Cvf Technologies Corp - Quarterly Report (10-Q)

Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 .

Commission file number: 0-29266

CVF TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of Incorporation or organization)		87-0429335 (I.R.S. Employer Identification No.)

8604 Main Street, Suite 1
Williamsville, NY
14221
(Address of principal executive offices)
(Zip Code)

[phone]
(Registrant’s telephone number, including area code)

     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 þ No o

     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. (Check one):

Large accelerated filer  o		Accelerated filer  o		Non-accelerated filer  o		Smaller reporting company  þ
		(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 Exchange Act). Yes o No þ

     As of May 5, 2008 there were 14,949,866 shares of common stock, $0.001 par value per share, of the issuer outstanding

 

 

 

---

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and procedures.
	Item 4T.
	PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
	Item 5. Other Information.
	Item 6. Exhibits
	SIGNATURES
EXHIBIT INDEX
EX-11
EX-31.1
EX-31.2
EX-32

---

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		(Expressed in U.S. Currency)
		March 31,				December 31,
		2008				2007
		(unaudited)				(audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	482,072			$	735,115
Trade receivables			26,561				112,452
Inventory			114,969				120,223
Prepaid expenses and other			21,899				20,399
TOTAL CURRENT ASSETS			645,501				988,189
Property and equipment, net of accumulated depreciation			14,240				13,614
Loans receivable			142,251				142,251
Market value — Biorem (see Note 4)			2,128,510				—
Holdings available for sale, at market			1,042				1,451
Security Deposit, long-term			1,619				1,677
Note receivable			461,454				477,843
TOTAL ASSETS		$	3,394,617			$	1,625,025
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payables and accrued liabilities		$	888,932			$	901,960
IRS Audit Settlement			970,404				953,872
TOTAL CURRENT LIABILITIES			1,859,336				1,855,832
LONG-TERM LIABILITIES:
Deferred income taxes			99,021				102,693
Minority interest			874,216				905,265
Pension obligation			645,788				677,001
TOTAL LONG-TERM LIABILITIES			1,619,025				1,684,959
Redeemable Series A preferred stock, $0.001 par value, redeemable at $18.25 per share, authorized 500,000 shares, issued and outstanding 1,592 shares			29,054				29,054
			3,507,415				3,569,845
STOCKHOLDERS’ (DEFICIT) EQUITY:
Common stock, $0.001 par value, authorized 50,000,000 shares, 14,949,866 issued and in treasury 1,664,361			16,614				16,614
Additional paid in capital			30,033,521				29,973,593
Treasury stock			(3,208,392	)			(3,208,392	)
Accumulated other comprehensive loss			(242,582	)			(319,917	)
Deferred market value — Biorem			2,660,638				—
Accumulated deficit			(29,372,597	)			(28,406,718	)
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY			(112,798	)			(1,944,820	)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY		$	3,394,617			$	1,625,025

See notes to consolidated financial statements

 

---

Table of Contents

CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

		(Expressed in U.S. Currency)
		Three months ended March 31,
		2008				2007
SALES		$	112,087			$	681,679
Royalty Income			17,426				—
Cost of sales			89,382				537,176
GROSS MARGIN			40,131				144,503
EXPENSES:
Selling, general and administrative			518,671				537,084
TOTAL EXPENSES			518,671				537,084
(Loss) from continuing operations before under noted items			(478,540	)			(392,581	)
OTHER (EXPENSES) INCOME
Interest (expense) income, net			(14,017	)			6,306
(Loss) from equity investees			(34,456	)			(75,674	)
Gain on sale of shares			99,330				—
Other income, net			4,725				12,239
(Decrease) in market value — Biorem			(542,560	)			—
TOTAL OTHER (EXPENSE)			(486,978	)			(57,129	)
(Loss) before income taxes and minority interest			(965,518	)			(449,710	)
Income taxes			—				770
(Loss) before minority interest			(965,518	)			(450,480	)
Minority interest in loss			—				12,572
NET (LOSS)		$	(965,518	)		$	(437,908	)
BASIC (LOSS) PER SHARE		$	(0.08	)		$	(0.03	)
DILUTED (LOSS) PER SHARE		$	(0.08	)		$	(0.03	)
WEIGHTED SHARES USED IN COMPUTATION — BASIC			12,637,735				12,637,735
WEIGHTED SHARES USED IN COMPUTATION — DILUTED			12,637,735				12,637,735

See notes to consolidated financial statements

 

---

Table of Contents

CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

		(Expressed in U.S. Currency)
		Three Months Ended March 31,
		2008				2007
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations		$	(965,518	)		$	(437,908	)
Adjustments to reconcile net loss from operating activities:
Depreciation and amortization			1,273				1,028
Minority interest in losses of subsidiaries			—				(12,572	)
Pension expense			(31,213	)			(9,221	)
Deferred income tax			(3,672	)			(284	)
Loss from equity investees			34,456				75,674
Decrease in market value — Biorem			542,560				—
Equity based compensation			61,104				52,816
Changes in non-cash working capital items
Decrease (Increase) in trade receivables			85,891				(93,830	)
(Increase) in inventory			5,254				(51,044	)
Decrease (Increase) in prepaid expenses and other			(1,500	)			8,920
Increase (Decrease) in trade payables and accrued liabilities			(168	)			(97,498	)
			693,985				(126,011	)
CASH (USED IN) OPERATING ACTIVITIES			(271,533	)			(563,919	)
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
Sale of Biorem equity			99,330				—
CASH PROVIDED BY INVESTING ACTIVITIES			99,330				—
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(80,840	)			(5,497	)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS			(253,043	)			(569,416	)
CASH AND CASH EQUIVALENTS — beginning of period			735,115				2,332,690
CASH AND CASH EQUIVALENTS — end of period		$	482,072			$	1,763,274

See notes to consolidated financial statements

 

---

Table of Contents

CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES

STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

		(Expressed in U.S. Currency)
		Three months ended March 31,
		2008				2007
Net (loss)		$	(965,518	)		$	(437,908	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments			77,009				30,464
Unrealized holding gains:
Unrealized holding (losses) gain arising during period (see note below)			326				(1,775	)
Total other comprehensive income			77,335				28,689
Comprehensive (loss) during period		$	(888,183	)		$	(409,219	)

 

Note:		Unrealized holding (losses) gain are net of tax of $217 and ($1,185) for the three months ended March 31, 2008 and 2007, respectively.

See notes to consolidated financial statements

 

---

Table of Contents

CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)

(Dollars Expressed in U.S. Currency)

1.		BASIS OF PRESENTATION
		The accompanying financial statements are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of financial position and the results of operations for the interim periods presented. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of the results attainable for a full fiscal year.
		The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
		Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period. The Canadian dollar is the functional currency used by the Company, whereas the reporting currency is the U.S. dollar.
2.		ACCOUNTING POLICIES
		Stock Based Compensation Plans
		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

 

---

Table of Contents

		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 $61,104 and $53,209 in additional compensation expense during the three months ended March 31, 2008 and 2007. The shares issued vest from April 2007 through November 2009. Such amount is included in general and administrative expenses on the statement of operations.
3.		SUBSIDIARY SHAREHOLDERS MEETING
		In November 2006, CVF received $860,306 from Gemprint as a shareholder distribution of capital. In March 2008, Gemprint shareholders approved a shareholder distribution of capital to be made in April 2008 of $1,328,000. CVF’s portion of this distribution is $1,035,320.
4.		SUBSIDIARY BIOREM GOES PUBLIC
		In 2005, Biorem completed its going public transactions and began trading on the Toronto Venture Exchange under the symbol BRM. CVF’s ownership position in Biorem as of March 31, 2008 is approximately 2.7 million shares representing 22.8% of the outstanding shares of Biorem. Since CVF no longer owns more than 50% (effective November 24, 2004), CVF recorded the results of Biorem on the equity basis of accounting through December 31, 2007.
		In September 2006, the FASB issued FASB Statement No. 157. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. CVF adopted this statement effective the first quarter 2008 for Level 1 assets and liabilities and therefore reports the market value of Biorem of $2,128,510 on its March 31, 2008 balance sheet. Also recorded in the income statement was the change in market value from January 1, 2008 to March 31, 2008 as an unrealized loss of $542,560.
5.		EQUITY AND DEBT INVESTMENT IN XYLODYNE CORPORATION
		Xylodyne was capitalized with cdn $18,000 from two individuals that own 60% of Xylodyne, while CVF contributed cdn $12,000 to capital for a 40% ownership of Xylodyne. CVF also loaned Xylodyne another cdn $313,000 in the form of a debenture. Officers of CVF are two of the four voting board members seats of Xylodyne. The cdn $313,000 debenture is secured by the assets of Xylodyne only, with no personal guarantees from the majority owners of Xylodyne.

 

---

Table of Contents

CVF evaluated the consolidation of Xylodyne pursuant to paragraph 5 of FIN 46, which states an entity shall be subject to consolidation if either of the following conditions exists:

		A.) The total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. The total equity investment at risk: (1) Includes only equity investments in the entity that participate significantly in profits and losses, (2) Does not include equity interest that the entity issued in exchange for subordinated interests in other variable interest entities, (3) Does not include amounts provided to the equity investor directly or indirectly by the entity or by other parties, (4) Does not include amounts financed for equity investor ( for example by loans or guarantees of loans ) directly by the entity or by other parties involved with the entity, unless that party is a parent, subsidiary or affiliate of the investor that is required to be included in the same set of consolidated financial statements as the investor.
		B.) As a group the holders of the equity investment at risk lack any one of the following three characteristics of controlling financial interest: (1) The direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights, (2) The obligation to absorb the expected losses of the entity if they occur. The investor or investors do not have that obligation if they are directly or indirectly protected from the expected losses or are guaranteed a return by the entity itself or by other parties involved with the entity, (3) The right to receive the expected residual returns of the entity if they occur. The investors do not have that right if their return is capped by the entity’s governing documents or arrangements with other variable interest holders or with the entity.
		CVF’s evaluation of including Xylodyne as a variable interest enterprise for consolidation purposes is based on the following evaluation of both paragraphs 5(a) and 5(b) even though only meeting the conditions in one paragraph alone required the consolidation of Xylodyne as a variable interest entity:
		A.) At inception of Xylodyne, CVF believed that the cdn $30,000 capital investment was insufficient to operate Xylodyne effectively, based on its intended goals and purpose, hence the need for an additional amount of debt from CVF (ie: the cdn $313,000 debt). As further support for the initial evaluation is at December 31, 2006, Xylodyne had cdn $566,000 in assets and had losses of $161,200 in 2006 and $22,200 in 2007. The assets are largely receivables from US based companies, while Xylodyne is a Canadian based entity. Traditional banking relationships are difficult to obtain for a start up enterprise with a business located in one country where as receivables are from companies in another country, further supporting the need for the additional cdn $313,000 debt. In addition, it is also possible, but not required, that CVF will extend further credit to Xylodyne as the majority shareholders may not have additional funds for possible future

 

---

Table of Contents

		expansion. Based on the conditions elaborated in paragraph 5 (a) and paragraph 9 of FIN 46, CVF believes that it is required to consolidate Xylodyne as a variable interest entity.
		B.) At inception under the conditions elaborated under paragraph 5(b) of FIN 46, (a) CVF has two of the four voting board of director seats for making decisions, (b) the cdn $313,000 debenture is secured by the assets and business of Xylodyne only, hence if Xylodyne fails and ceases to operate, CVF is not protected against additional losses above its cdn $12,000 investment as there is no other subordinated creditor, nor does CVF have any outside guarantees or collateral for the $313,000 cdn debt outstanding, (c) should Xylodyne perform beyond expectations as a result of CVF’s equity ownership, CVF can enjoy their ratable amount of residual returns. Based on the conditions elaborated in paragraph 5(b), CVF believes that it is required to consolidate Xylodyne as a variable interest entity.
6.		INCOME (LOSS) PER SHARE
		Basic income per share amounts are computed by dividing net income (loss) from continuing operations available to common stockholders from continuing operation, and net income available to common stockholders by the weighted average number of common shares outstanding during the period. The net income from continuing operations and net income available to common stockholders consists of net income from continuing operations and net income amounts reduced by the dividends on the Company’s Series A preferred stock. Diluted income per share reflects the per share amount that would have resulted if diluted potential common stock had been converted to common stock, as prescribed by SFAS 128. The Company has presented dilutive income per share in those periods where there was net income and therefore reduced income per share and not presented dilutive loss per share information when the dilution would reduce the loss per share.
7.		INVENTORY
		Inventory consists of the following:

		March 31, 2008				December 31, 2007
Finished goods		$	114,969			$	120,223

 

---

Table of Contents

8.		INVESTMENTS
		The following table provides certain summarized unaudited financial information related to the Company’s equity basis holdings:

		Three Months Ended March 31,
		2008				2007
Net Sales		$	3,162,905			$	1,534,499
Gross profit on sales			1,445,419				551,100
Net income (loss)		$	24,350			$	(398,645	)

9.		CONCENTRATION OF CREDIT RISK
		For the three months ended March 31, 2008, the Company’s subsidiary, Xylodyne Corporation, had a customer which accounted for $nil or 0% of consolidated sales as compared to $451,459 or 69.8% of the three months ended March 31, 2007 consolidated sales. No other customer accounted for more than 10% of the Company’s sales in the first three months of either 2008 or 2007. The Company’s accounts receivable from this customer at March 31, 2008 and March 31, 2007 amounted to $47 and $390,328, respectively.
10.		DEPENDENCY ON SUPPLIER
		The Company’s subsidiary, Xylodyne Corporation, had one supplier that accounted for $nil or 0% of consolidated cost of sales for the three months ended March 31, 2008 as compared to $385,243 or 73.0% for the three months ended March 31, 2007. The Company’s accounts payable to this supplier at March 31, 2008 and March 31, 2007 amounted to $30,931 and $305,954, respectively.
11.		SETTLEMENT WITH THE INTERNAL REVENUE SERVICE
		CVF received a final demand from the Internal Revenue Service dated February 19, 2008 requesting payment of tax totaling $515,000 relating to the tax audit of the years 1997, 2000 and 2001, plus

 

---

Table of Contents

		accrued interest and penalty for a total demand of $913,336. On March 12, 2008, CVF responded to this Internal Revenue Service request by submitting a Form 12153 (Request for Collection Due Process Hearing). As part of this submission CVF is requesting an Installment Arrangement with the Internal Revenue Service and stating that CVF does not agree to additional penalties and interest that is included in the $913,336 indicated by the Internal Revenue Service. CVF plans to challenge the accrued interest charged by the Internal Revenue Service as CVF believes it has strong grounds to challenge the interest assessed.
12.		STOCK BUYBACK PLAN
		As announced on December 30, 2005, the Company’s Board of Directors approved up to a maximum $500,000 stock buyback program. The program allows the Company to make up to $500,000 of stock repurchases. As of May 5, 2008, the Company has purchased 1,182,661 shares under this repurchase program for a total of $461,218.
13.		ISSUANCE OF RESTRICTED CVF COMMON SHARES
		On April 6, 2006, the Board of Directors of the Company approved the Corporation’s Management Incentive Program. In connection with the program, restricted stock was granted to officers and employees of the Company totaling 1,660,000 restricted common shares. These shares will vest every 12 months over a three year period beginning April 2007 with vesting accelerated on a change of control. The value of these shares was recorded at $0.39 per share which was the closing market price on that date. The expense is being recorded over the period that the shares vest (36 months). During the first three months of 2008 and 2007, an expense of $55,126 and $53,209 was recorded, respectively.
		On November 14, 2007, the Board of Directors of the Company approved awarding 652,131 restricted common shares in return for cancellation of all outstanding options and warrants that had not expired at that time. These shares will vest at the end of each year over a three year period beginning November 2008 with vesting accelerated on a change of control. During the first quarter 2008 an expense of $5,978 was recorded for these shares.
14.		INTERIM FINANCIAL STATEMENT DISCLOSURES
		Certain information and footnote disclosures normally included in annual financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying unaudited interim financial statements. Reference is made to the Company’s audited financial statements for the year ended December 31, 2007 included in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2008.

 

---

Table of Contents

15.		IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
		The Company has implemented new accounting standards as follows:
		FASB 157 — Fair Value Measures
		In September 2006, the FASB issued FASB Statement No. 157. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. This Statement had significant positive and negative impact on the financial statements of the Company as adopted in the first quarter 2008 (see Note 4.).
		FASB 159 — Fair Value Option for Financial Assets and Financial Liabilities
		In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS 159). This Statement provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently measured at fair value. A company that adopts SFAS 159 will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for fiscal years beginning after November 15, 2007, which for us is the first quarter of fiscal 2008. This Statement had significant positive and negative impact on the financial statements of the Company as adopted in the first quarter 2008.
		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

 

---

Table of Contents

		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.
16.		SEGMENTED INFORMATION
		The Company currently has four reportable segments: identification systems, natural horticultural, electric vehicles & parts and general corporate. The identification systems segment consists of one company whose assets were sold in December 2005 for consideration which included a five year royalty stream. The natural horticultural segment consists of one company that develops, manufactures and markets natural fertilizers, insecticides and herbicides. In 2002, as a result of growth in the natural horticultural segment, as a percentage of consolidated sales, the Company reallocated business units to business segments to more appropriately group units for chief operating decision purposes and reporting in accordance with SFAS 131. This change was applied on a retroactive basis. The electric vehicles & parts segment (which commenced operations in April 2006) consists of one company that is in the business of developing and distributing electric vehicles. The Company’s general corporate segment includes one company which provides funding and management advisory services to the holdings. This segment’s profits include interest income and gains on sales of its various holdings.
		The Company evaluates performance and allocates resources based on continuing profit or loss from operations before income taxes, depreciation and research and development. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
		There are no intersegment sales, transfers, or profit or loss.
		Industry Segments for the Three Months Ended March 31, 2008 and 2007

										Electric
		Identification				Natural				Vehicles				Corporate
		Systems				Horticultural				& Parts				Administration				Total
		$				$				$				$				$
2008
Sales			—				17,540				94,547				—				112,087
Income (Loss) from continuing operations before other income			(9,876	)			(86,784	)			(69,408	)			(329,898	)			(495,966	)
Other income (expense)			27,487				(75,595	)			(5,413	)			(416,031	)			(469,552	)
Income (Loss) from continuing operations before income taxes and minority interest			17,611				(162,379	)			(74,821	)			(745,929)				(965,518	)

 

---

Table of Contents

										Electric
		Identification				Natural				Vehicles				Corporate
		Systems				Horticultural				& Parts				Administration				Total
		$				$				$				$				$
2007
Sales			—				19,507				662,172				—				681,679
(Loss) from continuing operations before other income (expense)			(31,312	)			(106,261	)			36,837				(291,845	)			(392,581	)
Other income (expense)			(4,608	)			13,046				14,674				(80,241	)			(57,129	)
(Loss) from continuing operations before income taxes			(35,920	)			(93,215	)			51,511				(372,086	)			(449,710	)

17.		CONTINGENCIES
		A subsidiary of the Company, Xylodyne, does not have its own product liability insurance and is in the process of attempting to obtain it to cover the products that it sells. On January 4, 2008 its main supplier of vehicles, Bad Boy Enterprises, LLC notified Xylodyne that Xylodyne was covered as a named insured under Bad Boy Enterprises, LLC’s own product liability insurance coverage and Xylodyne has now received a copy of such insurance certificate. The certificate specifies that Xylodyne will be notified with 30 days notice if such coverage were to no longer be effective. This policy has an expiration date of December 15, 2008. If such coverage were to no longer be effective then Xylodyne would then be uninsured for any potential lawsuits by individuals and/or entities that have purchased products from Xylodyne. The Company cannot make an estimate of the cost of this potential risk and therefore cannot account for any loss until an amount becomes determinable.
18.		SUBSEQUENT EVENTS
		In April 2008 a return of capital distribution was made to shareholders of Gemprint as approved at a special shareholders meeting conducted in March 2008. The total distribution was $1,328,000, of which $1,035,320 was distributed to CVF.
		In April 2008, the board of directors of CVF approved the award of an aggregate of 132,109 shares of restricted stock that vest immediately to a service provider to the company. These restricted shares were awarded in exchange for the cancellation by the recipient of an aggregate of 82,109 outstanding CVF restricted shares that vested over a 3 year period.
19.		GOING CONCERN
		These consolidated financial statements have been prepared on a going concern basis, which presumes that assets will be realized and liabilities discharged in the normal course of business over the foreseeable future. The consolidated Company’s current liabilities exceed its current

 

---

Table of Contents

		assets. The Company has incurred losses over the quarter and the past 2 years, which have reduced the Company’s cash reserves, and depleted stockholders’ equity.
		These conditions raise substantial doubt about the Company’s ability to continue to fund its investee companies and the ability of some of those companies to continue to operate as a going concern.
		The Company’s primary need for cash is to maintain its ability to support the operations and ultimately the carrying values of certain of its individual investee companies. The Company from time to time may pursue the sale of a portion of its interests in some of its investee companies as a source of funds, as well as establishing lines of credit or issuing new stock and reduction of cash flow needs. The Company will continue to assist its investee companies in their efforts to obtain outside financing in order to fund the growth and development of their respective businesses and has taken steps to reduce the operating cash requirements of the parent company and its investees. The Company is also seeking outside investment for these companies. There is no assurance that these initiatives will be successful or that certain of its investees will continue to have adequate cash resources and capital to be able to continue as going concerns.
		The Company’s ability to continue to realize assets and discharge liabilities in the normal course is uncertain and dependent on these and other initiatives. These financial statements do not include any of the adjustments to the amounts or classification of assets and liabilities that might be necessary should the Company be unable to continue its business in the normal course.

 

---

Table of Contents

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW:

CVF Technologies Corporation (www.cvfcorp.com) (“CVF” or the “Company”) was originally founded as a limited partnership in 1989 and was converted into a corporation in 1995. CVF is involved in the business of investing in and managing early stage companies primarily engaged in the environmental technology sector. CVF’s mandate is to acquire significant holdings in new and emerging technology companies and then to assist them in their management, and through them to engage in their respective businesses. CVF’s current holdings include investments made in its investee companies during the period from 1990 to the present.

CVF realizes revenues and profits through consolidation of the operating results of its investee companies. CVF also endeavors to generate gains through the eventual sale of all or a portion of its holdings in these companies at such time as management determines that CVF’s funds can be better deployed in other industries or companies. CVF’s goal is to maximize the value of its holdings in its investee companies for the Company’s shareholders. One important way that CVF accomplishes this is by taking the investee company public at the appropriate time or selling the investee company. This has been done with CVF’s former investee companies Certicom Corporation and TurboSonic Technologies, Inc., both of which went public. Also, in January 2005 Biorem Inc. (formerly Biorem Technologies Inc.) completed its going public transaction. Most recently G.P. Royalty Distribution Corporation (formerly Gemprint Corporation), sold substantially all of its assets in December 2005 for $7.5 million, while retaining a 5 year royalty stream of $1 per Gemprint™ in excess of 100,000 Gemprints per year beginning December 22, 2005.

After CVF’s initial investment, an investee company often requires additional capital to meet its business plan. Consequently, the Company actively assists its investee companies in obtaining additional capital which is usually sourced through CVF’s own resources or via other investors. CVF’s ability to continue to provide assistance to its investees is subject to the limitations of its own financial resources. The Gemprint sale and Biorem transaction increased CVF’s liquidity and thus its flexibility in assisting its investee companies.

On a stand-alone basis, CVF has no sales from operations. Sales and gross profit from sales reflect the operations of CVF’s consolidated subsidiaries only. The consolidated subsidiaries in the 2008 period are G.P. Royalty Distribution Corporation (“Gemprint”), Ecoval Corporation (“Ecoval”) and Xylodyne Corporation (“Xylodyne”). CVF records profit and loss using the equity method for companies in which CVF holds 20% to 50% ownership. These companies are Biorem and Petrozyme Technologies Inc. (“Petrozyme). The results of companies in which CVF has less than 20% ownership are not included in the Consolidated Statement of Operations.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2007:

Consolidated sales of CVF subsidiaries for the three months ended March 31, 2008 amounted to $112,087, representing a decrease of $569,592 compared to sales of $681,679 for the same period in 2007. The decrease in sales was due to Xylodyne’s sales decrease of $567,625. This decrease was attributable to the loss of the motor sales during 2007. During 2007 Xylodyne lost a significant part of its business which was the sales of motors (sales of $826,042 in 2007 and $909,333 in 2006) that although had relatively low gross margin (11.6%) also had low general and administrative expenses and therefore generated profit for Xylodyne. Xylodyne is working towards having a positive bottom line in 2008 while continuing to expand, although Xylodyne has had net losses since inception.

CVF records profit and loss using the equity method for companies in which CVF holds 20% to 50% ownership (the exception being Xylodyne which is consolidated as CVF is currently the only material investor in that company). These companies, Biorem and Petrozyme, are not included in CVF’s consolidated results.

 

---

Table of Contents

CVF’s gross margin of $22,705 for the first quarter of 2008 represents a decrease of $121,798 from the same period last year. This decrease is due to the sales decrease from Xylodyne. Overall gross margin of CVF as a percentage of sales decreased to 20.03% for the first quarter of 2008 from 21.2% for the first quarter of 2007.

Selling, general and administrative expenses on a consolidated basis for the three months ended March 31, 2008 amounted to $518,671, representing a decrease of $18,413 (3%) compared to expenses of $537,084 for the same period in 2007. This decrease is due to lower expenses at Gemprint, Xylodyne and Ecoval offset by higher expenses at the parent. The decrease at Gemprint ($21,436 or 68% lower) is due to that company selling its assets in December 2005 and no longer operating a business. The decrease at Ecoval of $18,737 (16%) is due to lower expenses compared to the 2007 period when sales and thus marketing expenses were being ramped up. The decrease at Xylodyne of $16,295 (17%) was due to the sales reductions. The increase at the parent level of $38,055 (13%) is due to higher consulting, medical insurance and travel & entertainment expenses.

Net interest expense was $14,017 for the first quarter of 2008 compared to income of $6,306 for the first quarter of 2007. This increase in expense is due to an accrual in the first quarter 2008 of $17,968 for the IRS audit settlement and a decrease in income due to lower interest bearing cash balances in the first quarter 2008 compared to the same period in 2007.

Loss from equity holdings (entities in which CVF has a 50% or less ownership) was a loss of $34,456 in the 2008 first quarter compared to a loss of $75,674 in the 2007 period. This represents the loss in the 2008 first quarter for the new joint venture company established by Ecoval and $9,933 for investment into Petrozyme compared to CVF’s share of Biorem’s loss in the 2007 period.

Gain on sale of holdings amounted to $99,330 in the 2008 period. In the 2008 period the Company sold a portion of one of its investee holdings.

Other income was $22,151 in the first quarter 2008 compared to income of $12,239 in the 2007 period. This was due to foreign exchange as the US dollar strengthened during the 2008 and 2007 periods.

Decrease in market value of Biorem totaling $542,560 represents the change in the market value of Biorem shares held by CVF. The market value decreased to cdn $0.80 at March 31, 2008 from cdn $1.00 at January 1, 2008.

Income tax expense amounted to $nil in the first quarter 2008 compared to expense of $770 in the first quarter 2007.

Minority interest — included in the 2008 first quarter is $nil of income relating to the minority shareholders of Gemprint’s share compared to $12,572 in the 2007 first quarter.

CVF, on a consolidated basis, recorded a net loss of $965,518 ($0.08 loss per share) for the three months ended March 31, 2008 compared to a net loss of $437,908 ($0.03 loss per share) in the 2007 period.

LIQUIDITY AND CAPITAL RESOURCES:

Stockholders’ (deficit) equity as of March 31, 2008 amounted to a deficit of $112,798 compared to a deficit of $1,944,820 at December 31, 2007. This net decrease in the deficit of $1,832,022 is primarily attributable to the recording of the market value of Biorem at March 31, 2008 totaling $2,660,638 offset by the loss for the first quarter 2008 of $965,518.

The current ratio of CVF at March 31, 2008 is .35 to 1, which has decreased from .53 to 1 at December 31, 2007 due mainly to the cash used to fund the parent loss of $161,300 (net of $99,300 proceeds on sale of Biorem stock) in the first three months of 2008 and advances of $81,000 to Ecoval.

 

---

Table of Contents

CVF management anticipates that over the next twelve month period CVF should have sufficient cash from various sources to sustain itself. Between cash on hand, and the sale of a portion of its holdings in certain investee companies, the Company expects to have enough cash to fund itself and certain of its investee companies that are currently not profitable. Additionally, CVF has limited outside debt and a line of credit could be sought. CVF’s auditors report in its financial statements, which has been provided with this report contains a going concern qualification. However for the reasons cited above CVF anticipates having sufficient cash resources over the next 12 months to sustain its business activities.

Over the past six and a half years CVF has undertaken many initiatives to lower the parent company’s expenses. These initiatives have included lowering the head count of its office staff as well as the elimination of executive positions. The use of consultants has been significantly reduced. Travel and entertainment has been significantly reduced over the last 4 years and will continue at the reduced level going forward. CVF management has adopted a very aggressive cost and expenditure controls and monitoring policy. CVF, on February 27, 2006, redeemed its Series C Preferred Stock as well as paid accrued dividends for total cash payment of $1,130,767.

As at March 31, 2008, CVF’s cash balance was $482,072 which is a decrease of $253,043 compared to December 31, 2007. The reduction of CVF’s cash position was from investment in Ecoval totaling $81,000 and its parent company overhead. The primary source of cash for the Company is expected to be from the proceeds of the sale of Gemprint and the Company may from time to time pursue the sale of a portion of its interests in one or more of its investee companies, or from CVF issuing additional securities. In November 2006 CVF received $860,306 from Gemprint as a shareholder distribution of capital. The Company will also continue to assist its investee companies in their efforts to obtain outside financing in order to fund their growth and development of their business plans. Certain of the Company’s financial obligations included in current liabilities related to items that will not be paid in the near term. The Company will carefully manage its cash payments on such obligations.

As announced on December 30, 2005 CVF’s Board of Directors approved a $500,000 stock buyback program. The program allows the Company to make up to $500,000 of stock repurchases. As of May 5, 2008, the Company has purchased 1,182,661 shares for $461,218 under this program.

Critical Accounting Policies

An understanding of CVF’s accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. We focus your attention on the following accounting policies of the Company:

Going concern — These consolidated financial statements have been prepared on a going concern basis, which presumes that assets will be realized and liabilities discharged in the normal course of business over the foreseeable future. The consolidated Company’s current liabilities exceed its current assets. The consolidated Company has incurred losses over the year and for the past two years, which have reduced the Company’s cash reserves, and depleted stockholders’ equity. Further, the Company has a contingent liability described in Note 17.

These conditions raise substantial doubt about the Company’s and its consolidated subsidiaries’ ability to continue in the normal course of business as a going concern.

The Company’s primary need for cash is to maintain its ability to support the operations and ultimately the carrying values of certain of its individual investee companies. The Company may from time to time pursue the sale of a portion of its interests in one or more of its investee companies as a source of funds, as well as reducing its cash flow needs. The Company is also seeking outside investment. There is no assurance that these initiatives will be successful or that the Company or certain of its investees will continue to have adequate cash resources and capital to be able to continue as going concerns.

The Company’s ability to continue to realize assets and discharge liabilities in the normal course is uncertain and dependent on these and other initiatives. These financial statements do not include any of the

 

---

Table of Contents

adjustments to the amounts or classification of assets and liabilities that might be necessary should the Company be unable to continue its business in the normal course.

Revenue recognition — Revenue from the sale of manufactured products is recognized when the goods are shipped and accepted by the customer. The Company recognizes revenue on long-term contracts on the percentage of completion basis, based on costs incurred relative to the estimated total contract costs. Losses on such contracts are accrued when the estimate of total costs indicates that a loss will be realized. Contract billings in excess of costs and accrued profit margins are included as deferred revenue, which is part of current liabilities. Service revenue is recognized when the services are performed.

Inventory — Finished goods are stated at the lower of cost or market using the first-in, first-out method of costing. Raw materials are stated at the lower of cost or replacement value, using the first-in, first-out method.

Contingencies — As the result of an audit, in 2003 the IRS proposed adjustments to the Company’s income tax returns for 1997, 2000, and 2001, and asserted a tax deficiency of $2,969,123, plus interest. More specifically, the IRS proposed disallowances of (1) bad debt deductions in 2000 and 2001 in the amounts of $1,221,494 and $1,232,257, respectively; (2) worthless stock loss in the amount of $5,806,496 in 2000; (3) worthless stock loss in the amount of $2,141,566 in 2000; and (4) capital loss carryback of $447,452 from the taxable year 2001 to 1997. The administrative appeals division of the IRS and the Company agreed to settle the dispute. Under the settlement, the IRS would concede (1) and (3) and the Company would concede (4). With respect to (2), the worthless stock loss in 2000, the IRS and the Company would agree the loss would be allowed, in part, in 2000 and, in part, in 2001 ($3,870,999 in 2000; $1,935,490 in 2001). Because that loss was carried back to 1997, the settlement would result in a total tax deficiency of $515,030, plus interest, for the tax year 1997 and no deficiencies for 2000 and 2001. The part of the loss disallowed for carryback from 2000 to 1997 would be available as a carryforward for years after 2001. On July 9, 2007, the Company received a letter from the IRS confirming final approval of the settlement.

CVF received a final demand from the Internal Revenue Service dated February 19, 2008 requesting payment of tax totaling $515,000 relating to the tax audit the years 1997, 2000 and 2001 plus accrued interest and penalty for a total demand of $913,336. On March 12, 2008, CVF responded to this Internal Revenue Service request by submitting a Form 12153 (Request for Collection Due Process Hearing). As part of this submission CVF is requesting an Installment Arrangement with the Internal Revenue Service and stating that CVF does not agree to additional penalties and interest that is included in the $913,336 indicated by the Internal Revenue Service. CVF plans to challenge the accrued interest charged by the Internal Revenue Service as CVF believes it has strong grounds to challenge the interest assessed.

Stock Options/Warrants/Restricted Stock Grants —

During the first quarter 2008, the Company granted nil [nil in 2007] stock options to certain officers, employees and directors.

In November 2007, the Board of Directors of the Company approved awarding 652,131 restricted common shares in return for cancellation of all outstanding options and warrants that had not expired at that time. These shares will vest at the end of each year over a three year period beginning November 2008 with vesting accelerated on a change of control. During the first quarter 2008 an expense of $5,978 was recorded for these shares.

On April 6, 2006 the Board of Directors of the Company approved the Corporation’s Management Incentive Program. In connection with the program, CVF restricted common stock was granted to officers and employees of the Company totaling 1,660,000 restricted common shares. These shares will vest at the end of each year over a three year period beginning April 2007 with vesting accelerated on a change of control. The value of these shares was recorded at $0.39 per share which was the closing market price on that date. The expense is being recorded over the period that the shares vest (36 months). During the first quarter 2008 an expense of $55,126 was recorded compared to an expense of $53,209 in the first quarter 2007.

 

---

Table of Contents

FINANCIAL CONSIDERATIONS:

The business of CVF is subject to risks described elsewhere in this report, and an investor should consider the following:

Early Stage Development Companies: Each of the investees is an early stage development company with a limited relevant operating history upon which an evaluation of its prospects can be made and prone to the risks of all early stage development companies, including those described under “Forward Looking Statements”. As such, there can be no assurance of the future success of any of the investees.

Quarterly Fluctuations: CVF’s financial results have historically been, and will continue to be, subject to quarterly and annual fluctuations due to a variety of factors, primarily resulting from the nature of the technology companies in which it invests. Any shortfall in revenues in a given quarter may impact CVF’s results of operations due to an inability to adjust expenses during the quarter to match the level of revenues for the quarter. There can be no assurance that CVF will report net income in any period in the future, except when it realizes a gain from profitably selling off a portion of its assets, which is CVF’s core business model. While some of the investees have consistently reported losses, CVF has recorded income in certain fiscal periods as it did in 2005 and experienced fluctuations from period to period due to the sale of some of its holdings, other one-time transactions and similar events.

Rapid Technological Change: The markets for CVF’s investee’s products are generally characterized by rapidly changing technology, evolving industry standards, changes in customer needs and frequent new product introductions. The future success of the investees will depend on their ability to enhance current products, develop new products on a timely and cost-effective basis that meet changing customer needs and to respond to emerging industry standards and other technological changes. There can be no assurance that the investees will be successful in developing new products or enhancing their existing products on a timely basis, or that such new products or product enhancements will achieve market acceptance.

FORWARD LOOKING STATEMENTS:

CVF believes that certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to vary materially from the Company’s expected results, performance or achievements. Other factors that may affect CVF’s future
results include:

•		general economic and business conditions;
•		foreign currency fluctuations, particularly involving the Canadian dollar:
•		the Company’s ability to find additional suitable investments and the ability of those investments to generate an acceptable return on invested capital; and
•		the uncertainties and risks involved in investing in early-stage development companies which can arise because of the lack of a customer base, lack of name recognition and credibility, the need to locate and retain experienced management and the need to develop and refine the business and its operations, among other reasons.
•		the Company’s ability to obtain capital to fund its operations and those of its investees.

The Company will not update any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Not applicable.

 

---

Table of Contents

Item 4. Controls and procedures.

     Not applicable.

Item 4T.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report on Form 10-Q. Based on such evaluation, for the reasons discussed in our report on internal control over financial reporting contained in our 2007 Form 10-KSB, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Report on Form 10-Q, our disclosure controls and procedures were not effective:

•		to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and
•		to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and our CFO, to allow timely decisions regarding required disclosure.

     Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

---

Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

          None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

          None

Item 5. Other Information.

     On April 25, 2008, the board of directors of CVF approved the award of an aggregate of 132,109 shares of restricted stock that vest immediately to service providers to the company. These restricted shares were awarded in exchange for the cancellation by the recipient of an aggregate of 82,109 outstanding CVF restricted shares that vested over a 3 year period.

Item 6. Exhibits

	(11)		Statement re computation of per share earnings
	(31.1)		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	(31.2)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	(32)		Certifications Pursuant to 18 U.S.C. 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

               In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATED: May 15, 2008

	CVF TECHNOLOGIES CORPORATION
	By:	/s/ Jeffrey I. Dreben
		Name:	Jeffrey I. Dreben
		Title:	Chairman of the Board, President and Chief Executive Officer

	By:	/s/ Robert L. Miller
		Name:	Robert L. Miller
		Title:	Chief Financial Officer

 

---

Table of Contents

EXHIBIT INDEX

No.		Description
(11)		Statement re computation of per share earnings.
(31.1)		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)		Certifications Pursuant to 18 U.S.C. 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.