MAIL STOP 05-11
January 7, 2005
Richard P. Kundrat
Chief Executive Officer
NuVim, Inc.
12 North State Route 17
Paramus, NJ 07652
Re: NuVim, Inc.
Registration Statement on Form SB-2
File No. 333-120938
Filed on December 2, 2004
Dear Mr. Kundrat:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. We note that, upon effectiveness of the registration statement,
the company may be a majority-owned subsidiary of Spencer Trask.
Item
10(a)(iv) of Regulation S-B requires a the parent of a majority-
owned
small business registrant also meet the definition of a small
business. Please explain to us, supplementally whether Spencer
Trask
complies, or will comply, with this requirement.
2. Please revise to provide the applicable information required by
Item 201 of Regulation S-B.
Prospectus Summary, page 3
3. We note here and in your Business section that you only have
three
flavors and that you intend to introduce an additional three. It
appears from your website that you currently have five flavors.
Please reconcile. Also, please discuss if the addition of any new
flavors are dependent on the proceeds from this offering.
4. We note your use of the terms "bridge loan" and "slotting fees"
throughout the prospectus. Please define those terms in your
business section.
5. We noted from your disclosure that you have assumed automatic
conversion of your convertible preferred stock in your pro forma
presentation. Please demonstrate to us how you meet the automatic
conversion requirements as stated in the Articles of
Incorporation;
more specifically, how you have determined the value of the firm
commitment public offering to have gross proceeds of $10,000,000.
Risk Factors, page 7
6. We refer to the first paragraph of this section. Please
clarify
that you discuss all "material" risks.
7. Avoid the generic conclusion you reach in several of your risk
factors that the risk could have a material adverse affect on your
business or operations or would negatively impact your business.
Instead, replace this language with specific disclosure of how
your
business and operations would be affected.
8. The subheading to risk factor 5 appears to address two distinct
risks. Please consider revising the risk factor to discuss the
two
separate risks.
9. Some of your risk factors are too broad and generic and should
be
revised to state the material risk that is specific to NuVim. As
a
general rule, a risk factor is probably too generic if it is
readily
transferable to other offering documents or describes
circumstances
or factual situations that are equally applicable to other
similarly
situated businesses. For example, risk factors 8, 9, 11, 15, 17
and
26 should be revised, deleted or moved to another section of the
prospectus as appropriate.
10. In risk factor 16, we note you have an insurance policy that
provides $2 million worth of protection. Please clarify if this
is
per occurrence. Also, please discuss any material policy
exclusions.
11. When referring to a "market" or "market price" of your shares,
please qualify that currently, no market exist.
Use of Proceeds, page 19
12. If any of the loans for which the offering proceeds will be
applied to were incurred within the previous year, please revise
to
discuss the use of the proceeds from such loans.
13. Please break-down the near 45% of proceeds for "sales and
marketing" as much as feasible.
14. Any portion of the proceeds of the offering to be paid,
directly
or indirectly, to officers, directors, their affiliates or
associates, should be indicated hereunder.
Management`s Discussion and Analysis, page 23
15. Please include a separately captioned section to discuss any
off-
balance sheet arrangements that have or are reasonably likely to
have
a current or future effect on your financial condition, changes in
financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is
material
to investors. Please refer to the guidance of Item 303(c) of
Regulation S-B.
16. We noted your disclosure here and in the business section
(pages
33 and 37) that you plan to introduce three new flavors and a line
of
shelf-stable (non-refrigerated) sports drinks in 2005. Please
expand
your discussion of the developments on these projects, and discuss
what impact the expansion of your product offerings has had on
your
current operations, as well as management`s estimates of the
impact
on future operations.
17. Immediately following the table on page 25, please fully
discuss
the reasons and future prospects regarding the substantial decline
in
cases sold during the year ended December 31, 2003 and the nine
months ended September 30, 2004.
18. The pro-forma statements indicated in the summary financial
information should be fully discussed hereunder, including the
basis
for the numbers.
19. Defaults on outstanding indebtedness and accounts should be
fully
discussed hereunder.
20. We noted your disclosure that net sales have been
significantly
less than gross sales, largely as a result of start up costs with
new
accounts. Please tell us supplementally, and disclose, what start
up
costs represent and how your accounting treatment (as a reduction
to
revenue) complies with GAAP. Tell us why these costs would not be
more appropriately classified as a cost of revenue. Please advise
or
revise.
Results of operations for the nine-months ended September 30, 2003
compared to the nine-months ended September 30, 2004
21. Please ensure to quantify separately the effect of each causal
factor that you cite for material changes (i.e. The decrease in
selling, general and administrative expenses was primarily
attributable to decreased salaries and advertising costs,
partially
offset by increased expenses resulting from the restart of
television
advertising.) in your financial statement amounts, as required in
Financial Reporting Codification Section 501.04.
22. We note your statement that the decrease in gross sales was
"attributable to the suspension of substantially all" advertising
and
promotional activities. We also note that the decrease in
promotional expenditures was "attributable to the decrease in
gross
sales." Please explain how they are both caused by the other.
23. We note in 2003 you provided discounts for early payments,
slotting fees, and coupon reimbursements. Please revise to
discuss
which promotional allowances you decreased.
24. Please disclose which flavors you discontinued.
25. In discussing your "selling, general and administrative
expenses"
in this subsection please provide similar detail as was provided
in
your discussion of the same expenses for the year ended 2003 and
2002.
26. Please elaborate on the "reformulation" of your product that
resulted in a reduction in cost.
27. The disclosure regarding "Gains on Forgiveness of Accounts
Payable" states that this amount represents a settlement for
advertising expenditures; however, Note 15 (F-26) states that this
amount was used to settle past legal fees to a law firm. Please
revise to correct this inconsistency.
Liquidity and Capital Resources
28. Please clarify if the entire $300,000 from the sale of tax
benefits is to be applied to accrued salaries. Please update this
disclosure.
29. Please define "a group of related investors" and include the
disclosure under the Related Party Transactions section.
30. Please disclose the amount that is required for SMBI to assign
the NuVim trademark to you. Disclose the amount of partial
payment
you have already made as of the most recent possible date.
31. Please revise your disclosure to include an analysis of the
components of the statements of cash flows that explains the
significant year-to-year changes in the line items (i.e.
explanation
of the significant changes in your inventory obsolescence, and the
changes in your operating assets and liabilities, such as accounts
receivable, accounts payable and accrued expenses, etc.).
Critical Accounting Policies
32. We note that your discussion of critical accounting policies
is
the same disclosure reported in the notes to the financial
statements. Disclosures included in the Critical Accounting
Estimates section of the MD&A should supplement, not duplicate,
the
description of accounting policies that are already disclosed in
the
notes to the financial statements. The disclosure should provide
greater insight into the quality and variability of information
regarding financial condition and operating performance. Please
consider revising your critical accounting policies and consider
the
following factors in your discussion:
* How the company arrived at the estimate,
* How accurate the estimate/assumption has been in the past,
* How much the estimate/assumption has changed in the past, and
* How much the estimate/assumption is reasonably likely to change
in
the future.
If consideration of these factors does not provide additional
insight
into the critical accounting estimate please consider removing the
disclosure from MD&A.
33. Disclose the nature and amounts of revenue dilution (e.g.,
from
product returns, inventory credits, discounts for early payment,
slotting fees, coupon reimbursements, promotional allowances,
credits
for product that is not sold by the expiration dates, and other
allowances) in your sales discussions. Your critical accounting
policy should explain how you assess returns of products, levels
of
inventory in the distribution channel, estimated shelf life, and
expected introductions of new products that may result in larger
than
expected returns of current products. Discuss to what extent you
consider information from external sources (e.g., end-customer
demand, third-party market research data) to assist you in such
critical estimates. In addition, disclose and discuss any sales
made
to customers or wholesalers wherein such sales are as a result of
incentives or in excess of the customer`s ordinary course of
business
inventory level.
Business, page 33
34. We note your statements that beverages account for the "third
highest spending category" in grocery stores and that there has
been
a "trend toward increased consumption of dietary supplements."
Please disclose the source of these statements or remove.
35. On page 35, we note your statement that the body "requires
these
nutrients only in minute quantities," yet cow`s milk only contains
"minute quantities that they are unable to provide noticeable
benefits. . . ." Please reconcile those statements.
36. We note your process of production creates an "immune
stimulant"
and a "natural anti-inflammatory factor." Please revise to
disclose
the actual stimulant and factor that makes your product unique.
37. Please disclose the party that conducted the independent
studies
for which you base your statements of your products effects on a
person`s health.
38. Please disclose that Dialog Group is related to a member of
your
management. Also, please discuss the advertising arrangement
between
you and Dialog.
39. We note your halt in television advertising. Please clarify
if
you are currently advertising on CNN, TNT, and TBS.
40. Please disclose who monitors the "strict quality assurance
program." Since you do not manufacture your own products, please
explain how you intend to ensure consistency in the event that you
expand and must employ other manufactures to produce your
products.
41. If your relationships with Orefield Cold Storage and Sommer
Maid
Creamery are evidenced by documents, please file them as an
exhibit.
42. On page 41, we note your comparisons of your product and
regular
milk. Please clarify if you are implying that regular milk
antibodies do not "react with bacteria in humans." If so, please
provide the source for this statement.
43. If applicable, please discuss any seasonal aspects of your
business.
Management, page 44
44. Please revise to discuss the business activities of Mr.
Kundrat
between 1996 and 2000, Mr. Young between 1998 and 2000, and Mr.
Sullivan between 1998 and 2000.
45. Please revise to discuss the line of business for Dialog Group
and Hot Springs Ventures.
46. Clarify the nature of the business of Spencer Trask and
Spencer
Trask Specialty Group, LLC.
47. It is not clear whether Messrs. Kundrat, Young and Sullivan
are
still associated with Unilever/Lipton.
48. We note that directors hold office until the next annual
meeting
of stockholders. Please disclose when that meeting will take
place.
Please refer to Item 401(a)(3) of Regulation S-B.
Executive Compensation, page 47
49. We note that you intend to pay $250,000 out of your sale of
New
Jersey State tax benefits. Please clarify this on page 28 and 29
as
it appears from you disclosure there that you intended to apply
the
full $300,000 received from the sale to accrued salaries.
50. We note your cross reference to the Related Party Transaction
section. In order to maintain the flow of your disclosure, please
disclose here the amount of shares that were issued to your
management in lieu of cash compensation. Disclose the date the
transaction took place. If the transaction has not taken place
and
is contingent on the effectiveness of this registration statement,
please so state and reflect this throughout your prospectus.
51. On page 28 you state that Officers have agreed to accept
shares
in lieu of $623,500 of accrued salary. Please advise how you
arrived
at that number.
52. Based on your 2003 compensation, it appears that the allocated
$460,000 will not be enough to cover your 2004 executive
compensation. Please revise to clarify.
2004 Directors Stock Option Plan
53. Please clarify if the initial 10,000 options awarded are
exercisable when vested. Also, please discuss how options are
granted when an officer leaves in the middle of one of the first 3
years.
Historical Incentive Stock Plans
54. We note that your past plans based the exercise price of your
options on the fair market price at the time the option was
granted.
Please explain how this was formulated considering there was no
established public market for your securities.
Related Party Transactions, page 52
55. We note the existence of minimum purchase requirements for
2005
and 2006. Please revise to disclose the amounts that you have
purchase to date for 2004 and previous years so that investors may
have a better picture if you would be able to purchase the five
and
six metric tons required by the agreement.
56. Please disclose the interest rate for the $285,896 that is
still
owed to SMBI under the Supply Agreement.
57. Please disclose the percentage that will be shared by each
party
when "special product development or improvement projects" arise.
58. Please revise to explain how you arrived at the figure of
461,700
shares that will be used to cancel $5.9 million worth of debt owed
to
Spencer Trask.
59. Considering salaries were accrued from August 2002 to 2003,
your
figures for the accrued salaries of your executive officers appear
incorrect. Please revise or advise how you arrived at those
numbers.
60. Please define the "maturity date" and "maturity event" that
governs the repayment of your debt owed pursuant to the first and
second amendments to the Services Agreement.
61. Clarify whether the $245,000 convertible note to be issued to
Mr.
Clark is in addition to the outstanding $175,000 or designed to
replace it.
62. In the event the offering does not occur by March 15, 2005,
please discuss if there is a termination date associated with the
conversion of the convertible note.
63. In the event you are unable to repay the $650,000 fee pursuant
to
the second amendment to the service agreement, it is unclear if
you
will still be required to pay the full amount in addition to
adjusting share calculation price downward to the lesser of $1 or
80%
of the purchase price in subsequent offerings. Please revise to
clarify.
Principal Stockholders, page 58
64. It is not clear from the table or footnote (1) what person
represents the beneficial owner of the shares owned of record by
Spencer Trask. The natural person(s) with voting and dispositive
authority must be disclosed.
65. The same comment applies to the shares held by Stolle Milk
Biologics.
66. Those natural persons, as well as Dick Clark, may be promoters
of
this company and the offering. The disclosure requirements of
Item
401(d) and 404(d) of Regulation S-B would apply. Please discuss.
Shares Eligible for Future Sale, page 66
67. Please file the lock up agreements governing the resale of the
shares by affiliates of the registrant that are not part of this
offering.
Underwriting, page 68
68. Section 9 of the underwriting agreement appears to allow less
than all of the shares to be offered in the event of a default by
an
underwriter of more than 10%. The agreement gives the right, but
not
the obligation to terminate the agreement. It is therefore, in our
judgment, not a firm commitment arrangement. Please revise the
agreement.
69. The staff should be advised, in writing, prior to
effectiveness,
by the NASD that there are no objections to the underwriting
compensation arrangements.
Financial Statements
Statements of Cash Flows, F-5
70. Please revise to present the provision for doubtful accounts,
on
a gross basis, as an adjustment in the reconciliation of net loss
to
cash flows used in operating activities.
71. We noted that you presented the issuance of convertible debt
in
payment of accounts payable to a related party as a financing
activity. This transaction appears to be a non-cash transaction
and
should be presented in your supplemental non-cash disclosures.
Please refer to the guidance in paragraph (32) of SFAS No. 95, and
revise accordingly.
Notes to Financial Statements
General
72. Please ensure that the amounts disclosed in the notes to the
financial statements cross reference to the financial statements.
For example, net loss for the nine-months ended September 30, 2003
is
($1,679, 972) whereas Note 1 (B) indicates ($1,559,972). Please
revise as necessary.
Note 2 - Significant Accounting Policies
B. Accounts Receivable, F-8
73. We read your disclosure that as accounts receivable
outstanding
are deemed uncollectible or subject to adjustment, these
allowances
are adjusted accordingly. Please tell us supplementally, and
disclose, what you mean by subject to adjustment and how your
accounting treatment for these adjustments complies with GAAP. In
addition, please consider adding disclosure to clarify that your
receivables are recorded at their net realizable value, and
confirm
to us that this is the case.
C. Inventories
74. Please disclose your policy for determining your inventory
reserves for excess and obsolete inventory.
E. Revenue Recognition
75. You state that revenue is recognized at the time products are
shipped and risk of ownership has passed. Please clarify this
statement to us and specify when the revenue recognition occurs
(i.e.
when your product is placed with Sommer Maid Creamery (shipping
point) or when it is delivered to the end customer or supermarket
(destination point). Please tell us supplementally, and clarify
in
your disclosure, to indicate how your revenue recognition policy
complies with the guidance of SAB 104.
I. Stock-Based Employee Compensation, F-9
76. Please expand your disclosure for options and warrants issued
to
non-employees, to provide the period over which the expense is
recognized, and the valuation model and assumptions utilized in
the
process for estimating the fair value.
Note 10 - Stockholders` Deficit
General
77. In order for us to fully understand the equity fair market
valuations reflected in your financial statements, please provide
an
itemized chronological schedule covering all equity instruments
issued since December 1, 2003 through the date of your response.
Please provide the following information separately for each
equity
issuance:
* The date of the transaction;
* The number of shares/options issued/granted;
* The exercise price or per share amount paid;
* Any restriction or vesting terms;
* Management`s fair value per share estimate and how the estimate
was
made (in this regard, please elaborate on how you considered each
factor that you cited here);
* An explanation of how the fair value of the convertible
preferred
stock and common stock relate, given the one for one conversion
ratio;
* The identity of the recipient and if the recipient was a related
party;
* The nature and terms of any concurrent transactions; and
* The amount of any recorded compensation or interest expense
element.
78. Progressively bridge management`s fair value per share
determinations to the current estimated IPO price per share.
Please
reconcile and explain the differences between the mid-point of
your
estimated offering price range and the fair values included in
your
analysis. Identify all material positive and negative events
occurring during the period which could reasonably contribute to
variances in fair value. Also, indicate when discussions were
initiated with your underwriter(s).
F. Warrants, F-18
79. Please provide a description of the method and significant
assumptions used to determine the fair value of the warrants
issued.
Please refer to the guidance in paragraph (47)(d) of SFAS No. 123.
Note 13 - Commitments
A. Royalty, License and Supply Agreement - Related Party, F-22
80. Please tell us supplementally the facts and circumstances
surrounding your 2001 accounting treatment for the impairment of
prepaid royalties. Please help us understand how your current
accounting treatment as an increase to APIC and an offset to
outstanding payables ($100,000 and $71,912 for the year ended
December 31, 2003 and the nine-months ended September 30, 2004,
respectively) to SMBI is appropriate.
Note 15 - Subsequent Events
C. Services Agreement, F-26
81. We read you disclosure regarding the second amendment to the
service agreement and the related common stock and warrants issued
to
Mr. Clark. Please tell us supplementally how you arrived at the
conclusion that the common stock and value of the warrants should
be
recorded as deferred stock compensation and cite the specific
authoritative literature you used to support your accounting
treatment. In your response please address the guidance in Issue
1
of EITF 96-18.
82. We noted your disclosure that the fair value the 10-year
warrant
issued to Mr. Clark, which entitles him to acquire up to 9.9% of
the
total fully -diluted issued and outstanding common stock of the
Company following the consummation of this offering, has not been
recorded. Please tell us supplementally why the warrant was not
valued and cite the specific authoritative literature you used to
support your accounting treatment. In your supplemental response,
please provide a narrative discussion addressing the applicability
of
EITF 00-19.
Part II
Sales of Unregistered Securities
83. Please revise your disclosure of the transactions in which you
assert took place with "accredited investors" to identify the
persons
or group of persons that received your securities. Please refer
to
Item 701(b) of Regulation S-B.
Exhibits
84. We note that a number of exhibits, including the opinion and
consent of counsel, remain to be filed by amendment.
85. Exhibit 10.17 is for a convertible note for $175,000 with
conversion rights pertaining to an IPO on or before January 1,
2005.
Please clarify if this is the note being disclosed in this
financial
statement footnote or if it is an additional note to Mr. Richard
Clark. Please revise as necessary.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting
acceleration of a registration statement. Please allow adequate
time
after the filing of any amendment for further review before
submitting a request for acceleration. Please provide this
request
at least two business days in advance of the requested effective
date.
Any questions regarding the financial statements may be
directed to Angela Halac at (202) 824-5683. Questions on other
disclosure issues may be directed to Duc Dang at (202) 824-5508.
Sincerely,
John Reynolds, Assistant
Director
Office of Emerging Growth
Companies
cc: Debra Weiner
Fax #: (650) 323-1108
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NuVim, Inc.
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