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 March 31, 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 May 1, 2008, 16,247,959 shares of the registrant's Common Stock, par value
$0.00001 per share, were outstanding.
NUVIM, INC.
Quarterly Report on Form 10-Q
Quarterly Period Ended March 31, 2008
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet - March 31, 2008 (Unaudited) and December 31, 2007 (Audited) 3
Statements of Operations - For the three ended March 31, 2008 and 2007 (Unaudited) 4
Statement of Changes in Stockholders' Deficit for the three months ended March 31, 2008
(Unaudited) 5
Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4T. Controls and Procedures 20
PART II - Other Information
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits 28
Signatures 30
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NUVIM, INC.
BALANCE SHEETS
March 31, December 31,
-------------------------------
2008 2007
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $8,643 $14,814
Accounts receivable, net 17,895 17,594
Inventory 225,727 205,456
Prepaid expenses and other current assets 45,802 28,620
------------ ------------
Total Current Assets 298,067 266,484
------------ ------------
Equipment and furniture, net - 54
Deposits and other assets 6,206 6,206
Distribution rights 90,400 90,400
------------ ------------
TOTAL ASSETS $394,673 $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 451,815 $386,165
Accrued expenses 103,273 117,094
Accrued compensation 77,250 373,533
Rescinded series B offering payable 18,920 18,920
Senior notes payable - related parties, net of unamortized discount of
$3,495 at March 31, 2008 and $11,619 at Decemer 31, 2007 496,505 488,381
Accrued interest - senior notes payable - related parties 219,160 209,160
Stockholder loans - subordinated covertable promissory notes 150,000 150,000
Accrued interest stockholder loans 36,770 33,770
Other notes payable, net of unamortized discount of $4,250 at
March 31, 2008 and $5,100 at December 31, 2007 115,750 114,900
Accrued Interest - other notes payable 37,917 35,518
------------ ------------
TOTAL CURRENT LIABILITIES 1,781,623 1,974,104
Long-term Debt
Accrued compensation 352,283 -
Accounts payable, net of current portion 206,429 206,429
------------ ------------
TOTAL LONG-TERM DEBT 558,712 206,429
------------ ------------
TOTAL LIABILITIES 2,340,335 2,180,533
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, 120,000,000 shares authorized, $.00001 par value,
15,444,900 shares issued and outstanding at March 31, 2008 and
14,740,782 shares issued and outstanding at December 31, 2007 154 147
Additional paid-in capital 21,814,404 21,655,862
Accumulated deficit (23,760,220) (23,473,398)
------------ ------------
Total Stockholders' Deficit (1,945,662) (1,817,389)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $394,673 $363,144
============ ============
3
NUVIM, INC.
STATEMENTS OF OPERATIONS
Three Months Ended March 31,
----------------------------
2008 2007
----------- -----------
(unaudited)
Gross sales $183,983 $328,133
Less: discounts, allowances and promotional payments 58,991 87,311
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Net sales 124,992 240,822
Cost of sales 104,529 168,945
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Gross profit 20,463 71,877
Selling, general and administrative expenses 276,455 332,410
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Loss from operations (255,992) (260,533)
Other Income (Expense):
Interest expense (30,830) (20,650)
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Total other income (expense) - net (30,830) (20,650)
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Net loss before income tax benefit (286,822) (281,183)
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Net loss ($286,822) ($281,183)
========== ==========
Basic and diluted loss per share ($0.02) ($0.02)
========== ==========
Weighted average number of common shares
outstanding - basic and diluted 14,858,135 12,578,491
========== ==========
4
NUVIM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 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 294,118 3 49,997 - 50,000
Stock issued for services 410,000 4 81,996 - 82,000
Employee stock based compensation - - 26,549 - 26,549
Net Loss - - - (286,822) (286,822)
----------- ------- ----------- ------------- ------------
Balance at March 31, 2008 15,444,900 $154 $21,814,404 ($23,760,220) ($1,945,662)
=========== ======= =========== ============= ============
5
NUVIM, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2008 2007
----------- ----------
(unaudited)
Cash Flow From Operating Activities:
Net loss ($286,822) ($281,183)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 54 226
Amortization of debt discount on notes payable 8,974 5,250
Stock issued for services 82,000 36,100
Employee stock based compensation 26,549 14,275
Stock issued for compensation - 46,583
Provision for sales returns 58,991 87,311
Changes in Operating Assets and Liabilities:
Accounts receivable (59,292) (87,258)
Inventory (20,271) 9,382
Prepaid expenses and other assets (17,182) (588)
Accounts payable 65,650 44,091
Accounts payable and accrued expenses - related party - (28,606)
Accrued expenses (13,821) 26,980
Accrued compensation 56,000 (9,783)
Accrued interest 15,399 15,400
--------- ---------
Net Cash Used in Operating Activities (83,771) (121,820)
--------- ---------
Cash Flow From Financing Activities:
Related party advance 25,000 -
Bank borrowings 2,600 -
Net proceeds from issuance of common stock 50,000 419,200
--------- ---------
Net Cash Provided by Financing Activities 77,600 419,200
--------- ---------
(Decrease) Increase in Cash and Cash Equivalents (6,171) 297,380
Cash and Cash Equivalents at Beginning of Year 14,814 55,472
--------- ---------
Cash and Cash Equivalents at End of Period $8,643 $352,852
========= =========
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 $286,822 and $281,183 for the
three months ended March 31, 2008 and 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
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 March 31, 2008 and 2007 reflect all adjustments (consisting of
normal recurring accruals) which, in the
7
opinion of management, are considered necessary for a fair presentation of its
financial position as of March 31, 2008 and as of the result of its operations
and its cash flows for the periods ended March 31, 2008 and 2007.
The Unaudited Statements of Operations for the three months ended March 31, 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 March 31, 2008, the Company had warrants to purchase
7,013,800 and 7,185,859 shares of common stock, respectively, and employee stock
options to purchase 3,746,147 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.
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.
8
D. Stock-Based Compensation
The Company adopted SFAS No. 123R, "Share Based Payments." SFAS No. 123R
requires companies to expense the value of employee stock options and similar
awards and applies to all outstanding and vested stock-based awards.
In computing the impact, the fair value of each option is estimated on the date
of grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected remaining
lives of the awards. The assumptions used in calculating the fair value of
share-based payment awards represent management's best estimates, but these
estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, the Company's stock-based compensation expense could be materially
different in the future. In addition, the Company is required to estimate the
expected forfeiture rate and only recognize expense for those shares expected to
vest. In estimating the Company's forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company's actual forfeiture rate is materially different from its estimate, or
if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what we have recorded
in the current period. The impact of applying SFAS No. 123R approximated $26,549
in compensation expense for the three months ended March 31, 2008. Such amount
is included in general and administrative expenses on the statement of
operations.
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
B. 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.
C. 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.
9
NOTE 6 - RELATED PARTY TRANSACTIONS
Included in selling, general and administrative expenses are salaries to
immediate family members of an executive officer of the Company of approximately
$9,000 and $12,000 for the three months ended March 31, 2008 and 2007,
respectively.
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 to be paid no earlier than January 2010.
NOTE 7 - SUBSEQUENT EVENTS
A. STOCK ISSUED IN PAYMENT OF 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 $184,000 trade payable.
In April 2008, the Company issued 147,059 shares of common stock and 7,029
warrants to purchase shares of common stock at $.25 each to an individual for
$25,000 in cash.
10
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 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
11
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 of 2007, 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 primarily to, K through
12 school systems, colleges, and hospital and business cafeteriass. Selected
convienence 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 is also developing and airing
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 is scheduled to air nationally and regionally during May and June. The
NuVim segment on Eye On America includes interviews from nationally known
nutritional experts Ruth Carey and Coni Francis.
Each marketing program adds to building the brand and these expenditures
are essential
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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 approximately 1,500 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. We have
recently lost a portion of the Wal-Mart business due to lack of funding to
support the marketing programs.
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 51
commissaries. These stores, which 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 will back up this opportunity with on site
sampling and couponing.
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, schools, colleges and
hospital/business groups.
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 second quarter of 2008 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
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 no funds to support product sampling and advertising
programs, which we believe are critical to maintain and increase sales of our
products. Therefore, we will need funds to focus 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
13
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 Successfully test in 51 authorized military commissaries with the goal of
getting distribution of the 64 ounce product in all 170 commissaries in
the United States and those in Europe and the Pacific Rim.
o Work with the Department of Defense for using NuVim in troop feeding and
veterans hospitals.
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 to Asia and Mexico 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 2007.
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 will air 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 discussion below covers selected data regarding sales for the quarter
March 31, 2008 and 2007. The data is not necessarily indicative of continuing
trends.
Sales of refrigerated beverages are expressed in unit case volume. A
"unit case" means a unit of measurement equal to 512 U.S. fluid ounces of
finished beverage (eight 64-ounce containers). Powder mix sales are expressed in
equivalent servings equal to the refrigerated case.
14
One case of refrigerated products has 40 servings. One box of powder mixes has
30 servings. Unit case volume means the number of unit cases (or unit case
equivalents) of beverages directly or indirectly sold by us. Gross cases sold to
the customer represent the number of cases shipped to the customer.
Unit Case Volume/Case Sales
Three Months Ended
March 31,
------------------------
2008 2007
---- ----
Gross Cases Sold 9,975 17,654
Gross Sales $ 183,938 $ 328,133
Net Sales $ 124,992 $ 240,822
Gross sales are the amount invoiced to customers, while net sales deduct
from gross sales any payment or discount terms, promotional allowances, slotting
fees, warehouse damage and returned goods in accordance with the Financial
Accounting Standards Board Emerging Issues Task Force Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer. In some accounts
we pay slotting fees when our products are initially introduced to a new account
and run price feature promotions to encourage trials of our product. As brand
loyalty grows in a market, we anticipate that we will be able to run fewer price
promotions and will not incur the one time additional slotting fees to gain new
distribution.
9,975 cases sold represents a decrease of 7,679, or 44%, for the three
months ended March 31, 2008, when compared to the same quarter in 2007. The
decrease in the number of cases sold is due to the decrease in marketing
activities and the reorganization of distribution in the New York/New Jersey
market. During the same period last year, we invested substantially more on in
store marketing, especially in the Wal-Mart stores where we sampled most of the
stores. However, two Wal-Mart distribution centers, Arcadia and Winterhaven,
where we first entered the business with Wal-Mart, maintained their sales levels
compared with last year's first quarter even though no sampling was conducted
this quarter.
During the first quarter we also changed how we distribute our products
in the New York/New Jersey market. The change will allow NuVim(R) to generate a
profit contribution from each case instead of continually incurring losses in
these markets. The change caused a disruption in New York/New Jersey
distribution in the first quarter of 2008 which contributed to the overall
decrease in sales. We expect profit improvement in this market in the second
quarter.
Sales at Giant Eagle, the largest account and oldest in the Pennsylvania
market, were also even with last year's despite no substantial marketing
activity this year. The performance at Giant Eagle and the two Wal-Mart
distribution centers mentioned above, which maintained year to year sales,
indicates that when marketing dollars are spent to build a base of consumers, we
are able to maintain or enjoy increased sales despite limited or no marketing
dollars invested for at least a year after the base is built. But the base must
be built in each new area of distribution. Once again NuVim(R) has lacked
sufficient funding to build the base in all of newly opened markets at once. As
a result, we struggle to maintain sales level in some of the markets.
15
Results of Operations
Results of operations for the three months ended March 31, 2008 compared to the
three months ended March 31, 2007
Gross Sales. For the three months ended March 31, 2008, gross sales were
$183,983 a decrease of $144,150 or 44% over gross sales of $328,133 for the
three months ended March 31, 2007. This 44% decrease had several contributing
factors as described above in Unit Case Volume/Case Sales. During this quarter,
we continued to have limited funds for advertising and sampling programs.
Discounts, Allowances and Promotional Payments. For the three months ended
March 31, 2008, promotional allowances and discounts were $58,991, a decrease of
$28,320 from the promotional allowances and discounts of $87,311 for the three
months ended March 31, 2007. This 44% decrease is a result of funding delays.
Our inability to maintain sufficient support in the markets we opened last year
contributed to the reduced sales in the first quarter. We record the price
reductions, which are reimbursed by us to the retailers, in accordance with
Financial Accounting Standards Board Emerging Issues Task Force, No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer. We expect to
continue to use price promotions and coupon distribution selectively as a means
to promote consumer sampling and trial of our product into the foreseeable
future. As the product further matures and a higher percentage of users of our
product are repeat purchasers, we expect coupon expense, relative to gross
sales, to decline although we will continue to use these marketing programs when
needed.
Product returned after its expiration date was 14.7% of sales this
quarter versus 8% in the same quarter a year ago. This is due to decreased sales
during the period. Total Discounts, Allowances and Promotional
payments/discounts as a percentage of gross sales increased from 26.6% for the
three months ended March 31, 2007 to 32% for the three months ended March 31,
2008. This is due to our attempts to maintain sales during the reorganization.
Three Months Ended Increase
March 31, (Decrease) Percentage
------------------------------------------------
2008 2007
-------- --------
Discounts for timely payment $ 935 $ 2,487 $ (1,552) (62.4)%
Product returned after its expiration date 27,098 27,577 (479) (0.7)%
Promotional price allowances, coupons
and other incentives 30,957 55,574 (24,617) (44.3)%
Slotting fees -0- 1,673 (1,673) (100.0)%
-------- -------- ---------- --------
Total Discounts, Allowances and
Promotional Payments $ 58,991 $ 87,311 $ (38,430) (44.0)%
======== ======== ========== ========
Net Sales. Net sales for the three months ended March 31, 2008 were
124,992, a decrease of $115,830, or 48% below net sales of $240,822 for the
three months ended March 31, 2007. The decrease in net sales is primarily
attributable to the decrease in the promotion as discussed above.
16
Cost of Sales. For the three months ended March 31, 2008, cost of sales
was $104,529 a decrease of $64,416 from the $168,945 Cost of Sales for the three
months ended March 31, 2007. The decrease is primarily the result of lower sales
in 2008.
Gross Profit. Gross profit was $20,463 for the three months ended March
31, 2008, a decrease of $51,414 from the $71,877 gross profit for the three
months ended March 31, 2007. Gross profit as a percentage of gross sales was
11% for the three months ended March 31, 2008 compared to the 22% for the three
months ended March 31, 2007. The decrease in gross profit percentage is a result
of maintaining promotional efforts during declining sales and the short term
effect on unit costs of distribution changes and low volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $276,455 for the three months ended March 31, 2008.
Selling, general, and administrative expenses during the three months ended
March 31, 2007 were $332,410 a decrease of $55,955 or 17%. Management's
continuing efforts to reduce administrative overhead paid additional dividends
in this quarter. The decrease in selling, general and administrative expenses is
primarily due to eliminating a full time Chief Financial Officer, full time Vice
President of Operations and converting all of the selling personnel to a
commission structure after the first quarter of last year. We continue to work
on increasing sales to achieve sales volumes sufficient to generate net sales in
excess of our selling, general and administrative expenses.
Loss from Operations. Loss from operations was $255,992 for the three
months ended March 31, 2008 compared to $260,553 for the three months ended
March 31, 2007. The decrease of $4,561, or 2%, is due to decreases in selling
and administration sufficient to partially offset the sales declines. Also, as
discussed below in Liquidity and Capital Resources, cash consumed.
Interest Expense. Interest expense was $30,830 for the three months ended
March 31, 2008; an increase of $10,180 or 49%, from interest expense of $20,650
for the three months ended March 31, 2007. The increase in interest expense is
primarily attributable the debt discount on the notes payable and increased use
of NuVim's bank line of credit.
Net Loss. Net loss was $286,822 for the three months ended March 31, 2008
compared to $281,183 for the three months ended March 31, 2007, an increase of
$5,639 because the decrease in administrative and selling costs was offset by
the decrease in gross profit.
Liquidity and Capital Resources
Our operations to date have generated significant operating losses that
have been funded through the issuance of common stock and external borrowings.
We will require additional sources of outside capital to continue our
operations.
Through April 30 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 $82,000 in exchange for 410,000 shares of its common stock.
17
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. In addition we are reviewing a Federal program
which may reimburse us for our research and development expenses.
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 three months ended March
31, 2008 was $83,771 compared to cash used in operating activities of $121,820
during the same period in 2007. The decrease in cash used by operating
activities during the first three months of $38,771 was primarily attributable
to lower administrative expense.
$77,600 was provided by financing activities during the three months
ended March 31, 2008 compared with $419,201 provided during the three months
ended March 31, 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 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
18
different assumptions and conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments, estimates and uncertainties and potentially result in
materially different results under different assumptions and conditions. For a
detailed discussion on the application of these and other accounting policies,
see Note 2 to our annual financial statements for the year ended December 31,
2005.
Placement and Promotional Allowances and Credits for Product Returns
As an inducement to our customers to promote our products in preferred
locations of their stores, we provide placement and promotional allowances to
certain customers. We also provide credits for customer coupon redemptions,
consumer price reductions, and product which has not been sold by its expiration
date. These allowances and credits are reflected as a reduction of revenue in
accordance with Emerging Issues Task Force ("EITF") No. 01-9, which requires
certain sales promotions and customer allowances previously classified as
selling, general and administrative expenses to be classified as a reduction of
sales or as cost of goods sold. Provisions for promotional allowances are
recorded upon shipment and are typically based on shipments to the retailer
during an agreed upon promotional period. We expect to offer promotional
allowances at historical levels in the near future as an incentive to our
customers. One time per account slotting or placement fees are deducted from
revenue in the period paid. Provisions for coupon redemptions and product
returned that has reached its expiration date are based on historical trends.
Information such as the historical number of cases returned per unit shipped,
product shelf life, current sales volume, and coupons distributed during the
period are used to derive estimates of the required allowance. As we expand
production and introduce new products, we may incur increased levels of returned
goods. Also, our estimates assume we will continue as a going concern and
maintain distribution with wholesalers and supermarkets that currently carry our
product. If a supermarket or wholesaler discontinues our product, we may
experience return rates in excess of our historical trend. This could result in
material charges to future earnings for reimbursements to our customers for
returned, unsold product.
Accounts Receivable
We evaluate the collectablity of our trade accounts receivable based on a
number of factors. Accounts receivable are unsecured, non-interest bearing
obligations that are typically due from customers between 10 and 30 days of the
invoice date. We apply collections in accordance with customer remittance
advices or to the oldest outstanding invoice if no remittance advice is
presented with payment. Our overall receivables are approximately 17 days.
We estimate an allowance for doubtful accounts and revenue adjustments
based on historical trends and other criteria. We have had only one account that
could not be collected since the inception of the company in 2000. The amount
was less than $10,000. Further, as accounts receivable outstanding are deemed
uncollectible or subject to adjustment, these allowances are adjusted
accordingly. In circumstances where we become aware of a specific customer's
inability to meet its financial obligations to us, a specific reserve for
bad debts is estimated and recorded which reduces the recognized receivable
to the estimated amount we
19
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 March 31, 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 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 December
31, 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.
20
(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 December 31,
2007, 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.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are at present no legal proceedings pending against the Company.
Item 1A. Risk 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 2007, NuVim raised a net total of about $684,000 from European
Institutional and United States accredited investors and obtained an additional
$109,600 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.
22
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 debt to a payable
date of January 15, 2009 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 $1,778,959 for the year ended December 31, 2006 and
$1,449,378 for the year ended December 31, 2007. We had a working capital
deficit of $675,891 at December 31, 2007 and have negative cash flows from
operations. As a result of ongoing operating losses, we also had an accumulated
deficit of $23,473,398 and a stockholders' deficit of $1,817,389 at the same
date. We expect to incur losses until at least through 2007 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.
23
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, Key Foods, Associated Foods, Walbaums, Acme Giant,
Giant Eagle, and Wal-Mart. Although marketing funds have been limited, but 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
24
products within a short time frame. As a result, such lack of acceptance or
market demand 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
25
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.
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
26
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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Common Stock for Cash
In March 2008, NuVim sold 294,118 shares of common stock for $0.17 per
shares and issued five year warrants to purchase 147,059 shares of common stock
at $0.25 per share to an individual. 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.
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 February 2008, NuVim issued 100,000 shares to three individuals for
investor relations services valued at $20,000. Each 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 the same month, NuVim issued 70,000 shares to its nutrition
consultant valued at $14,000. She agreed in writing to restrictions on resale
placed with the NuVim's transfer agent and the printing of a legend on its
certificate. Because of these factors, this sale was exempt from registration
under the Securities Act as not involving a public distribution under section
4(2) and 4(6).
In March 2008, NuVim issued 40,000 shares to an individual for investor
relations services valued at $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).
Also in March 2008, NuVim issued 100,000 and 50,000 shares respectively
to Jamal Kibria and Mark Alan Siegel for their services. These services were
valued at $30,000. Mr. Kibria works on product production and Mr. Siegel serves
as NuVim's Secretary and General
27
Counsel. Both have agreed not to sell their shares before 2009. In addition,
each 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).
In the same month, NuVim issued 50,000 shares of common stock and a five
year warrant to purchase 25,000 shares of common stock at $0.25 per share to an
individual for services in connection with the structure of a private placement.
These services were valued at $10,000. 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).
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).
Item 3. Defaults upon Senior Securities
None
Item 4. - Submission of Matters to Vote of Security Holders
None in the first quarter 2008
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
28
32.2 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
29
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUVIM, INC.
Date: May 15, 2008 By: /s/ RICHARD P. KUNDRAT
Richard P. Kundrat
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Date: May 15, 2008 By: /s/ RICHARD P. KUNDRAT
Richard P. Kundrat
Chief Financial Officer
(Principal Financial and Accounting Officer)
30