease of $65,437 or 57% from the promotional allowances and discounts of
$114,924 for the three months ended June 30, 2007. This decrease is primarily
attributable to lower returns of product after expiration date and less price
based promotion, as well as lower sales.
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
16
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 33.1% for the three months ended June 30, 2007 to
31.6% for the three months ended June 30, 2008.
Three Months Ended Increase Percentage
June 30, (Decrease)
-----------------------------------------------------
2008 2007
Discounts for timely payment $ 518 $ 2,719 $ (2,201) (80.9%)
Product returned after its expiration date 18,192 29,675 (11,483) (38.7%)
Promotional price allowances, coupons
and other incentives 30,782 80,203 (49,421) (61.6%)
Slotting fees 0 2,327 (2,327) 100%)
---------- ---------- ----------- -------
Total Discounts, Allowances and
Promotional Payments $ 49,492 $ 114,924 $ (65,432) (56.9%)
---------- ---------- ----------- -------
Net Sales. Net sales for the three months ended June 30, 2008 were
$107,215, a decrease of $125,031, or 54% below net sales of $232,246 for the
three months ended June 30, 2007. The decrease in net sales is primarily
attributable to the elimination of unprofitable accounts offset by reduced price
discounting.
Cost of Sales. For the three months ended June 30, 2008, cost of sales
was $86,925, a decrease of $137,667 or 61% from the cost of sales of $224,592
for the three months ended June 30, 2007. 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 $20,290 for the three months ended June
30, 2008, a increase of $12,636 from the gross profit of $7,654 for the three
months ended June 30, 2007. Gross profit as a percentage of gross sales was 4%
for the three months ended June 30, 2008 compared to 2% for the three months
ended June 30, 2007. Both Gross Profit amount and percentage 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 $252,709 for the three months ended June 30, 2008,
a decrease of $424,672, or 63% from selling, general and administrative expenses
of $677,381 for the three months ended June 30, 2007. This is the result of
continued economies in the executive suite.
Loss from Operations. Loss from operations was $232,419 for the three
months ended June 30, 2008 compared to $669,727 for the three months ended June
30, 2007, also a reduction
17
of 63%. The decreased loss is due to improved Gross Profit, continuing operating
improvements, and reduced administrative expenses.
Other Expense. Other Expense for the three months ended June 30, 2008 was
$924 consisting of Interest expense almost $20,805 (almost identical to the
$20,974 recorded in the second quarter of 2007) almost entirely offset by gains
on accounts payable settlements. The decrease of $6,529 in Other Expense is
almost entirely due to an increase of $6,360 in gains on settlement of accounts
payable for 2008 compared with the three months ended June 30 in 2007.
Net Loss. Net loss was $233,343 for the three months ended June 30, 2008
compared to $677,180 for the three months ended June 30, 2007. The $443,837
decrease in net loss is due to improved Gross Profit and the sharp reduction of
Selling, General, and Administrative Expenses.
Results of operations for the six months ended June 30, 2008 compared to the six
months ended June 30, 2007
Gross Sales. For the six months ended June 30, 2008, gross sales were
$340,690, a decrease of $328,133, or 49% lower than gross sales of $675,303 for
the six months ended June 30, 2007. The decrease for the year to date is
primarily due to NuVim's decision of close out marginal accounts and reduction
of the number of Wal-Marts served during the second quarter offset by an
increase in gross sales for six months primarily attributable the increases at
Giant, and Giant Eagle. It is anticipated that the new commissary business
Discounts, Allowances and Promotional Payments. For the six months ended
June 30, 2008, promotional allowances and discounts were $108,483, a decrease of
$93,752 or 46%, from the promotional allowances and discounts of $202,235 for
the six months ended June 30, 2007. This decrease is primarily attributable to
decreased promotional activities during the first half of the year arising from
reduced volume and fewer 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 30% for the
six months ended June 30, 2007 to 32% for the six months ended June 30, 2008,
reflecting the lower volume of sales and our increased efforts to market our
beverages in the markets in which we are concentrating.
18
Six months Ended Increase Percentage
June 30, (Decrease)
-----------------------------------------------------
2008 2007
Discounts for timely payment $ 1,453 $ 5,215 $ (3,762) (72.1%)
Product returned after its expiration date 45,290 59,486 (14,196) (23.9%)
Promotional price allowances, coupons
and other incentives 61,740 133,533 (71,793) (53.8%)
Slotting fees 0 4,000 (4,000) 100%
---------- ---------- ----------- -------
Total Discounts, Allowances and
Promotional Payments $ 108,483 $ 202,235 $ (93,752) (46.4%)
---------- ---------- ----------- -------
Net Sales. Net sales for the six months ended June 30, 2008 were
$232,246, a decrease of $240,861, or 51% lower than net sales of $473,068 for
the six months ended June 30, 2007. The decrease in net sales is a combination
of the elimination of marginal accounts and concentration of Wal-Mart
distribution centers offset by a decrease in promotional activities.
Cost of Sales. For the six months ended June 30, 2008, cost of sales was
$191,454, a decrease of $202,083, or 51% lower than cost of sales of $393,537
for the six months ended June 30, 2007. Cost of sales as a percentage of gross
sales was 56% for the six months ended June 30, 2008, compared with 58% for the
six months ended June 30, 2007.
Gross Profit. Gross profit was $40,753 for the six months ended June 30,
2008, a decrease of $38,778 from the $79,531 gross profit for the six months
ended June 30, 2007. Gross profit as a percentage of gross sales was 12% for the
six months ended June 30, 2008, the same as the gross profit of approximately
12% for the six months ended June 30, 2007.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $529,164 for the six months ended June 30, 2008, a
decrease of $480,627, or 48% from selling, general and administrative expenses
of $1,009,791 for the six months ended June 30, 2007. 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, and
reductions in insurance premiums and office related expenses.
Loss from Operations. Loss from operations was $488,411 for the six
months ended June 30, 2008 compared to $930,260 for the six months ended June
30, 2007. The $441,849 decrease in loss from operations was primarily
attributable to the reduction in administrative expenses offset by the decline
in Gross Profit.
Other Expense. Other Expense for the six months ended June 30, 2008 was
$31,754 consisting of Interest expense almost $51,635 (an approximately $10,000
increase from the $41,624 recorded in the same period in 2007) partially offset
by gains on accounts payable settlements (which increased from $13,521 in the
first half of 2007 to 19,881 in 2008). The net increase in Other Expenses $3,651
for the first half of 2008 compared with the sane period in 2007.
Net Loss. Net loss was $520,165 for the six months ended June 30, 2008
compared to $958,363 for the six months ended June 30, 2007. The $438,198 or 46%
decrease in net loss was primarily attributable to the factors discussed above.
19
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 June 30 2008, NuVim has raised a net of $75,000 in new working
capital through the sale of common stock and has obtained services valued at
approximately $168,573 in exchange for 524,000 shares of its common stock. In
addition, NuVim received loans aggregating $65,000 from related parties. In
addition, NuVim settled $164,000 of charges for accounting services by issuing
656,000 shares of 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
$175,000 was received from this program in December of 2007. We have already
applied for the 2008 program and anticipate receiving approximately $70,000 by
December of this year. As NuVim continues to cut its losses, the amount received
each year will decrease.
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 2008.
Net cash used in operating activities for the six months ended June 30,
2008 was $137,414 compared to cash used in operating activities of $587,412
during the same period in 2007. The decrease in cash used by operating
activities during the first six months of $449,998 was primarily attributable to
reduced Net Losses arising primarily from lower administrative expense.
$122,600 was provided by financing activities during the six months ended
June 30, 2008 compared with $683,820 provided during the six months ended June
30, 2007. In 2007, we conducted a private placement of our common stock.
Application of Recent and Critical Accounting Policies and Pronouncements
Recent Accounting Pronouncements
FASB 161 - Disclosures about Derivative Instruments and Hedging Activities
--------------------------------------------------------------------------
In March 2008, the FASB issued FASB Statement No. 161, which amends and
expands the disclosure requirements of FASB Statement No. 133 with the intent to
provide users of financial statements with an enhanced understanding of; how and
why an entity uses derivative instruments, how the derivative instruments and
the related hedged items are accounted for and how the related hedged items
affect an entity's financial position, performance
20
and cash flows. This Statement is effective for financial statements for fiscal
years and interim periods beginning after November 15, 2008. Management believes
this Statement will have no impact on the financial statements of the Company
once adopted.
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the accompanying financial statements.
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,
2007.
Placement and Promotional Allowances and Credits for Product Returns
As an inducement to our customers to promote our products in preferred
locations of their stores, we provide placement and promotional allowances to
certain customers. We also provide credits for customer coupon redemptions,
consumer price reductions, and product which has not been sold by its expiration
date. These allowances and credits are reflected as a reduction of revenue in
accordance with Emerging Issues Task Force ("EITF") No. 01-9, which requires
certain sales promotions and customer allowances previously classified as
selling, general and administrative expenses to be classified as a reduction of
sales or as cost of goods sold. Provisions for promotional allowances are
recorded upon shipment and are typically based on shipments to the retailer
during an agreed upon promotional period. We expect to offer promotional
allowances at historical levels in the near future as an incentive to our
customers. One time per account slotting or placement fees are deducted from
revenue in the period paid. Provisions for coupon redemptions and product
returned that has reached its expiration date are based on historical trends.
Information such as the historical number of cases returned per unit shipped,
product shelf life, current sales volume, and coupons distributed during the
period are used to derive estimates of the required allowance. As we expand
production and introduce new 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.
21
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.
Off-Balance Sheet Transactions
At June 30, 2008, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
NuVim's business does not subject it to these types of risks.
Item 4T. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
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
22
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, NuVim's chief executive and the chief financial officer have
concluded that, as of June 30, 2008 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.
(b) Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act). Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2007. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control
-Integrated Framework. Our management has concluded that, as of June 30, 2008,
our internal control over financial reporting is effective based on these
criteria. This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management's report in this annual report.
(c) Changes in Internal Control over Financial Reporting
No change effecting NuVim's internal controls occurred during the fourth quarter
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are at present no legal proceedings pending against the Company.
Item 1A. Rick Factors
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 2008, NuVim raised a net total of about $75,000 from accredited
investors and obtained an additional $168,573 of services in exchange for common
stock.
We will still continue to need additional funds to continue our
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 our
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.
24
In their report in connection with our 2007 and 2006 financial
statements, both 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, 2006 and 2007, there is substantial doubt about our
ability to continue as a going concern. The extension of all $700,000 of debt to
a payable date of January 15, 2011 does alleviate the immediate debt concerns.
Our continued existence will depend in large part upon our ability to
successfully secure additional financing to fund future operations. Our initial
public offering was not sufficient to completely alleviate these concerns; the
proceeds have been adequate to fund operations to date, but we will need to
raise additional funding to continue operations. If we are not able to achieve
positive cash flow from operations or to secure additional financing as needed,
we will continue to experience the risk that we will not be able to continue as
a going concern.
Our 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 $1,449,378 for the year ended December 31, 2007 and
$520,165 for the six months ended June 30, 2008. We had a working capital
deficit of $581,739 at June 30, 2008 and have negative cash flows from
operations. As a result of ongoing operating losses, we also had an accumulated
deficit of $23,993,563 and a stockholders' deficit of $1,962,776 at the same
date. We expect to incur losses until at least through 2008 and may never become
profitable. We also expect that our expenses will not 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.
Our Continued Progress Depends Of Consumer Acceptance of the Reformulated
Beverage
In the first quarter of 2007, NuVim introduced a reformulated beverage
and began producing it at a new plant. Although the new formulation maintains
the same taste, reduces calories per serving from 70 to 45, eliminates High
Fructose Corn Syrup, as an ingredient, and
25
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 though military commissaries and such supermarket chains as ShopRite,
Pathmark, A&P, Gristedes, Food Emporium, Key Foods, Associated Foods, 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.
It is unlikely that we will achieve profitability in 2008, but possibly could
achieve profitability on a monthly basis toward the end of next year.
Consumers Who Try Our Products May Not Experience The Health Benefits We Claim,
Which May Cause Them To Discontinue Using Our Products.
Although there is substantial clinical evidence showing that NuVim(R)'s
ingredients produce the desired results, there have been no studies of our
specific formulation. Therefore, we currently cannot confirm that the health
benefits of our products will be evident to casual consumers of our products.
Consumers may determine that drinking 12 ounces of NuVim per day for a minimum
of 30 days requires more discipline and expense than they are willing to devote.
If consumers do not use our product in the quantity or for the duration we
recommend, they may not achieve the health benefits we claim, which may cause
them to make alternative nutritional beverage and/or dietary supplement
purchasing decisions.
Our Business May Suffer From Lack Of Diversification.
Our business is centered on nutritional beverages. The risks associated
with focusing on a limited product line are substantial. If consumers do not
accept our products or if there is a general decline in market demand for, or
any significant decrease in, the consumption of nutritional beverages, we are
not financially or operationally capable of introducing alternative products
within a short time frame. As a result, such lack of acceptance or market demand
26
decline could cause us to cease operations. The addition of our new shelf stable
products offers us a broader base of outlets to distribute our products
decreasing our total dependence on the refrigerated distribution network.
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 We are in negotiation with several companies to
manufacture the shelf stable products. 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,
we risk having to pay significantly greater transportation costs to transport
our products to warehouses in other regions of the United States. Any new co
-packing arrangement raises the additional risk of higher marginal costs than we
currently enjoy since we would be required to negotiate new terms with any new
co-packer. We may not be able to pass along these higher costs to our customers.
If we are unable to pass along the higher production costs imposed by new co
-packers to our customers, we either will suffer lower gross margins and lower
profitability, once achieved, or we may be unable to expand our business as we
have planned, which could disappoint our stockholders.
Our Business Contains Risks Due To The Perishable Nature Of Our Product.
Our current refrigerated product is a perishable beverage that has a
limited shelf-life of approximately 83 days. This restricted shelf life means
that we do not have any significant finished goods inventory and our operating
results are highly dependent on our ability to accurately forecast near term
sales in order to adjust our raw materials sourcing and production needs. When
we do not accurately forecast product demand, we are either unable to meet
higher than anticipated demand or we produce excess inventory that cannot be
profitably sold. Additionally, our customers have the right to return products
that are not sold by their expiration date. Therefore, inaccurate forecasts that
either mean that we are unable meet higher than anticipated demand or that
result in excess production, or significant amounts of product returns on any of
our products that are not sold by the expiration date could cause customer
dissatisfaction, unnecessary expense and a possible decline in profitability.
Government Regulation May Adversely Affect Our Business.
Our business is subject to government regulation, principally the United
States Food and Drug Administration (the "FDA"), which regulates the processing,
formulation, packaging, labeling and advertising of dietary products, and to a
lesser extent, state governments, where state attorneys general have authority
to enforce their state consumer protection acts. Specifically, we are subject to
the Dietary Supplement and Health Education Act ("DSHEA"). Under DSHEA, dietary
supplements are permitted to make "statements of nutritional support" with
notice to the FDA, but without FDA pre-approval. The FDA does not
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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
28
company, even if we are ultimately found not to be at fault.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales for Cash
In April 2008, NuVim sold 147,059 shares of common stock for $0.17 per
shares and issued five year warrants to purchase 73,530 shares of common stock
at $0.25 per share to Doug Scott, one of its Directors. 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). The proceeds were used for working
capital.
All cash raised in these sales has been applied to working capital.
Common Stock Issued for Services
In early April, NuVim issued 656,000 shares of common stock and a $20,000
promissory note to settle outstanding invoices for accounting services. The
accounting firm agreed in writing to restrictions on resale placed with the
NuVim's transfer agent and the printing of a legend on its certificate. Because
of these factors, this sale was exempt from registration under the Securities
Act as not involving a public distribution under section 4(2) and 4(6).
In June 2008, NuVim issued 100,000 Mark Alan Siegel for his services.
These services were valued at $7,000. Mr. Siegel serves as NuVim's Secretary and
General Counsel. He has agreed not to sell his shares before 2009. In addition,
he agreed in writing to Securities Act 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 June, NuVim issued a total of 14,000 shares of common stock to
employees of its military broker as a bonus for their efforts in getting NuVim
refrigerated beverages into military commissaries. The aggregate value of these
shares is approximately $1,000. Restrictions on resale have been placed with the
NuVim's transfer agent and a legend has been printed on each 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.
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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.
30
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 19 , 2008 By: /s/ RICHARD P. KUNDRAT
Richard P. Kundrat
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: August 19 , 2008 By: /s/ RICHARD P. KUNDRAT
Richard P. Kundrat, Chief Financial Officer
(Principal Financial and Accounting Officer)
31