U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
CVF TECHNOLOGIES CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 0-29266 87-0429335
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or organization) Number) Identification No.)
8604 Main Street, Suite 1
WILLIAMSVILLE, NEW YORK 14221
(716) 565-4711
(Address, including zip code, and telephone number,
including area code, of issuer's principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 [X] No[ ]
As of July 30, 2004, there were 13,031,033 shares of common stock, $0.001
par value per share, of the issuer outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Currency)
June 30, December 31,
2004 2003
(unaudited) (audited)
------------ -----------
(Note 2) (Note 2)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,068,309 $ 225,535
Trade receivables 1,490,410 2,461,980
Inventory (Note 5) 101,092 586,009
Prepaid expenses and other 84,802 75,669
Income taxes receivable 468,221 550,830
------------ -----------
TOTAL CURRENT ASSETS 3,212,834 3,900,023
Property and equipment, net of accumulated depreciation 285,256 220,889
Loans receivable 142,251 142,251
Holdings available for sale, at market 1,960 4,772
Technology, net of accumulated amortization 20,506 228,001
Goodwill 1,405,222 1,405,222
------------ -----------
TOTAL ASSETS $ 5,068,029 $ 5,901,158
============ ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 14) $ 449,820 $ 82,297
Subsidiary loans past due or in default 215,045 221,269
Accounts payables and accrued liabilities 5,491,534 6,212,368
Preferred and other non-voting stock of subsidiaries 187,425 192,850
------------ -----------
TOTAL CURRENT LIABILITIES 6,343,824 6,708,784
------------ -----------
Notes payable - officers and directors (Note 14) 740,695 1,836,256
Notes payable - other 25,000 -
Deferred income taxes 288,191 368,566
Minority interest 2,227 79,220
Pension obligation 550,521 577,457
------------ -----------
1,606,634 2,861,499
------------ -----------
Redeemable Series A preferred stock, $0.001 par value, redeemable at $18.25 per
share, authorized 500,000 shares, issued and outstanding 3,477 shares 63,455 63,455
------------ -----------
8,013,913 9,633,738
------------ -----------
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $0.001 par value, authorized 50,000,000 shares,
12,256,071 issued (2003. 10,855,549) and in
treasury 481,700 (2003. 481,700) 12,738 11,338
Series B convertible preferred stock, $0.001 par value,
liquidation preference of 130% of stated value, authorized,
issued and outstanding 339,000 shares (Note 7) - 339
Series C convertible preferred stock, $0.001 par value,
issued and outstanding 100,000 shares (Note 7) 100 -
Warrants 111,094 111,094
Additional paid in capital 29,485,147 28,473,130
Treasury stock (2,747,174) (2,747,174)
Accumulated other comprehensive loss (1,612,114) (1,750,291)
Accumulated deficit (28,195,675) (27,831,016)
------------ -----------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (2,945,884) (3,732,580)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 5,068,029 $ 5,901,158
============ ===========
See notes to consolidated financial statements
CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Expressed in U.S. Currency)
Three months ended June 30, Six,months ended June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
(Note 2) (Note 2) (Note 2) (Note 2)
SALES $ 2,308,410 $ 2,868,990 $ 4,661,632 $ 4,427,848
Cost of sales 1,298,356 1,880,421 2,660,373 2,700,520
------------ ------------ ------------ ------------
GROSS MARGIN 1,010,054 988,569 2,001,259 1,727,328
------------ ------------ ------------ ------------
EXPENSES:
Selling, general and administrative (excluding
repriced options) 1,209,682 1,302,470 2,651,492 2,686,098
Repriced stock options expense 387,514 182,650 187,464 182,650
Research and development 86,123 45,601 241,234 176,630
------------ ------------ ------------ ------------
TOTAL EXPENSES 1,683,319 1,530,721 3,080,190 3,045,378
------------ ------------ ------------ ------------
(Loss) from continuing operations before under noted items (673,265) (542,152) (1,078,931) (1,318,050)
------------ ------------ ------------ ------------
OTHER (EXPENSES) INCOME
Interest (expense), net (80,889) (28,784) (168,752) (73,562)
Other income (expense), net 2,405 45,139 (3,368) 119,258
Gain (loss) on sale of holdings 31 288 (2,004) 7,194
Gain on sale of equity in subsidiary - - 742,568 -
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (78,453) 16,643 568,444 52,890
------------ ------------ ------------ ------------
(Loss) before income taxes and minority interest (751,718) (525,509) (510,487) (1,265,160)
Income taxes (recovery) (32,868) (33,868) - (64,142)
------------ ------------ ------------ ------------
(Loss) before minority interest (718,850) (491,641) (510,487) (1,201,018)
Minority interest in loss 36,569 47,278 74,585 127,938
------------ ------------ ------------ ------------
NET (LOSS) $ (682,281) $ (444,363) $ (435,902) $ (1,073,080)
============ ============ ============ ============
BASIC (LOSS) PER SHARE $ (0.06) $ (0.05) $ (0.04) $ (0.12)
============ ============ ============ ============
DILUTED (LOSS) PER SHARE $ (0.06) $ (0.05) $ (0.04) $ (0.12)
============ ============ ============ ============
WEIGHTED SHARES USED IN COMPUTATION - BASIC 12,228,892 10,706,049 11,826,778 10,699,399
============ ============ ============ ============
WEIGHTED SHARES USED IN COMPUTATION - DILUTED 12,228,892 10,706,049 11,826,778 10,699,399
============ ============ ============ ============
See notes to consolidated financial statements
CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Expressed in U.S. Currency)
Six Months Ended June 30,
--------------------------
2004 2003
----------- ------------
(Note 2) (Note 2)
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (435,902) $ (1,073,080)
Adjustments to reconcile net loss from operating activities:
Depreciation and amortization 230,819 212,550
Gain on sale of subsidiary 742,568 -
(Loss) gain on sale of holdings 2,004 (7,194)
Minority interest in losses of subsidiaries (74,585) (127,938)
Pension expense 16,258 14,692
Deferred tax income 58,559 (64,142)
Stock option compensation 187,464 182,650
Changes in non-cash working capital items
Decrease (increase) in trade receivables 900,147 (505,705)
Decrease in inventory 467,308 3,165
(Increase) decrease in prepaid expenses and other (11,234) 12,581
Decrease in income taxes receivable 66,953 412,154
Increase (decrease) in trade payables and accrued liabilities (544,766) 1,128,675
----------- ------------
2,041,495 1,261,488
----------- ------------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 1,605,593 188,408
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal (purchase) of property and equipment 165,005 (8,630)
Proceeds from sale of holdings 2,432 46,724
----------- ------------
CASH PROVIDED BY INVESTING ACTIVITIES 167,437 38,094
----------- ------------
CASH FLOWS (USED) FROM FINANCING ACTIVITIES:
Increase (decrease) in bank indebtedness (5,000) 15,364
Increase (decrease) in note payable to officer (713,289) 553,360
----------- ------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (718,289) 568,724
----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (211,967) 19,656
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 842,774 814,882
CASH AND CASH EQUIVALENTS - beginning of period 225,535 218,003
----------- ------------
CASH AND CASH EQUIVALENTS - end of period $ 1,068,309 $ 1,032,885
=========== ============
See notes to consolidated financial statements
CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
(Expressed in U.S. Currency)
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net (loss) $ (682,281) $ (444,363) (435,902) $(1,073,080)
----------- ----------- ----------- -----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (95,491) (257,369) 136,790 (436,950)
Unrealized holding gains:
Unrealized holding losses arising during period
(see note below) 165 (1,002) 1,387 (5,308)
----------- ----------- ----------- -----------
Total other comprehensive income (loss) (95,326) (258,371) 138,177 (442,258)
----------- ----------- ----------- -----------
Comprehensive (loss) during period $ (777,607) $ (702,734) $ (297,725) $(1,515,338)
=========== =========== =========== ===========
Note:Unrealized holding losses are net of tax
(benefit) of $110 and ($668) for the three
months ended June 30, 2004 and 2003
respectively and $925 and ($3,539) for the
six months ended June 30, 2004 and 2003
respectively.
See notes to consolidated financial statements
CVF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
(Expressed in U.S. Currency)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position and the results of operations for the
interim periods presented. All such adjustments are of a normal and
recurring nature. The results of operations for any interim period are not
necessarily indicative of the results attainable for a full fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period. The Canadian dollar is the
functional currency used by the Company, whereas the reporting currency is
the U.S. dollar.
2. ACCOUNTING POLICIES
(i) 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 Company's current liabilities exceed its current
assets and the Company has incurred significant losses over the past six
years, which have reduced the Company's cash reserves, and depleted
stockholders' equity. Further, the Company has contingent liabilities
(note 13). These conditions raise substantial doubt about the Company's
ability to continue in the normal course of business as a going concern.
The Company's primary need for cash is to maintain its ability to
support the operations and ultimately the carrying values of certain of
its individual investee companies. The Company is actively pursuing the
sale of a portion of its interests in two of its investee companies as a
source of funds, as well as reducing its cash flow needs. The Company has
been successful in obtaining $1 million (Cdn funds) through this method
over the last year. In addition the Company has borrowed $374,850 from one
of its investee directors. 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.
There is no assurance that these initiatives will be successful or that
the Company or certain of its investees will continue to have adequate
cash resources and capital to be able to continue as going concerns.
The Company's ability to continue to realize assets and discharge
liabilities in the normal course of business is uncertain. 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.
(ii) Stock Based Compensation Plans
The Company accounts for stock-based compensation plans under
Accounting Principles Board Opinion 25, (APB 25) Accounting for Stock
Issued to Employees and the related interpretation, for which no
compensation cost is recorded in the statement of operations for the
estimated fair value of stock options issued with an exercise price equal
to the fair value of the common stock on the date of grant. Statement of
Financial Accounting Standards No.123 (SFAS 123) Accounting for
Stock-Based Compensation, as amended by Statement of Financial Accounting
Standards No. 148 (SFAS 148) Accounting for Stock-Based Compensation -
Transition and Disclosure, requires that companies, which do not elect to
account for stock-based compensation as prescribed by this statement,
disclose the pro-forma effects on earnings and earnings per share as if
SFAS 123 has been adopted.
If the Company had applied the recognition provisions of SFAS 123
using the Black-Scholes option pricing model, the resulting pro-forma net
income (loss) available to common shareholders, and pro-forma net income
(loss) available to common shareholders per share would be as follows:
For the three months ended For the six months ended
---------------------------- ----------------------------
June 30, June 30,
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net (loss) to common shareholders, as
reported $ (683,051) $ (529,528) $ (437,442) $(1,242,474)
Deduct (Add): Stock-based
compensation, net of tax 38,164 20,013 38,164 20,013
----------- ----------- ----------- -----------
Net (loss) available to common
shareholders, pro-forma $ (721,215) $ (549,541) $ (475,606) $(1,262,487)
=========== =========== =========== ===========
Basic and diluted earnings (loss) per share:
As reported - $ (.06) $ (.05) $ (.04) $ (.12)
Pro-forma - $ (.06) $ (.05) $ (.04) $ (.12)
The above stock-based employee compensation expense has been determined
utilizing a fair value method, the Black-Scholes option-pricing model.
The Company has recorded no compensation expense for stock options as none
were granted to employees during the three months or six months ended June
30, 2004 and June 30, 2003.
In accordance with SFAS 123, the fair value of each option grant has been
estimated as of the date of the grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
For the Six months Ended June 30,
---------------------------------
2004 2003
---- ----
Risk free interest rate 5.0% 5.0%
Expected life 5.0 years 5.0 years
Dividend rate 0.00% 0.00%
Expected volatility 95.2% 95.2%
3. SALE OF EQUITY IN SUBSIDIARY
As of March 25, 2004, SRE as a result of signing a Memorandum of
Agreement, has received $500,000 Cdn investment in new equity into SRE. As
part of the requirements of the new investment, all debt in SRE, including
$1,751,000 in debt held by CVF, but excluding $390,000 Cdn held by other
shareholders of SRE was converted into equity. The net result of the new
investment and the restructuring of the debt is that CVF holds
approximately 37% of the equity of SRE. The gain of $742,568 is shown as a
separate line, "Gain on sale of equity in subsidiary" in other income
within the income statement.
4. INCOME (LOSS) PER SHARE
Basic loss per share amounts are computed by dividing net loss from
continuing operations available to common stockholders from continuing
operation and loss from discontinued operations, and net loss available to
common stockholders by the weighted average number of common shares
outstanding during the period. The net loss from continuing operations and
net loss available to common stockholders consists of net loss from
continuing operations and net loss amounts reduced by the dividends on the
Company's Series A, B and C preferred stock. Diluted loss per share
reflects the per share amount that would have resulted if diluted
potential common stock had been converted to common stock, as prescribed
by SFAS 128. The Company has presented dilutive income per share in those
periods where there was net income and therefore reduced income per share
and not presented dilutive loss per share information when the dilution
would reduce the loss per share.
5. INVENTORY
Inventory consists of the following:
June 30, 2004 December 31, 2003
------------- -----------------
Raw Material $ 39,011 $ 568,364
Finished goods 62,081 87,071
Less obsolescence reserve - (69,426)
------------- ----------------
$ 101,092 $ 586,009
------------- ----------------
6. INVESTMENTS
The following table provides certain summarized unaudited financial
information related to the Company's equity basis holdings:
Six Months Ended June 30,
-------------------------
2004 2003
---------- ----------
Net Sales $1,054,351 $ 94,486
Gross profit on sales 282,504 31,180
---------- ----------
Net loss $ (553,916) $ (112,787)
---------- ----------
Included in the above results for the six months ended June 30, 2004
are the full six months of SRE results. The first 86 days of 2004 (the
date CVF's equity holdings in SRE changed from above 50% to 37%) are also
included in the consolidated results.
7. SERIES B PREFERRED DIVIDENDS
In February 2004 the Company's 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 Company's 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. The Series C
Preferred will be subject to mandatory redemption on February 27, 2006;
however, the Company's obligation to redeem will be limited to available
cash in excess of working capital requirements for the next twelve months.
The Company also issued to the former Series B holder a three-year warrant
to purchase 100,000 shares of the Company's common stock at an exercise
price of $0.35 per share.
8. INTERIM FINANCIAL STATEMENT DISCLOSURES
Certain information and footnote disclosures normally included in
annual financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted from the
accompanying unaudited interim financial statements. Reference is made to
the Company's audited financial statements for the year ended December 31,
2003 included in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on April 2, 2004.
9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has implemented new accounting standards as follows:
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, "Consolidation of Variable Entities", (FIN No.
46) an interpretation of Accounting Research Bulletin No. 51. FIN No. 46
requires that variable interest entities be consolidated by a company if
that company is subject to a majority of the risk and loss from the
variable interest entity's activities or is entitled to receive a majority
of the entity's residual returns or both. FIN No. 46 requires disclosures
about variable interest entities that companies are not required to
consolidate but which the company has a significant variable interest. The
consolidation requirements will apply immediately for newly formed
variable interest entities created after January 31, 2003 and entities
established prior to January 31, 2003, in the first fiscal year or interim
period beginning after June 30, 2003. The Company does have investments in
unconsolidated entities, but such entities are virtually inactive and CVF
does not support them financially. The adoption of FIN No. 46 will not
have a material impact on our consolidated results of operations and
financial position.
Derivative Instruments and Hedging Activities
In April 2003, the FASB issued Statements of Financial Accounting
Standards No. 149 ("SFAS No. 149"), an amendment to SFAS No. 133. SFAS No.
149 clarifies under what circumstances a contract with initial investments
meets the characteristics of a derivative and when a derivative contains a
financing component. This SFAS is effective for contracts entered into or
modified after June 30, 2003.
The adoption of SFAS No. 149 will not have a material impact on our
consolidated results of operations and financial position.
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity
In May 2003, the FASB issued Statements of Financial Accounting Standards
No. 150 ("SFAS No. 150"), SFAS No. 150 established standards for how an
issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances)
because that financial instrument embodies an obligation of the issuer.
This SFAS is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. It is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of
SFAS No. 150 and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The adoption of SFAS No. 150 will
not have a material effect on the financial statements.
Employer's Disclosure about Pensions and Other Postretirement Benefits
In December 2003, the FASB revised SFAS No. 132 Employers' Disclosures
about Pensions and Other Post Retirement Benefits. This revision requires
additional disclosures to those in the original SFAS No. 132 about assets,
obligations, cash flows and net periodic benefit cost of deferred benefit
pension plans and other deferred benefit post-retirement plans. The
required information should be provided separately for pension plans and
for other post-retirement benefit plans. This statement revision is
effective for fiscal year ending after December 14, 2003 and interim
periods beginning after December 15, 2003. The adoption of this revision
will not have a material impact on our results of operations, financial
position or disclosures.
10. STOCK OPTIONS AND WARRANTS
Due to the re-pricing of stock options in 2002 those options are
subject to variable plan accounting using the intrinsic value method as
prescribed by APB-25. As the fair market value of the Company's stock as
of June 30, 2004 was $0.45 compared to $0.32 at March 31, 2004,
compensation expense of $116,251 was recorded during the 2004 second
quarter (during the 2003 second quarter compensation expense of $182,650
was recorded). As the fair market value of the Company's stock as of March
31, 2004 was $0.32 compared to $0.41 at December 31, 2003, a reversal of
compensation expense of $200,050 was recorded during the 2004 first
quarter.
Due to the re-pricing of Biorem stock options in 2003 those options
are subject to variable plan accounting using the intrinsic value method
as prescribed by APB-25. As the fair market value of the Company's stock
as of June 30, 2004 was $1.58 cdn compared to $0.80 cdn at March 31, 2004,
compensation expense of $271,263 was recorded during the 2004 second
quarter.
11. SEGMENTED INFORMATION
The Company has five reportable segments: bioremediation, machine
controls, precious gem identification, and natural horticultural and
general corporate. 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 bioremediation segment consists of one company that applies
bio-filtration technology to odor and air pollution control for
environmental applications. The machine controls segment designs,
manufactures and sells electric motor controls to electric vehicle
manufacturers. The gem identification segment consists of one company that
has 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 natural
horticultural segment consists of one company that develops, manufactures
and markets natural fertilizers, insecticides and herbicides. The
Company's general corporate segment includes one company which provides
funding and management overview services to the holdings. This segment's
profits include interest income and gains on sales of its various
holdings.
The Company evaluates performance and allocates resources based on
continuing profit or loss from operations before income taxes,
depreciation and research and development. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
There are no intersegment sales, transfers, or profit or loss.
Industry Segments for the Six Months Ended June 30, 2004 and 2003
Biorem- Machine Identification Natural Corporate
ediation Controls * Systems Horticultural Administration Total
2004 $ $ $ $ $ $
Sales 3,763,678 398,670 304,097 195,187 - 4,661,632
Income (Loss) from
continuing operations
before other income 196,019 (204,063) (125,945) (177,893) (767,049) (1,078,931)
Other income (56,886) (7,922) (24,693) - (20,093) (109,594)
Income (loss) from
continuing operations
before income taxes 139,133 (211,985) (150,638) (177,893) (787,142) (1,188,525)
2003
Sales 3,106,043 743,728 332,739 245,338 - 4,427,848
Income (Loss) from
continuing operations
before other income
(expense) 459,438 (327,854) (61,412) (436,826) (951,396) (1,318,050)
Other income (expense) 29,128 (6,057) (28,838) - 58,657 52,890
(Loss) from continuing
operations before income
taxes 488,566 (333,911) (90,250) (436,826) (892,739) (1,265,160)
* Six months 2004 Machine Controls numbers above includes only January 1, 2004
through March 24, 2004 as CVF no longer consolidates the company as of March 24,
2004 while the six months 2003 includes the full period.
12. CONTINGENCIES
The Company is currently under an audit by the Internal Revenue
Service ("IRS"). As part of the audit, the IRS indicated that they
reviewed the treatment of capital losses claimed in the prior year and
refunds of $2,532,000 received in 2001. A proposed deficiency in federal
income tax was issued by the IRS on December 1, 2003 totaling $2,969,123.
On February 5, 2004 CVF issued a formal protest to the proposed deficiency
and it is expected that this will now go before appeals at the IRS. If it
is not resolved at the appeals level of the IRS, CVF intends to challenge
the IRS ruling in federal tax court, as CVF and its legal counsel strongly
believes its original deductions were correctly taken. This process could
take up to 2 more years to be resolved.
13. COMMON SHARES ISSUED
In January 2004, the Company issued 57,316 shares of its common
stock in consideration of consulting services to the Company. The expense
associated with this was $12,000 and was accrued as an expense in 2003.
In January 2003, the Company issued 92,593 shares of its common
stock in consideration of legal services to the Company. The expense
associated with this was $25,000 and was accrued as an expense in 2002.
In June 2004, the Company issued 17,046 shares of its common stock
in consideration of consultation services to the Company. The expense
associated with this was $7,500 and was expensed in 2004.
14. DEBT DUE TO OFFICERS AND DIRECTORS OF SUBSIDIARIES
Included in current portion of long-term debt and in long term notes
payable - officers and directors - are amounts due to subsidiary officers
and subsidiary directors totaling $449,820 and $749,700 respectively at
June 30, 2004. These notes accrue interest at varying interest rates from
Canadian prime interest rate plus 3% or 4%, to fixed rates of 5%, 10% or
12%.
In September 2003 a director of Biorem closed on a $1 million
Canadian (approximately $ 762,700 US) convertible note to the subsidiary
bearing interest at 10% per annum and convertible into the common stock of
the subsidiary at $1.76 cnd per share. The note has a 3 year term. If
converted the holder of the note will be entitled to a 7 1/2 % ownership
interest in Biorem on a fully diluted basis.
15. SUBSEQUENT EVENTS
In July 2004 the lawsuit initiated in early 2004 by a minority
shareholder of Biorem was settled favorably resulting in one of the
directors of Biorem purchasing the shares owned directly from the minority
shareholder.
In July 2004 a total of 774,962 common shares of the Company were
issued to officers and/or directors of the Company who exercised stock
options and/or warrants.
In July 2004 Biorem entered advanced negotiations with several
investment groups with the intention of taking Biorem public within the
next 90 to 120 days.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
CVF Technologies Corporation ("CVF" or the "Company") was incorporated in 1995
from a limited partnership that originally formed in 1989, and is involved in
the business of managing early and expansion stage companies primarily engaged
in the environmental technology and information technology sectors. CVF's
mandate is to acquire significant holdings in new and emerging technology
companies and then to assist them in their management, and through them to
engage in their respective businesses CVF's current holdings include investments
made in its investee companies during the period from 1990 to the present.
CVF's mandate is to generate revenues and profits through consolidation of the
operating results of its investee companies. CVF also endeavors to realize gains
through the eventual sale of some or all of its holdings in these companies at
such time as management determines that CVF's funds can be better deployed in
other industries or companies. CVF's goal is to maximize the value of its
holdings in its investee companies for the Company's shareholders. One important
way that CVF accomplishes this is by taking an investee company public at the
appropriate time. This has been done with the investee companies Certicom
Corporation and TurboSonic Technologies, Inc.
After CVF's initial investment, an investee company often requires additional
capital to meet its business plan. Consequently, the Company actively assists
its investee companies in obtaining additional capital which is usually sourced
through CVF's own resources or via other participants.
On a stand-alone basis, CVF has no sales from operations. Sales and gross profit
from sales reflect the operations of CVF's consolidated subsidiaries only. The
consolidated subsidiaries are Biorem Technologies Inc. ("Biorem"), Gemprint(TM)
Corporation ("Gemprint"), SRE Controls Inc. ("SRE") ") (results consolidated
through March 24, 2004 only, the date CVF had its majority interest in SRE
diluted), Ecoval Corporation ("Ecoval"), and CVF Capital Management Corporation
("CVF Capital Management") CVF records profit and loss using the equity method
for companies in which CVF holds 50% to 20% ownership. These companies are
Petrozyme Technologies Inc. ("Petrozyme"), IMT Systems ("IMT") and SRE
(subsequent to March 24, 2004 when CVF's ownership position in SRE declined to
37%) "). The results of RDM Corporation ("RDM") and TurboSonic Technologies Inc.
("TurboSonic"), companies in which CVF has less than 20% ownership, are not
included in the Consolidated Statement of Operations. CVF's investments in RDM
and TurboSonic have been carried at market value on the Consolidated Balance
Sheet under Holdings available for sale, at market.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2003:
Consolidated sales of CVF subsidiaries for the three months ended June 30, 2004
amounted to $2,308,410, representing a decrease of $560,580 (20%) compared to
sales of $2,868,990 for the same period in 2003.
For the three months ended June 30, 2004, SRE's sales are not included in CVF's
consolidated results as CVF's ownership in SRE decreased to 37% during March
2004. SRE's sales that were consolidated in the 2003 period were $325,229.
Biorem's sales decreased by $85,536 or 4% compared to the same quarter of 2003.
This slight decrease was mainly due to a large increase in sales during the
second quarter 2003 of $1,492,677 or 146% compared to the previous year's
quarter. Ecoval's sales decreased by $98,291 (58%) as Ecoval had a relatively
strong sales quarter in the the first quarter of 2004 when sales increased by
$48,140 or 64% higher than the 2003 first quarter. Gemprint's sales decreased by
$45,286 or 24% compared to the same quarter of 2003 due to lower diamond
registrations and lower system sales. Also the weaker US dollar in the 2004
period contributed to the decrease.
CVF's gross margin of $1,010,054 for the second quarter of 2004 represents an
increase of $21,485 (2%) from the same period last year. Overall gross margin of
CVF as a percentage of sales increased to 43.8% for the second quarter of 2004
from 34.5% for the second quarter of 2003. This increase is mainly due to Biorem
which had $111,187 higher gross margin in the second quarter of 2004 due to
higher margin business (42.3% in the 2004 period versus 35.5% in 2003 period).
Ecoval's gross margin increased by $23,730 due to generally improved margin
percentages on its business. The effect of no longer consolidating SRE resulted
in $90,675 lower gross margin in the second quarter of 2004. Gemprint had a
gross margin decrease of $22,757 (17%) due to weaker high-margin Gemprint(TM)
registrations.
Selling, general and administrative expenses (excluding repriced stock options
expense) on a consolidated basis for the three months ended June 30, 2004
amounted to $1,209,682, representing a decrease of $92,788 (7%) compared to
expense of $1,302,470 for the same period in 2003. The decrease is due mainly to
$243,116 lower expenses at SRE due to CVF no longer consolidating that company
and $37,100 (26%) lower consulting fees. These decreases are off set somewhat by
higher expenses at Biorem due to the high sales activity. Management continues
to undertake a concerted effort to effect an overall reduction in administrative
costs. Over the past 3 years CVF has undertaken many initiatives to lower the
Company's expenses. (See further discussion in the Liquidity and Capital
Resources section).
Repriced stock options expense for the three months ended June 30, 2004 amounted
to $387,514, representing an increase of $204,864 (112%) compared to expense of
$182,650 for the same period in 2003. The majority of this increase is due to
$271,263 of expense (versus $ nil in the 2003 period) recorded in the 2004
period due to an increase in the value of the repriced Biorem stock options.
Offsetting this somewhat is $66,399 lower expense ($116,251 of expense in the
2004 period versus $182,650 of expense in the 2003 period) related to the change
in the CVF market price and the related effect on the outstanding CVF stock
options.
Research and development expenses for the second quarter of 2004 amounted to
$86,123 compared to $45,601 incurred in the comparable 2003 period, or an
increase of $40,522 (89%). Spending increased at Biorem offset somewhat by a
decrease in spending for such activity at Ecoval.
Net interest expense increased to $80,889 for the second quarter of 2004
compared to net interest expense of $28,784 for the second quarter of 2003. This
increase is due to an increase in loans outstanding in the 2004 period.
Other income decreased to $2,405 in the second quarter of 2004 from income of
$45,139 for the second quarter of 2003 due to foreign currency exchange related
to the weakening US dollar.
Minority interest portion of the loss decreased to $36,569 in the second quarter
of 2004 from $47,278 in the comparable 2003 period. This amount in the 2004
period relates only to Gemprint while the 2003 period loss related to Gemprint
and SRE. SRE's minority interest balance is now zero since its results are no
longer consolidated with the Company.
CVF, on a consolidated basis, recorded a net loss of $294,767 (excluding the
expense associated with the repriced stock options) for the three months ended
June 30, 2004 compared to a loss of $261,713 (also excluding the repriced
options expense in the 2003 period). By including the stock option expense in
both periods the loss was $682,281 in the 2004 period compared to a loss of
$444,363 in the 2003 period.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2003:
Consolidated sales of CVF for the six months ended June 30, 2004 amounted to
$4,661,632, representing an increase of $233,784 (5%) compared to sales of
$4,427,848 for the same period in 2003. Biorem's sales increased by $657,635 or
21% compared to the same period of 2003. This increase was mainly due to
numerous modular system installations in the US in the 2004 period. Effective
March 25, 2004, SRE's results are no longer included in CVF's consolidated
results as CVF's ownership in SRE decreased to 37%. SRE's sales that were
consolidated in the 2004 period were $398,670 (from the 1st quarter only),
compared to $743,728 (from the first two quarters) in the 2003 period or a
decrease of $345,058 (46%). Ecoval's sales decreased by $50,151 (20%) as Ecoval
had a relatively weak sales quarter in the second quarter of 2004. Gemprint's
sales decreased by $28,642 or 9% compared to of 2003 due to lower diamond
registrations and lower system sales. Also the weaker US dollar in the 2004
period contributed to the decrease.
CVF's gross margin of $2,001,259 for the first six months of 2004 represents an
increase of $273,931 (16%) from the same period last year. Overall gross margin
as a percentage of sales increased to 42.9% for the first six months of 2004
from 39.0% for the first six months of 2003. This increase is mainly due to
Biorem which had $394,719 higher gross margin in the 2004 period due to higher
margin business (42.7 % in the 2004 period versus 39.1 % in 2003 period).
Ecoval's gross margin increased by $50,266 due to generally improved margin
percentages on its business. SRE had $136,962 lower gross margin in the 2004
period as SRE's sales are no longer consolidated in CVF's results. Gemprint had
a gross margin decrease of $34,092 (14%) due to weaker sales.
Selling, general and administrative expenses (excluding repriced stock options
expense) on a consolidated basis amounted to $2,651,492 for the first six months
of 2004 representing a decrease of $34,606 (1%) compared to expense of
$2,686,098 for the same period in 2003. The decrease is due mainly to $268,925
lower expenses at SRE due to CVF no longer consolidating that company, $112,650
is due to one of the Company's subsidiaries settling a claim with a former
officer during the 2003 period and consulting fees were $32,910 (12%) lower in
the 2004 period. Theses decreases are off set somewhat by higher expenses at
Biorem due to the high sales activity. Management continues to undertake a
concerted effort to effect an overall reduction in administrative costs. Over
the past 3 years CVF has undertaken many initiatives to lower the Company's
expenses. (See further discussion in the Liquidity and Capital Resources
section).
Repriced stock options expense for the six months ended June 30, 2004 amounted
to $187,464, representing an increase of $4,814 (3%) compared to expense of
$182,650 for the same period in 2003.The majority of this increase is due to
$271,263 of expense (versus $ nil in the 2003 period) recorded in the 2004
period due to an increase in the value of the repriced Biorem stock options.
Offsetting this somewhat is $266,449 lower expense ($83,799 of income in the
2004 period versus $182,650 of expense in the 2003 period) related to the change
in the CVF market price and the related effect on the outstanding CVF stock
options.
Research and development expenses for the six months ended June 30, 2004 were
$241,234 compared to $176,630 in the 2003 period, or an increase of $64,604
(37%). Spending increased at Biorem offset somewhat by a decrease in spending
for such activity at Ecoval.
Net interest expense for the first six months of 2004 increased to $168,752 from
$73,562 in the 2003 period. This increase is due to an increase in loans
outstanding in the 2004 period.
Other income decreased to $3,368 expense in the 2004 period from income of
$119,258 for the 2003 period due to foreign currency exchange related to the
weakening US dollar.
Loss on sale of holdings amounted to $2,004 in the 2004 period compared to
$7,194 income in the 2003 period. In the 2004 period the Company sold additional
holdings in TurboSonic and in the 2003 period some holdings in RDM. The
remaining holdings are relatively small and are not expected to contribute
significant gains to the Company.
Gain on sale of equity in subsidiary totaling $742,568 in the 2004 period
represented the Company agreeing to an restructuring of SRE whereby CVF's equity
position decreased from 75% to 37%.
Minority interest portion of the loss decreased to $74,585 in the 2004 period
from $127,938 in the comparable 2003 period. This amount in the 2004 period
relates only to Gemprint while the 2003 period loss related to Gemprint and SRE.
SRE's minority interest balance is now zero since its results are no longer
consolidated with the Company.
CVF recorded a net loss of $435,902 for the six months ended June 30, 2004
resulting from the operations described above, a decrease of 59% compared to the
prior year period. This compares to a net loss of $1,073,080 incurred in the
corresponding period of 2003.
LIQUIDITY AND CAPITAL RESOURCES:
Stockholders' deficit as of June 30, 2004 amounted to $2,945,884 compared to a
deficit of $3,732,580 at December 31, 2003. This net decrease in the deficit of
$786,696 is primarily attributable to the restructuring of the Series B
Preferred Stock and offset somewhat by a net loss of $435,902 which was
recognized in the first six months of 2004.
The current ratio of CVF at June 30, 2004 is .51 to 1, which has decreased from
..58 to 1 at December 31, 2003.
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, the issuance of new securities, and the sales of a portion of its holdings
in certain investee companies, the Company expects to have enough cash to fund
itself and certain of its investee companies that are currently not profitable.
Additionally, CVF has limited outside debt and a line of credit could be sought.
The Company has been successful in obtaining $ 1 million Canadian in financing
through an investment into one of its holdings in September 2003, and in 2003
received $961,000 as repayment of back interest and dividends from one of its
investee companies. During the first six months of 2004, CVF received $400,000
Canadian, $200,000 Canadian, $73,647 Canadian and $7,512 Canadian respectively
in redemption of preferred shares, loans as well as interest and dividend
payments from one of its investee companies.
Over the past two and a half years CVF has undertaken many initiatives to lower
the parent company's expenses. These initiatives have included lowering the head
count of its office staff as well as the elimination of two executive positions.
Approximately a year ago CVF changed its auditing firm from a major national
firm to a smaller firm which will save CVF in excess of $100,000 annually. The
use of consultants has been significantly reduced except those consultants who
agree to receive their fee in CVF common shares. Travel and entertainment has
been significantly reduced over the two years and will continue at the reduced
level going forward. CVF management has adopted a very aggressive cost and
expenditure controls and monitoring policy.
In February 2004, CVF and the holder of CVF's Series B Convertible Preferred
Stock entered into a transaction whereby 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 CVF's 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. The Series C
Preferred and all accrued dividends thereon will be subject to mandatory
redemption on February 27, 2006; however, CVF's obligation to redeem will be
limited to available cash in excess of working capital requirements for the next
twelve months. The Company also issued to the former Series B holder a
three-year warrant to purchase 100,000 shares of CVF's common stock at an
exercise price of $0.35 per share.
The Company no longer anticipates having to fund Gemprint or Biorem as both are
currently operating on positive cash flow, although no assurances can be given
that this trend will continue. Also the Company no longer anticipates that it
will be funding SRE.
As at June 30, 2004, CVF's cash balance was $1,068,309 which is an increase of
$842,774 compared to December 31, 2003. Of this amount, $995,620 is attributable
to consolidation of results with its subsidiaries. The primary source of cash
for the Company is expected to be from sale of a portion of its investments in
its subsidiaries or from CVF issuing additional securities. The company is
pursuing opportunities to raise funds from potential investors in CVF. In
addition, certain subsidiaries are producing a significant positive cash flow
and will be able to supplement other cash requirements of the Company. If the
above mentioned liquidity events do not occur, the Company estimates that it
could run out of operating cash in the second quarter of 2005, if other sources
of cash are not available. The Company will also continue to assist its investee
companies in their efforts to obtain outside financing in order to fund their
growth and development of their business plans. Certain of the Company's
financial obligations included in current liabilities are related to items that
will not be paid in the near term. The Company will carefully manage its cash
payments on such obligations.
CRITICAL ACCOUNTING POLICIES:
An understanding of CVF's accounting policies is necessary for a complete
analysis of our results, financial position, liquidity and trends. We focus your
attention on the following accounting policies of the Company:
Going concern - These consolidated financial statements have been prepared on a
going concern basis, which presumes that assets will be realized and liabilities
discharged in the normal course of business over the foreseeable future. The
Company's current liabilities exceed its current assets and the Company has
incurred losses over the past six fiscal years, which have reduced the Company's
cash reserves, and depleted stockholders' equity. Further, the Company has
contingent liabilities. These conditions raise substantial doubt about the
consolidated Company's ability to continue in the normal course of business as a
going concern.
The Company's primary need for cash is to maintain its ability to support the
operations and ultimately the carrying values of certain of its individual
investee companies. The Company is actively pursuing the sale of a portion of
its interests in two of its investee companies as a source of funds, 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. There is no assurance that these
initiatives will be successful or that the Company or certain of its investees
will have adequate cash resources and capital to be able to continue as going
concerns.
The Company's ability to continue to realize assets and discharge liabilities in
the normal course is uncertain and dependent on these and other initiatives. The
accompanying 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.
Goodwill - In June 2001, the FASB issued SFAS No. 141, "Business Combinations"
and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS No. 141 also specifies criteria which
intangible assets acquired in purchase method business combinations after June
30, 2001 must meet to be recognized and reported apart from goodwill. SFAS No.
142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 requires
that intangible assets with finite useful lives be amortized, and that goodwill
and intangible assets with indefinite lives no longer be amortized, but instead
be tested for impairment at least annually.
The Company adopted the provisions of SFAS No. 141 on July 1, 2001. Such
adoption had no effect on the Company's financial position or results of
operations. The Company adopted the provisions of SFAS No. 142 effective January
1, 2002, at which time the amortization of the Company's existing goodwill
ceased. The new standard also required that the Company test the goodwill for
impairment. Any impairment, arising from the test, is charged to income. As of
December 31, 2003 the Company's goodwill was tested and the Company calculated
that no impairment existed at that time. No further circumstances have arisen
during the first six months of fiscal 2004 that would indicate an impairment of
goodwill has occurred subsequent to year end.
Intangible assets with finite useful lives are amortized over their estimated
useful lives. Intangible assets are reviewed for impairment when there are
indications that the carrying value of an asset may not be recoverable over its
estimated useful life. Impairment testing involves estimating the fair value of
intangible assets using anticipated future cash flows and comparing the fair
value to the carrying value of the asset. The Company's only intangible asset is
acquired technology of Ecoval which is amortized over 5 years.
Contingencies - The Company is currently under an audit by the Internal Revenue
Service ("IRS"). As part of the routine audit, the IRS indicated that they
reviewed the treatment of capital losses claimed in the prior year and refunds
of $2,532,000 received in 2001. A proposed deficiency in federal income tax was
issued by the IRS on December 1, 2003 totaling $2,969,123. On February 5, 2004
CVF issued a formal protest to the proposed deficiency and it is expected that
this will now go before appeals at the IRS. If it is not resolved at the appeals
level of the IRS, CVF intends to challenge the IRS ruling in federal tax court,
as CVF and its legal counsel strongly believes its original deductions were
correctly taken. This process could take up to 2 more years to be resolved.
In February 2004 the Company's 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 Company's 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. The Series C Preferred will be subject to mandatory redemption on
February 27, 2006; however, the Company's obligation to redeem will be limited
to cash available to it at that time in excess of one year's prospective working
capital. The Company also issued to the former Series B holder a three-year
warrant to purchase 100,000 shares of the Company's common stock at an exercise
price of $0.35 per share
Stock Options/Warrants - Due to the re-pricing of stock options in 2002 those
options are subject to variable plan accounting using the intrinsic value as
prescribed by APB-25. As the fair market value of the Company's stock as of June
30, 2004 was $0.45 compared to $0.32 at March 31, 2004, a compensation expense
of $116,251 was recorded during the 2004 second quarter. Also, as the fair
market value of the Company's stock as of March 31, 2004 was $0.32 compared to
$0.41 at December 31, 2003, a reversal of compensation expense of $200,050 was
recorded during the 2004 first quarter. Due to the re-pricing of Biorem stock
options in 2003 those options are subject to variable plan accounting using the
intrinsic value method as prescribed by APB-25. As the fair market value of the
Company's stock as of June 30, 2004 was $1.58 cdn compared to $0.80 cdn at March
31, 2004, compensation expense of $271,263 was recorded during the 2004 second
quarter.
The Company also issued warrants which were priced at $0.16 on April 16, 2002.
The warrants are fully vested and subject to fair value accounting in accordance
with SFAS 123.
FINANCIAL CONSIDERATIONS:
Early Stage Development Companies. Each of the investees is an early stage
development company with a limited relevant operating history upon which an
evaluation of its prospects can be made and prone to the risks of all early
stage development companies, including those described under "Forward Looking
Statements". As such, there can be no assurance of the future success of any of
the investees.
Quarterly Fluctuations. CVF's financial results have historically been, and will
continue to be, subject to quarterly and annual fluctuations due to a variety of
factors, primarily resulting from the nature of the companies in which it
invests. Any shortfall in revenues in a given quarter may impact CVF's results
of operations due to an inability to adjust expenses during the quarter to match
the level of revenues for the quarter. There can be no assurance that CVF will
report income in any period in the future. While some of CVF's investees have
consistently reported losses, CVF has recorded income in certain fiscal periods
and experienced fluctuations from period to period due to the sale of some of
its holdings, other one-time transactions and similar events.
Rapid Technological Change. The markets for CVF's investees products are
generally characterized by rapidly changing technology, evolving industry
standards, changes in customer needs and frequent new product introductions. The
future success of the investees will depend on their ability to enhance current
products, develop new products on a timely and cost-effective basis that meet
changing customer needs and to respond to emerging industry standards and other
technological changes. There can be no assurance that the investees will be
successful in developing new products or enhancing their existing products on a
timely basis, or that such new products or product enhancements will achieve
market acceptance.
AMEX Listing. CVF received notice from the AMEX during the second quarter of
2004 that CVF is no longer eligible to remain listed on the AMEX, subject to a
meeting with the AMEX in September 2004 at which time CVF will present its case
for a continued listing. In the event CVF is unsuccessful in presenting its case
to the AMEX, CVF will be delisted from the AMEX. In such an event, CVF would
seek to have its common stock quoted on the National Association of Securities
Dealers' Over-the-Counter Bulletin Board, or OTCBB. This may adversely affect
shareholders' ability to trade CVF common stock, as the OTCBB market is
generally less liquid and more volatile than the AMEX. In addition, any such
delisting of CVF's common stock could result in a decline in CVF's stock price.
In order to offset the effect of a possible AMEX delisting, CVF will apply for a
listing on a Canadian stock exchange.
FORWARD LOOKING STATEMENTS:
CVF believes that certain statements contained in this Quarterly Report on Form
10-QSB constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the Company's actual results, performance or achievements to vary materially
from the Company's expected results, performance or achievements. Other factors
that may affect CVF's future results include:
- general economic and business conditions;
- foreign currency fluctuations, particularly involving the Canadian dollar:
- the Company's ability to find additional suitable investments and the
ability of those investments to generate an acceptable return on invested
capital; and
- the uncertainties and risks involved in investing in early-stage
development companies which can arise because of the lack of a customer
base, lack of name recognition and credibility, the need to locate and
retain experienced management and the need to develop and refine the
business and its operations, among other reasons.
- the Company's ability to obtain capital to fund its operations and those
of its investees.
The Company will not update any forward-looking statements to reflect actual
results or changes in the factors affecting the forward-looking statements.
Item 3. Controls and Procedures
(a) The Company carried out an evaluation, under the supervision and
with the participation of the Company's management, including the
Company's Chief Executive Office and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective as of the end of the period covered by this report.
Disclosure controls and procedures are controls and procedures that
are designed to ensure that information required to be disclosed in
Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
(b) There has been no significant change in the Company's internal
controls over financial reporting that occurred during the last
fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities.
In May 2004, the Company issued 22,756 shares of its common stock to one
its officers who exercised stock options. These shares were registered in an S-8
filing June 9, 2000.
In June 2004, the Company issued 17,046 shares of its common stock in
consideration of consultation services to the Company. This transaction was
exempt from registration under Section 4 (2) of the Securities Act of 1933, as
amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of per share earnings
(31.1) Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
(32) Certifications Pursuant to 18 U.S.C. 1350 As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATED: August 16, 2004
CVF TECHNOLOGIES CORPORATION
By: /s/ Jeffrey I. Dreben
-----------------------------------
Name: Jeffrey I. Dreben
Title: Chairman of the Board, President
and Chief Executive Officer
By: /s/ Robert L. Miller
-----------------------------------
Name: Robert L. Miller
Title: Chief Financial Officer
EXHIBIT INDEX
No. Description
------ -----------------------------------------------------
(11) Statement re computation of per share earnings
(31.1) Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
(32) Certifications Pursuant to 18 U.S.C. 1350 As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002