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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2012
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 333-68008
(Exact name of registrant as specified in its charter)
12510 Prosperity Drive, Suite #310, Silver Spring, MD 20904
(Address of principal executive offices)
(Registrants telephone number, including area code)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the precedent 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of October 31, 2011: $18,167,797.
As of August 9, 2012, the registrant had 517,820,851 outstanding shares of Common Stock, including those provided in the share exchange from the subsequent event acquisition of Austrianova Singapore Private Limited (ASPL).
Documents incorporated by reference: None.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are based on Nuvilex, Inc.s current expectations, assumptions, estimates and projections about its business and industry. Words such as believe, expect, intend, plan, may and other similar expressions identify forward-looking statements. In addition, any statements referring to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated in the forward-looking statements. Investors should further understand these forward-looking statements are based on the limited knowledge currently available to everyone concerned. Since many assumptions herein are likely to vary from what will actually occur, investors should treat all forward-looking statements only as illustrations based upon the assumptions and not as the operating results of Nuvilex, Inc. Therefore, investors are cautioned not to place undue reliance on forward-looking statements, which relate only to beliefs, expectations or intentions as of the date on which the statements are made. Nuvilex, Inc. undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances arising after the date hereof. Thus, investors should refer to and carefully review information in future documents Nuvilex, Inc. files with the Securities and Exchange Commission.
ITEM 1. BUSINESS
Nuvilex, Inc. operates independently and through wholly-owned subsidiaries. We are dedicated to bringing to market scientifically derived products designed to improve the health, condition and well-being of those who use them. The Companys current strategy is to focus on developing and marketing products it believes have potential for long-term corporate growth.
History of the Company
The Company was founded as DJH International, Inc., a Nevada corporation, on October 28, 1996, changing its name to eFoodSafety.com, Inc. following the October 16, 2000 acquisition of Global Procurement Systems, Inc. The Company acquired Ozone Safe Food, Inc. for Common Stock on October 29, 2003. The Companys early mission provided methods and products to ensure safety of marketed fruits and vegetables worldwide. On February 4, 2004, the Company registered shares with the Securities and Exchange Commission and its Common Stock began publicly trading on the OTC Bulletin Board under the trading symbol EFSF. The Company did not issue shares of Common Stock pursuant to an initial public offering. With less than projected demand for its produce sterilization methods and software tracking products, the Company changed its strategy and acquired Knock-Out Technologies, Ltd. and MedElite, Inc. in May 2004 and August 2005, respectively, of which Knock-Out Technologies, Ltd. was a developer of products using organic, non-toxic, food based substances and MedElite, Inc. was the exclusive U.S. distributor of TalsynTM-CI Scar Cream (Talsyn), a topical scar- reducing cream. The Companys strategy was to bring to market scientifically derived products. The Company sold its Ozone Safe Food, Inc. operations in August 2005. In November 2006, the Company formed Cinnergen, Inc., a wholly-owned subsidiary, to manufacture and market a non-prescription liquid nutritional supplement designed to promote healthy glucose metabolism, and purEffect, Inc., another wholly-owned subsidiary, to manufacture and market purEffectTM, a four-step non-prescription acne treatment. On March 10, 2006, the Company licensed the marketing rights for purEffectTM to Charlston Kentrist 41 Direct, Inc. (CK41). In July 2007, I-Boost, Inc., a wholly-owned subsidiary was formed to market products to support the immune system. In March 2008, Cinnechol, Inc. became a wholly-owned subsidiary to promote cardiovascular health. In February 2009, the Company sold the rights to the purEffectTM product to CK41 for an equity position in CK41 and future royalty compensation. In March 2009, Freedom2 Holdings, Inc. was acquired to manufacture and market products including Infinitink®, a permanent tattoo ink designed to be removed more easily using conventional laser light. The Company changed its name to Nuvilex, Inc. on March 18, 2009 as part of the process.
Current Business of the Company
The Company has been working diligently to become a biotechnology and life technology company over the past year. As a result, the Company made major efforts to work with the principals and acquire Austrianova Singapore Private Limited (Austrianova Singapore or ASPL), previously assets of SG Austria Private Limited or SG Austria,) to advance research and to develop and market new biotechnologies and medical therapies. The acquisition was completed in June 2012 and Austrianova Singapore and Bio Blue Bird (BBB) became wholly-owned subsidiaries of Nuvilex, Inc. The Company business is that of an emerging biotechnology and life technology company which also contains Consumer Healthcare and Environmental Solutions Divisions.
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America (GAAP) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. In addition, as of April 30, 2012, the Company had an accumulated deficit of $39,848,005, incurred a net loss for the year ended April 30, 2012 of $1,899,312 and negative working capital of $2,728,628.
Funding has been provided by the Companys CEO, Dr. Robert Ryan as well as old and new investors committed to make it possible to maintain, expand, and ensure the advancement of Nuvilex and help the Company see one of its visions through to providing a pancreatic cancer treatment in the future. Furthermore, although the Companys current business plan includes funding requirements beyond the anticipated cash flows from operations, we continue to acquire such funds as the Company moves forward toward its pancreatic cancer treatment and the numerous other opportunities being advanced at this point. However, these factors raise potential doubt as to the Company's ability to continue as a going concern. We at Nuvilex are nonetheless committed to working with the myriad of personnel and interested investors to ensure our success.
The Company has been in existence for more than a decade. During this time many different products were brought into the Company with the intention to work toward seeing them become household names and products. Several of these products have become well used, but the challenge with all products is to make them well recognized, useful, important, and valuable enough that the everyday consumers use them without fail. On a daily basis, the Company receives different inquiries for the Nuvilex products. As a result, the overall Company structure of Nuvilex has changed in many ways over the years. From those humble beginnings we are now working to move this Company forward into a modern one with clarity and vision.
Since June 2011, we have been working with the Chief Executives of Austrianova Singapore across a wide swath of areas. Much of the effort has been on establishing plans for our future. Therefore, and in conjunction with maintenance of the company, funding has been provided to ASPL and its personnel in order to ensure ASPLs functionality and maintain its ability to accomplish numerous goals over the year. After many months worth of accomplishments and planning and upon completion of our fiscal year in April 2012, Nuvilex and ASPL finally were able to bring ASPL onboard as one of its subsidiaries. This first vision has been noted as one of the most valuable advances for this company, enabling the creation of a biotechnology/life technology company. Unlike most companies of this type and entirely due to the Companys extensive array of products already in-house, Nuvilex exists as a Biotech Company with a broad company base, much like that of larger biotechnology or pharmaceutical companies after years of advances and purchasing of products from the outside. Thus, with an overall goal of long-term growth, the Company is poised to be thrust into a very different position, particularly as a result of the stabilizing of its financial condition that has been occurring over the past year.
Management believes its vision to become an important industry-leading Biotechnology company, with a multi-part strategy like those of larger pharmaceutical companies will strengthen the Companys position in both the short and long term. Notwithstanding and as the financial experts accurately point out, Nuvilex may seek to raise capital to fund growth opportunities and provide for its working capital needs as the vision of the company is executed. The Companys efforts to achieve financial stability and enable carrying out the strategy of the company include several primary components:
1. Continued elimination of prior operation-associated debt from the Parent Company and all subsidiaries;
2. Advance and develop the biotechnology through ongoing research;
3. Acquisition of new contracts utilizing the biotechnology;
4. Expand and Market products and their uses.
Our newly created Biotechnology Division of the Company is under the capable management of ASPL who have been working in this area for decades. The live cell encapsulation technology can be viewed as the equivalent to a modern computer operating system. We have created the hardware and operating platform to envelop or encapsulate our own or other companys software products, or cells. These cells are then packaged in our live cell encapsulation operating system.
From extensive studies and research, we believe any cell type can be encapsulated, allowing the use of live cell encapsulation for a multitude of purposes. This opens numerous possibilities for co-development activities, manufacturing and licensing with other companies and cell systems they would like to encapsulate.
Living cell encapsulation or the Cell-in-a-Box® technology enables living cells to be used as a miniature factory in which cells can be grown and maintained, or desired components can be created or converted for treatment of diseases or isolating products for subsequent marketing:
In the Biotechnology setting, which involves the large scale amplification and production of useful biotech products outside the body of a person or an animal, the proprietary live cell encapsulation technology creates a micro-environment in which delicate cells survive and are protected from environmental challenges such as the sheer forces associated with bioreactors, enabling greater growth and production
In the Biomedicine application, the aim is for production of biological products inside the body of a person or an animal after the living encapsulated cells have been specifically placed there, the technology enables cells to survive and be controlled like any other living cell in the body. As the structure of the capsule is permeable, small molecules such as nutrients and oxygen can pass through its pores enabling the encapsulated therapeutic cells to live in the body thereby becoming new cells or miniature organs of the body.
The Cell-in-a-Box® and Bac-in-a-Box® brings significant new advantages and opportunities to market, namely:
One of the key uses of our technology is in the treatment of solid tumors where the ability to release the active agent directly at the source of the disease facilitates localized or systemic treatment as needed, thus having the value of increasing efficacy as the treatment agent is delivered directly to the critical site. Increased efficacy can also allow for lower dosages, thereby reducing side effects. The technology also holds great potential for the treatment of systemic diseases, including but not limited to diabetes.
This technology allows for confinement and maintenance of therapeutic cells at the site of implantation, an important characteristic for local treatment.
Being able to encapsulate and maintain the cells inside the capsule at the site of implantation provides a safety mechanism for regulating cells that are introduced, including stem cells that would be desired to be maintained at specific site(s) in the body as a part of therapy.
The capsules allow cells implanted to evade the bodys immune system, potentially permanently, without suppressive therapy. Foreign cells are not recognized by the immune system as they sit within the capsule (and cells carrying out immune recognition functions are too large to pass through the capsules pores). Therefore, the encapsulated cells are not rejected by the bodys immune system, eliminating the need for immunosuppressive drugs as part of the treatment.
The safety of the Cell-in-a-Box® technology and the cells used for those studies has already been proven in clinical trials for two years. In addition, the technology enjoys multi-layered patent protection which is being expanded.
The same technology has also been used to encapsulate prokaryotic cells (bacteria). The use of encapsulation with bacteria is called Bac-in-a-Box®. Nuvilex and ASPL are working together to bring this to fruition.
Consumer Healthcare and Environmental Solutions Division (in alphabetical order)
This new Division of Nuvilex is comprised of the natural products that have been a part of Nuvilex for several years and are in one of the many stages of development including initial research, product development, initial production or established
customer base. As the Company continues to develop, any changes in this Division or its products will be driven by numerous factors and management working to determine the best disposition for each as we move the Company forward. The products in this Division currently owned by Nuvilex directly or in a specific subsidiary are: Cinnechol, Cinnergen, Cinnsational, Citroxin, Cyclosurface3 Cosmetics, Infinitink, Talsyn, Oraphyte, and PurEffect which is currently under management by another company. Each is described briefly below.
CinnecholÔ, a gluten free/wheat free all-natural supplement designed to help maintain normal cholesterol levels and support normal cardiovascular function through a healthy diet and regular exercise and to help individuals manage cardiovascular and metabolic disorders. CinnecholÔ may provide a natural alternative for those with high cholesterol and intolerant of, or elect not to take statins.
CinnergenÔ, a gluten free/wheat free all-natural liquid whole food nutritional supplement that provides nutrients to help the body efficiently process glucose, is made from natural ingredients. Clinical studies using CinnergenÔ as well as peer reviewed research suggest constituents of CinnergenÔ may help to reduce glucose absorption in the small intestine, limit glucose synthesis and increase its metabolism and prevent conditions associated with pre-diabetes or diabetes types 1 and 2 by delivering amino acids, vitamins, minerals, enzymes, antioxidants, and plant based extracts to the body thus helping control glucose levels.
Cinnsational, a gluten free/wheat free all-natural calorie-free, liquid nutritional supplement contains concentrated blend vitamins, essential amino acids, and other beneficial ingredients to help the body combat symptoms associated with alcohol sensitivity, including nausea, fatigue and headaches.
CitroxinÔ is an all-natural, eco-friendly surface cleaner (previously Big 6 Plus). Laboratory testing showed a 100% kill rate for the "big six" bacterial health threats, including E. coli, Listeria, Pseudomonas, Salmonella, Staphylococcus, Streptococcus, and Black Mold and is an effective antiviral cleaner against swine flu virus [swine influenza virus (H1N1 subtype)] and bird flu virus [avian influenza viruses (H5N1, H9N1 and H9N9) viral subtypes]. Citroxin Ô is protected by patents in the United States and worldwide.
Nuvilexs patent-pending Cyclosurface3 color enhancement technology provides formulators and manufacturers of cosmetics and other consumer products the ability to use less wax and other potentially detrimental additives in their products through a lipophilic surface treatment that improves pigment dispersion enabling products that feel lighter on the skin and make the skin look more radiant while maintaining or enhancing the color and durability of the cosmetic product.
I-Boost Immune Bar
I-BoostÔ Immune Bar, a gluten free/wheat free all-natural nutritional bar designed to protect, stimulate, and boost the immune system was reformulated and contains a proprietary blend of vitamins, minerals, and other ingredients designed to enhance the bodys natural ability to defend itself.
Infinitink®, a permanent, yet removable tattoo ink, was engineered specifically for removal in fewer laser treatments than standard tattoo ink, typically shown to be two treatments. Typically, lasers used for removal of tattoos use 532 and 1064 nm wavelengths which closely match the InfinitinkÒ tattoo pigments, enabling more easily removed tattoos. A clinical study confirmed InfinitinkÒ was more easily removed, with participants averaging removal in two treatments.
Oraphyte, the Companys all-natural nematocide, is a non-toxic, biodegradable proprietary formulation that damages a nematodes skin surface, compromising its immune system, enabling it to be killed by the environment. In field tests,
Oraphyte significantly reduced nematodes compared to non-treated controls.
PurEffect is a three part, all-in-one acne treatment designed to cleanse, tone, and heal skin combining ingredients to help maintain a radiant, blemish-free complexion. Benzoyl peroxide, the active ingredient in purEffect is the safest, most widely recommended ingredient used to treat acne. This line of products completed pre-marketing testing by CK41. The Company maintains royalties and other rights (described elsewhere herein).
Specialty, Private Label Inks
The Company has the potential to manufacture specialty inks for private label customers derived from the Companys Virgin and Infinitink product lines and are formulated to specific customer needs. The Companys specialty inks are formulated to be all natural, heavy metal and toxin-free.
TalsynÔ Scar Cream
TalsynÔ Scar Cream is a unique composition that delivers lipids, peptides, and botanical extracts to the skin and was clinically proven to improve appearance of keloids, surgical incisions, and scars through decreasing their width, length, depth, and redness for both old and new scars. TalsynÔ Scar Cream has been endorsed and used by leading plastic and reconstructive surgeons.
Marketing, Sales and Distribution
The new biotechnology based products being developed are beginning to be planned for marketing, sales and distribution. In the not too distant future, we plan to provide more information about their status and how they can be acquired.
Historically, Nuvilexs products have been marketed, sold and distributed directly by the Company and through third party marketing and distribution partners. Presently, Cinnergen and Cinnechol can be purchased directly from Nuvilex using the Nuvilex website (www.nuvilex.com) or the subsidiary websites, such as that for Cinnergen (www.cinnergen.com). Whether or not we continue these products, or outside third parties achieve market penetration is based on their commitment to invest in the marketing and sales of the various products. In part, the future maintenance and/or success is dependent upon the efforts of the Parent Company or its subsidiarys direct internet sales, resellers and third party distribution partners and their ability or inability to successfully market the Companys products, any of which could adversely affect the business of the Company.
There is competition for the biotechnology products being developed by the Company and our subsidiary ASPL at present and intense competition exists among providers of products similar to the Companys other products. Many of these latter competitors have substantially greater financial and marketing resources than Nuvilex, stronger name recognition, brand loyalty and long-standing relationships with target customers. Both the Biotechnology Division and the Consumer Healthcare and Environmental Solution Divisions future success continues to be dependent upon the Companys ability to compete and its failure to do so could adversely affect its success.
The FDA ensures safety of the entire community through its regulations as disparate as biologics to drugs to some meats and dietary supplements. As we develop additional products, some of these will require clinical trials and FDA approval. In addition, some of our products are considered dietary supplements which fall under different regulations than "conventional" food and drug products. The dietary supplement manufacturer is responsible for ensuring a dietary supplement is safe before marketing and the FDA is responsible after the products reach the market. Generally, domestic and foreign facilities manufacturing, processing, packing, or holding such foods for human or animal consumption in the United States are required to register their facility with the FDA. The facility that Nuvilex utilizes is FDA registered and inspected. Nonetheless, manufacturers must make certain product label information is truthful and not misleading, which Nuvilex and its subsidiaries concur with and follow. FDA's post-marketing responsibilities, to which Nuvilex subscribes, include monitoring safety, voluntary supplement adverse event reporting and product information, labeling, claims, package inserts, and accompanying literature and the Federal Trade Commission regulates dietary supplement advertising.
The FDA also regulates cosmetics, although differently than other products they regulate. Cosmetic products and ingredients are not subject to FDA premarket approval authority, with the exception of color additives. However, the FDA may pursue enforcement action against products, firms or individuals who violate regulatory laws. Increased federal, state, local or international regulation could adversely affect its business, financial condition and operations by requiring additional or new testing of products and imposing different or new licensing requirements. Therefore, Nuvilex has and continues to expend effort to ensure its products are safe and follow regulatory guidelines, requirements, and laws.
Patents, Intellectual Property and Trade Secrets
Nuvilex has determined that intellectual property (IP) and patent protection are of paramount important to our business. Although the Company takes reasonable measures to protect its IP, the Company cannot guarantee it will be able to protect and enforce its IP or obtain international patent protection for its products as needed. Nuvilex and its subsidiaries own trademarks and own, co-own or have exclusive worldwide licensing rights to numerous patents in multiple countries over four technical areas: live cell encapsulation, pigment modification, microencapsulation, and disinfectant/germicidal compositions. Litigation may be required to enforce the Companys products, IP rights, trade secrets, or determine the validity and scope of the proprietary rights of others. Maintenance of these utilizes financial and operational resources and the possibility exists wherein the Companys IP could be discovered to be owned by others, invalid, or unenforceable, potentially bringing unforeseen challenges to the Company.
The Consumer Healthcare and Environmental Solutions Division
The overall company structure has enabled the creation of a broad company base, much like that of larger biotechnology or pharmaceutical companies. Nonetheless, as a result of the intense competition across the many areas of products the Company has, there is the possibility that either the Company may move them forward into greater use, brand exposure and sales or may divest itself of the products as appropriate circumstances present themselves.
Sources and Availability of Raw Materials
We have for many years been successful at procuring the necessary raw materials to maintain and produce our products. Both the old and new products depend extensively on the ability to procure the basic materials to make them. Thus, since all raw materials in our products could at any time in the future be difficult to obtain in large quantities and could have potential negative impact on the Company and or its subsidiaries.
Nuvilex, as of April 30, 2012, had eight employees including all subsidiaries and has increased due to the subsequent event acquisition of ASPL to a total of sixteen employees. Nuvilex also utilizes consultants, independent contractors and temporary employees in finance and accounting, and other capacities.
ITEM 1A. RISK FACTORS
You should carefully consider these factors that may affect future results, together with all of the other information included in this Form 10-K, in evaluating the business and the Company. The risks and uncertainties described below are those that the Company currently believes may materially affect its business and results of operations. Additional risks and uncertainties that Nuvilex is unaware of or that it currently deems immaterial also may become important factors that affect its business and result of operations. Nuvilex common shares involve a high degree of risk and should be purchased only by investors who can afford a loss of their entire investment. Prospective investors should carefully consider the following risk factors concerning the Companys business before making an investment.
In addition, you should carefully consider these risks when you read forward-looking statements elsewhere in this Form 10-K. These are statements that relate to the Companys expectations for future events and time periods. Generally, the words anticipate, expect, intend, and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements.
Doubt Regarding Ability to Continue as a Going Concern
Nuvilexs financial statements have been presented on the basis that Nuvilex is and will remain a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had
minimal revenues and incurred net operating losses for the period October 1999 (inception) through April 30, 2012, and as such, the Companys independent auditors have concluded these factors create an uncertainty about Nuvilexs ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent, among other factors, on its continued success in marketing its products, containing costs, establishing a credit facility, and/or raising additional equity capital. The financial statements of Nuvilex do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Early Revenue Stage Company: Generation of Revenues
Nuvilex is an early revenue stage company and an investor cannot readily determine if the Company will become profitable. Nuvilex is likely to continue to experience financial difficulties during this early revenue stage and beyond. The Company may be unable to operate profitably, even if it generates additional revenues. Nuvilex may not obtain the necessary working capital to continue developing and marketing its products. Furthermore, the present products may not receive sufficient interest to generate revenues or achieve profitability.
Need for Future Capital: Long-Term Viability of Company
Nuvilex will need additional capital to continue its operations.
There can be no assurance that the Company will generate revenues from present operations or obtain sufficient capital on acceptable terms, if at all. Failure to obtain such capital or generate such operating revenues would have an adverse impact on the Companys financial position, operations and ability to continue as a going concern. Nuvilex operating and capital requirements during the next fiscal year and thereafter will vary based on a number of factors, including the level of sales and marketing activities for its services and products. There can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed or if available, on terms favorable to the Company. Additionally, any future equity financing may be dilutive to stockholders present ownership levels and such additional equity securities may have rights, preferences, or privileges that are senior to those of Nuvilex existing common stock.
Furthermore, debt financing, if available, may require payment of interest and potentially involve restrictive covenants that could impose limitations on the flexibility of the Company to operate. Nuvilexs difficulty or failure to successfully obtain additional funding may jeopardize its ability to continue the business and its operations.
Unpredictability of Future Revenues: Potential Fluctuations in Operating Results
As a result of Nuvilexs limited operating history; the Company is currently unable to accurately forecast its revenues. Current and future expense levels are based largely on the Companys marketing and development plans and estimates of future revenue. Sales and operating results generally depend on volume and timing of orders and on the Companys ability to fulfill such orders, both of which are difficult to forecast. Nuvilex may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to planned expenditures could have an immediate adverse effect on the Companys business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, Nuvilex may from time to time make certain pricing, service or marketing decisions that could have a material adverse effect on its business, prospects, financial condition and results of operations.
Nuvilex may experience significant fluctuations in future operating results due to a variety of factors, many of which are outside the Companys control. Factors that may affect operating results include: (i) ability to obtain and retain customers, (ii) attract new customers at a steady rate and maintain customer satisfaction with products, (iii) the announcement or introduction of new services by Nuvilex or its competitors, (iv) price competition, (v) the level of use and consumer acceptance of its products, (vi) the amount and timing of operating costs and capital expenditures relating to expansion of the business, operations and infrastructure, (vii) governmental regulations, and (viii) general economic conditions.
Flaws and Defects in Products
Products offered by Nuvilex may contain undetected flaws or defects when first introduced or as new versions are released. Any inaccuracy or defects may result in adverse product reviews and a loss or delay in market acceptance. There can be no assurance that flaws or defects will not be found in Nuvilex products. Flaws and defects, if found, could have a materially adverse effect upon the business operations and financial condition of the Company. Marketing of any of the Companys potential products may expose the Company to liability claims resulting from the use of the Companys products. These claims might be made by consumers, health care providers, sellers of the Companys products or others. A claim, particularly resulting from a clinical trial, or a product recall could harm the Companys business, results of operations, financial condition, cash flow and future prospects.
Stock Price Volatility
The market price of the Companys stock has fluctuated in the past and may continue to fluctuate in the future. The Company believes such fluctuations will continue as a result of many factors, including US and World markets, financing plans, future announcements concerning the Company, the Companys competitors, principal customers regarding financial results or expectations, industry supply or demand dynamics, new product introductions, governmental regulations, the commencement or results of litigation or changes in earnings estimates by analysts. In addition, in recent years the stock market has experienced significant price and volume fluctuations often for reasons outside the control of the particular companies. These fluctuations as well as general economic, political and market conditions may have an adverse affect on the market price of the Companys common stock.
Worldwide Economic Conditions
The Companys financial performance depends significantly on worldwide economic conditions and the related impact on levels of consumer spending, which has recently deteriorated significantly in many countries and regions, including the U.S., and may remain depressed for the foreseeable future. Demand for the Companys products may be adversely affected by negative macroeconomic factors affecting consumer spending. Substantial tightening of consumer credit, low consumer liquidity, and extreme volatility in credit and equity markets have weakened consumer confidence and decreased consumer spending. These and other economic factors have reduced demand for the Companys products and harmed the Companys business, financial condition and results of operations, and to the extent such economic conditions continue, they could cause further harm to the Companys business, financial condition and operations.
Dependence on Sales through Retailers and Distributors
The Companys business that depends significantly upon sales through retailers and distributors may be affected if the Companys retailers and distributors are not successful. As a result, the Company could experience reduced sales, substantial product returns or increased price protection, any of which would negatively impact the Companys business, financial condition and results of operations. A significant portion of the Companys sales are made through retailers, either directly or through distributors. If the Companys retailers and distributors are not successful, due to weak consumer retail demand caused by the current worldwide economic downturn, decline in consumer confidence, or other factors, the Company could continue to experience reduced sales as well as substantial product returns or price protection claims, which could harm the Companys business, financial condition and operations.
Limited Management Personnel
Under Nuvilexs business plan, significant and material matters of business must be conducted and concluded in a timely fashion. The execution of the Companys business plan places a significant strain on the Companys management while providing little or no immediate compensation.
There can be no assurance that Nuvilexs planned personnel, systems, procedures and controls will be adequate to support its future operations, management will be able to hire, train, retain, motivate and manage personnel or that its management will be able to successfully identify, manage and exploit existing and potential market opportunities. If Nuvilex is unable to manage growth effectively, the Companys business, prospects, financial condition, results and operations could be adversely affected.
The market in which Nuvilex competes is highly competitive, and the Company has no assurance that it will be able to compete effectively, especially against established industry competitors with significantly greater financial resources. The Company expects it may face competition from a few competitors with potentially greater financial resources, well-established brand names and large, pre-existing customer bases. From the research efforts underway in so many countries around the world, Nuvilex expects the level of competition may intensify in the future.
Dependence on Management
Nuvilexs performance will be substantially dependent on the continued services and on the performance of the current senior management and other key personnel of the Company. Nuvilexs performance will also depend on the Companys ability to
retain and motivate its other officers and key employees. Nuvilexs inability to retain its executive officers or other key employees could have a material adverse effect on the Companys business, prospects, financial condition and results of operations. The Companys future success depends to a great extent on its ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, merchandising, marketing and customer service personnel. Competition for such personnel can be intense and there is no assurance Nuvilex will be able to successfully attract, assimilate and retain sufficiently qualified personnel. The failure to retain and attract the necessary technical and managerial personnel could have a material adverse effect on the Companys business, prospects, financial condition and results of operations.
Development of Brand Awareness
For certain market segments that Nuvilex plans to pursue, the development of its brand awareness is essential for it to reduce its marketing expenditures over time and realize greater benefits from marketing expenditures. If the Companys brand-marketing efforts are unsuccessful, growth prospects, financial condition and results of operations would be adversely affected. Nuvilexs brand awareness efforts have required, and will most likely continue to require additional expenses.
Intellectual Property Protection: Uncertainty of Protection of Proprietary Rights
Nuvilex currently relies on a combination of patents, trademarks, trade secret protection, non-disclosure agreements and licensing arrangements to establish and protect its proprietary rights. Despite efforts to safeguard and maintain Nuvilexs proprietary rights, there can be no assurance the Company will be successful in doing so or its competitors will not independently develop products substantially equivalent or superior.
Nuvilex also relies on trade secrets and proprietary know-how, which the Company seeks to protect by confidentiality and non-disclosure agreements with its employees, consultants, and third parties. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that certain of Nuvilexs trade secrets and proprietary know-how will not otherwise become known or be discovered by competitors.
Protecting or defending the Companys IP rights, to protect trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity may require litigation. Such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of management resources, either of which could have a materially adverse effect on Nuvilex business, prospects, financial condition, or operating results.
Availability and Coverage of Insurance
For certain risks, the Company does not maintain insurance coverage because of cost and/or availability. Because the Company retains some portion of its insurable risks, and in some cases self-insures completely, unforeseen or catastrophic losses in excess of insured limits could have a material adverse effect on the Companys financial condition and operating results.
Federal, State, Local and Foreign Laws and Regulations
The Company is subject to laws and regulations enforced by the FDA, the DEA, the CDHS, foreign health authorities and other regulatory statutes including the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Food, Drug and Cosmetic Act, the Resource Conservation and Recovery Act, and other current and potential federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of the Companys products, materials used to develop the Companys products, and resulting waste products. The Companys past research, product development and manufacturing activities have involved the controlled use of hazardous materials and the Company may incur costs as a result of the need to comply with these laws and regulations.
Penny Stock Regulation
The Companys securities sold as part of financing provided to the Company may be subject to penny stock rules that impose additional sales requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors, the latter of which are generally people with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly. For transactions covered by these rules, the Company and/or broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchasers written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the penny stock rules require the delivery, prior to the transaction, of a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. Consequently, the penny stock rules may restrict the ability of broker-dealers to sell the Companys securities. The foregoing required penny stock restrictions will not apply to the Companys common stock if such securities maintain a market price of $5.00 or greater. Therefore the challenge for the Company is that the market price of the Companys common stock may not reach or remain at such a level.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
The Companys International Headquarters is located at 12510 Prosperity Drive, Suite #310, Silver Spring, MD 20904, with the newly acquired subsidiarys address being 20 Biopolis Way, #05-518 Centros, Singapore 138668 SG.
ITEM 3. LEGAL PROCEEDINGS
In July 2011 a claim was filed by Cornerstone Bank (Cornerstone) against Freedom-2, Inc., a wholly owned subsidiary of the Company, for amounts due under a promissory note (the Note), in the original principal amount of $1.6 million (collectively the Indebtedness). The bank also sought to foreclose its mortgage on the property securing the Note, which is located in Cherry Hill, New Jersey (the Property). Given the passage of time and the Company having made no payments toward the Indebtedness for several years, as of May 2012, the amount due was approximately $2.0 million.
The Company recently resolved all matters related to Cornerstones claims (the Settlement) and is in the process of effecting the Settlement, as follows: (i) the parties stipulate to judgment in the amount of the Indebtedness, with a stay of execution for 2 years pending the Company satisfying the Indebtedness in any of several ways, including direct payments of cash and discounts of up to 30% for early payments, or a combination thereof; (ii) the Company conveys the Property to Cornerstone, which will sell the Property and apply the net proceeds to reduce the Indebtedness (in the event the Property is not sold and the Indebtedness satisfied as otherwise described herein, the Property will be reconveyed to the Company); and (iii) the Company reaffirms the pledge of 14,605,614 shares of the Companys common stock as security for payment of the Indebtedness (the Stock Collateral), which can be liquidated by Cornerstone from time to time in accordance with a SEC Rule 10b5-1 plan, with the proceeds being applied to reduce the Indebtedness and with any excess Stock Collateral being returned to the Company upon payment of the Indebtedness in full.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Shares of the Company's common stock are quoted and traded on the OTC (www.otcmarkets.com; OTCQB) as a fully reporting Over-The-Counter Bulletin Board company under the classification of OTCQB via the trading symbol NVLX.
The following table sets forth the high and low bid prices for the Company's shares for each quarter during the two fiscal years ended April 30, 2012 and 2011. The prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and are not intended to represent actual transactions.
At April 30, 2012, the market price of the Company's common stock was $0.07 per share.
As of April 30, 2012, there were 416,293,195 issued and outstanding shares of common stock held by an estimated 6,200 shareholders, 2,496 shareholders of record and 1,229 of which are available via the NOBO listing.
DIVIDEND POLICY. The Company has not paid and do not plan to pay cash dividends at this time. The Companys Board of Directors will decide any future payment of dividends, depending on the Companys results of operations, financial condition, capital requirements, and other relevant factors. TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the Companys common stock is Signature Stock Transfer, Inc., 2301 Ohio Drive, Suite #100, Plano, Texas 75093; Telephone (972) 612-4120.
ISSUER PURCHASES OF EQUITY SECURITIES. The Company did not repurchase any of its securities during the year ended April 30, 2012.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS. The Company currently does not maintain any equity compensation plans.
ITEM 6. SELECT FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues from product sales for fiscal 2012 were $66,558 compared to $75,997 in fiscal year 2011. Product sales in fiscal 2012 occurred throughout the fiscal year, yet few funds were committed to initiate any marketing since the majority of all funds were directed toward the goal of maintaining and acquiring ASPL and the opportunity to complete the acquisition which was subsequently accomplished.
RESEARCH AND DEVELOPMENT
The majority of the funds being used this year were to acquire ASPL as a subsidiary. Since then, the Company acquired ASPL as our subsidiary, and their work primarily has consisted of research and development activities which included, but were not limited to product conception, design, development, evaluation, formulation, manufacturing, packaging and testing. As with all corporate and university research, product conception, design and evaluation does not necessarily yield commercially viable products, but from our vantage point it is likely that some will come from the efforts expended over the year. The present management is fully utilizing prior research efforts in advancing products not fully developed to date.
This is typically one of the most challenging steps, but one management is truly committed to, i.e. monetizing research discoveries through multiple means.
SALES AND MARKETING
The Company incurred sales and marketing expenses of $11,150 in fiscal 2012 compared to $10,830 in fiscal 2011. The change in sales and marketing expenses was due in part to available cash resources to invest in such activities, and partly due to planned utilization of scarce resources. Most of the available resources had been consumed during fiscal year 2011.
Presently, the Company regulates its sales and marketing expenses through its Internet-based Division of Sales and Marketing and its resellers and retail distributors.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $416,171 for fiscal 2012 as compared to the $237,025 in expenses in fiscal 2011, an increase of $179,146. These expenses pay for office and other overhead expenses. The Company took aggressive steps during all of fiscal 2012 to reduce and maintain its general and administrative expenses at a low level including, but not limited to reductions of all overhead expenses. In the current fiscal year additional expenses were incurred related to the pending settlement with Cornerstone Bank.
OTHER INCOME AND EXPENSE
The Company recorded a $79,503 loss on disposal of fixed assets in fiscal year 2012 as well as a gain on settlement of debt of $370,619.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2012, the Company had negative working capital of $2,728,628. By adjusting the Company's operations to the level of capitalization, working with its creditors to establish a reasonable and timely manner for resolving outstanding debts and through small cash investments from new and existing shareholders, management believes it has sufficient resources to meet present cash flow needs. If the Company is not successful in generating sufficient liquidity from operations or in resolving its outstanding debt issues with its creditors on terms acceptable to the Company, this could have a materially adverse effect on the Companys business, liquidity and financial condition. The Companys independent certified public accountants have stated in their report, which is included as part of the Companys audited financial statements for the fiscal years ended April 30, 2012 and 2011 that the Company has suffered recurring losses from operations which raises doubt about the Companys ability to continue as a going concern.
The Company has no off-balance sheet arrangements, special purpose entities, financing partnerships or guarantees.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and supplementary data are included beginning immediately before the signature page to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(a) On February 9, 2012, Nuvilex, Inc. (theCompany) dismissed the present independent auditors M & K CPAS, PLLC, as the Company prepares to complete the acquisition of the assets of SG Austria, and wish to concurrently thank M & K CPAS, PLLC for their attention to detail and regulations, having aided Nuvilex substantially in moving the company forward over the past year. The dismissal of M & K CPAS, PLLC as the Company's independent accountants was a result of a competitive bidding process involving several accounting firms and was approved by the Companys Board of Directors.
The reports of M & K CPAS, PLLC on the Companys financial statements for the fiscal years ended April 30, 2011 and 2010 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that it included an emphasis paragraph on the substantial doubt about the Company's
ability to continue as a going concern as of a result of the Company having suffered recurring losses from operations.. In connection with the audits of the Companys financial statements for the fiscal years ended April 30, 2011 and 2010 and from April 30, 2011 and the subsequent interim period through February 9, 2012, (1) there were no disagreements with M & K CPAS, PLLC on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedure which, if not resolved to the satisfaction of M & K CPAS, PLLC, would have caused M & K CPAS, PLLC to make reference to the matter in its report and (2) there were no reportable events as that term is defined in Item 304 of Regulation S-K promulgated under the Securities Exchange Act of 1934 (Item 304).
(b) On February 10, 2012, the Company engaged ROBISON, HILL & COMPANY as the Company's independent accountant to audit the Companys financial statements and to perform reviews of interim financial statements. During the fiscal years ended April 30, 2011 and 2010 and from April 30, 2011 and the subsequent interim period through February 10, 2012 neither the Company nor anyone acting on its behalf consulted with ROBISON, HILL & COMPANY regarding (i) either the application of any accounting principles to a specific completed or contemplated transaction of the Company, or the type of audit opinion that might be rendered by ROBISON, HILL & COMPANY on the Company's financial statements; or (ii) any matter that was either the subject of a disagreement with M & K CPAS, PLLC or a reportable event with respect to M & K CPAS, PLLC.
ITEM 9A. CONTROLS AND PROCEDURES
The Companys upper Management, including the Chief Executive, Chief Financial, and Chief Operating Officers, as of the end of the period covered by this Annual Report on Form 10-K, have concluded our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) were not effective as described in the act, although efforts were made to do so and to ensure information required to be disclosed in reports we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As we continue to expand, we aim to become effective in the areas of disclosure controls and procedures in order to move the Company forward successfully.
Management, including the Chief Executive Officer/Interim Chief Financial Officer and Chief Operating Officer, do not expect its present disclosure controls and procedures nor its internal controls will allow nor prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance the objectives of the control system are met. Further, the design of a control system must reflect the fact that resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, management performed additional analysis and other post-closing procedures in an effort to ensure its consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles and are as free of fraud as best as can be determined. Accordingly, management believes the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Controls.
There were no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no deficiencies or material weaknesses recognized as of April 30, 2012, and therefore no corrective actions were deemed necessary. However, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there is no certainty that any design will succeed in achieving its stated goal under all potential future considerations, regardless of how remote. It is managements plan however, to work toward better assessment of any and all necessary internal controls and thereby to increase the capability to recognize errors and prevent fraud as the Company strives for bettering itself from this point. We have already initiated discussions to study, assess and create everything necessary throughout the remainder of the year to achieve effective disclosure controls and procedures, in particular in association with the recent acquisition of ASPL and BBB. Nonetheless, this will remain a potential material weakness until such activities have been fully integrated.
Managements Report on Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive/Interim Chief Financial, and Chief Operating Officers, effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in connection with GAAP, including those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of this Annual Report on Form 10-K for the year ended April 30, 2012, management, with the participation of our Chief Executive Officer/Interim Chief Financial Officer, and Chief Operating Officer, have evaluated the