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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| CVF Technologies Corporation (CE) | USOTC:CNVT | OTCMarkets | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.022 | 0.00 | 01:00:00 |
| NEVADA | 0-29266 | 87-0429335 | ||
| (State or other jurisdiction | (Commission File | (I.R.S. Employer | ||
| of incorporation or organization) | Number) | Identification No.) |
| (Expressed in U.S. Currency) | ||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
|
Net (loss)
|
$ | (810,041 | ) | $ | (420,116 | ) | $ | (1,654,018 | ) | $ | (1,648,504 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Other comprehensive income, net of tax:
|
||||||||||||||||
|
Foreign currency translation adjustments
|
(125,362 | ) | 6 | (69,259 | ) | 76,238 | ||||||||||
|
Unrealized holding gains:
|
||||||||||||||||
|
Unrealized
holding (losses) gain arising during period (see note below)
|
2,864 | (3,023 | ) | (1,897 | ) | (1,944 | ) | |||||||||
|
|
||||||||||||||||
|
Total other comprehensive income
|
(122,498 | ) | (3,017 | ) | (71,156 | ) | 74,294 | |||||||||
|
|
||||||||||||||||
|
Comprehensive (loss) during period
|
$ | (932,539 | ) | $ | (423,133 | ) | $ | (1,725,174 | ) | $ | (1,574,210 | ) | ||||
|
|
||||||||||||||||
| 7. | INVENTORY | |
| Inventory consists of the following: |
| September 30, 2007 | December 31, 2006 | |||||||
|
Finished goods
|
$ | 79,879 | $ | 62,126 | ||||
| Nine Months Ended September 30, | ||||||||
| 2007 | 2006 | |||||||
|
Net Sales
|
$ | 5,982,455 | $ | 7,885,807 | ||||
|
Gross profit on sales
|
1,971,389 | 2,293,760 | ||||||
|
Net (loss)
|
$ | (2,827,107 | ) | $ | (1,157,225 | ) | ||
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 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 participants.
CVF’s ability to continue to provide additional investment to its investees is subject to the
limitations of its own financial resources. CVF’s resources are currently more liquid as a result
of the Gemprint sale and Biorem having become a public company. Therefore CVF expects to have more
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 2007
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 SEPTEMBER 30, 2007 COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2006:
Consolidated sales of CVF subsidiaries for the three months ended September 30, 2007 amounted to
$222,331, representing a decrease of $580,644 compared to sales of $802,975 for the same period in
2006 due to Xylodyne sales decrease of $569,533 and Ecoval sales decrease of $11,111.
CVF’s gross margin of $60,353 for the third quarter of 2007 represents a decrease of $106,481 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 increased to 27.1% for the third quarter of 2007 from 20.8%
for the third quarter of 2006 due to an increase at Ecoval of $11,400 due to royalty income.
Selling, general and administrative expenses on a consolidated basis for the three months ended
September 30, 2007 amounted to $527,701, representing a decrease of $10,041 (2%) compared to
expenses of
$537,742 for the same period in 2006. This decrease is due to lower expenses at the parent and
Gemprint, offset by higher expenses at Xylodyne and Ecoval. The increase at Ecoval of $49,495
(67%) is due to
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ramping up the sales and marketing activities. The decrease at the parent level of
$49,208 (14%) is due to lower salary expense, travel expense, insurance expense and accounting
expense. The decrease at Gemprint ($11,101 or 66% lower) is due to that company selling its assets
in December 2005 and no longer operating a business.
Net interest income was $13,876 for the third quarter of 2007 compared to income of $26,743 for the
third quarter of 2006. This decrease in income is due to lower interest bearing cash balances in
the third quarter 2007 compared to the same period in 2006.
Loss from equity holdings (entities in which CVF has a 50% or less ownership) was a loss of
$314,438 in the 2007 third quarter compared to a loss of $76,054 in the 2006 period. This
represents CVF’s share of Biorem’s loss in the 2007 period and $23,463 for investment into
Petrozyme compared to CVF’s share of Biorem’s loss in the 2006 period.
Other expense was $50,208 in the third quarter 2007 compared to an expense of $216 in the 2006
period. This was due to foreign exchange as the US dollar weakened during the 2007 and 2006
periods.
Income tax expense amounted to $11,654 in the third quarter 2007 compared to expense of $10,951 in
the third quarter 2006.
Minority interest – included in the 2007 third quarter is $19,731 of income relating to the
minority shareholders of Gemprint’s share of the 2007 third quarter’s loss compared to $11,271 in
the 2006 third quarter.
CVF, on a consolidated basis, recorded a net loss of $810,041 ($0.06 loss per share) for the three
months ended September 30, 2007 compared to a net loss of $420,116 ($0.03 loss per share) in the
2006 period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 2006:
Consolidated sales of CVF subsidiaries for the nine months ended September 30, 2007 amounted to
$1,539,913, representing an increase of $536,618 compared to sales of $1,003,295 for the same
period in 2006 due primarily to the Xylodyne sales increase of $536,559.
CVF’s gross margin of $370,323 for the first nine months of 2007 represents an increase of $123,277
from the same period last year. This increase is due to the sales from Xylodyne and improved gross
margin at Ecoval. Overall gross margin of CVF as a percentage of sales decreased slightly to 24.0%
for the first nine months of 2007 from 24.6% for the first nine months of 2006.
Selling, general and administrative expenses on a consolidated basis for the nine months ended
September 30, 2007 amounted to $1,625,012 representing a decrease of $23,989 (2%) compared to
expenses of $1,649,001 for the same period in 2006. This decrease is due to the parent level
decrease of $187,077 (17%) due to lower salary expense, travel expense, insurance expense and
accounting expense offset by the recording of a vested portion of the restricted CVF stock issued
totaling $157,000 in the 2007 period compared to $107,900 in the 2006 period. The decrease at
Gemprint ($69,454 or 58% lower) is due to that company selling its assets in December 2005 and no
longer operating a business. Expenses at Xylodyne and Ecoval were higher. The expenses at Xylodyne
increased by $73,703 (33%) as that company only operated for six months during the 2006 period
having started operations in April 2006. The increase at Ecoval of $158,838 (82%) is due to ramping
up the sales and marketing activities.
Net interest income was $31,523 for the first nine months of 2007 compared to income of $106,924
for the first nine months of 2006. This decrease in income is due to lower interest bearing cash
balances in the first nine months of 2007 compared to the same period in 2006.
Loss from equity holdings (entities in which CVF has a 50% or less ownership) was a loss of
$555,657 in the first nine months of 2007 compared to loss of $266,661 in the 2006 period. This
represents CVF’s share
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of Biorem’s loss in the 2007 period and $30,704 invested into Petrozyme
compared to CVF’s share of Biorem’s loss in the 2006 period.
Other expense was $61,004 in the first nine months of 2007 compared to an expense of $145,133 in
the 2006 period. This was due to foreign exchange as the US dollar weakened during the 2007 and
2006 periods.
Recovery of income tax amounted to $120,402 in the first nine months of 2007 as the IRS settlement
was accepted by the Joint Committee of Congress and therefore the accrual adjusted to the accepted
balance resulting in recovery of income taxes. This compared to expense of $13,283 in the 2006
period.
Minority interest – included in the first nine months of 2007 is $65,407 of income relating to the
minority shareholders of Gemprint’s share of the 2007 first nine months loss compared to $71,604 in
the 2006 period.
CVF, on a consolidated basis, recorded a net loss of $1,654,018 ($0.13 loss per share) for the nine
months ended September 30, 2007 compared to a net loss of $1,648,504 ($0.13 loss per share) in the
2006 period.
LIQUIDITY AND CAPITAL RESOURCES:
Stockholders’ (deficit) equity as of September 30, 2007 amounted to a deficit of $1,592,464
compared to equity of $42,400 at December 31, 2006. This net decrease in the equity of $1,634,864
is primarily attributable to the net loss of $1,654,018 which was recognized in the first nine
months of 2007.
The current ratio of CVF at September 30, 2007 is .72 to 1, which has decreased from 1.22 to 1 at
December 31, 2006 due mainly to the cash used to fund the parent loss of $927,980 in the first nine
months of 2007 and advances of $248,000 to Ecoval.
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, value of the Biorem stock that became
listed on a public market in January 2005, and the sales of a portion of its holdings in certain
investee companies such as the sale of Gemprint in 2005, the Company expects to have enough cash to
fund itself and those of its investee companies that are currently not profitable. Additionally,
CVF has limited outside debt and a line of credit could be sought.
CVF, on February 27, 2006, redeemed its Series C Preferred Stock as well as paid accrued dividends
for total cash payment of $1,121,667. The Series C holder had received a three-year warrant to
purchase 100,000 shares of CVF’s common stock at an exercise price of $0.35 per share which expired
in February 2007.
As at September 30, 2007, CVF’s cash balance was $1,181,877 (including restricted cash of $633,664)
which is a decrease of $1,150,813 compared to December 31, 2006. The primary source of cash for the
Company is expected to be from the proceeds of the sale of Gemprint and if necessary some of its
holdings in 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 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 such settlement, the IRS would concede (1) and (3) and the Company would
concede (4). With
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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. The Company is challenging the interest assessment
from the IRS.
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 October
31, 2007, the Company has purchased 1,182,661 shares for $461,218 under this repurchase 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:
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 -
A subsidiary of the Company, Xylodyne, is in the process of obtaining product liability insurance
to cover the products that it sells. In the interim it is 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.
Stock Options/Warrants/Restricted Stock Grants –
During the first nine months of 2007, the Company granted nil [nil in 2006] stock options to
officers, employees and directors.
The Company issued warrants to an officer of one of its subsidiaries in April 2007. Compensation
costs of $19,800 was recorded for these warrants for the nine months ended September 30, 2007.
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 nine months of 2007 and 2006 an expense of $157,000 and
$107,900 was recorded respectively.
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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-QSB 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. Controls and Procedures
(a)
The Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief Executive Officer
and Chief
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Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures. Based upon that evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are effective as of the end of the period covered by
this report.
(b)
There has been no significant change in the Company’s internal controls over
financial reporting that occurred during the last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Table of Contents
PART II — OTHER INFORMATION
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Small Business Issuer Purchases of Equity Securities
Total No. of shares
Maximum Approximate Dollar
Total Number
Average
purchased as part of
Value of shares that may yet
of Shares
Price Paid
publicly announced plans
be purchased under publicly
PERIOD
Purchased
per Share
or programs
announced plans or programs
January 2006
84,100
$
0.33
84,100
$
470,543.00
February 2006
49,300
$
0.36
49,300
$
451,889.50
March 2006
38,100
$
0.38
38,100
$
436,875.60
April 2006
879,961
$
0.40
879,961
$
82,733.95
May 2006
89,800
$
0.37
89,800
$
47,940.14
June 2006
4,600
$
0.33
4,600
$
46,445.14
September 2006
16,800
$
0.23
16,800
$
42,581.14
October 2006
4,200
$
0.19
4,200
$
41,783.14
November 2006
15,800
$
0.19
15,800
$
38,781.14
December 2006
-0-
-0-
-0-
$
38,781.14
January 2007
-0-
-0-
-0-
$
38,781.14
February 2007
-0-
-0-
-0-
$
38,781.14
March 2007
-0-
-0-
-0-
$
38,781.14
April 2007
-0-
-0-
-0-
$
38,781.14
May 2007
-0-
-0-
-0-
$
38,781.14
June 2007
-0-
-0-
-0-
$
38,781.14
July 2007
-0-
-0-
-0-
$
38,781.14
August 2007
-0-
-0-
-0-
$
38,781.14
September 2007
-0-
-0-
-0-
$
38,781.14
TOTAL
1,182,661
$
0.38
1,182,661
$
38,781.14
Item 5. Other Information.
On November 14, 2007, the board of directors of CVF approved the award of an aggregate of
652,131 shares of restricted stock to officers, employees and other service providers to the
company. These restricted shares were awarded in exchange for the cancellation by the recipients
of an aggregate of 652,131 outstanding CVF options and warrants. The restricted shares vest
equally over a period of three years beginning one year from the award date and vesting accelerates
upon a change of control of CVF. The executive officers and directors of CVF will receive awards
in return for cancellation of options and/or warrants of CVF as follows:
Jeffrey I. Dreben
100,000 shares
Robert B. Nally
0 shares
Robert L. Miller
60,000 shares
Robert H. Glazier
100,000 shares
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
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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: November 14, 2007
CVF TECHNOLOGIES CORPORATION
By:
Name:
/s/ Jeffrey I. Dreben
Jeffrey I. Dreben
Title:
Chairman of the Board, President
and Chief Executive Officer
By:
Name:
/s/ Robert L. Miller
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.
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