U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007.
COMMISSION FILE NUMBER 00-29266
CVF TECHNOLOGIES CORPORATION
(Name of Small Business Issuer in its charter)
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NEVADA
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87-0429335
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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8604 Main Street, Suite 1
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WILLIAMSVILLE, NEW YORK
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14221
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(Address of principal executive offices)
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(Zip Code)
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(Issuers telephone number)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock ($0.001 par value)
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act.
o
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act during the past 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained
in this form, and no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this
Form 10-KSB.
o
State issuers revenues for most recent fiscal year: $1,975,739.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
(based on the closing price on the FINRA OTC Bulletin Board) as of March 14, 2008: $766,599. For
purposes of determining this amount only, Registrant has defined affiliates as including (a) the
executive officers named in Part III of this 10-KSB report, (b) all directors of Registrant, and
(c) each shareholder that has informed Registrant by March 14, 2008 that it is the beneficial owner
of 10% or more of the outstanding common stock of Registrant.
Indicate the number of shares outstanding of each class of the Registrants
Common Stock, as of March 14, 2008:
Common Stock: 14,949,866 shares
Transitional Small Business Disclosure Format: Yes
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No
þ
PART I
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ITEM 1.
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DESCRIPTION OF BUSINESS
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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. CVFs 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. CVFs 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 CVFs funds can be
better deployed in other industries or companies. CVFs goal is to maximize the value of its
holdings in its investee companies for the Companys 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 CVFs 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 CVFs 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 CVFs own resources or via other investors.
CVFs 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 CVFs liquidity and
thus its flexibility in assisting its investee companies. See Factors That May Affect Future
Results.
The following is a list of CVFs investee companies (the Corporations), showing CVFs percentage
ownership in each as of March 1, 2008:
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CVFs PERCENTAGE
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OWNERSHIP OF
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VOTING SECURITIES
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CORPORATION
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OF ACTIVE COMPANIES
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1.
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Ecoval Corporation
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85
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%
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2.
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G.P. Royalty Distribution Corporation
(formerly Gemprint Corporation)
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65
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%
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3.
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Xylodyne Corporation
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40
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%
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4.
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Petrozyme Technologies Inc.
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50
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%
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5.
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Biorem Inc. (formerly Biorem Technologies Inc.)
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23
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%
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The Corporations
All of the above Corporations were private companies during 2007 and 2006 with the exception of
Biorem which went public in Canada in January 2005. The following paragraphs provide a brief
description of each Corporation. Each Corporation that is
actively involved in operating a technology business has its own business plan, history, financial
statements, and has management teams in place, has completed the development of its products,
established markets and distribution channels and has sold its products.
Proceeds from any additional funding received by CVFs Corporations will be utilized, in each case,
primarily for expansion of marketing and sales capability to enable the entity to realize its
commercial potential over the next two to three
years. As is common with early stage technology
companies, some of these holdings have historically operated at a loss or at break-even and some of
them may continue to operate at a loss for the foreseeable future. However, one of the holdings,
Biorem, was profitable in three of the last five years. The ability of those investees, which are
not profitable, to meet their business goals may be subject to limitations based on CVFs ability
to provide continued financial assistance. See Factors That May Affect Future Results. However,
the investee companies have the option to seek third party financing, and have successfully done so
in the past.
Consolidated Entities:
Consolidated Entities refers to those Corporations in which CVF had a greater than 50% ownership
of the voting stock at some point during 2007. Although CVF has less than a 50% ownership (40%) in
Xylodyne Corporation (Xylodyne) that Corporation is consolidated into CVF as CVF is the only
investor that invested significant funds into the company (see financial statement footnote 2 (a)
for expanded disclosure). The total assets and liabilities of each of the Consolidated Entities are
included within the financial results and position of CVF for the year ended December 31, 2007 and
in the comparative balances for the previous year as shown in the Financial Statements included in
Part II, Item 7 of this Form 10-KSB. The Company has provided loans to its Consolidated Entities
which have been eliminated for accounting purposes in consolidation and are not reflected in CVFs
financial statements. These loans represent amounts owed to CVF by the Corporations.
The three Consolidated Entities that are consolidated within the financial results of CVF are as
follows:
1. Ecoval Corporation (Ecoval)
Ecoval (www.naturesglory.com), which has its headquarters located in Williamsville, N.Y., together
with its wholly owned subsidiaries in Canada, is in the business of developing, manufacturing and
marketing environmentally friendly lawn and garden products. Ecoval sells to the retail/consumer,
municipal, institutional, specialty agricultural, Vegetation Management and Integrated Pest
Management Markets. Ecovals product line includes a line of herbicides, a non-toxic insecticide,
fungicide, moss-cleaner, and fertilizers.
Ecovals signature product is its patented eco-friendly line of herbicides. Research results show
the herbicide technology to be efficacious, non-toxic, biodegradable and faster acting than
conventional chemical products. Ecovals herbicides have received regulatory approval in Canada
through the Pesticide Management Regulatory Agency (PMRA) and through the Environmental Protection
Agency (EPA) in the United States.
Ecoval looks to identify, evaluate, and develop the most efficacious eco-friendly technologies
available. The company then brings products to market through various distribution channels. Ecoval
licenses or supplies its products to select partners, as well as sells direct under Ecoval brands.
In Canada, Ecovals patented, fast-acting, non-selective herbicides are sold under the Scotts
EcoSense
tm
brand in the consumer market, and as EcoClear Weed and Grass
Killer
tm
to the commercial/ professional markets. In 2007, the EcoSharp Weed and Grass
Killer
tm
line was introduced into the US market.
In 2004 Ecoval signed an exclusive retail licensing agreement with Scotts Canada Ltd. for the
production and retail marketing of Ecovals herbicide in Canada. In 2005 the herbicide was
introduced under the Scotts EcoSense brand of alternative lawn and garden care products. Scotts
EcoSense is available in most of the major retail outlets in Canada, including Wal-Mart, Home
Depot, Canadian Tire, Home Hardware, and Rona. Ecoval receives royalty payments based on Scotts sales of Ecovals herbicide
product.
Canada has been increasingly moving towards alternative or environmentally friendly horticultural
methods. A significant percentage of the Canadian population now lives under some type of
restrictions on the use of chemical pesticide by-law or outright ban.
In 2007, Ecoval established a joint venture with Xylodyne Corporation to develop and market a line
of products into Ecovals sales channels. The first of these initiatives should launch in mid-2008.
Ecoval and its distribution partners will continue to position Ecovals products as the best option
for environmentally sensitive applications. Ecoval is currently working to establish additional
distributor relationships and potential licensees, as well as build on existing sales, particularly
in the United States.
2. G.P. Royalty Distribution Corporation (formerly Gemprint(TM) Corporation) (Gemprint)
GemprintTM, a Toronto, Ontario based company, was in the business of providing security systems and
services to the jewelry industry to enable diamonds and other precious gems to be uniquely
identified non-invasively (fingerprinted) using a patented low power laser imaging system. The
results were stored in a data base for later verification and recovery of lost or stolen gems and
for gem inventory management.
Gemprints operating results are consolidated in CVFs results only through December 22, 2005 when
Gemprint completed the sale of substantially all of the assets to an independent third party. The
sale was completed pursuant to an asset purchase agreement which was entered into by Collectors
Universe on November 30, 2005, with Gemprint and certain of its major shareholders. Under that
agreement, Collectors Universe paid a purchase price consisting of $7.5 million in cash, at
closing, and agreed to pay $1 for each diamond registered using the Gemprint process in excess of
100,000 registrations during any year in the next five years. The asset purchase agreement and the
sale of Gemprints business and assets to Collectors Universe pursuant to that agreement were
approved by the Gemprint shareholders at a special shareholders meeting held on December 19, 2005.
At that time Gemprint changed its name to G.P. Royalty Distribution Corporation. Collectors
Universe is bundling Gemprint with its G-CAL grading program and is planning to make Gemprint a key
part of its diamond industry initiative.
As part of that transaction CVF received approximately $3.7 million (US) as repayment of its debt
and accrued interest owed to CVF by Gemprint. In addition CVF also will receive 65% of all future
distributions from the proceeds of this transaction after all the debt and obligations of Gemprint
have been paid and representation and warranties from the sale have been met as well as from future
Gemprint registration payments.
3. Xylodyne Corporation (Xylodyne)
In April 2006 the Company invested in a newly formed Ontario corporation, Xylodyne Corporation
(www.badboynorth.com). The Company advanced a total of $325,000 cdn in March/April 2006 of which
$12,000 was invested in common stock and the remainder in an interest bearing debenture. CVF owns
40% of the common stock of Xylodyne Corporation. However since the Company is currently the only
substantial investor in Xylodyne Corporation it is consolidated into the results of CVF. The
Company is in the business of developing and distributing off road 4 wheel drive electric vehicles.
The business commenced operations in April 2006.
The mission of Xylodyne Corporation is to further the sales of environmentally friendly electric
vehicles. Xylodyne has two business units: Recreational Vehicles and Engineering Services. The
Recreational Vehicle group sells and services off road electric vehicles that are targeted at
outdoorsmen but also has applications in the mining and turf care area. The Engineering Services
group assists companies in the
development of new electric and hybrid vehicles. In 2007, Xylodyne established a joint venture with
Ecoval to develop and market a line of products into Ecovals sales channels. The first of these
initiatives should launch in mid-2008.
Equity Investees:
Equity Investees are investee Corporations in which CVF holds 50% or less equity ownership but
more than or equal to 20% ownership. The Equity Investees accounts are not consolidated in CVFs
financial statements (with the exception of Xylodyne as discussed above) and generally the net
income or loss of the Equity Investees would be included in CVFs financial statements only to the
extent of CVFs percentage holdings of these entities. With respect to Petrozyme the net equity
positions, after share of losses, of all other investors have been reduced to nil. As such, the
Company had included 100% of Petrozymes losses in income (until CVFs investment was reduced to
zero) rather than the percentage owned by the Company.
CVFs two Equity Investees are described below:
4. Petrozyme Technologies Inc. (Petrozyme)
Petrozyme (www.petrozyme.com), is a Guelph, Ontario based company engaged in the business of
developing and marketing its proprietary processes utilizing industrial bioreactors for the
degradation and recovery of petroleum and organic wastes. The exploration, production and
refinement of oil generate significant quantities of oily wastes. According to estimates from the
American Petroleum Institute (API), the EPA and the U.S. Department of Energy, based on data
between 1996 and 1998, the cost to safely manage oily wastes produced by refineries in the United
States exceeds $1.0 billion per year. Petrozymes proprietary onsite treatment process can provide
significant costs savings to those US refineries that send these hazardous wastes offsite for
treatment.
Around the world, more countries are moving to ban the land disposal of untreated refinery
sludge. Ontario, the province with the largest refining capacity in Canada, passed a regulation
that will ban landfarming in 2009. Petrozymes low cost treatment technology is ideally suited for
countries that want to improve their environmental protection but lack the infrastructure for
petroleum waste treatment.
Petrozyme also has two patented technologies for treating contaminated soils. The REMSEP Process
(U.S. Patent# 6,251,058) was developed to remove PCBs and chlorinated pesticides from soil. The
second technology, the PETROSEP Process (US Patent No 6,153,017) is used to treat soils
contaminated with oil.
Discussions continue with oil companies in Saudi Arabia about the use of the Petrozyme process for
oily sludge treatment when landfarming is banned in 2007.
5. BIOREM INC. (formerly Biorem Technologies Inc.) (BIOREM)
BIOREM (www.biorem.biz), an industrial biotech company based in Guelph, Ontario, is engaged in the
business of applying industrial microbiological technology to municipal and industrial
environmental applications. The business focus of BIOREM is the design and installation of
biological air filters, or biofilters, for the removal of odor and other air pollutants from
municipal and industrial sources. Since 1999, BIOREM has made significant progress in the
commercialization of its biofilter technology, having successfully completed more than 400
biofilter installations in the U.S. and Canada. During 2004, BIOREM received its first overseas
orders from China and Saudi Arabia and since then has received additional orders from other
countries in the Middle East. BIOREM has a network of manufacturers representatives to provide
effective coverage of the rapidly growing U.S. and Canadian municipal odor control market.
In 2000, BIOREM introduced BIOSORBENS
TM
a new, long lasting, superior biofilter media.
Biorem is a leading supplier of biofilters for air pollution control in municipal and industrial
applications, including the recently acquired BIOCUBE
®
modular units. BIOREM also introduced the
BASYS
TM
biofilter, a patented, modular unit adapted for catalogue item type purchases.
Both product developments specifically address the dramatically increasing demand for easy to use,
highly efficient
biofilter systems for air emission control. Continued technical and service support to clients has
earned BIOREM a reputation as the leading biofilter supplier in the North American market for
municipal odor control.
In January 2005 Biorem completed its going public transaction and began trading on the Toronto
Venture Exchange under the symbol BRM.V. CVFs ownership position in Biorem as of March 14, 2008 is
approximately 2.7 million shares representing approximately 22% of the outstanding shares.
Number of Employees
As of December 31, 2007, CVF and its Consolidated Entities (Ecoval, Xylodyne and Gemprint) had a
total of 9 full-time employees and its equity holdings (Biorem and Petrozyme) had 43 full-time
employees.
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ITEM 2
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DESCRIPTION OF PROPERTY
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CVF leases premises in which its principal executive office is located at 8604 Main Street, Suite
1, Williamsville, New York on a one year lease (commencing December 2007) with lease payments equal
to $18,143 annually. All of the business premises and facilities used by the Consolidated Entities
are leased. These facilities (CVFs offices, Xylodynes offices and Ecovals offices) serve as
administrative offices. The facilities generally range in size from 200 to 1,500 square feet. The
lease terms expire in 2008.
The Company is not aware of any material pending proceedings.
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ITEM 4
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the fourth quarter of 2007 no matter was submitted to a vote of security holders, through
the solicitation of proxies or otherwise.
PART II
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ITEM 5
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MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
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(a) Market Information
The following table sets forth the high and low sales prices per Common Share on the FINRA OTC
Bulletin Board:
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LOW
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HIGH
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2007
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1st Quarter
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0.16
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0.20
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2nd Quarter
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0.16
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0.24
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3rd Quarter
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0.12
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0.21
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4th Quarter
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0.08
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0.15
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2006
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1st Quarter
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0.28
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0.39
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2nd Quarter
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0.32
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0.50
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3rd Quarter
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0.22
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0.32
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4th Quarter
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0.16
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0.22
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The prices quoted on the OTC Bulletin Board represent over-the-counter market quotations and
reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent
actual transactions.
(b) Holders of Record
At March 14, 2008, there were approximately 326 holders of record of CVFs common
stock.
(c) Dividends
CVF has never paid a dividend on the common stock. The payment of any future dividends will be at
the sole discretion of CVFs Board of Directors. CVF intends to retain earnings to finance the
expansion of its business but may consider paying dividends of its common stock at some time in the
future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
The Company formerly maintained the 2000 Stock Option Plan which was terminated in November 2007.
Under the plan, no options to purchase shares of common stock are outstanding and none may be
granted in the future.
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.
In April 2006 the Board of Directors of the Company approved the Corporations 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 at the end of each
year over a three year period beginning April 2007 with vesting accelerated on a change of control.
(e) Recent Sales of Unregistered Securities
None
(f) Purchases of Equity Securities
As announced on December 30, 2005 the Companys 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 March 14, 2008 the Company has purchased 1,182,661 shares under this repurchase
program for a total of $461,218.
Small Business Issuer Purchases of Equity Securities
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Maximum Approximate Dollar
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Total No. of shares
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Value of shares that may
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Total Number
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Average
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purchased as part of
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yet be purchased under
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of Shares
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Price Paid
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publicly announced
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publicly announced plans or
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PERIOD
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Purchased
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per Share
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plans or programs
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programs
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January 2006
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84,100
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$
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0.33
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84,100
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$
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470,543.00
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February 2006
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49,300
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$
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0.36
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49,300
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$
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451,889.50
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March 2006
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38,100
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$
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0.38
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38,100
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$
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436,875.60
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April 2006
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879,961
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$
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0.40
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879,961
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$
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82,733.95
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May 2006
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89,800
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$
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0.37
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89,800
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$
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47,940.14
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June 2006
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4,600
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$
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0.33
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4,600
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$
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46,445.14
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September 2006
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16,800
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$
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0.23
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16,800
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$
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42,581.14
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October 2006
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4,200
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$
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0.19
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4,200
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$
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41,783.14
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|
November 2006
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15,800
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$
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0.19
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15,800
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$
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38,781.14
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December 2006
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-0-
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-0-
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-0-
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$
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38,781.14
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January 2007
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|
-0-
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|
|
|
-0-
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|
|
|
-0-
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|
$
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38,781.14
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|
February 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
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|
$
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38,781.14
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|
March 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
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|
|
$
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38,781.14
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|
April 2007
|
|
|
-0-
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|
|
|
-0-
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|
|
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-0-
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$
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38,781.14
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|
May 2007
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|
|
-0-
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|
|
|
-0-
|
|
|
|
-0-
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|
|
$
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38,781.14
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|
June 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
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|
July 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
|
|
August 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
|
|
September 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
|
|
October 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
|
|
November 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
|
|
December 2007
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
38,781.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1,182,661
|
|
|
$
|
0.38
|
|
|
|
1,182,661
|
|
|
$
|
38,781.14
|
|
|
|
|
|
|
|
ITEM 6
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS
|
Plan of Operation
Subject to the limitations of its financial position as discussed below, CVF plans to build on the
successes and advances achieved by its investee companies in 2007. It will continue its efforts to
assist all of its investee companies to realize their full potential. The ability of certain of the
investee companies which currently are not profitable, to meet the goals included in the Plan of
Operation may be limited by CVFs ability to fund its investees as described in Factors That May
Affect Future Results.
Biorems new orders received in the fourth quarter 2007 were cdn $3,400,000. The order backlog
increased to cdn $10,017,000 from cdn $9,500,000 in the prior quarter. This is the fourth straight
quarter of backlog increase. Revenue in the fourth quarter 2007 was cdn $2,938,000, up from cdn
$2,547,000 in the third quarter 2007 as well as up for the third straight quarter. Biorem had
revenue of cdn $9,470,000 in 2007 and a loss for the year. The Companys long sales cycle and the
variability in the size of the Companys orders may cause revenue fluctuations from quarter to
quarter and year to year. The reduced bookings toward the end of 2006 slowed the revenue in early
2007.
Biorem remains focused on building order backlog, cost reduction and price adjustments to improve
its gross margin. Biorem is projecting that the sales momentum and backlog increase that has been
building for three straight quarters will continue. From second quarter of 2007, bookings have
approached an annualized rate of $15,000,000. Biorems efforts are well advanced to shift
operational and project expenses to the US in order to match the US-based orders, and minimize the
effect of currency fluctuations.
At the end of 2007, Biorem had cash and cash equivalents in the amount of cdn $2,261,000 and net
working capital of cdn $3,864,000. The cash balance and the unused credit facilities available to
Biorem are considered adequate to fund the future operating requirements of its business.
Ecoval will continue to grow its sales by further promotion of its current product line. This
includes supporting the current marketing programs, signing up new
distribution partners and licensees, and entering new markets. Ecoval will also look to cut
expenses through improvements in manufacturing, raw materials cost, and logistical management. The
company is working on a number of business development projects to launch new products into
Ecovals distribution channels, including the joint venture with Xylodyne Corporation.
One of the reasons for selling Gemprint was to help commercialize Gemprints technology. The
purchaser has agreed to pay $1 for each diamond registered using the Gemprint process in excess of
100,000 registrations during any year in the following five years. During 2007 and 2006 there were
no payments received under this arrangement. The purchaser plans on incorporating the
Gemprint
TM
process into its diamond grading process, so that each graded diamond will
also carry a Gemprint
TM
image stored in the purchasers registered database. The
incorporation of the Gemprint
TM
process will enable the purchaser to record the unique
fingerprint of each diamond it grades, which will make it possible to match its graded diamonds,
on a one-to-one basis with their certificates. The result of the inclusion of
Gemprint
TM
in the purchasers process is that the purchaser will be able to provide an
additional measure of protection against misrepresentations of diamond quality that can occur by,
for example, switching a diamond grading certificate issued for a higher quality diamond to a lower
quality diamond. The purchasers planned use of the Gemprint
TM
technology will represent
a significant advancement in the security of the diamond grading certificate. With the
incorporation of Gemprint
TM
into their grading process, they will be able to implement
anti-fraud and anti-counterfeiting measures that they believe will make their grading certificate
the most secure and trustworthy diamond grading certificate in the world. The purchaser believes
that, because the Gemprint
TM
process is non-invasive and the fingerprint it captures
is inherent in the diamond itself, the Gemprint
TM
identification method is far superior
to laser engraving a diamond, since such an engraving can be easily counterfeited by polishing off
that engraving and then re-engraving the diamond.
Xylodyne achieved sales of $1,799,700 for its first full calendar year of operations. 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. The primary thrust of the company in 2007 was to expand its
distribution network in the Northeastern US and Canada. In 2008 Xylodyne will continue to expand
its dealer network while introducing new products. Xylodyne is also working on expanding its
distribution outside its traditional recreational markets. This will give the company a more
diverse customer base and take advantage of some regional and high growth markets.
Petrozyme signed a non-disclosure agreement with a large international oil services company to
investigate the use of the Petrozyme Process for treating oily wastes generated from drilling new
oil and gas wells. This would broaden the market for Petrozymes technology beyond the oily waste
generated from oil refineries to include oily wastes generated from oil exploration and production.
CVF, when possible, will continue to work to provide equity investment and/or debt financing, based
on the progress made by the investee companies as it assesses their needs. CVF will accomplish this
within the limits of its own funds or by assisting its investee companies in completing private
placements or public offerings for themselves, as and when appropriate. CVF may also seek new
investment opportunities, primarily in the environmental sector.
Individual investee companies are expected to continue approximately the same level of research and
development that they have performed in the past two years. There are no expectations for
significant increases in plant or equipment or in the number of employees for these companies over
the next 12 months.
Comparison of Consolidated Results 2007 and 2006
Consolidated sales of CVF for the fiscal year amounted to $1,952,504, representing an increase of
$474,050 compared to sales of $1,478,454 for 2006. The increase in sales was due to Xylodynes
sales increase of $469,066 (35%) (sales of $1,799,706 in
2007 versus $1,330,641 in 2006) as Xylodyne began operations in April 2006 and therefore had a
partial year of sales in 2006.
CVF, on a stand-alone basis, has no sales from operations. Sales and gross profit reflect the
operations of CVFs consolidated subsidiaries only. These subsidiaries include Ecoval and Xylodyne.
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 CVFs
consolidated results.
CVFs gross margin of $445,344 for 2007 represents an increase of $181,407 compared to gross margin
of $263,936 for 2006. This increase is due to the sales increase from Xylodyne and improved gross
margin at Ecoval. Overall CVFs gross margin percentage of sales increased to 22.8% for 2007 from
17.9% for 2006. This increase in gross margin percentage is due to Xylodynes improved gross margin
of 19.7% in 2007 compared to 15.2% in 2006.
Selling, general and administrative expenses, on a consolidated basis, amounted to $2,164,918 for
2007 representing a decrease of $126,752 (5%) compared to $2,291,670 for 2006. This decrease is due
to the parent level decrease of $196,399 (13%) due to lower salary expense, travel expense,
insurance expense and accounting expense. The decrease at Gemprint ($136,692 or 77%) 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 $60,077 (16%) as that
company only operated for nine months during 2006 having started operations in April 2006. The
increase at Ecoval of $146,262 (46%) is due to ramping up the sales and marketing activities.
Management continues to undertake a concerted effort to effect an overall reduction in
administrative costs. Over the past 4 years CVF has undertaken many initiatives to lower the
Companys expenses. See further discussion in the Liquidity and Capital Resources section.
Loss from continuing operations decreased to $1,696,339 in 2007 from $1,994,550 in 2006, a decrease
of $298,211 (or 15%).
Net interest income was $5,817 for 2007 compared to income of $102,042 in 2006. This decrease in
income is due to lower interest bearing cash balances in 2007 compared to 2006.
Other income was $47,992 for 2007 compared to $nil in 2006. The income in 2007 represented a one
time remuneration from a supplier of Xylodyne.
Gain on Gemprint note income in 2006 of $567,712 represented recording the Gemprint minority
shareholder receivable as well as payment actually received from that shareholder during 2006.
Loss from equity holdings (entities in which CVF has a 50% or less ownership) was a loss of
$575,303 in 2007 compared to a loss of $188,077 in 2006. This represents a portion of CVFs share
of Biorems loss in 2007 (as CVFs investment in Biorem was reduced to zero in 2007) compared to
CVFs share of Biorems loss in 2006.
Minority interest included in 2007 is minority income of $67,794 compared to minority income of
$101,257 in 2006 relating to the minority shareholders of Gemprint.
CVFs realized translation loss totaled $61,758 in 2007 and $417,660 in 2006 due to the further
weakening of the US dollar.
Recovery of income tax amounted to $126,005 in 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 $15,815 in 2006.
As a result of the operations described above, CVF recorded a net loss of $2,085,792 in 2007 as
compared to a net loss of $1,845,091 in 2006.
LIQUIDITY AND CAPITAL RESOURCES
Total stockholders equity as of December 31, 2007 was a deficit of $1,944,820 compared to a net
equity of $42,400 as of December 31, 2006. This net decrease in the equity of $1,987,220 is
primarily attributable to the net loss of $2,085,792 which was recognized in 2007.
The current ratio of CVF as at December 31, 2007 is .53 to 1, which has decreased from 1.22 to 1 as
at December 31, 2006 due mainly to the cash used to fund the parent loss of $995,694 in 2007 and
advances of $396,000 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, and the sale 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 certain of its investee companies that are currently not
profitable. Additionally, CVF has limited outside debt and a line of credit could be sought. CVFs
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
companys 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 December 31, 2007, CVFs cash balance was $735,115 which is a decrease of $1,597,575 compared
to December 31, 2006. The reduction of CVFs cash position was from investment in Ecoval totaling
$396,000 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 Companys 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 CVFs 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 March
14, 2008 the Company has purchased 1,182,661 shares for $461,218 under this repurchase agreement.
Critical Accounting Policies
An understanding of CVFs 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 Companys 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 Companys cash reserves, and depleted stockholders equity. Further,
the Company has a contingent liability described in item 5.
These conditions raise substantial doubt about the consolidated Companys ability to continue in
the normal course of business as a going concern.
The Companys 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 Companys 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.
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 Companys
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. The Company is challenging the interest assessment
from the IRS (see subsequent event footnote).
Stock Options/Warrants/Restricted Stock Grants
During 2007, the Company granted nil [nil in 2006] 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 2007 an expense of $2,989 was
recorded for these shares.
On April 6, 2006 the Board of Directors of the Company approved the Corporations 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 2007 an expense of $215,800 was recorded compared to an expense of
$161,843 in 2006.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-KSB, under the captions The Corporations,
Financial Considerations and elsewhere, constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the Reform Act). Such
forward-looking statements involve unknown and uncertain risks, uncertainties and other factors
which may cause the actual results, performance or achievements of CVF, or industry results, to be
materially different from any future results, performance or achievements expressed or implied by
such forward-looking statements. Given these uncertainties, prospective investors are cautioned not
to place undo reliance on such forward-looking statements.
Factors That May Affect Future Results
As at December 31, 2007, cash reserve, and other liquid resources was $735,100. The Company has
operating cash requirements in the range of $100,000 monthly, though the Company is working to
reduce this expense. The primary source of cash for the Company in 2008 is expected to be cash on
hand 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 through borrowing against CVFs assets. 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 Companys financial
obligations included in current liabilities relate to items that will not be paid in the near term.
The Company will carefully manage its cash payments on such obligations.
Other factors that may affect CVFs future results include:
|
|
|
general economic and business conditions;
|
|
|
|
|
foreign currency fluctuations, particularly involving Canadian dollars;
|
|
|
|
|
the Companys ability to find additional suitable investments and the ability of those
investments to generate an acceptable return on invested capital;
|
|
|
|
|
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 bring in experienced management and
|
|
|
|
the need to develop and refine the business and its operations, among other reasons;
|
|
|
|
|
the Companys ability to obtain capital to fund its operations and those of its investees,
if those expenses were to increase significantly.
|
The Company will not update any forward-looking statements to reflect actual results or changes in
the factors affecting the forward-looking statements.
FINANCIAL CONSIDERATIONS
The business of CVF is subject to risks described above and elsewhere in this report, and an
investor should consider the following:
Early Stage Development Companies. The Corporations are early stage development companies with a
limited relevant operating history upon which an evaluation of its prospects can be made. As such,
there can be no assurance of the future success of any of the Corporations.
Quarterly Fluctuations. CVFs 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 CVFs 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 CVFs core business model. While some of the
Corporations 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 the Corporations 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 Corporations 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 Corporations 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.
ITEM 7 FINANCIAL STATEMENTS
Consolidated Financial Statements
CVF Technologies Corporation
[Expressed in United States Currency]
December 31, 2007
CVF Technologies Corporation
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page number
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-4
|
|
|
|
|
F-6
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
|
|
|
F-10
|
|
|
|
|
F-39
|
|
CVF Technologies Corporation
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
As at December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
735,115
|
|
|
|
1,164,736
|
|
Restricted cash
|
|
|
|
|
|
|
1,167,954
|
|
Trade receivables, net
|
|
|
112,452
|
|
|
|
401,714
|
|
Inventory
|
|
|
120,223
|
|
|
|
62,126
|
|
Prepaid expenses and other
|
|
|
20,399
|
|
|
|
37,148
|
|
|
Total current assets
|
|
|
988,189
|
|
|
|
2,833,678
|
|
|
Property and equipment, net of accumulated depreciation
|
|
|
13,614
|
|
|
|
12,167
|
|
Loans receivable related party
|
|
|
142,251
|
|
|
|
142,251
|
|
Equity investment in Biorem
|
|
|
|
|
|
|
487,546
|
|
Holdings available for sale, at market
|
|
|
1,451
|
|
|
|
18,628
|
|
Security Deposit, long-term
|
|
|
1,677
|
|
|
|
1,426
|
|
Note receivable
|
|
|
477,843
|
|
|
|
406,461
|
|
|
Total assets
|
|
|
1,625,025
|
|
|
|
3,902,157
|
|
|
See accompanying notes
F-2
CVF Technologies Corporation
CONSOLIDATED BALANCE SHEETS contd
|
|
|
|
|
|
As at December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payables and accrued liabilities
|
|
|
901,960
|
|
|
|
2,322,857
|
|
IRS audit settlement (note 15, note 18)
|
|
|
953,872
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,855,832
|
|
|
|
2,322,857
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
102,693
|
|
|
|
87,195
|
|
Minority interest
|
|
|
905,265
|
|
|
|
832,111
|
|
Pension obligation
|
|
|
677,001
|
|
|
|
588,540
|
|
|
Total long-term liabilities
|
|
|
1,684,959
|
|
|
|
1,507,846
|
|
|
Redeemable Series A preferred stock, $0.001 par value,
redeemable at $18.25 per share, authorized 500,000 shares,
issued and outstanding shares 1,592 [2006; 1,592]
|
|
|
29,054
|
|
|
|
29,054
|
|
|
|
|
|
3,569,845
|
|
|
|
3,859,757
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, authorized 50,000,000 shares,
outstanding 14,949,866 [2006; 14,297,735]
and in treasury 1,664,361 [2006; 1,664,361]
|
|
|
16,614
|
|
|
|
15,962
|
|
Additional paid-in capital
|
|
|
29,973,593
|
|
|
|
29,754,796
|
|
Treasury stock
|
|
|
(3,208,392
|
)
|
|
|
(3,208,392
|
)
|
Accumulated other comprehensive loss
|
|
|
(319,917
|
)
|
|
|
(271,606
|
)
|
Accumulated deficit
|
|
|
(28,406,718
|
)
|
|
|
(26,248,360
|
)
|
|
Total stockholders (deficit) equity
|
|
|
(1,944,820
|
)
|
|
|
42,400
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
|
1,625,025
|
|
|
|
3,902,157
|
|
|
See accompanying notes
F-3
CVF Technologies Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
1,952,504
|
|
|
|
1,478,454
|
|
Royalty Income
|
|
|
23,235
|
|
|
|
33,184
|
|
Cost of sales
|
|
|
1,507,160
|
|
|
|
1,214,518
|
|
|
Gross margin
|
|
|
468,579
|
|
|
|
297,120
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
2,164,918
|
|
|
|
2,291,670
|
|
|
Total expenses
|
|
|
2,164,918
|
|
|
|
2,291,670
|
|
|
Loss from continuing operations
before under noted items
|
|
|
(1,696,339
|
)
|
|
|
(1,994,550
|
)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
5,817
|
|
|
|
102,042
|
|
Other income
|
|
|
47,992
|
|
|
|
|
|
Gain on Gemprint Note
|
|
|
|
|
|
|
567,712
|
|
(Loss) from equity investees
|
|
|
(575,303
|
)
|
|
|
(188,077
|
)
|
Minority interest Gemprint
|
|
|
67,794
|
|
|
|
101,257
|
|
Realized currency translation (loss)
|
|
|
(61,758
|
)
|
|
|
(417,660
|
)
|
|
Total other income (expenses)
|
|
|
(515,458
|
)
|
|
|
165,274
|
|
|
(Loss) from operations before
income taxes
|
|
|
(2,211,797
|
)
|
|
|
(1,829,276
|
)
|
Income taxes (recovery)
|
|
|
(126,005
|
)
|
|
|
15,815
|
|
|
Net (loss)
|
|
|
(2,085,792
|
)
|
|
|
(1,845,091
|
)
|
|
See accompanying notes
F-4
CVF Technologies Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS contd
|
|
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
Net income (loss) attributable to common
stockholders
|
|
|
(2,087,244
|
)
|
|
|
(1,847,682
|
)
|
Basic weighted average number of
shares
|
|
|
12,915,659
|
|
|
|
12,915,659
|
|
Diluted weighted average number of
shares
|
|
|
12,915,659
|
|
|
|
12,915,659
|
|
Basic earnings (loss) per share
|
|
|
(
0.16
|
)
|
|
|
(0.14
|
)
|
Diluted earnings (loss) per share
|
|
|
(
0.16
|
)
|
|
|
(0.14
|
)
|
See accompanying notes
F-5
CVF Technologies Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY contd
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
Additional
|
|
|
|
|
|
|
|
|
|
other
|
|
Total
|
|
|
Common stock
|
|
Preferred
|
|
paid-in
|
|
Accumulated
|
|
Treasury
|
|
comprehensive
|
|
(deficit)
|
|
|
|
|
|
|
Amount
|
|
Stock
|
|
capital
|
|
deficit
|
|
stock
|
|
income
|
|
equity
|
|
|
Shares
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December
31, 2005
|
|
|
14,302,096
|
|
|
|
14,302
|
|
|
|
100
|
|
|
|
30,731,272
|
|
|
|
(24,400,678
|
)
|
|
|
(2,747,174
|
)
|
|
|
(220,190
|
)
|
|
|
3,377,632
|
|
Net (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,845,091
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,845,091
|
)
|
Dividends on Series
A preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,591
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,591
|
)
|
Treasury shares
purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(461,218
|
)
|
|
|
|
|
|
|
(461,218
|
)
|
Unrealized loss on
securities
available
for sale, net of
reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
Redemption of
Series C
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
(1,130,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,130,767
|
)
|
Restricted Shares
issued
|
|
|
1,660,000
|
|
|
|
1,660
|
|
|
|
|
|
|
|
160,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,850
|
|
Warrants expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,999
|
)
|
Translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,358
|
)
|
|
|
(51,358
|
)
|
|
Balance December
31, 2006
|
|
|
15,962,096
|
|
|
|
15,962
|
|
|
|
0
|
|
|
|
29,754,796
|
|
|
|
(26,248,360
|
)
|
|
|
(3,208,392
|
)
|
|
|
(271,606
|
)
|
|
|
42,400
|
|
|
See accompanying notes
F-6
CVF Technologies Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY contd
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
Additional
|
|
|
|
|
|
|
|
|
|
other
|
|
Total
|
|
|
Common stock
|
|
Preferred
|
|
paid-in
|
|
Accumulated
|
|
Treasury
|
|
comprehensive
|
|
equity
|
|
|
|
|
|
|
Amount
|
|
Stock
|
|
capital
|
|
deficit
|
|
stock
|
|
income
|
|
(deficit)
|
|
|
Shares
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
15,962,096
|
|
|
|
15,962
|
|
|
|
0
|
|
|
|
29,754,796
|
|
|
|
(26,248,360
|
)
|
|
|
(3,208,392
|
)
|
|
|
(271,606
|
)
|
|
|
42,400
|
|
Net (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,156,906
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,156,906
|
)
|
Dividends on Series A preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,452
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,452
|
)
|
Unrealized loss on securities available
for sale, net of reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,164
|
)
|
|
|
(2,164
|
)
|
Restricted Shares issued
|
|
|
652,131
|
|
|
|
652
|
|
|
|
|
|
|
|
218,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,449
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,147
|
)
|
|
|
(46,147
|
)
|
|
Balance December 31, 2007
|
|
|
16,614,227
|
|
|
|
16,614
|
|
|
|
0
|
|
|
|
29,973,593
|
|
|
|
(28,406,718
|
)
|
|
|
(3,208,392
|
)
|
|
|
(319,917
|
)
|
|
|
(1,944,820
|
)
|
|
See accompanying notes
F-7
CVF Technologies Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net (loss) to cash used in operating activities
|
|
|
(2,085,792
|
)
|
|
|
(1,845,091
|
)
|
Adjustments to reconcile net loss from continuing operations
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,253
|
|
|
|
3,315
|
|
Loss from equity investees
|
|
|
575,303
|
|
|
|
188,077
|
|
Minority interest in income
|
|
|
(67,794
|
)
|
|
|
(101,257
|
)
|
Gain on Gemprint note
|
|
|
|
|
|
|
(406,461
|
)
|
Deferred income tax expense
|
|
|
15,498
|
|
|
|
(229
|
)
|
Amortization of shares issued for services
|
|
|
|
|
|
|
161,843
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease (increase) in trade receivables
|
|
|
289,262
|
|
|
|
(390,709
|
)
|
Decrease (increase) in inventory and other
|
|
|
(58,097
|
)
|
|
|
(52,194
|
)
|
Prepaid expenses
|
|
|
16,749
|
|
|
|
(5,488
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
(467,025
|
)
|
|
|
62,704
|
|
Security Deposit
|
|
|
|
|
|
|
(1,426
|
)
|
Pension expense
|
|
|
88,461
|
|
|
|
(26,358
|
)
|
|
Cash provided by (applied to) operating activities
|
|
|
(1,689,182
|
)
|
|
|
(2,413,274
|
)
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from sale of holdings
|
|
|
19,877
|
|
|
|
|
|
Investment in investee companies
|
|
|
|
|
|
|
(60,369
|
)
|
|
Cash provided by (applied to) investing activities
|
|
|
19,877
|
|
|
|
(60,369
|
)
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
|
|
|
|
(25,000
|
)
|
Redemption of Series A preferred shares
|
|
|
|
|
|
|
(34,401
|
)
|
Redemption of Series C preferred shares
|
|
|
|
|
|
|
(1,130,767
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
(461,218
|
)
|
|
Cash provided by ( applied to ) financing activities
|
|
|
|
|
|
|
(1,651,386
|
)
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
71,730
|
|
|
|
(60,174
|
)
|
|
Cash and cash equivalents (applied) during year
|
|
|
(1,597,575
|
)
|
|
|
(4,185,203
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,332,690
|
|
|
|
6,517,893
|
|
|
Cash and cash equivalents, end of year
|
|
|
735,115
|
|
|
|
2,332,690
|
|
|
Cash paid during the year for interest
|
|
|
1,508
|
|
|
|
655
|
|
Cash paid during the year for income taxes
|
|
|
2
,346
|
|
|
|
5,071
|
|
|
See accompanying notes
F-8
CVF Technologies Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
|
(2,085,792
|
)
|
|
|
(1,845,091
|
)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss),
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
[net of tax effect]
|
|
|
(46,147
|
)
|
|
|
(51,358
|
)
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for previously
recognized unrealized holding (gains)
[net of taxes of ( $1,443) and ( $39)
for the years ended December 31, 2007
and 2006]
|
|
|
(2,164
|
)
|
|
|
(58
|
)
|
|
|
|
|
(2,164
|
)
|
|
|
(58
|
)
|
|
Total other comprehensive (loss)
|
|
|
(48,311
|
)
|
|
|
(51,416
|
)
|
|
Comprehensive (loss) during year
|
|
|
(2,134,103
|
)
|
|
|
(1,896,507
|
)
|
|
See accompanying notes
F-9
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
1. ORGANIZATION AND BUSINESS DESCRIPTION
CVF Technologies Corporation [the Company or CVF] is incorporated under the laws of the State
of Nevada.
The Company is engaged primarily in the business of developing and managing private companies
engaged in the environmental technology sector. The Companys mandate is to acquire significant
holdings in new and emerging companies to assist in the management of such companies and through
them to engage in businesses. The Companys mandate is also to gain income from the operations of
its investees and the ultimate proceeds of disposal of such investments.
The Company holds majority ownership positions directly or indirectly in the following companies:
Ecoval
Corporation [Ecoval]
, located in Williamsville, New York, was formed in December
2000. Ecovals business involves the development, manufacture and marketing of environmentally
friendly organic herbicides, insecticides and tree recovery systems, targeted primarily for the
lawn and garden retail/consumer market and specialty agricultural markets. At December 31, 2007,
the Company has an 85% [85% in 2006] ownership interest in Ecoval.
G.P.
Royalty Distribution Corporation (formerly Gemprint Corporation)
[Gemprint]
is a
Toronto, Canada, company which was in the business of providing products and services to the
jewelry industry to enable diamonds and other precious gems to be uniquely identified
non-invasively [fingerprinted], using a patented low power laser imaging system. The results were
stored in a database for later verification and recovery of lost or stolen gems. Gemprints Isi
system had application with all segments of the diamond supply chain [i.e. cutter/polishers,
grading laboratories, manufacturers, wholesalers, retailers and Internet traders].
During December 2005 Gemprint completed the sale of the business and substantially all of the
assets of Gemprint for cash and a royalty agreement. The sale was completed pursuant to an asset
purchase agreement which was entered into by Collectors Universe on November 30, 2005, with
Gemprint and certain of its major shareholders. Under that agreement, Collectors Universe paid a
purchase price consisting of $7.5 million in cash, at closing, and agreed to pay $1 for each
diamond registered using the Gemprint process in excess of 100,000 registrations during any year in
the next five years. The asset purchase agreement and the sale of Gemprints business and assets to
Collectors Universe pursuant to that agreement were approved by the Gemprint shareholders at a
special shareholders meeting held on December 19, 2005.
As part of this transaction CVF received approximately $3.7 million (US) as repayment of its debt
and accrued interest owed to CVF by Gemprint. In addition CVF also will receive 65% of all future
distributions from the proceeds of this transaction after all the debt and obligations of Gemprint
have been paid.
In November 2006 CVF received $860,306 from Gemprint as a shareholder distribution of capital.
F-10
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
1. ORGANIZATION AND BUSINESS DESCRIPTION
contd
At December 31, 2007, the Company had a 65% [65% in 2006] ownership interest in Gemprint.
Xylodyne Corporation (Xylodyne),
located in Ontario, was formed in March 2006. Although
CVF has less than a 50% ownership (40%) in Xylodyne Corporation (Xylodyne) which is consolidated
into CVF as CVF is the only investor that invested significant funds into that company. Xylodyne
was a newly formed corporation in early 2006, between CVF and 2 other investors. Xylodyne is in the
business of developing proprietary technology relating to electric vehicles and has a regional
distribution agreement from a manufacturer for the resale of electric all-terrain vehicles.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in accordance with
accounting principles generally accepted in the United States and are within the framework of the
significant accounting policies summarized below:
[a]
|
|
Principles of consolidation
|
|
|
|
The consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All material intercompany accounts and transactions have been
eliminated on consolidation.
|
|
|
|
Holdings in which the Company has a 20-50% ownership position and significant influence are
accounted for under the equity method of accounting (with the exception of Xylodyne as
described above), such that the Company records losses to the extent of the Companys total
holdings in the investee, comprising its equity interest, advances and loans and guarantees.
|
|
|
|
The Company accounts for holdings of less than 20% ownership position as available for sale.
These holdings are revalued to quoted market prices at each period end with the unrealized gain
or loss, net of tax effect, recorded in accumulated other comprehensive income, an element of
stockholders equity. The available for sale classification includes debt and equity
securities which are carried at fair value. The Company accounts for holdings of less than 20%
ownership for which market value is not readily available at cost less provisions for declines
in value which are considered other than temporary. Such provisions are charged to earnings
when recognized.
|
|
|
|
Gains or losses on sales of securities are recognized by the specific identification method.
|
F-11
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[a] Principles of consolidation contd
|
|
Xylodyne was capitalized with cdn $18,000 from the two individuals and own 60% of Xylodyne,
while CVF contributed cdn $12,000 to capital for a 40% ownership of Xylodyne. CVF also loaned
another cdn $313,000 in the form of a debenture to Xylodyne. Certain officers of CVF also have
two of the four voting board member seats on Xylodyne. The cdn $313,000 debenture is secured
by the assets of Xylodyne only with no personal guarantees from the majority owners of
Xylodyne.
|
|
|
|
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 anyone of the following three
characteristics of controlling financial interest: (1) The direct or indirect ability to make
decisions about an entitys 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 entitys governing
documents or arrangements with other variable interest holders or with the entity.
|
|
|
|
CVFs 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
|
F-12
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[a]
|
|
Principles of consolidation contd
|
|
|
|
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, hence traditional banking
relationships are difficult to obtain for a start up enterprise with a business located in one
country and the receivables are from companies in another country, hence 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 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 Companys $313,000 cdn debt outstanding, (c) should Xylodyne perform beyond
expectations as a result of CVFs equity ownership, CVF can enjoy their ratable amount
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.
|
[b]
|
|
Foreign currency translation
|
|
|
|
The Company uses the U.S. dollar as the reporting currency of its consolidated financial
statements. However, the functional currency of the Company and its Canadian subsidiaries is
the Canadian dollar. Accordingly, all balance sheet amounts of the Company and its Canadian
subsidiaries are translated to U.S. dollars using the exchange rates in effect at the
applicable year-end. Income statement amounts of the Company and its Canadian subsidiaries are
translated to U.S. dollars at the average exchange rate for the applicable year. The gains and
losses resulting from the translation of the Companys financial statements into U.S. currency
are recorded in accumulated other comprehensive loss.
|
|
|
|
Transactions and balances denominated in currencies other than the functional currency of the
Company or its subsidiaries are re-measured in the Companys functional currency using the
|
F-13
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[b]
|
|
Foreign currency translation contd
|
|
|
|
exchange rate in effect on the date of the transaction. Translation adjustments arising on
such re-measurement are included in the determination of net (loss) income.
|
|
[c]
|
|
Cash and cash equivalents
|
|
|
|
The Company considers all highly liquid temporary cash investments, with a maturity of three
months or less when purchased, to be cash equivalents. Occasionally, the Company may have cash
balances in its bank accounts which exceed $100,000, the federal insured limit.
|
|
[d]
|
|
Trade receivables
|
|
|
|
Trade receivables are presented net of allowance for doubtful accounts. The allowance was
$89,820 at December 31, 2007 [$79,802 at December 31, 2006]. Bad debt expense was $752 during
the year ended December 31, 2007 [$nil in 2006].
|
|
|
|
The allowance for doubtful accounts is determined at the subsidiary company level, and includes
specifically identified accounts where there is doubt as to collection.
|
|
|
|
Accounts deemed uncollectible are applied against the allowance for doubtful accounts.
|
|
[e]
|
|
Inventory
|
|
|
|
Finished goods are stated at the lower of cost or net realizable value 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.
|
|
[f]
|
|
Property and equipment
|
|
|
|
Property and equipment are recorded at cost. Depreciation is calculated using the
straight-line and declining balance methods over the estimated useful lives of the assets as
follows:
|
|
|
|
Property 5-10 years
Equipment 5-10 years
|
|
|
|
Accumulated depreciation at December 31, 2007 was $191,723 [$158,971 at December 31, 2006].
Depreciation expense was $4,253 [$3,315 in 2006].
|
F-14
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[g]
|
|
Financial instruments
|
|
|
|
The fair values of cash and cash equivalents, restricted cash, trade receivables, income taxes
receivable, bank indebtedness, trade payables and accrued liabilities, and preferred and other
non-voting stock of subsidiaries approximate their carrying values due to the short-term
maturity of these instruments. The fair value of the Companys pension obligation
approximates the carrying value, as the debt bears interest at rates approximating current
market rates.
|
|
|
|
Holdings available for sale at market are valued at the published stock market values. Those
values are subject to market value risks, as stock prices may fluctuate from day to day. Those
holdings carried at cost or equity and the non-voting stock of subsidiaries are related to
private companies, whose fair market value is not readily determinable.
|
|
|
|
Financial instruments, which are denominated in currencies other than U.S. dollars, are subject
to exchange rate risk. At December 31, the Company had the following Canadian dollar
denominated financial instruments [converted to the U.S. dollar equivalents]:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
68,366
|
|
|
|
121,925
|
|
Trade payables
|
|
|
369,581
|
|
|
|
345,850
|
|
Pension obligation
|
|
|
677,001
|
|
|
|
588,540
|
|
[h]
|
|
Impairment of Long-Lived Assets
|
|
|
|
The Company reviews long-lived assets, certain identifiable assets and goodwill related to
those assets on a quarterly basis for impairment whenever circumstances and situations change
such that there is an indication that the carrying amounts may not be recovered. Any impairment
losses, if so determined have been recorded in the statement of operations.
|
F-15
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[i]
|
|
Minority interest
|
|
|
|
Minority common equity interests are charged (credited) with their proportionate share of
subsidiary losses (net income). When minority interests are reduced to zero by the allocable
share of investee losses, any additional losses from such investee are charged entirely to the
Company. Where excess losses are recorded by the Company, they will be charged against minority
interests in the event future income becomes available or minority interests contribute
additional equity.
|
|
[j]
|
|
Income (Loss) per share
|
|
|
|
Basic income (loss) per share is computed by dividing net income (loss) attributable to common
stockholders by the weighted average number of common shares outstanding during the year. The
net income (loss) attributable to common stockholders consists of net income (loss) increased
by the dividends on the Companys Series A and B preferred stock. Diluted earnings per share
would be calculated as the per share amount that would have resulted if dilutive potential
stock had been converted to common stock, as prescribed by SFAS 128.
|
|
|
|
The common stock equivalents at December 31, 2007 and 2006 were 722,131 and 722,131
respectively.
|
|
[k]
|
|
Revenue recognition
|
|
|
|
Revenue from the sale of manufactured products is recognized when the goods are shipped and
accepted by the customer. Shipping and handling costs are included in cost of goods sold.
|
|
|
|
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 recorded as deferred
revenue and included in current liabilities. Contract costs and margins earned in excess of
progress billings are carried in accounts receivable.
|
|
|
|
Service revenue is recognized when the services are performed.
|
F-16
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[l]
|
|
Share Based Payments
|
|
|
|
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 managements 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 Companys stock-based compensation expense could be materially different in
the future. In addition, the Company is required to estimate the expected forfeiture rate and
only recognize expense for those shares expected to vest. In estimating the Companys
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 Companys 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 $219,441 and $161,850 in additional compensation
expense during the year ended December 31, 2007 and 2006. The expense represents the portion
of restricted stock that was vested. Such amount is included in general and administrative
expenses on the statement of operations.
|
|
[m]
|
|
Income taxes
|
|
|
|
The Company accounts for income taxes using the liability method under which a deferred tax
asset or liability is recognized based upon the tax effect of the differences between the
financial statement and tax basis of assets and liabilities, as measured at the enacted rates
which will be in effect when these differences are expected to reverse. Provision is made for
all applicable U.S. and foreign income taxes pursuant to this standard.
|
|
[n]
|
|
Use of estimates
|
|
|
|
The preparation of financial statements in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the
|
F-17
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[n]
|
|
Use of estimates contd
|
|
|
|
reporting year. Management has recorded its estimate of costs attributed to the tax audit.
Actual results could differ from those estimates.
|
|
[o]
|
|
Credit risk
|
|
|
|
The Company performs ongoing credit evaluations of its customers financial condition and
generally does not require collateral. The Company maintains allowances for potential losses,
and such losses have been within managements expectations.
|
|
[p]
|
|
Impact of recently issued accounting standards
|
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. Management believes this Statement will have significant positive impact on
the financial statements of the Company once adopted.
FASB 160 Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB
No. 51
In December 2007, the FASB issued FASB Statement No. 160 Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51. This Statement applies to all entities that
prepare consolidated financial statements, except not-for-profit organizations, but will affect
only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or
that deconsolidate a subsidiary. Not-for-profit organizations should continue to apply the guidance
in Accounting Research Bulletin No. 51, Consolidated Financial Statements, before the amendments
made by this Statement, and any other applicable standards, until the Board issues interpretative
guidance.
This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
F-18
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FASB 160 Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB
No. 51 contd
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. Before this Statement was
issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable
diversity in practice existed. So-called minority interests were reported in the consolidated
statement of financial position as liabilities or in the mezzanine section between liabilities and
equity. This Statement improves comparability by eliminating that diversity.
A noncontrolling interest, sometimes called a minority interest, is the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. The objective of this Statement
is to improve the relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by establishing accounting and
reporting standards that require: (a) The ownership interests in subsidiaries held by parties other
than the parent be clearly identified, labeled, and presented in the consolidated statement of
financial position within equity, but separate from the parents equity, (b) The amount of
consolidated net income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income, (c) Changes in a
parents ownership interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently. A parents ownership interest in a subsidiary changes if
the parent purchases additional ownership interests in its subsidiary or if the parent sells some
of its ownership interests in its subsidiary. It also changes if the subsidiary reacquires some of
its ownership interests or the subsidiary issues additional ownership interests. All of those
transactions are economically similar, and this Statement requires that they be accounted for
similarly, as equity transactions, (d) When a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured at fair value. The
gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any
noncontrolling equity investment rather than the carrying amount of that retained investment, (e)
Entities provide sufficient disclosures that clearly identify and distinguish between the interests
of the parent and the interests of the noncontrolling owners.
This Statement is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar
year-ends). Earlier adoption is prohibited. This Statement shall be applied prospectively as of the
beginning of the fiscal year in which this Statement is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure requirements shall be
applied retrospectively for all periods presented. Management is currently assessing the impact of
adopting such pronouncement.
F-19
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES contd
FASB 141(revised 2007) Business Combinations
In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), Business Combinations.
This Statement replaces FASB Statement No. 141, Business Combinations. This Statement retains the
fundamental requirements in Statement 141 that the acquisition method of accounting (which
Statement 141 called the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This Statement defines the acquirer as the entity
that obtains control of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control. This Statements scope is broader
than that of Statement 141, which applied only to business combinations in which control was
obtained by transferring consideration. By applying the same method of accountingthe acquisition
methodto all transactions and other events in which one entity obtains control over one or more
other businesses, this Statement improves the comparability of the information about business
combinations provided in financial reports.
This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values
as of that date, with limited exceptions specified in the Statement. That replaces Statement 141s
cost-allocation process, which required the cost of an acquisition to be allocated to the
individual assets acquired and liabilities assumed based on their estimated fair values.
This Statement applies to all transactions or other events in which an entity (the acquirer)
obtains control of one or more businesses (the acquirer), including those sometimes referred to as
true mergers or mergers of equals and combinations achieved without the transfer of
consideration, for example, by contract alone or through the lapse of minority veto rights. This
Statement applies to all business entities, including mutual entities that previously used the
pooling-of-interests method of accounting for some business combinations. It does not apply to: (a)
The formation of a joint venture, (b) The acquisition of an asset or a group of assets that does
not constitute a business, (c) A combination between entities or businesses under common control,
(d) A combination between not-for-profit organizations or the acquisition of a for-profit business
by a not-for-profit organization.
This Statement applies prospectively to business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or after December 15,
2008. An entity may not apply it before that date. Management is currently assessing the impact of
adopting such pronouncement.
F-20
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
3. INVENTORY
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
Finished goods
|
|
|
120,223
|
|
|
|
62,126
|
|
Less reserve for obsolescence
|
|
|
|
|
|
|
|
|
|
|
|
|
120,223
|
|
|
|
62,126
|
|
|
4. HOLDINGS
The Company accounts for its holdings in the following companies using the equity method:
[a]
|
|
Petrozyme Technologies, Inc. [Petrozyme], a Guelph, Canada, private company in the business of developing and marketing processes for the
degradation of petroleum waste products.
|
|
[b]
|
|
Biorem Technologies Inc. [Biorem], a Guelph, Canada, public company at December 31, 2007 and December 31, 2006 (private company at December
31, 2004), which went public in January 2005, is an industrial biotech company engaged in the business of applying industrial air pollution
control applications.
|
|
|
In addition, the Company has other holdings available for sale, other notes and other holdings which are not individually significant.
|
Holdings consisted of the following at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
available for
|
|
|
|
|
|
|
|
|
|
|
at cost
|
|
for sale at
|
|
|
|
|
|
|
Percentage
|
|
or equity
|
|
fair value
|
|
|
|
|
|
|
ownership
|
|
$
|
|
$
|
|
Petrozyme
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
common shares
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
Class C non-voting shares notes and advances [net of equity
in losses] [i]
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biorem
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,819,100
|
|
|
effective common shares [ii]
|
|
|
23.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other notes and holdings
|
|
|
|
|
|
|
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
1,451
|
|
|
F-21
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
4. HOLDINGS contd
Holdings consisted of the following at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
available for
|
|
|
|
|
|
|
|
|
|
|
at cost
|
|
for sale at
|
|
|
|
|
|
|
Percentage
|
|
or equity
|
|
fair value
|
|
|
|
|
|
|
ownership
|
|
$
|
|
$
|
|
Petrozyme
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
common shares
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
Class C non-voting shares
notes and advances [net of equity
in losses] [i]
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Biorem
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,819,100
|
|
|
effective common shares [ii]
|
|
|
23.5
|
%
|
|
|
487,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other notes and holdings
|
|
|
|
|
|
|
|
|
|
|
18,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
487,546
|
|
|
|
18,628
|
|
|
|
|
|
[i]
|
|
The notes and advances to Petrozyme bear interest at prime plus 2%, are unsecured, payable
on demand, some are denominated in Canadian currency and others in U.S. currency. On December
21, 2005 the Company demanded repayment of these notes and notified Petrozyme that it intended
to enforce its security. The carrying value of these assets has been reduced to zero by the
Companys share of losses of Petrozyme.
|
The following table gives certain combined summarized unaudited financial information related to
the Companys equity holdings (excluding Biorem and SRE which are stated separately):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Income Statement Data (Unaudited)
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
73,188
|
|
|
|
135,528
|
|
Gross profit (loss) on sales
|
|
|
73,188
|
|
|
|
111,365
|
|
Net (loss)
|
|
|
(336,268
|
)
|
|
|
(222,432
|
)
|
|
|
|
|
|
|
|
|
|
|
CVFs share of net (loss)
|
|
|
(168,134
|
)
|
|
|
(111,216
|
)
|
|
F-22
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
4. HOLDINGS contd
|
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
269
|
|
|
|
26,801
|
|
Total assets
|
|
|
269
|
|
|
|
26,801
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
25,310
|
|
|
|
28,165
|
|
Non-current liabilities
|
|
|
4,042,936
|
|
|
|
3,150,997
|
|
(Deficit)
|
|
|
(4,067,977
|
)
|
|
|
(3,152,361
|
)
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
269
|
|
|
|
26,801
|
|
|
|
|
|
|
|
|
|
|
|
CVFs share of (accumulated deficit)
|
|
|
(2,033,988
|
)
|
|
|
(1,576,180
|
)
|
|
|
|
|
|
|
|
|
|
|
CVFs share of non-current liabilities
|
|
|
4,042,936
|
|
|
|
3,150,997
|
|
|
The investee companies have options outstanding, which are convertible into common stock of the
respective investee companies. Such conversions, except where noted, would not materially decrease
or increase the Companys interest in the earnings or net assets of any investee.
The summarized unaudited financial data of Biorem for the year ended December 31, 2007 and 2006 is
as follows:
|
|
|
|
|
Year ended December 31, 2007
|
|
Biorem
|
Income Statement Data (Unaudited)
|
|
$
|
|
Net sales
|
|
|
8,874,295
|
|
Gross profit on sales
|
|
|
3,134,040
|
|
Net (loss)
|
|
|
(2,812,633
|
)
|
|
CVFs share of net (loss)
|
|
|
(714,569
|
)
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
Current assets
|
|
|
6,927,386
|
|
|
Total assets
|
|
|
11,623,245
|
|
|
Current liabilities
|
|
|
3,029,779
|
|
Equity
|
|
|
8,593,466
|
|
|
Total liabilities and equity
|
|
|
11,623,245
|
|
|
CVFs share of equity
|
|
|
2,028,058
|
|
|
F-23
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
4. HOLDINGS contd
|
|
|
|
|
Year ended December 31, 2006
|
|
Biorem
|
Income Statement Data (Unaudited)
|
|
$
|
|
Net sales
|
|
|
10,597,336
|
|
Gross profit on sales
|
|
|
3,646,252
|
|
Net (loss)
|
|
|
(679,237
|
)
|
|
CVFs share of net (loss)
|
|
|
(188,077
|
)
|
|
|
Balance Sheet Data
|
|
|
|
|
Current assets
|
|
|
7,798,695
|
|
|
Total assets
|
|
|
12,529,672
|
|
|
Current liabilities
|
|
|
2,806,735
|
|
Equity
|
|
|
9,722,937
|
|
|
Total liabilities and equity
|
|
|
12,529,672
|
|
|
CVFs share of equity
|
|
|
2,591,163
|
|
|
The Biorem entity has options outstanding, which are exercisable into common stock of Biorem.
There was no convertible debt or equity held by CVF which are convertible into common stock of
the respective investee company. The separate calendar 2007 and 2006 audited financials of
Biorem public entity are available for public viewing with the System for Electronic Document
Analysis and Retrieval, SEDAR, at www.sedar.com.
During December 2005 Gemprint completed the sale of the business and substantially all of the
assets of Gemprint for cash and a royalty agreement. The sale was completed pursuant to an
asset purchase agreement which was entered into by Collectors Universe on November 30, 2005,
with Gemprint and certain of its major shareholders. Under that agreement, Collectors Universe
paid a purchase price consisting of $7.5 million in cash, at closing, and agreed to pay $1 for
each diamond registered using the Gemprint process in excess of 100,000 registrations during
any year in the next five years. The asset purchase agreement and the sale of Gemprints
business and assets to Collectors Universe pursuant to that agreement were approved by the
Gemprint shareholders at a special shareholders meeting held on December 19, 2005.
As part of that transaction, income from the sale of the Gemprint asset was recorded in 2005
totaling $6,361,304. This was comprised of the sale price of $7,500,000 plus the basis of
various assets and liabilities that were assumed by the purchaser as a part of this sale.
Also as part of that transaction in December 2005 CVF received approximately $3.7 million (US)
as repayment of its debt and included accrued interest of $1,423,863 owed to CVF by
F-24
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
4. HOLDINGS contd
Gemprint. In addition CVF also will receive 65% of all future distributions from the proceeds
of this transaction after all the debt and obligations of Gemprint have been paid.
At December 31, 2005 an impairment of goodwill expense totaling $1,200,108 was taken as
Gemprint had sold the assets relating to the goodwill.
In November 2006 CVF received $860,306 from Gemprint as its portion of a $1.3 million
shareholder return of capital.
Aside from the cash disbursed to pay promissory notes together with accrued interest,
redemption of the preferred shares, legal expenses and return of capital the remaining cash
balance of $1,418,923 are mainly held in trust accounts. Of that amount $1,167,954 is
restricted (of which $425,000 is held in escrow and the final half has been released in
December 23, 2007) and became unrestricted on December 23, 2007 because there are no claims
arising from the representations and warranties made by Gemprint.
5. CONCENTRATION OF CREDIT RISK
For the year ended December 31, 2007, the Companys subsidiary, Xylodyne Corporation had a customer
which accounted for $826,042 or 46% of consolidated sales as compared to $909,333 or 68% of the
year ended December 31, 2006. No other customer accounted for more than 10% of the Companys sales
in either the year 2007 or 2006. The Companys accounts receivable from this customer at December
31, 2007 and December 31, 2006 amounted to $nil and $334,006, respectively.
6. DEPENDENCY ON SUPPLIER
The Companys subsidiary, Xylodyne Corporation had one supplier that accounted for $611,885 or 42%
of consolidated cost of sales for the year ended December 31, 2007 as compared to $776,348 or 69%
of the December 31, 2006 consolidated cost of sales. The Companys accounts payable to this
supplier at December 31, 2007 and December 31, 2006 amounted to $55,931 and $159,293, respectively.
7. PENSION OBLIGATION
In recognition of past service contributions by a retired executive officer, the Company has agreed
to provide a Cdn. $6,000 [U.S. $6,053 at current exchange rates] monthly pension benefit for life.
The accrued pension obligation represents the actuarial value of this benefit. This obligation is
adjusted annually based on payments made and changes in actuarial assumptions.
F-25
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
8. INCOME TAXES
Details of the income tax (recovery) related to income from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
Current:
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
Income taxes on interest income from subsidiary
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
Taxes (net of recovery) on operations of subsidiaries
|
|
|
|
|
|
|
15,815
|
|
|
Total current taxes
|
|
|
|
|
|
|
15,815
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(126,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes
|
|
|
(126,005
|
)
|
|
|
15,815
|
|
|
Income tax (recovery)
|
|
|
(126,005
|
)
|
|
|
15,815
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before (recovery of) income taxes:
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(2,023,970
|
)
|
|
|
1,281,157
|
|
Foreign
|
|
|
(187,827
|
)
|
|
|
(548,119
|
)
|
|
Income (loss) before (recovery of) income taxes
|
|
|
(2,211,797
|
)
|
|
|
(1,829,276
|
)
|
|
No income tax provisions or recoveries are allocable to operations of discontinued business, or
extraordinary items.
The recovery of income taxes differs from the amount computed by applying the statutory income tax
rate to net loss before recovery of income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
%
|
|
%
|
|
U.S. statutory income tax rate
|
|
|
(35.0
|
)
|
|
|
(35.0
|
)
|
|
(Decrease) increase in income tax resulting from:
|
|
|
|
|
|
|
|
|
Non-deductible equity compensation
|
|
|
3.69
|
|
|
|
|
|
Loss in subsidiaries not recognized for tax purposes
|
|
|
.37
|
|
|
|
3.30
|
|
Change in allowance
|
|
|
25.24
|
|
|
|
14.92
|
|
Net operating loss carryforward utilized for foreign distributions
|
|
|
|
|
|
|
16.78
|
|
|
Effective income tax rate
|
|
|
(5.7
|
)
|
|
|
|
|
|
F-26
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
8. INCOME TAXES contd
The components of the temporary differences which created the deferred tax (recovery) provision are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
Change in:
|
|
|
|
|
|
|
|
|
Operating Tax loss carryforward, CVF Corporation
|
|
|
(584,590
|
)
|
|
|
(384,610
|
)
|
Operating tax loss carryforward, subsidiaries
|
|
|
(234,514
|
)
|
|
|
(218,547
|
)
|
Capital tax loss carryforward, CVF Corporation
|
|
|
(200,365
|
)
|
|
|
(142,082
|
)
|
Difference in basis in subsidiary
|
|
|
(121,377
|
)
|
|
|
(224,721
|
)
|
Pension obligation
|
|
|
(30,068
|
)
|
|
|
8,994
|
|
Other
|
|
|
(126,005
|
)
|
|
|
|
|
Change in valuation allowance
|
|
|
1,170,914
|
|
|
|
960,966
|
|
|
|
|
|
(126,005
|
)
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
Operating tax loss carryforward
|
|
|
1,824,787
|
|
|
|
1,240,197
|
|
Capital loss carry-forward
|
|
|
1,679,579
|
|
|
|
1,479,214
|
|
Difference in basis in subsidiary
|
|
|
1,514,470
|
|
|
|
1,393,093
|
|
Related to pension obligation
|
|
|
230,111
|
|
|
|
200,043
|
|
Less: Valuation allowance
|
|
|
(5,248,947
|
)
|
|
|
(4,312,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment & notes in investees
|
|
|
102,693
|
|
|
|
87,195
|
|
|
Net deferred tax (liability)
|
|
|
(102,693
|
)
|
|
|
(87,195
|
)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
Income tax losses available for carryforward in subsidiaries
|
|
|
579,652
|
|
|
|
345,138
|
|
Less: Valuation allowance
|
|
|
(579,652
|
)
|
|
|
(345,138
|
)
|
|
Net deferred tax asset foreign
|
|
|
|
|
|
|
|
|
|
F-27
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
8. INCOME TAXES contd
At December 31, 2007, the Company has losses available for carryforward in certain of its
Canadian subsidiaries of approximately $1,610,143 [$1,262,264 in 2006] available to reduce
future years income for tax purposes in these subsidiaries. These losses expire between the
years 2008 through 2013.
At December 31, 2007, the Company has U.S. net operating losses available for carryforward of
approximately $5,091,000 available to reduce future years income for tax purposes, which
expire in the years 2022 through 2027. In addition there are capital loss carryforwards of
approximately $4,799,000 with no expiration.
9. STOCKHOLDERS EQUITY
[a] Common shares
Holders of the common shares are entitled to one vote per share on each matter submitted to
vote at any meeting of the shareholders. Common shares do not carry cumulative voting rights,
and, therefore, holders of a majority of the outstanding shares of common shares will be able
to elect the entire Board of Directors, and, if they do so, minority shareholders would not be
able to elect any members to the Board of Directors. The Companys Board of Directors has
authority, without the action by the Companys shareholders, to issue all or any portion of the
authorized but unissued common shares, which would reduce the percentage ownership of the
Company of its shareholders and which may dilute the book value of the common shares.
Dividends declared on the common shares are payable in U.S. dollars.
In December 2005 the Companys 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 March 14,
2008 the Company has purchased 1,182,661 shares under this repurchase agreement for a total of
$461,218.
[b] Preferred stock
Preferred shares may be issued in one or more series as may from time to time be determined by
the Board of Directors. Each series shall be distinctly designated.
Redeemable Series A preferred stock
The Company currently has outstanding a series of non-voting Preferred Stock designated as
Series A Preferred Stock [Series A
Preferred]. Each share of Series A Preferred has a
stated value [the Stated Value] of $18.25. The holders of Series A Preferred are entitled to
cumulative dividends at the rate of 5% annually of the Stated Value plus accrued but unpaid
F-28
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
9. STOCKHOLDERS EQUITY
[b] Preferred stock Redeemable Series A preferred stock contd
dividends, to be paid in U.S. dollars. The dividends have priority over any payments of
dividends on common shares and on all other shares of preferred stock ranking junior to the
Series A Preferred.
The Company may, at its option and at any time, redeem all or part of the Series A Preferred
from the holders thereof. Additionally, at any time after August 20, 2000, a holder of the
Series A Preferred may require the Company to redeem any or all of the Series A Preferred held
by such holder. The redemption price shall be the Stated Value plus all accrued but unpaid
dividends. In light of the mandatory redemption feature, the preferred stock is classified
outside of permanent equity. On July 14, 2006 the Company redeemed in cash 1,885 shares of
Redeemable Series A Preferred Stock. The redemption price was $34,401 (US), plus accrued and
unpaid interest of $15,136 through the redemption date, July 14, 2006.
As at December 31, 2007, an amount of $15,034 [$13,043 at December 31, 2006] has been accrued
in respect of cumulative unpaid dividends.
Series B & C convertible preferred stock
In February 2004 the Companys outstanding Series B Convertible Preferred Stock was
restructured in a transaction agreed to with the holder of this stock. The holder exchanged its
Series B Convertible Preferred Stock with a stated value of $3,385,000 and accrued dividends of
approximately $673,600 for 1,000,000 shares of the Companys common stock and a new Series C 6%
Convertible Preferred Stock with a stated value of $1,000,000, convertible into common stock at
$1 per share. On February 27, 2006 the Company redeemed in cash all of its outstanding Series
C 6% Convertible Preferred Stock, in accordance with the terms. The redemption price was $1.0
million (US), plus accrued and unpaid interest of $130,767 through the redemption date,
February 27, 2006. The Company issued the Series C Preferred Stock together with common shares
and warrants in February 2004 in exchange for its then outstanding Series B 6% convertible
Preferred Stock.
Still outstanding with the former Series C holder is a three-year warrant to purchase 100,000
shares of the Companys common stock at an exercise price of $0.35 per share. The warrant has
an expiration date of February 27, 2007 and has now expired.
[c] Warrants
There are nil Warrants outstanding at December 31, 2007 [377,131 at December 31, 2006].
F-29
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
9. STOCKHOLDERS EQUITY
[d] Comprehensive income (loss)
SFAS 130 requires unrealized gains or losses on the Companys available-for-sale securities and
foreign currency translation adjustments to be included in other comprehensive income.
Disclosure of accumulated balances related to each component of other comprehensive income
(loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Accumulated
|
|
|
gains (losses)
|
|
Foreign
|
|
other
|
|
|
on securities
|
|
currency
|
|
comprehensive
|
|
|
[net of tax]
|
|
translation
|
|
income (losses)
|
|
|
$
|
|
$
|
|
$
|
|
Balance December 31, 2005
|
|
|
4,235
|
|
|
|
(224,425
|
)
|
|
|
(220,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year other comprehensive (loss)
|
|
|
(58
|
)
|
|
|
(51,358
|
)
|
|
|
(51,416
|
)
|
|
Balance December 31, 2006
|
|
|
4,177
|
|
|
|
(275,783
|
)
|
|
|
(271,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year other comprehensive (loss)
|
|
|
(2,164
|
)
|
|
|
(46,147
|
)
|
|
|
(48,311
|
)
|
|
Balance December 31, 2007
|
|
|
2,013
|
|
|
|
(321,930
|
)
|
|
|
(319,917
|
)
|
|
The details of unrealized holding gains and losses included in comprehensive income net of
reclassification adjustments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
(Losses)
|
|
Taxes
|
|
Net
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
2006
|
|
|
(97
|
)
|
|
|
|
|
|
|
39
|
|
|
|
(58
|
)
|
2007
|
|
|
(3,607
|
)
|
|
|
|
|
|
|
1,443
|
|
|
|
(2,164
|
)
|
F-30
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
10. INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,085,792
|
)
|
|
|
(1,845,091
|
)
|
Dividends on Series A preferred stock
|
|
|
(1,452
|
)
|
|
|
(2,591
|
)
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings
(loss) per share (loss) attributable to common
stockholders
|
|
|
(2,087,244
|
)
|
|
|
(1,847,682
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings or loss per
share weighted average shares outstanding
|
|
|
12,915,659
|
|
|
|
12,915,659
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares denominator
for diluted earnings per share adjusted
weighted-average shares and assumed conversion
|
|
|
12,915,659
|
|
|
|
12,915,659
|
|
|
Basic earnings (loss) per share
|
|
|
(0.16
|
)
|
|
|
(0.14
|
)
|
Diluted earnings (loss) per share
|
|
|
(0.16
|
)
|
|
|
(0.14
|
)
|
|
11. BUSINESS AQUISITION AND SUPPLEMENTARY
SUBSIDIARY INFORMATION
[a] G.P. Royalty Distribution Corporation Gemprint
During 2000, the Company sold a portion of its holdings in Gemprint to a corporation formed for
the benefit of former Gemprint employees. The sale involved 5,614,743 common shares of
Gemprint reducing CVFs interest from 73% to 56.1%. Consideration received was a demand
promissory note in the amount of $333,600 [Cdn. $500,000], bearing interest at 5% per annum.
F-31
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
11. BUSINESS AQUISITION AND SUPPLEMENTARY
SUBSIDIARY INFORMATION
[a] G.P. Royalty Distribution Corporation Gemprint contd
Pursuant to SEC
Staff Accounting Bulletin Topic 5E
, the Company will recognize the gain/loss
from this transaction when the related note has been paid. In 2006, the Company
has recorded $406,461 of such monies due from these certain former Gemprint employees as most
of the contingencies relating to the sale of Gemprint have been resolved. These former
Gemprint employees have paid, in 2006, $175,000 (Cdn) on account. Essentially the Gemprint
note and interest recorded is supported by the Gemprint minority interest payable.
12. STOCK BASED COMPENSATION
During 2007, the Company granted 180,000 [nil in 2006] stock options to certain officers, employees
and directors. The exercise price of all options issued was equal to the market value of the
underlying stock on the date on which options were granted. The Company recorded $19,800 of
compensation expense for these options granted in 2007.
The following is a summary of stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
Shares
|
|
price
|
|
|
|
|
|
|
$
|
|
Outstanding December 31, 2005
|
|
|
345,000
|
|
|
|
0.27
|
|
|
Granted during the year
|
|
|
|
|
|
|
|
|
Expired during the year
|
|
|
|
|
|
|
|
|
Exercised during the year
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2006
|
|
|
345,000
|
|
|
|
0.27
|
|
|
Granted during the year
|
|
|
180,000
|
|
|
|
|
|
Cancelled during the year
|
|
|
(525,000
|
)
|
|
|
|
|
Exercised during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2007
|
|
|
|
|
|
|
|
|
|
The Company granted 652,131 and 1,660,000 shares of common stock to its employees and directors in
2007 and 2006, respectively. These shares vest over 36 months from the grant date.
F-32
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
13. SEGMENTED INFORMATION
The Company currently has four reportable segments (four in 2006): natural horticultural,
identification systems, electric vehicle and general corporate. The precious gem identification
segment whose assets were sold in December 2005 for consideration which included a five year
royalty stream. 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 gem identification segment
consisted of one company that developed identification and database systems, and markets its
products and services to the companies in the precious gem business, including producers, cutters,
distributors and retailers. The assets (including the intangible patents) were sold in December
2005 to an unrelated party. The natural horticultural segment consists of one company that
develops, manufactures and markets natural fertilizers, insecticides and herbicides. The electric
vehicle segment consists (commenced operations in April 2006) of one company that is in the
business of developing and distributing electric vehicles. The Companys general corporate segment
includes one company which provides funding and management advisory services to the holdings. This
segments profits include interest income and gains on sales of its various holdings.
Segment assets consist of capital assets and goodwill.
The Company evaluates performance and allocates resources based on 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.
The Companys reportable segments are business units that offer different products and services.
The reportable segments are each managed separately because they develop, manufacture and
distribute different products and services.
The basis for attributing revenues from external customers to individual countries is the location
of the customer. Virtually all of the long-lived assets of the Company are located in Canada.
Consistent with the nature and business plans of the Company, many of its subsidiaries and equity
holdings are dependent on the general corporate segment for funding to enable them to meet their
business objectives.
F-33
CVF Technologies Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Year ended December 31
|
|
[Expressed in U.S. Currency]
|
13. SEGMENTED INFORMATION contd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
Identification
|
|
Natural
|
|
Corporate
|
|
|
|
|
vehicle
|
|
systems
|
|
fertilizer
|
|
administration
|
|
Total
|
2007
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
|
|
|
1,799,706
|
|
|
|
|
|
|
|
176,033
|
|
|
|
|
|
|
|
1,975,739
|
|
|
Income (loss) from operations before depreciation
|
|
|
(69,862
|
)
|
|
|
(40,291
|
)
|
|
|
(349,000
|
)
|
|
|
(1,232,932
|
)
|
|
|
(1,692,085
|
)
|
Depreciation
|
|
|
2,220
|
|
|
|
|
|
|
|
|
|
|
|
2,034
|
|
|
|
4,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from operations before other income (expenses)
|
|
|
(72,082
|
)
|
|
|
(40,291
|
)
|
|
|
(349,000
|
)
|
|
|
(1,234,966
|
)
|
|
|
(1,696,339
|
)
|
Interest income
|
|
|
|
|
|
|
37,477
|
|
|
|
|
|
|
|
5,412
|
|
|
|
42,889
|
|
Interest (expense)
|
|
|
(651
|
)
|
|
|
|
|
|
|
|
|
|
|
(36,421
|
)
|
|
|
(37,072
|
)
|
Other income (expense)
|
|
|
47,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,992
|
|
(Loss) from equity investees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(575,303
|
)
|
|
|
(575,303
|
)
|
Minority interest
|
|
|
|
|
|
|
67,794
|
|
|
|
|
|
|
|
|
|
|
|
67,794
|
|
Realized currency translation income (loss)
|
|
|
(2,766
|
)
|
|
|
(178,619
|
)
|
|
|
293,108
|
|
|
|
(173,481
|
)
|
|
|
(61,758
|
)
|
|
Segment income (loss) before (recovery) of income taxes
|
|
|
(27,507
|
)
|
|
|
(113,639
|
)
|
|
|
(55,892
|
)
|
|
|
(2,014,759
|
)
|
|
|
(2,211,797
|
)
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
1,469
|
|
|
|
(127,474
|
)
|
|
|
(126,005
|
)
|
|
Net income (loss)
|
|
|
(27,507
|
)
|
|
|
(113,639
|
)
|
|
|
(57,361
|
)
|
|
|
(1,887,285
|
)
|
|
|
(2,085,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,220
|
|
|
|
|
|
|
|
|
|
|
|
2,034
|
|
|
|
4,253
|
|
Capital expenditures
|
|
|
3,132
|
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
|
|
4,144
|
|
Segment assets
|
|
|
9,671
|
|
|
|
|
|
|
|
1,452
|
|
|
|
2,491
|
|
|
|
13,614
|
|
F-34
Year ended December 31
CVF Technologies Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. SEGMENTED INFORMATION contd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric
|
|
Identification
|
|
Natural
|
|
Corporate
|
|
|
|
|
vehicle
|
|
systems
|
|
fertilizer
|
|
administration
|
|
|
2006
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Total
|
|
Sales
|
|
|
1,330,641
|
|
|
|
|
|
|
|
180,997
|
|
|
|
|
|
|
|
1,511,638
|
|
|
Income (loss) from operations before depreciation
|
|
|
(164,192
|
)
|
|
|
(176,983
|
)
|
|
|
(221,067
|
)
|
|
|
(1,428,993
|
)
|
|
|
(1,991,235
|
)
|
Depreciation
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
2,372
|
|
|
|
3,315
|
|
|
(Loss) from operations before other income (expenses)
|
|
|
(165,135
|
)
|
|
|
(176,983
|
)
|
|
|
(221,067
|
)
|
|
|
(1,431,365
|
)
|
|
|
(1,994,550
|
)
|
Interest income
|
|
|
|
|
|
|
102,446
|
|
|
|
|
|
|
|
43,828
|
|
|
|
146,274
|
|
Interest (expense)
|
|
|
(8,276
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,956
|
)
|
|
|
(44,232
|
)
|
Other income (expense)
|
|
|
|
|
|
|
6,273
|
|
|
|
|
|
|
|
154,978
|
|
|
|
161,251
|
|
(Loss) from equity investees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188,077
|
)
|
|
|
(188,077
|
)
|
Minority interest
|
|
|
15,885
|
|
|
|
491,833
|
|
|
|
|
|
|
|
|
|
|
|
507,718
|
|
Realized currency translation income (loss)
|
|
|
553
|
|
|
|
(185,136
|
)
|
|
|
(12,699
|
)
|
|
|
(220,378
|
)
|
|
|
(417,660
|
)
|
|
Segment income (loss) before (recovery) of income taxes
|
|
|
(156,973
|
)
|
|
|
238,433
|
|
|
|
(233,766
|
)
|
|
|
(1,676,970
|
)
|
|
|
(1,829,276
|
)
|
|
Income taxes
|
|
|
4,275
|
|
|
|
|
|
|
|
3,960
|
|
|
|
7,580
|
|
|
|
15,815
|
|
|
Net income (loss)
|
|
|
(161,248
|
)
|
|
|
238,433
|
|
|
|
(237,726
|
)
|
|
|
(1,684,550
|
)
|
|
|
(1,845,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
2,372
|
|
|
|
3,315
|
|
Capital expenditures
|
|
|
8,511
|
|
|
|
|
|
|
|
657
|
|
|
|
600
|
|
|
|
9,768
|
|
Segment assets
|
|
|
7,595
|
|
|
|
|
|
|
|
591
|
|
|
|
3,981
|
|
|
|
12,167
|
|
F-35
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
14. COMMITMENTS
The Company leases office equipment and property under operating leases expiring in various years
through 2009.
Minimum future rental payments under non-cancelable operating leases having remaining terms in
excess of one year as of December 31, 2007 for each of the next four years and in aggregate are:
Year ended December 31
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
2008
|
|
|
72,983
|
|
2009
|
|
|
11,358
|
|
2010
|
|
|
|
|
2011
|
|
|
|
|
Beyond
|
|
|
|
|
|
Total minimum future rental payments
|
|
|
84,341
|
|
|
Rental expense for the year was $58,015 [$46,360 for 2006].
15. CONTINGENCIES
As the result of an audit, in 2003 the IRS proposed adjustments to the Companys 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. The Company is
challenging the interest assessment from the IRS (see subsequent event footnote).
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 exposed to any potential lawsuits by
individuals and/or entities that have purchased products from Xylodyne. The Company cannot
F-36
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
15. CONTINGENCIES contd
make an estimate of the cost of this potential risk and therefore cannot account for any loss until
an amount becomes determinable.
The Company is involved from time to time in other litigation, which arises in the normal course of
business. In respect of these claims the Company believes it has valid defenses and/or appropriate
insurance coverage in place. Management has accrued its estimate of costs associated with this
audit. In managements judgment, no material exposure exists on the eventual settlement of such
litigation.
16. LOANS RECEIVABLE
Loans receivable pertain to loans advanced to certain Company officers. The loans are denominated
in Canadian dollars, and bear an effective interest rate of 6%. These loans have no repayment
terms.
17. RELATED PARTY TRANSACTIONS
In 2007 an Executive Employment Agreement was signed between Ecoval and Michael Dreben , the son of
Jeffrey I. Dreben, CVFs President, Chairman and Chief Executive Officer. This agreement ends
December 31, 2010 and provides for an annual base salary of $108,000 plus incentives based on
Ecovals performance. During 2007 180,000 warrants (CVF common stock) to Michael Dreben were
extended and subsequently cancelled and 180,000 CVF restricted stock issued in its place.
18. SUBSEQUENT EVENTS
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 based on the extensive delays by the
Internal Revenue Service during the appeals process.
F-37
CVF Technologies Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
For the years ending December 31, 2007 and 2006
|
|
[Expressed in U.S. Currency]
|
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 Companys current liabilities exceed its current assets. The
Company has incurred losses over the past 2 years, which have reduced the Companys cash reserves,
and depleted stockholders equity. Further, the Company has several contingent liabilities [note
15].
These conditions raise substantial doubt about the Companys 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 Companys 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 Companys 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.
F-38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Directors
CVF Technologies Corporation
Williamsville, New York
We have audited the accompanying consolidated balance sheets of CVF Technologies Corporation as of
December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders
(deficit) equity, cash flows and comprehensive loss for each of the years then ended December 31,
2007 and 2006. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CVF Technologies Corporation as of December 31, 2007
and 2006, and the results of its operations and its cash flows for each of the years then ended
December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the
United States.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 19, the Company has suffered recurring losses from
operations, including a net loss of approximately $2.1 million for the year ended December 31,
2007, and has a working capital deficiency as of December 31, 2007. These factors raise
substantial doubt about the Companys ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sherb & Co., LLP
Certified Public Accountants
New York, New York
April 5, 2008
F-39
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A(T). CONTROLS AND PROCEDURES.
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 Annual Report on Form 10-KSB. Based on such evaluation, and as discussed in
greater detail below, our Chief Executive Officer and Chief Financial Officer have concluded that,
as of the end of the period covered by this Annual Report on Form 10-KSB, 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 Commissions 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.
|
Managements Report on Internal Control Over Financial Reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control system was designed to
provide reasonable assurance to our management and the Board of Directors regarding the preparation
and fair presentation of published financial statements. Our internal control over financial
reporting includes those policies and procedures that:
|
|
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets,
|
|
|
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with authorization of management and
directors, and
|
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial
statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2007. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on the assessment using those criteria, our management
concluded that the internal control over financial reporting was not effective at December 31,
2007.
While we have designed a system of internal controls to supplement our existing controls during our
implementation of Section 404 of the Sarbanes-Oxley Act of 2002 (SOX 404), we have been unable to
complete testing of these controls and accordingly lack the documented evidence that we believe is
necessary to support an assessment that our internal control over financial reporting is effective.
Without such testing, we cannot conclude that there are any significant deficiencies or material
weaknesses, nor can we appropriately remediate any such deficiencies that might have been detected.
In addition, during the analysis of our internal controls in connection with our implementation of
SOX 404, we did identify a number of controls, the adoption of which are material to our internal
control environment and critical to providing reasonable assurance that any potential errors could
be detected. Those identified controls include:
|
|
All but Biorem, Inc (an investee) of our foreign investees and subsidiaries have yet to conduct a
formal assessment of their internal controls. Partially due to the lack of financial resources and
partially due to the lack of adequate man power.
|
|
|
|
We do not maintain a sufficient complement of personnel with an appropriate level of accounting
knowledge, experience and training in the selection and application of U.S. GAAP commensurate with
our financial reporting requirements at our foreign investees and subsidiaries.
|
Due to the nature of these material weaknesses in our internal control over financial reporting,
there is more than a remote likelihood that misstatements which could be material to our annual or
interim financial statements could occur that would not be prevented or detected.
This annual report does not include an attestation report of our registered public accounting firm
regarding internal control over financial reporting. Our managements report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only managements report in this annual report.
Changes in Internal Control over Financial Reporting. There have been no changes in our
internal control over financial reporting during our fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 8B OTHER INFORMATION
None.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a)
|
|
Directors and Executive Officers
|
The directors and executive officers of CVF are as follows:
|
|
|
|
|
|
|
NAME
|
|
AGE
|
|
POSITION
|
|
|
|
|
|
|
|
Jeffrey I. Dreben
|
|
|
62
|
|
|
Director; Chairman, Chief Executive
Officer; and President
|
Robert B. Nally
|
|
|
60
|
|
|
Director; Chief Operating Officer, Chief
Technology Officer, Secretary; and Treasurer
|
Robert L. Miller
|
|
|
56
|
|
|
Chief Financial Officer
|
Jeffrey I. Dreben has been President, Chief Executive Officer and Director of the Company since
September 1995. From 1989 until September 1995, Mr. Dreben was Vice
President and Treasurer of Canadian Venture Founders Management Limited (CVF Management) and was
its original founder. Mr. Dreben has been working in the investment industry since 1979, beginning
his career with Merrill Lynch and subsequently founding his own investment advisory firm. Mr.
Dreben has been working in the venture capital industry in the United States and Canada since 1985.
Mr. Dreben received an Honors Bachelor of Arts degree from Loyola College of the University of
Montreal.
Robert B. Nally has been Secretary, Treasurer and Director of CVF since September 1995. From 1989
until 1995, Mr. Nally was Vice President and Secretary of CVF Management and one of its cofounders.
Prior to that time, Mr. Nally provided commercial development consulting services to the University
of Waterloo as Technology Transfer and Commercial Development Officer. Prior to joining the
University of Waterloo, he worked for NCR Canada, LTD. for 10 years as Manager of Strategic
Planning and New Business Development and Director of Engineering. He earned a Bachelor of Science
degree in electrical engineering and a Master of Science degree from the University of Waterloo.
Robert L. Miller has been Chief Financial Officer of CVF since June 1999. Mr. Miller was previously
Vice President of Finance/Controller for U.S. Appraisal, Inc., a national real estate appraisal
firm. Prior to that he was with Pratt & Lambert United, Inc. for seventeen years, most recently as
Vice President/Controller of their Consumer Group. From 1973 to 1979 he was with KPMG Peat Marwick
in Buffalo, New York. Mr. Miller, a New York State Certified Public Accountant has a Bachelor of
Science degree from Fairleigh Dickinson University.
The Company does not have procedures in place whereby security holders may recommend nominees to
the Board of Directors.
The members of the Companys audit committee are Messrs. Dreben and Nally, which is the entire
Board. Although all members of the Companys audit committee are financially literate and have
substantial experience with analyzing and evaluating financial statements, the Board of Directors
has determined that no one member has all of the attributes necessary to qualify as an audit
committee financial expert as defined by the SEC. The Company believes the audit committee has
sufficient expertise to perform its functions notwithstanding the absence of an audit committee
financial expert. Furthermore, the Company believes it would be impractical to add a member to the
audit committee who would qualify as such an expert given the Companys small size and the limited
resources it possesses to compensate such an expert.
CVF has adopted a Code of Business Conduct and Ethics covering its financial officers and CEO.
Interested parties can write to the Company at its Williamsville, New York office to obtain a copy
at no cost.
Section 16(a) Beneficial Ownership Reporting Compliance
During the fiscal year 2007 Mr. Dreben, Miller and Glazier failed to timely file a report under
section 16(a) of the Exchange Act.
ITEM 10 EXECUTIVE COMPENSATION
The following is a summary of the remuneration paid to the chief executive officer and all other
executive officers whose total annual compensation exceeds $100,000 for the period ended December
31, 2007 (the Named Executive Officers).
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name and Principal
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(a)
|
|
(b)
|
|
(c) (1)
|
|
(d) (1)
|
|
(e) (2)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i) (3)
|
|
(j)
|
Jeffrey I. Dreben
Chairman, President
and Chief Executive
Officer
|
|
|
2007
|
|
|
|
187,154
|
|
|
|
|
|
|
|
97,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,644
|
|
|
|
300,756
|
|
Robert B. Nally
Chief Operating
Officer, Chief
Technology Officer,
Secretary,
Treasurer
|
|
|
2007
|
|
|
|
188,469
|
|
|
|
|
|
|
|
97,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,434
|
|
|
|
294,403
|
|
|
|
|
(1)
|
|
Robert Nallys paid (11 months) in Canadian currency but translated in the
table to U.S. Currency. Based on the average exchange rate for 2007 of CND
$1 = US $.9371.
|
|
(2)
|
|
Represents a portion of the restricted CVF common shares that began to
vest in April 2007. Restricted CVF common shares were granted in April 2006
and vest over the following 3 year period.
|
|
(3)
|
|
This amount consists of: (i) Executive Disability insurance premium
totaling $8,924 and automobile allowance totaling $6,720 to Mr. Dreben and (ii) $8,434
automobile allowance paid to Mr. Nally.
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
Market or
|
|
|
Number of
|
|
Number of
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
Payout Value of
|
|
|
Securities
|
|
Securities
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Unearned
|
|
|
Underlying
|
|
Underlying
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Market Value of
|
|
Unearned Shares,
|
|
Shares, Units or
|
|
|
Unexercised
|
|
Unexercised
|
|
Underlying
|
|
Option
|
|
|
|
|
|
Shares or Units
|
|
Shares or Units
|
|
Units or Other
|
|
Other Rights
|
|
|
Options
|
|
Options
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
of Stock That
|
|
of Stock That
|
|
Rights That Have
|
|
That Have Not
|
|
|
(#)
|
|
(#)
|
|
Unearned Options
|
|
Price
|
|
Expiration
|
|
Have Not Vested
|
|
Have Not Vested
|
|
Not Vested
|
|
Vested
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h) (1)
|
|
(i)
|
|
(j)
|
Jeffrey I. Dreben
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408,333
|
|
|
|
32,667
|
|
|
|
|
|
|
|
|
|
Robert B. Nally
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,500
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents shares of restricted stock at value on December 31, 2007 of $0.08 per share.
|
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
Fees Earned or
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
Paid in Cash
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(a)
|
|
(b)
|
|
(c) (1)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey I. Dreben
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert B. Nally
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert H. Glazier
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
Change of Control Agreements. Messrs. Dreben and Nally are each a party to a change of control
agreement with CVF. These agreements provide that in the event the executives employment is
terminated or the executive terminates employment for good reason, in either case, within the three
year period following a change of control of CVF, then CVF is obligated to provide the executive
(i) his average annual base salary or consulting fees and bonuses during the five years preceding
the change of control for a continuing period of three years, (ii) up to $25,000 for outplacement
services, (iii) up to three years of continuing benefits in effect on the date of the change of
control, and (iv) immediate vesting and extension of exercisability of any options or restricted
stock. Under these agreements, a change of control occurs on (i) the sale of all or
substantially all of CVFs assets, (ii) any person becoming the owner of more than 20% of CVFs
voting stock, (iii) the first day on which a majority of directors of CVF are not directors in
office on the date of the agreement, directors nominated by such in-office directors or directors
nominated by any directors so nominated, or (iv) the first day on which Messrs. Dreben and Nally
constitute less than 50% of the board of directors. Under these agreements, good reason means
(i) the assignment to the executive of duties inconsistent with his position or any diminishment of
his position, authority or duties, (ii) requiring the executive to be based in a location other
than where he was based prior to the change of control or requiring excess or inappropriate travel,
(iii) any purported termination of any employment or consulting arrangement between the executive
and CVF, or (iv) any failure by CVF or any successor to comply with and satisfy the terms of the
services agreement between CVF and D and N Consulting. This description is just a summary. See
exhibit 10 (iv) to this Annual Report for a complete copy of the form of change of control
agreements.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Holders
The following table sets forth, as of March 14, 2008, the approximate number of common shares of
CVF owned of record or beneficially by each person who owned of record, or was known by CVF to own
beneficially, more than 5% of CVFs common stock and the name and shareholdings of each officer and
director, and all officers and directors as a group.
|
|
|
|
|
|
|
NUMBER OF
|
|
PERCENTAGE OF
|
|
|
COMMON SHARES
|
|
COMMON SHARES
|
NAME AND ADDRESS
|
|
BENEFICIALLY OWNED
|
|
OWNED
|
|
|
|
|
|
Jeffrey I. Dreben (1)
|
|
1,739,321
|
|
12.1%
|
8604 Main Street, Suite 1
|
|
|
|
|
Williamsville, NY 14221
|
|
|
|
|
|
|
|
|
|
Robert B. Nally (2)
|
|
1,422,872
|
|
9.9%
|
8604 Main Street, Suite 1
|
|
|
|
|
Williamsville, NY 14221
|
|
|
|
|
|
|
|
|
|
Robert L. Miller (3)
|
|
231,190
|
|
1.6%
|
8604 Main Street, Suite 1
|
|
|
|
|
Williamsville, NY 14221
|
|
|
|
|
|
|
|
|
|
The Shaar Fund Ltd. (4)
|
|
1,259,165
|
|
8.8%
|
c/o SS&C Fund Services (N.V.)
|
|
|
|
|
Pareraweg 45
|
|
|
|
|
Curacao, Netherland Antilles
|
|
|
|
|
|
|
|
|
|
Bounty Equity Fund 2, LLC (5)
|
|
835,000
|
|
5.8%
|
2 West Second Street, Suite 210
|
|
|
|
|
Tulsa, OK 74103
|
|
|
|
|
|
|
|
|
|
Directors and Officers
|
|
3,393,383
|
|
23.7%
|
as a Group (3 persons) (1)(2)(3)
|
|
|
|
|
|
|
|
(1)
|
|
Mr. Drebens amount includes 750,000 restricted shares (which vest over 3 years beginning April
2006) and 100,000 restricted shares (which vest over 3 years beginning November 2007). Included
under Mr. Dreben are 760,321 shares owned by his wife as to which he disclaims beneficial
ownership.
|
|
(2)
|
|
Mr. Nallys amount includes 750,000 restricted shares (which vest over 3 years beginning April
2006)and includes 205,144 shares owned by his wife as to which he disclaims beneficial ownership.
|
|
(3)
|
|
Mr. Millers amount includes 100,000 restricted shares (which vest over 3 years beginning April
2006) and 60,000 restricted shares (which vest over 3 years beginning November 2007).
|
|
(4)
|
|
Based solely on a Schedule 13G dated February 29, 2008 filed with the SEC.
|
|
(5)
|
|
Based solely on a CVF Shareholders listing dated March 14, 2008.
|
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Service Agreement with D and N Consulting. CVF entered into a Service Agreement dated February 10,
1997 with D and N Consulting Corporation (D and N), (replacing a similar agreement it had with
CVF Inc. from September 1995) pursuant to which D and N is to provide a variety of administrative,
managerial and clerical services to CVF. Under the Service Agreement, D and N would be responsible
for all administrative requirements of CVF, including, but not limited to, maintaining the books of
CVF, preparing periodic reports to the Board of Directors of CVF and providing office facilities
and travel expenses. In return for the above services, D and N is to be paid a service fee based on
an annual budget prepared by D and N and approved by the Board of Directors of CVF. In April 2006
the Service Agreement was amended to expire February 10, 2011. The Service Agreement renews
automatically for successive one year periods thereafter upon either party providing 6-months prior
written notice to the other. Upon a change in control of CVF, the term of the Service Agreement is
automatically extended for an additional period of five years. Messrs. Dreben and Nally are each
officers and 50% shareholders of D and N. CVF and D and N have mutually agreed to defer operation
of the Service Agreement. Instead, the services continue to be provided by officers, employees and
consultants of CVF. CVF has neither paid nor accrued service fees under the Service Agreement. D
and N
Consulting maintains the right to begin the operation of the Service Agreement at any time. A
failure by CVF or any successor to comply with its obligations under the Services Agreement
following a change in control shall constitute grounds for Messr.
Dreben or Nally to terminate employment and invoke the benefits of their change in control agreements described above.
Services Agreements with Michael Dreben. In 2007 an Executive Employment Agreement was signed
between Ecoval and Michael Dreben, the son of Jeffrey I. Dreben, CVFs President, Chairman and
Chief Executive Officer. This agreement ends December 31, 2010 and provides for an annual base
salary of $108,000 plus incentives based on Ecovals performance. During 2007 180,000 warrants (CVF
common stock) to Michael Dreben were extended and subsequently cancelled and 180,000 CVF restricted
stock issued in its place. Michael Dreben brings to CVF and Ecoval 7 years of experience in the
investment field, most recently with Goldman Sachs in New York.
CVF is not a listed issuer and is not subject to any director independence standards. Using the
definition of independence set forth in the rules of the American Stock Exchange, Robert Glazier,
who resigned as a director in December 2007, would have been considered an independent director of
the Company.
ITEM 13 EXHIBITS
a) Exhibits
|
|
|
(3)(i)
|
|
Articles of Incorporation, as amended, filed as an exhibit to CVFs Form
10-QSB on November 14, 1997, and incorporated by reference herein.
|
|
|
|
(3)(ii)
|
|
Amended and Restated Certificate of Designation of Series B 6% Convertible Preferred
Stock, filed as an exhibit to CVFs Registration Statement on Form S-3 on December 30, 1999
and incorporated herein by reference.
|
|
|
|
(3)(iii)
|
|
By-laws filed as an exhibit to CVFs Form 10-QSB on February 12, 1997,
and incorporated by reference herein.
|
|
|
|
(10)(ii)
|
|
Form of Change in Control Agreement between CVF and Jeffrey Dreben and Robert Nally filed
as an exhibit to CVFs Form 10-KSB on April 2, 2004 and
incorporated by reference herein.
|
|
|
|
(10)(iv)
|
|
Employment Letter between CVF and Robert L Miller, as amended, filed as an
exhibit to CVFs Form 10-KSB on April 7, 2006 and incorporated by
reference herein.
|
|
|
|
(21)
|
|
Subsidiaries of the Registrant, filed herewith.
|
|
|
|
(31.1)
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the of the Sarbanes
Oxley Act of 2002.
|
|
|
|
(31.2)
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the of the Sarbanes
Oxley Act of 2002.
|
|
|
|
(32)
|
|
Certification Pursuant to 18 U.S.C. 1350 As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following describes the aggregate fees that were charged by Sherb & Co. for the fiscal years
ended December 31, 2006 and December 31, 2007.
Audit Fees.
CVF was charged $50,000 for the fiscal year ended December 31, 2007 by Sherb & Co. for review of
the financial statements in CVFs quarterly reports and for the audit of CVF. CVF was charged
$45,967 for the fiscal year ended December 31, 2006 by Sherb & Co. for review of the financial
statements in CVFs quarterly reports and for the audit of CVF.
Audit-Related Fees; Tax Fees; All Other Fees.
CVF was charged $nil and $nil respectively for the fiscal years ended December 31, 2006 and
December 31, 2007 by Sherb & Co. for audit-related fees, tax fees and all other fees, as those
terms are defined in Item 14 of Form 10-KSB.
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized:
|
|
|
|
|
CVF Technologies Corporation
|
|
|
|
by:
|
/s/ Jeffrey I. Dreben
|
|
|
|
Jeffrey I. Dreben, CEO and President
|
|
|
|
(Principal Executive Officer)
|
|
|
|
Dated: April 15, 2008
|
|
|
|
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Jeffrey I. Dreben
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
Jeffrey I. Dreben
|
|
|
|
|
|
|
|
|
|
/s/ Robert B. Nally
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
Robert B. Nally
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 15, 2008
|
/s/ Robert L. Miller
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
Robert L. Miller
|
|
(Principal Financial and Accounting Officer)
|
|
|
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Name
|
|
|
|
(3)(i)
|
|
Articles of Incorporation, as amended, filed as an exhibit to CVFs Form
10-QSB on November 14, 1997, and incorporated by reference herein.
|
|
|
|
(3)(ii)
|
|
Amended and Restated Certificate of Designation of Series B 6% Convertible Preferred
Stock, filed as an exhibit to CVFs Registration Statement on Form S-3 on December 30, 1999
and incorporated herein by reference.
|
|
|
|
(3)(iii)
|
|
By-laws filed as an exhibit to CVFs Form 10-QSB on February 12, 1997,
and incorporated by reference herein.
|
|
|
|
(10)(ii)
|
|
Form of Change in Control Agreement between CVF and Jeffrey Dreben and Robert Nally filed
as an exhibit to CVFs Form 10-KSB on April 2, 2004 and
incorporated by reference herein.
|
|
|
|
(10)(iv)
|
|
Employment Letter between CVF and Robert L Miller, as amended, filed as
an exhibit to CVFs Form 10-KSB on April 7, 2006 and incorporated by
reference herein.
|
|
|
|
(21)
|
|
Subsidiaries of the Registrant, filed herewith.
|
|
|
|
(31.1)
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the of the Sarbanes
Oxley Act of 2002.
|
|
|
|
(31.3)
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the of the Sarbanes
Oxley Act of 2002.
|
|
|
|
(33)
|
|
Certification Pursuant to 18 U.S.C. 1350 As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
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