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 September 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
---------
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.
--------------------------------------------------------------------------------
Large accelerated filer / / Accelerated filer / /
--------------------------------------------------------------------------------
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 November 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 September 30, 2008
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 2008 (Unaudited) and December 31, 2007 (audited) 3
Statements of Operations - For the three and nine months ended September 30, 2008 and 2007 (Unaudited) 4
Statement of Changes in Stockholders' Deficit for the nine months ended September 30, 2008 (Unaudited) 5
Statements of Cash Flows for the nine months ended September 30, 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 23
Item 4T. Controls and Procedures 23
PART II - Other Information
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits 30
Signatures 31
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NUVIM, INC.
BALANCE SHEETS
September 30, December 31,
-----------------------------------------
2008 2007
-------------- --------------
ASSETS (unaudited) (audited)
Current Assets:
Cash and cash equivalents $ - $ 14,814
Accounts receivable, net 24,171 17,594
Inventory 111,253 205,456
Prepaid expenses and other current assets 12,072 28,620
-------------- --------------
Total Current Assets 147,496 266,484
-------------- --------------
Equipment and furniture, net - 54
Deposits and other assets 6,206 6,206
Distribution rights 90,400 90,400
-------------- --------------
TOTAL ASSETS $ 244,102 $ 363,144
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank line of credit $ 55,863 $ 46,663
Due from related party 65,000 -
Current portion of accounts payable 235,363 386,165
Accrued expenses 143,011 117,094
Accrued compensation 139,249 373,533
Rescinded series B offering payable 18,920 18,920
Other notes payable, net of unamortized discount of $1,700 at
September 30, 2008 and $5,100 at December 31, 2007 136,600 114,900
Accrued Interest - other notes payable 42,717 35,518
-------------- --------------
TOTAL CURRENT LIABILITIES 836,723 1,092,793
Long-Term Liabilities:
Accounts payable, net of current portion 239,430 206,429
Deferred officers compensation 402,283
Senior notes payable - related parties, net of unamortized discount of
$0 at September 30, 2008 and $11,619 at Decemer 31, 2007 500,000 488,381
Accrued interest - senior notes payable - related parties 239,160 209,160
Stockholder loans - subordinated covertable promissory notes 150,000 150,000
Accrued interest stockholder loans 42,770 33,770
-------------- --------------
TOTAL OTHER LIABILITIES 1,573,643 1,087,740
-------------- --------------
TOTAL LIABILITIES 2,410,366 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 September 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 (24,197,051) (23,473,398)
-------------- --------------
Total Stockholders' Deficit (2,166,264) (1,817,389)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 244,102 $ 363,144
============== ==============
See notes to financial statements
3
NUVIM, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Septmeber 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Gross sales $127,016 $248,818 $467,706 $924,121
Less: discounts,
allowances and
promotional payments 41,929 68,782 150,412 271,017
------------ ------------ ------------ ------------
Net sales 85,087 180,036 317,294 653,104
Cost of sales 101,804 108,539 293,258 502,076
------------ ------------ ------------ ------------
Gross profit (16,717) 71,497 24,036 151,028
Selling, general and
administrative
expenses 171,371 299,235 700,535 1,309,026
------------ ------------ ------------ ------------
Loss from operations (188,088) (227,738) (676,499) (1,157,998)
Other Income (Expense):
Interest expense (15,400) (24,374) (67,035) (65,998)
Gain on settlement of
accounts payable - - 19,881 13,521
------------ ------------ ------------ ------------
Total other income
(expense) - net (15,400) (24,374) (47,154) (52,477)
------------ ------------ ------------ ------------
Net loss before income
tax benefit (203,488) (252,112) (723,653) (1,210,475)
------------ ------------ ------------ ------------
Net loss ($203,488) ($252,112) ($723,653) ($1,210,475)
============ ============ ============ ============
Basic and diluted loss
per share ($0.01) ($0.02) ($0.05) ($0.09)
============ ============ ============ ============
Weighted average number
of common shares
outstanding - basic
and diluted 16,361,959 14,604,382 15,523,633 13,893,019
============ ============ ============ ============
See notes to financial statements
4
NUVIM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 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 - - - (723,653) (723,653)
---------- ------- ----------- ------------- -------------
Balance at September 30, 2008 16,361,959 $163 $22,030,624 ($24,197,051) ($2,166,264)
========== ======= =========== ============= =============
See notes to financial statements
5
NUVIM, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-------------------------------
2008 2007
------------- -------------
(unaudited) (unaudited)
Cash Flow From Operating Activities:
Net loss $ (723,653) $ (1,210,475)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 54 498
Amortization of debt discount on notes payable 13,319 19,474
Equity based compensation 168,578 432,044
Gain on settlement of accounts payable (19,881) -
Provision for sales returns - 202,235
Changes in Operating Assets and Liabilities:
Accounts receivable (6,577) (179,847)
Inventory 94,203 (36,125)
Prepaid expenses and other assets 16,548 59,960
Accounts payable 33,280 (193,693)
Accrued expenses 25,917 108,429
Accrued compensation 167,999 12,008
Accrued interest 46,199 46,200
------------- -------------
Net Cash Used in Operating Activities (184,014) (739,292)
------------- -------------
Cash Flow From Investing Activities: - -
------------- -------------
Cash Flow From Financing Activities:
Related party advance 65,000 -
Other borrowing 20,000 -
Bank borrowings 9,200 -
Net proceeds from issuance of common stock 75,000 683,820
------------- -------------
Net Cash Provided by Financing Activities 169,200 683,820
------------- -------------
(Decrease) Increase in Cash and Cash Equivalents (14,814) (55,472)
Cash and Cash Equivalents at Beginning of Period 14,814 55,472
------------- -------------
Cash and Cash Equivalents at End of Period $ - $ -
============= =============
See notes to financial statements
6
NUVIM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
A. BUSINESS
NuVim, Inc. (the "Company") markets and distributes ready to drink dietary
supplement beverages and powder mixes, which enhance the immune system, promote
sturdy joints and muscle flexibility and helps the body absorb calcium. The
Company distributes its products through supermarkets in approximately 14 states
in the eastern United States.
B. Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred net losses of $203,488 and $723,653 for the
three and nine months ended September 30, 2008 and $252,112 and $1,210,475 for
the three and nine months ended September 30, 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 September 30, 2008
7
and 2007 reflect all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are considered necessary for a fair
presentation of its financial position as of September 30, 2008 and as of the
result of its operations and its cash flows for the periods ended September 30,
2008 and 2007.
The Unaudited Statements of Operations for the three and nine months ended
September 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 September 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.
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
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 $78,598 in expenses related to stock options for the nine months
ended September 30, 2008. Such amount is included in General and administrative
expenses at September 30, 2008.
E. 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.
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.
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.
9
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 $151,081 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 5 - 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 $27,000 for the three and nine month periods ended June 30, 2008 and
$9,000 and $30,000 for the three and nine month periods ended June 30, 2007.
In May 2008, an officer of the Company loaned the Company $25,000. The loan
bears interest at 8% per annum and is due on March 31, 2009.
In August 2008, an officer and a director of the Company each loaned the Company
$20,000. The loans bear interest at 8% per annum and are due on March 31, 2009.
In March 2008 an officer of the Company deferred $402,283 of accrued
compensation to be paid no earlier than January 2011.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
In August 2008, NuVim signed a letter of intent to merge with Innovative
Technologies Corp. of America. At closing, the shareholders of Innovative will
receive $2,300,000 and 4,250,000 shares of NuVim common stock. NuVim is now
conducting its due diligence review and will execute a merger agreement upon
satisfactory completion of its review. The merger is contingent upon NuVim
receiving satisfactory financing for the purchase price and working capital.
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 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
11
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 the
recommended daily requirements of vitamin C, E, B12, and Zinc and 60% of the
recommended daily requirement for vitamin A. NuVim products contain no fat,
cholesterol, lactose, caffeine, artificial flavors or colors 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.
Proposed Merger
---------------
In August 2008 NuVim has executed a Letter of Intent for a merger with
Innovative Technologies Corp. of America ("Innovative"), another manufacturer
and distributor of health related beverages.
Innovative's flagship product, Glacial Milk Complete Nutrition, is
formulated to help provide overall wellness through the 120 nutrients in each
serving including 16 essential vitamins, 72 sea source ionic minerals, 17 amino
acids, 8 herbs, 3 essential fatty acids. Glacial Milk Complete Nutrition has
been sold to Sam's clubs nationally since late 2006. Other Innovative products
include Glacial Milk Joint Care, Glacial Milk Noni Complete, Glacial Milk
All-In-One Complete Nutrition for Kids, Glacial Milk Complete Nutrition Black
Cherry, and Petamins.
These products are all sold on the Innovative web site, but the
majority of the sales come from everyday sales at the 565 Sam's club's
nationally and the Sam's Club Roadshow program. The Sam's Roadshow is a
structured program which allows manufacturers to set up kiosks in a Sam's club
and sell items that are not on the shelf everyday. The program produces
additional profits at Sam's Club without the warehousing, store stocking and
shipping costs.
This merger will also bring ownership of Carb Crusher(R) (which is a
tea product that helps block the absorption of calories and carbohydrates). In
addition the merger will bring distribution rights to Hair of the Dog(R) (which,
taken either at night or in the morning, helps mitigate the physiological
effects of alcohol). Carb Crusher(R) has just been authorized for the Sam's
Roadshow program and is expected to increase sales by a minimum of $1.5 million
next year. Hair of the Dog(R) is just beginning to be introduced to the market.
NuVim will merger Innovative into a wholly owned subsidiary. Prior to
the merger, Innovative will reorganize itself to free itself of all long term
debt, all administrative costs not related to the continuing business, and have
positive working capital. In addition to owning two brands, Glacial Milk(R) and
Carb Crusher(R), the merged company will own the distribution rights for Hair of
the Dog(R), excluding internet sales.
12
When the merger is consummated, the owners of ITCA will receive $2.3
million and 4,250,000 shares of restricted NuVim common stock.
Since signing the letter of intent, NuVim has conducted its due
diligence, including an audit of Innovative's financial reports and records,
sought up to $3.5 million net in financing to pay the cash portion of the
purchase price and the expenses of the transaction as well as providing adequate
working capital for the combined venture, and reach a formal agreement merger
document.
The Innovative acquisition provides significant synergies in
manufacturing, sales, distribution and administration which should result in
increased revenues and operational efficiencies. NuVim should be able to
capitalize on its relationships with Wal-Mart and the military by offering
Innovative's expanded range of technologically advanced products to these
accounts. Innovative's national distribution of its Glacial Milk at Sam's Club
provides the relationship to help increase total Sam's Club sales by adding both
the new Glacial Milk Joint product and NuVim beverages to the Sam's Clubs. Sam's
has been presented with a fourth quarter 2008 marketing program to insure the
success of the Innovative products authorized.
NuVim will continue to advance its and Innovative's product lines
through internal development and possibly other synergistic acquisitions.
NuVim's Existing Activities
---------------------------
In the first quarter 2008 we commercially produced hot filled products
and began to offer them for sale in test market. Sold in single serve 12 ounce
bottles, distribution is targeted primarily to, K through 12 school systems,
colleges, and hospital and business cafeterias. Since then we have put further
production on hold until post merger. In the fourth quarter 2008 we plan to
produce these products in the same co-packer location as the Innovative
products. Selected convenience store groups will be a secondary target.
NuVim(R)'s breakthrough in the hot fill products 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
13
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 September and will have
repeat airings in the fourth quarter. 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 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 900 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 64 ounce
refrigerated beverage in US Military Base Commissaries. There are approximately
168 commissaries in the United States, each serving a US Military Base. In April
2008, we made our first shipments to two distribution centers serving 35
commissaries. These commissaries serve as the supermarket for our active and
retired military personnel and their families. In November 2008 we received
additional Commissary authorizations which now put NuVim into 27% of the total
US commissaries. These commissaries are located from New Jersey to Florida. We
have and will continue to support the commissary business with on site sampling
and couponing. Our goal is to gain distribution in all 167 US commissaries and
the approximately 80 commissaries overseas.
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 and business cafeterias.
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
14
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 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:
> Increase the sales per store in existing Wal-Mart supercenters.
> Increase the number of Wal-Mart distribution centers/stores stocking
the NuVim(R) 64 ounce size.
> Increase the business with the current profitable supermarket chain
store groups.
> Expand from the military commissary base of now 45 to all 168
commissaries in the United States and further expand commissary
distribution to the US bases worldwide
> Begin a 2008 test with the Department of Defense for using NuVim in
troop feeding, army hospitals, veterans hospitals, field troops and
the post exchange stores.
> 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 very selected
convenience stores.
> 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)
> Increase sales of the powder mixes through the Company web-site,
nutritional supplement retail chains, infomercials, and home shopping
networks.
> Gain accesses to the food service markets with the shelf stable
products through beer distributors and the independent non-alcoholic
distributors.
> Open the export market with the 12 ounce shelf stable products.
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
15
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 nine months ended September 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 or indirectly sold by us. Gross
cases sold to the customer represent the number of cases shipped to the customer
prior to any returned cases containing product that has not been sold by its
expiration date.
Unit Case Volume/Case Sales
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2008 2007 2008 2007
---- ---- ---- ----
Gross Cases Sold 6,780 12,857 24,417 48,878
Gross Sales $ 127,016 $ 248,818 $ 467,706 $ 924,121
Net Sales $ 85,087 $ 180,036 $ 317,294 $ 653,104
Case shipments of our refrigerated product decreased by 6,077 and 24,416 or 47%
and 50%, respectively, during the third quarter and the first nine months of
2008 compared with the same periods in the prior year. The reasons for the three
month and nine month declines were the elimination of accounts that did not
offer the possibility of future profits, a reduction in the number of Wal-Mart
stores 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 and fourth
quarter with the increased number of commissaries authorized. We have
experienced a substantial restructure of our business in the nine months of this
year to prepare the company to focus on the merger with Innovative Technologies
of America, military sales Sam's Club and Wal-Mart. This is the future of our
company. It is certainly a bright note that we increased military commissary
authorization. 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 September 30, 2008 compared to
the three months ended September 30, 2007
Gross Sales. For the three months ended September 30, 2008, gross sales
were $127,016, a decrease of $121,802 or 49% over gross sales of $248,818 for
the three months ended September
16
30, 2007. The decrease in gross sales is primarily attributable to 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 September 30, 2008, promotional allowances and discounts were $41,929 a
decrease of $26,852 or 39% from the promotional allowances and discounts of
$68,782 for the three months ended September 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 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
increased from 28% for the three months ended September 30, 2007 to 33% for the
three months ended September 30, 2008.
Three Months Ended Increase Percentage
September 30, (Decrease)
-------------------------------------------------------
2008 2007
---- ----
Discounts for timely payment $ 473 $ 1,562 $ (1,089) (70%)
Product returned after its expiration date 11,695 31,169 (19,474) (63%)
Promotional price allowances, coupons
and other incentives 29,761 32,051 (2,290) (7%)
Slotting fees 4,000 (4,000) (100%)
---------- ---------- ---------- --------
Total Discounts, Allowances and
Promotional Payments $ 41,929 $ 68,782 $ (26,852) (39%)
========== ========== ========== ========
Net Sales. Net sales for the three months ended September 30, 2008 were
$85,087, a decrease of $94,949, or 53% below net sales of $180,036 for the three
months ended September 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 September 30, 2008, cost of
sales was $101,804, a decrease of $6,735 or 6.2% from the cost of sales of
$108,539 for the three months ended September 30, 2007. This reduction is much
lower than the percentage reduction in both Gross and Net Sales because this
quarter's Cost of Sales includes several batches with a cost of approximately
$28,000 which had to be discarded because of supplier and producer errors. We
have made claims against both which, when received, will be treated as Other
Income in the period received.
17
Gross Profit. Gross profit was a loss of $(16,717) for the three months
ended September 30, 2008, a decrease of $88,214 from the gross profit of $71,497
for the three months ended September 30, 2007. Gross Loss as a percentage of
gross sales was (13)% for the three months ended September 30, 2008 compared to
28% for the three months ended September 30, 2007. Both Gross Profit amount and
percentage decreased because of both the reduction in Gross Sales and the
increase in Cost of Sales because of the supplier and producer errors.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $171,371 for the three months ended September 30,
2008, a decrease of $127,864, or 43% from selling, general and administrative
expenses of $299,235 for the three months ended September 30, 2007. This is the
result of continued economies in the executive suite.
Loss from Operations. Loss from operations was $188,088 for the three
months ended September 30, 2008 compared to $227,738 for the three months ended
September 30, 2007, a reduction of 17%. The decreased loss despite the reduction
of Sales and the production errors is due to continuing operating improvements
and reduced administrative expenses offset by decreased Gross Profit,.
Other Expense. Other Income for the three months ended September 30,
2008 was $15,400 consisting of Interest Expense.
Net Loss. Net loss was $203,488 for the three months ended September
30, 2008 compared to $252,112 for the three months ended September 30, 2007. The
$48,624 decrease in net loss despite reduced sales and the production and
supplier errors is due to the sharp reduction of Selling, General, and
Administrative Expense offset by reduced Gross Profit.
Results of operations for the nine months ended September 30, 2008 compared to
the nine months ended September 30, 2007
Gross Sales. For the nine months ended September 30, 2008, gross sales
were $467,706, a decrease of $456,415, or 49% lower than gross sales of $924,121
for the nine months ended September 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 nine months primarily attributable the increases
at the new commissary business.
Discounts, Allowances and Promotional Payments. For the nine months
ended September 30, 2008, promotional allowances and discounts were $150,412, a
decrease of $120,605 or 45%, from the promotional allowances and discounts of
$271,017 for the nine months ended September 30, 2007. This decrease is
primarily attributable to decreased promotional activities during the first nine
months 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
18
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 29% for the nine months ended September 30, 2007 to 32% for the nine months
ended September 30, 2008, reflecting the lower volume of sales and our increased
efforts to market our beverages in the markets in which we are concentrating.
Nine months Ended Increase Percentage
September 30, (Decrease)
-------------------------------------------------------
2008 2007
---- ----
Discounts for timely payment $ 1,926 $ 6,777 $ (4,851) (72%)
Product returned after its expiration date 56,985 90,655 (33,670) (37%)
Promotional price allowances, coupons
and other incentives 91,500 169,585 (78,085) (46.0%)
Slotting fees 4,000 (4,000) (100.%)
---------- ---------- ----------- --------
Total Discounts, Allowances and
Promotional Payments $ 150,412 $ 271,017 $ (120,605) (45%)
========== ========== =========== ========
Net Sales. Net sales for the nine months ended September 30, 2008 were
$317,294 a decrease of $325,810, or 51% lower than net sales of $653,104 for the
nine months ended September 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 nine months ended September 30, 2008, cost of
sales was $293,258, a decrease of $208,818, or 41% lower than cost of sales of
$502,076 for the nine months ended September 30, 2007. Cost of sales as a
percentage of gross sales was 63% for the nine months ended September 30, 2008,
compared with 54% for the nine months ended September 30, 2007. During the third
quarter NuVim experienced production losses valued at approximately $28,000 due
to producer and supplier errors. We have begun claims against both. Any
recoveries will be reflected as Other Income in the period received.
Gross Profit. Gross profit was $24,035 for the nine months ended
September 30, 2008, a decrease of $126,993 from the $151,028 gross profit for
the nine months ended September 30, 2007. Gross profit as a percentage of gross
sales was 5% for the nine months ended September 30, 2008, about one third of
the gross profit percentage of approximately 16% for the nine months ended
September 30, 2007. This change largely reflects the production loss incurred in
the third quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $700,535 for the nine months ended September 30,
2008, a decrease of $608,491, or 46% from selling, general and administrative
expenses of $1,309,026 for the nine months ended September 30, 2007. Selling,
general and administrative expenses exceeded net sales in
19
both periods as we change our business as discussed above. 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 $676,499 for the nine
months ended September 30, 2008 compared to $1,157,998 for the nine months ended
September 30, 2007. The $481,499 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 nine months ended September 30,
2008 was $47,154 consisting of Interest expense of $67,035 (an $1,037 increase
from the $65,998 recorded in the same period in 2007) partially offset by gains
on accounts payable settlements (which increased from $13,521 in the first nine
months of 2007 to 19,881 in the same period in 2008). Overall, Other Expenses
decreased by $5,323 for the first nine months of 2008 compared with the same
period in 2007.
Net Loss. Net loss was $723,653 for the nine months ended September 30,
2008 compared to $1,210,475 for the nine months ended September 30, 2007. The
$486,822 or 40% decrease in net loss was primarily attributable to the factors
discussed above.
Liquidity and Capital Resources
Liquidity and Capital Resources
Our operations to date have generated significant operating losses that
have been funded through the issuance of common stock and external borrowings.
We will require additional sources of outside capital to continue our
operations.
Through September 30, 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 nine months ended
September 30, 2008 was
20
$184,014 compared to cash used in operating activities of $739,292 during the
same period in 2007. The decrease in cash used by operating activities during
the first nine months of $548,778 was primarily attributable to reduced Net
Losses arising primarily from lower administrative expense.
$169,200 was provided by financing activities during the nine months
ended September 30, 2008 compared with $683,820 provided during the nine months
ended September 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
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.
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
21
$78,598 in compensation expense during the nine months ended September 30, 2008.
Such amount is included in general and administrative expenses on the statement
of operations.
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.
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
22
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 September 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 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 September 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
23
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 September
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.
24
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 $168,578 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.
25
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 $650,000 of debt and
interest thereon 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
$723,653 for the nine months ended September 30, 2008. We had a working capital
deficit of $689,227 at September 30, 2008 and have negative cash flows from
operations. As a result of ongoing operating losses, we also had an accumulated
deficit of $24,197,051 and a stockholders' deficit of $2,166,264 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
26
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 some units of such supermarket
chains as ShopRite, Pathmark, A&P, Gristedes, Food Emporium, Key Foods,
Associated Foods, Walbaums, 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
27
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.
We have recently begun producing limited quantities of a shelf stable
product with a shelf life of approximately 180 days. This should address some of
these problems.
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
28
protection acts. Specifically, we are subject to the Dietary Supplement and
Health Education Act ("DSHEA"). Under DSHEA, dietary supplements are permitted
to make "statements of nutritional support" with notice to the FDA, but without
FDA pre-approval. The FDA does not allow claims that a dietary product may
mitigate, treat, cure or prevent disease. There can be no assurance that at some
future time the FDA will not determine that the statement of nutritional support
we make on our packaging is a prohibited claim rather than an acceptable
nutritional support statement. Such a determination by the FDA would require
deletion of the treatment, cure or prevention of disease claim, or, if it is to
be used at all, submission by our company and the approval by the FDA of a new
drug application, which would entail costly and time-consuming clinical studies,
or revision to a health claim, which would require demonstration of
substantiated scientific evidence to support such claim and would also consume
considerable management time and financial resources.
Our advertising of dietary supplement products is also subject to
regulation by the Federal Trade Commission (the "FTC") under the Federal Trade
Commission Act, which prohibits unfair or deceptive trade practices, including
false or misleading advertising. The FTC in recent years has brought a number of
actions challenging claims made by companies that suggest that their products
are dietary supplements. No assurance can be given that actions will not be
brought against us by the FTC or any other party challenging the validity of our
product advertising claims.
Our Business May Be Subject To Product Liability Claims Relating To Consumer Use
Of Our Products.
As a marketer of beverages that are ingested by consumers, we face an
inherent risk of exposure to product liability claims if the use of our products
results in injury or our labeling contains inadequate warnings concerning
potential side effects. With respect to product liability claims, we have
obtained a $2.0 million liability insurance policy ($2.0 million per
occurrence), which we believe is adequate for our kind of business activity. The
policy contains certain exclusions that would pertain to food products such as
the additional products exclusion for bodily injury or property damage arising
out of the manufacture, handling, distribution, sale, application or use of
certain specified products (e.g., silicone, latex, and dexfenfluramine, among
others), the intended injury and the willful and intentional acts exclusions.
There can be no assurance that such insurance will continue to be available at a
reasonable cost, or, if available, that it will be adequate to cover potential
liabilities. If we are found liable for product liability claims that exceed our
coverage or are subject to a policy exclusion, such liability could require us
to pay financial losses for which we have not budgeted and may not have adequate
resources to cover. If the uninsured losses were significantly large enough to
impact our ability to continue our then-existing level of operations, we might
experience a decline in net income and earnings per share, and our stock price
might suffer. In an effort to limit any liability, we generally obtain
contractual indemnification from parties supplying raw materials or marketing
our products. Such indemnification is limited, however, by the terms of each
related contract and, as a practical matter, by the creditworthiness of the
indemnifying party.
Despite the insurance coverage that we plan on maintaining, it is
possible that we may be
29
sued if one or more consumers believe our products have caused them harm. While
no such claims have been made to date, the results of any such suit could result
in significant financial damages to us, as well as serious damage to the
reputation and public perception of our company, even if we are ultimately found
not to be at fault.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales for Cash
None
Common Stock Issued for Services
None
Item 3. Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) Current Reports on Form 8-K: None
(b) The following exhibits are filed as part of this report:
Exhibit No. Description
31.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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: November 13, 2008 By: /s/ RICHARD P. KUNDRAT
Richard P. Kundrat
Chief Executive Officer and Chairman
of the Board
(Principal Executive Officer)
Date: November 13, 2008 By: /s/ RICHARD P. KUNDRAT
Richard P. Kundrat, Chief Financial Officer
(Principal Financial and Accounting Officer)
31