U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
T ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2010
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ____ __________
COMMISSION FILE NUMBER: 0-13187
NVCN CORPORATION.
(Exact name of Registrant as Specified in Its Charter)
Delaware |
| 13-3074570 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (IRS Employer Identification No.) |
|
|
|
1800 Wooddale Drive, Suite 208, Woodbury, Minnesota |
| 55125 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number: (612) 750-5585
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days . Yes £ No T
Indicate by check mark whether the company has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the company was required to submit and post such files). Yes £ No £
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to t he best of company’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes T No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.
Large accelerated filer £ Non-accelerated filer £ | Accelerated filed £ Smaller reporting company T |
The Company’s revenues for the fiscal year ended May 31, 2010 were zero. The aggregate market value of the voting stock held by non-affiliates of the Company as of February 22, 2011: $5,730,018. As of February 22, 2011, the Company had 14,548,371 shares of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes £ No T
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TABLE OF CONTENTS
PART I
Item 1. Business
3
Item 1A. Risk Factors
4
Item 2. Properties
4
Item 3. Legal Proceedings
5
Item 4. [REMOVED AND RESERVED]
5
PART II
Item 5. Market for Company’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
5
Item 6. Selected Financial Data
6
Item 7. Management’s Discussion and Analysis of Financial Condition and Plan of Operation
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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Item 8. Financial Statements and Supplementary Data
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A (T). Controls and Procedures
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Item 9B. Other Information
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
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Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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Item 14. Principal Accounting Fees and Services
15
PART IV
Item 15. Exhibits, Financial Statement Schedules
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Signatures
17
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development.
NVCN Corporation, a Delaware corporation (“Company”), was incorporated in the State of Delaware on April 20, 1981, with the name Cardio-Pace Medical, Inc. On November 24, 1987, the Company’s name was changed to Novacon Corporation, and on February 20, 2001, the name was changed to NVCN Corporation.
The Company was incorporated in 1981 with authorized capital of 15,000,000 common shares with a par value of $0.01. On February 14, 2001, the shareholders of the Company approved (and on June 20, 2002, the Company effected) a 1 for 12 reverse common stock split, a reduction of common stock par value from $0.01 to $0.001, an increase of authorized capital to 50,000,000 common shares and the board of directors to authorize preferred shares of which 10,000,000 were authorized at $0.01 per share. The accompanying financial statements reflect all share data based on the 1 for 12 reverse common stock split basis.
Business of the Company.
The Company was organized to develop, manufacture and market its proprietary Durapulse(tm) cardiac pacemaker and accessory products. Although the Company achieved sales of its pacemaker medical device and accessories products, it did not achieve profitability. The Company suspended manufacturing the cardiac pacemaker in 1990. During 1985, the Company entered into an agreement with Qinling Semiconductor to establish Qinming Medical, Inc., a Sino-American joint venture in Baoji, China, for the manufacture and distribution of cardiac pacemakers and accessory products, which are still manufactured and distributed in China. In 1992, the Company sold its 49% interest in the joint venture to Qinming.
Until August 2000, the Company designed, developed, manufactured and marketed low-cost, disposable elastomeric infusio n pumps for pain management and was developing other applications for its elastomeric infusion pump technology. Substantially all of the Company's revenues since 1995 were derived from the sale of elastomeric infusion pumps that were designed to deliver small quantities of pain medication at a nominally constant flow rate. The Company’s elastomeric infusion pumps, marketed as the dib(tm) Drug Infusion Balloon Pump, were authorized by the U.S. Food and Drug Administration for sale in the United States for epidural, intravenous and percutaneous infusion of a wide range of medications, including narcotic and non-narcotic anesthetics, chemotherapy agents and antibiotics. The Company terminated its drug infusion pump business activity as of August 31, 2000.
The decision by the management of the Company to discontinue its medical products business was based on claims asserted against the Company in 1999, by I-Flow Corpor ation (“I-Flow”), which claimed in litigation against the Company that the Company’s products infringed proprietary rights claimed by I-Flow. The I-Flow litigation resulted in a final judgment being entered against the Company on May 26, 2000, in the amount of $1,344,582. The judgment also enjoined the Company from further sales of infringing products.
As of May 27, 2010 the judgment was not renewed as required under the statutes for it to be in effect. As of May 31, 2010 the Company wrote off the debt including principal and interest as the statutory standing of the judgment had extinguished.
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The Company currently has no operations. The Company continues to evaluate alternatives in order to improve the Company’s financial condition, including merger and acquisition opportunities. There is no assurance that the Company will be successful in obtaining such opportunities. If a merger or acquisition opportunity does arise, the Company’s value as a partner in a merger or other business combination will rest primarily upon the potential public market for the Company’s shares.
The Company owns no patents or trademarks, and has no employees.
ITEM 1A. RISK FACTORS
Based on our current plan, we believe we may need additional financing within the next twe lve months to expand and carry out our plan of operations. If we fail to obtain funds on acceptable terms, then we might be forced to delay or abandon some or all of our business plans.
From time to time, the Company will evaluate potential acquisitions of businesses, services, products, or technologies. These acquisitions may result in a potentially dilutive issuance of equity securities, the incurrence of debt and contingent liabilities, and recognition of expenses related to goodwill and other intangible assets. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, services, and products of the acquired companies; the diversion of our management’s attention from other business concerns; risks of entering markets in which we have no or limited direct prior experience; and, the potential los s of key employees of the acquired company. We cannot assure you that we will be successful in developing and implementing a business strategy that provides for continued growth of all of our subsidiaries or business opportunities.
As of the date of this filing, the Company has one director and officer, Mr. Gary Borglund, and he has other business interests to which he currently devotes attention. He may be expected to continue to devote his attention to these other interests although management time should be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through his exercise of judgment in a manner which is consistent with his fiduciary duties.
If the Company fails to achieve and maintain the adequacy of our internal control over financial reporting, as such standar ds are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act (“Section 404"). Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, then our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company is provided of fice space without cost by the president of the company. It currently does not own any equipment at that location.
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ITEM 3. LEGAL PROCEEDINGS.
On September 1, 1998, the Company entered into a distribution agreement with its key supplier, DIB International Company, Ltd., Tokyo, Japan. The agreement was in effect for a four-year period and provides for minimum purchase quantities by the Company. The Company has breached the terms of the distribution agreement, but to date, the supplier has not taken any action against such breach. At this time, management is unaware of the potential financial effect of its breach.
On July 23, 1999, the Company was served with a complaint filed in the United States District Court, Central District of California, Santa Ana, California, by I-Flow Corporation alleging various causes of action for patent interference against the Company with respect to its elastomeric infusion pump technology. The Company took the position that the California court lacked jurisdiction and elected not to appear. I-Flow Corporation claimed the dib(tm) Drug Infusion Balloon Pump design violated its patents and was subsequently awarded damages, legal fees and costs. The Company denied the Dib(tm) design infringed any I-Flow patents and regarded this legal action as strictly anti-competitive. However, the Company was financially unable to respond to this lawsuit in California and therefore I-Flow was granted a final default judgment on May 3, 2000 which awarded I-Flow Corporation a permanent injunction restraining the Company from importing, manufacturing, and selling its dib(tm) Drug Infusion Balloon Pump in the United States. In addition, I-Flow was awarded damages and costs totaling $1,344,582. The Company believes this judgment has had a serious material adverse effect on its business and financial condition. During October 2000 the Company and I-Flow entered into a conditional settlement of the judgment. The settlement agreement provides that the Company will pay I-Flow Corporation $144,000 cash and issue to it 500,000 shares of new Company common stock. The settlement agreement provides that payment of the settlement must be made no later than December 31, 2000 or the agreement becomes null and void.
Prior to May 26, 2010 the plaintiff did not renew the judgm ent they received against the Company. If a judgment is not renewed within 10 years of its issuance, the judgment is vacated by the courts and the liability of the Company ceases to exist. A search of the court records by the legal counsel of the Company found the judgment had not been renewed within the required time period. As of May 31, 2010 the Company has elected to write off the principal and interest of the judgment under the statutes of limitation on the debt.
ITEM 4. [REMOVED AND RESERVED]
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information.
The Company’s common stock began trading publicly in January, 1985 on the NASDAQ Small Cap following its initial public stock offering. The Company’s common stock was de-listed to the Over the Counter Bulletin Board in 1987. In February, 2000, the Company’s common stock was de-listed to the National Quotation Bureaus’ Pink Sheets (now know as Pink Sheets LLC), where it continued to trade under the symbol “NVCN”. In February 2001, the name was changed to NVCN Corporation, and now trades under the symbol “NVCP”. The range of closing prices shown below is as reported by this market. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or
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commission and may not necessarily represent actual transactions. As of February 21, 2011 the Company had 14,548,371 shares of common stock issued and outstanding, of which 10,888,371 were held by none affiliates.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on May 31, 2010 (1)
| High | Low |
|
|
|
Quarter Ended May 31, 2010 | 0.08 | 0.03 |
Quarter Ended February 28, 2010 | 0.03 | 0.03 |
Quarter Ended November 30, 2009 | 0.03 | 0.03 |
Quarter Ended August 31, 2009 | 0.05 | 0.03 |
(1) The Company’s common stock only traded sporadically during this fiscal year
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on May 31, 2009
| High | Low |
|
|
|
Quarter Ended May 31, 2009 | 0.12 | 0.12 |
Quarter Ended February 28, 2009 | 0.15 | 0.05 |
Quarter Ended November 30, 2006 | 0.07 | 0.05 |
Quarter Ended August 31, 2008 | 0.11 | 0.05 |
|
|
|
The Internet provided the above information to the Company. These quotations may reflect inter-dealer prices without retail mark-up/mark-down/commission and may not reflect actual transactions.
As of May 31, 2010, the Company had approximately 1,1 46 shareholders of record.
Dividend Information.
The Company has not declared or paid a cash dividend to stockholders since it was incorporated. The Board of Directors presently intends to retain any earnings to finance Company operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon the Company's earnings, capital requirements and other factors.
Sales of Unregistered Securities.
There were no sales of unregistered (restricted) securities during the year ending May 31, 2010
ITEM 6. SELECT FINANCIAL DATA
Not Applicable.
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward Looking Statements May Not Prove Accurate
When used in this Form 10-K, the words “anticipated”, “estimate”, “expect”, and similar expressions are intended to ident ify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions including the possibility that the Company will fail to generate projected revenues. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.
Overview
The following discussion of the financial condition, changes in financial condition and results of operations of the Company for the fiscal years ended May 31, 2010 and 2009 should be read in conjunction with the financial statements of the Company and related notes included therein.
Liquidity and Capital Resources
Since inception, the Company’s most significant change in liquidity or capital resources has been receipts of proceeds from debt offerings. Further, there exist no agreements or understandings with regard to loan agreements by or with the Officers, Directors, principals, affiliates or shareholders of the Company.
At May 31, 2010, the Company had negative working capital of $519,323 which consisted of current assets of approximately $17 and current liabilities of $519,340. The current liabilities of the Company at May 31, 2010 are composed primarily of accrued compensation of $286,621, accounts payable and accrued expenses of $129,006 and notes payable of $103,712.
Cash flow used in operating activities during the year ending M ay 31, 2010 was $24,030 compared to $23,947 for the same period in 2009. This was an insignificant change from 2009 to 2010.
Cash flow provided by financing was $24,047 for the period ending May 31, 2010 compared to $ 23,816 for the same period in 2009 The change from 2009 to 2010 was due primary to notes payable of $24,000 compared to $36,000 in 2009 and related party payments of $13,087 in 2009 compared to related party advances of $950 in 2010.
The Company will attempt to carry out its plan of business as discussed above. The Company cannot predict to what extent its lack of liquidity and capital resources will hinder its business plan. The Company will need additional capital to fund that proposed operation.
Need for Additional Financing
The Company’s existing capital may not be sufficient to meet the Company’s cash needs, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934, as amended.
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No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any funds will be available to the Company to allow it to cover its expenses.
Twelve-Month Plan of Operation.
The Company intends to take advantage of any reasonable business proposal presented which management believes will provide the Company and its stockholders with a viable business opportunity. The board of directors will make the final approval in determining whether to complete any acquisition, and unless required by applicable law, the articles of incorporation or bylaws or by contract, stockholders' approval will not be sought.
The investigation of specific business opportunities and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and will require the Company to incur costs for payment of accountants, attorneys, and others. If a decision is made not to participate in or complete the acquisition of a specific business opportunity, the costs incurred in a related investigation will not be recoverable. Further, even if an agreement is reached for the participation in a specific business opportunity by way of investment or otherwise, the failure to consummate the particular transaction may result in the loss to the Company of all related costs incurred.
Currently, management is not able to determine the time or resources that will be necessary to locate and acquire or merge with a business prospect. There is no assurance that the Company will be able to acquire an interest in any such prospects, products or opportunities that may exist or that any activity of the Company, regardless of the completion of any transaction, will be profitable.
If and whe n the Company locates a business opportunity, management of the Company will give consideration to the dollar amount of that entity's profitable operations and the adequacy of its working capital in determining the terms and conditions under which the Company would consummate such an acquisition. Potential business opportunities, no matter which form they may take, will most likely result in substantial dilution for the Company’s shareholders due to the issuance of stock to acquire such an opportunity.
Capital Expenditures.
There were no capital expenditures during the fiscal year ended May 31, 2010
Risk Factors Connected with Plan of Operation.
The C ompany has had limited prior operations to date. Since the Company’s principal activities recently have been limited to seeking new business ventures, it has no recent record of any revenue-producing operations. Consequently, there is only a limited operating history upon which to base an assumption that the Company will be able to achieve its business plans. In addition, the Company has only limited assets. As a result, there can be no assurance that the Company will generate significant revenues in the future; and there can be no assurance that the Company will operate at a profitable level. Accordingly, the Company’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered in connection with the establishment of a new business.
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The Company has incurred net income of $2,116,782 for the fiscal year ended May 31, 2010 and a net loss of $184,727 for the fiscal year ended May 31, 2009. The dramatic change between the two years was due to other income of $2,280,797 due to the expiration of a judgment and the interest accrued on the judgment. The Company’s current liabilities exceed its current assets by $519,323 as of May 31, 2010 and $2,451,378 as of May 31, 2009. At May 31, 2010, the Company had an accumulated deficit of $9,469,635. This raises substantial doubt about the Company’s ability to continue as a going concern.
As a result of the fixed nature of many of the Company’s expenses, the Company may be unable to adjust spending in a timely manner to compensate for any unexpected delays in the development and marketing of the Company’s products or any capital raising or revenue shortfall. Any such delays or shortfalls will have an immediate adverse impact on the Company’s business, operations and financial condition.
The working capital requirements associated with any adopted plan of business of the Company may be significant. The Company anticipates, based on currently proposed assumptions relating to its operations (including with respect to costs and expenditures and projected cash flow from operations), that it must seek financing to continue its operations (an amount which is as yet to be determined). However, such financing, when needed, may not be available, or on terms acceptable to management. The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s b usiness plan. The Company’s independent accountant audit report included in this Form 10-K includes a substantial doubt paragraph regarding the Company’s ability to continue as a going concern.
If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business, operating results and financial condition. In addition, insufficient funding may have a material adverse effect on the company’s financial condition,
The Company’s success is dependent upon the hiring and retention of k ey personnel. None of the officers or directors has any employment or non-competition agreement with the Company. Therefore, there can be no assurance that these personnel will remain employed by the Company. Should any of these individuals cease to be affiliated with the Company for any reason before qualified replacements could be found, there could be material adverse effects on the Company’s business and prospects.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not required for smaller reporting companies
ITEM 8. FINANCIAL STATEMENTS.
&nb sp; Financial statements are audited and included herein beginning on Exhibit 1, page 1 and are incorporated herein by this reference.
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ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLSOURE
On October 8, 2010, and acting upon a decision to change accountants recommended and approved by the Company’s Board of Directors, the Company dismissed Gruber & Company, LLC, of Lake Saint Louis, Missouri, which has audited the financial statements of the Company for the years ending May 31, 2008 .
During our two most recent fiscal years, the Company did not consult Gruber & Company, LLC regarding either: (i) the application of accounting principles to a specified transaction, completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, or (ii) any matter that was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.
Gruber & Company, LLC’s report on the Company's financial statements for the year ended May 31, 2008, did not contain any adverse opinion or disclaimer of opinion and was not qualified as to audit scope or accounting principles; however, such year-end report did contain a modificati on paragraph that expressed substantial doubt about the Company's ability to continue as a going concern.
During the fiscal year ended May 31 2008, the latest fiscal year audited by Gruber & Company, and during the period from May 31, 2008, to October 8, 2010, the date of the Company's dismissal of Gruber & Company, (i) there were no disagreements between the Company and Gruber & Company, LLC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Gruber & Company, LLC, would have caused Gruber & Company, LLC to make reference to the subject matter of the disagreement in connection with its reports and (ii) there were no “reportable events,” as described in Item 304(a)(1)(iv) of Regulation S-K of the Securities Exchange Act of 1934, as amended.
The Company has authorized without limitation Gruber & Company, LLC, its former accountant, to respond fully to the inquiries of the successor accountant concerning any matter falling within the scope of the successor accountant's services to be provided to the Company.
The Company is not aware of any issues that had not been resolved to the satisfaction of Gruber & Company, LLC, prior to the Company's dismissal of Gruber & Company, LLC on October 8, 2010.
During the Company's two most recent fiscal years, and any subsequent interim period prior to engaging the successor accountant identified herein, neither the Company nor anyone acting on its behalf consulted the newly engaged accountant regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company's financial statements; (iii) any matter that was the subject of a disagreement between the Company and Gruber & Company, LLC, or (iv) any other matter.
The Company has requested the newly engaged accountant to review the disclosure required by this Item 4.01 before it is filed with the Commission and has provided the newly engaged accountant the opportunity to furnish the Company with a letter addressed to the Commission containing any new information, clarification of the Company's expression of its views, or the respects in which it does not agree with the statements made by the Company in this Current Report. The newly engaged accountant has indicated to the Company that no such letter will be issued.
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ITEM 9A. (T) CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) (15 U.S.C. 78a et seq.) is recorded, processe d, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is 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, regardless of how remote. As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executiv e Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO has concluded that the Company’s disclosure controls and procedures are not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.
Changes in Internal Controls over Financial Reporting
We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-K that has materially affected, or is reasonably likely to mat erially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effect iveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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The material weakness relates to the lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by an external consultant with no oversight by a professional with accounting expertise. Our President does not possess accounting expertise and our company does not have an audit committee. This weakness is due to the company’s lack of working capital to hire additional staff. To remedy this material weakness, we intend to engage another accountant to assist with financial reporting as soon as our finances will allow.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
The Company’s management carried out an assessment of the effectiveness of the Company’s internal control over financial reporting as of May 31, 2010. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on that assessment, management has concluded that the Company’s internal control over f inancial reporting was not effective as of May 31, 2010
ITEM 9B. OTHER INFORMATION
None.
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers of the Company
The following sets forth the names and ages of all directors and executive officers of the Company and all persons nominated or chosen to become a director, indicating all positions and offices with the Company held by each such person and the period during which they have served as a director:
Business Experience.
The following is a brief account of the business experience for the past five years of the director and executive officer, indicating their principal occupations and employment during that period, and the names and principal businesses of the organizations in which such occupations and employment were carried out.
The principal executive officer and director of the Company are as follows:
Gary L. Borglund, CEO, CFO &Director.
Mr. Borglund, age 65, has over thirteen years of professional experience in new ventures as a pr incipal and executive, as well as ten years as a consultant. Since 1998 to date, Mr. Borglund has worked exclusively with early stage development, high tech and Internet companies. Mr. Borglund serves on several boards of directors for public and private companies and remains in these capacities with regard to the companies to date. Mr. Borglund was Vice President of Marketing for Greenhaven Marketing from
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1991 to 1996 and a Director of Red Oak Management from 1996 to 2000. Mr. Borglund was appointed to the board of directors of City Capital Corporation of America in February 2001, and served as President of that firm until May, 2007. Mr. Borglund was appointed CEO on 27, January 2002. He became a director of the Company on September 28, 2001. Mr. Borglund attended the University of Minnesota.
There are no other promoters or control persons of the Company. There are no legal proceedings involving the directors of the Company. David P. Lang resigned as an officer and director of the Company January 27, 2002; Mr. Borglund was appointed as director and officer of the company on that date prior to Mr. Lang’s resignation.
The Director and Officer of the Company will devote his time to the Company’s affairs on an “as needed” basis. As a result, the actual amount of time which each will devote to the Company’s affairs is unknown and is likely to vary substantially from month to month.
The Company has no audit or compensation committee.
Conflict of Interest
The Officer and Director of the Company will devote only a small portion of his time to the affairs of the Company, estimated to be no more than approximately 25 hours per month. There will be occasions when the time requirements of the Company’s business conflict with the demands of their other business and investment activities. Such conflicts may require that the Company attempt to employ additional personnel. There is no assurance that the services of such persons will be available or that they can be obtained upon terms favorable to the Company.
There is no procedure in place which would allow the Officers and Directors to resolve potential conflicts in an arms-length fashion. Accordi ngly, they will be required to use their discretion to resolve them in a manner which they consider appropriate.
The Company’s Officers and Directors may actively negotiate or otherwise consent to the purchase of a portion of their common stock as a condition to, or in connection with, a proposed merger or acquisition transaction. It is anticipated that a substantial premium over the initial cost of such shares may be paid by the purchaser in conjunction with any sale of shares by the Company’s Officers and Directors which is made as a condition to, or in connection with, a proposed merger or acquisition transaction. The fact that a substantial premium may be paid to the Company’s Officers and Directors to acquire their shares creates a potential conflict of interest for them in satisfying their fiduciary duties to the Company and its other shareholders. Even though such a sale could result in a substantia l profit to them, they would be legally required to make the decision based upon the best interests of the Company and the Company’s other shareholders, rather than their own personal pecuniary benefit.
The Company previously adopted a Code of Ethics in 2004. The Company has revised the Code of Ethics and is adopting a new Code of Ethics which applies to its director as well as to its officer including its principal executive officer, principal financial officer, and principal accounting officer. A copy of the Code of Ethics is also available at no charge to anyone who may send a request in writing to the Company, addressed to its CEO.
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ITEM 11. EXECUTIVE COMPENSATION.
During fiscal 2010 the Company accrued for its officer and director an aggregate of $50,000 which was not paid.
Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meeting of the Board of Directors.
The Company has no material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company’s directors or executive officers.
The Company has no compensatory plan or arrangements, including payments to be received from the Company, with respect to any executive officer or director, where such plan or arrangement would result in any compensation or remuneration being paid resulting from the resignation, retirement or any other termination of such executive officer’s employment or from a change-in-control of the Company or a change in such executive officer’s responsibilities following a change-in-control and the amount, including all periodic payments or installments where the value of such compensation or remuneration exceeds $100,000 per executive officer.
During the last completed fiscal year, no funds were set aside or accrued by the Company to provide pension, retirement or similar benefits for Directors or Executive Officers.
The Compa ny has a written employment agreement with its sole officer and director.
Summary Compensation Table
Name and principal position | Year | Annual compensation | Long-term compensation | |||||
Salary | Bonus | Other annual compen-sation | Awards | Payouts | All other | |||
Restricted | Securities | LTIP | ||||||
Gary Borglund, President (1),(2) | 2010 2009 2008 | 50,000 50,000 50,000 | - - | - - | - - | - - | - - | - - |
(1)
Mr. Borglund was appointed a director and president on January 27, 2002.
(2) Mr. Borglund’s salary has been accrued but not paid.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of February 21, 2011 (14,548,371 issued and outstanding) by (i) all stockholders known to the Company to be beneficial owners of more than 5% of the outstanding common stock; and (ii) all officers and directors of the Company, individually and as a group (each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them):