1
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 SEPTEMBER 30, 1997
CVF 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.)
300 INTERNATIONAL DRIVE, SUITE 100
WILLIAMSVILLE, NEW YORK 14221
(716) 626-3044
(Address, including zip code, and telephone number,
including area code, of issuer's principal executive offices)
CVF CORP.
(Former name, former address and former fiscal year,
if changed since last report)
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 November 11, 1997, there were 5,729,449 shares of common stock,
$0.001 par value per share, of the issuer outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Page 1 of 11 Pages
2
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Consolidated Balance Sheet, September 30, 1997 3
Consolidated Statement of Operations for the three months
ended September 30, 1997 and 1996 and the nine months
ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows for the
nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Page 2 of 11 Pages
3
CVF CORPORATION AND SUBSIDIARIES
--------------------------------
(FORMERLY WESTERN GROWTH CORPORATION)
-------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(UNAUDITED)
-----------
September 30, 1997
------------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents........................................ $11,962,904
Accounts receivable.............................................. 580,043
Inventory........................................................ 510,461
Prepaid expenses and other....................................... 86,825
-----------
TOTAL CURRENT ASSETS........................................... 13,140,233
PROPERTY AND EQUIPMENT, net of accumulated depreciation............ 199,679
HOLDINGS........................................................... 2,485,561
SECURITIES AVAILABLE FOR SALE, at market........................... 2,011,449
GOODWILL, net of accumulated amortization.......................... 3,357,239
-----------
$21,194,161
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................ $ 1,396,297
Bank debt........................................................ 655,192
Due to related parties........................................... 100,212
Accrued income taxes............................................. 3,125,650
-----------
TOTAL CURRENT LIABILITIES...................................... 5,277,351
-----------
LONG TERM DEBT..................................................... 829,642
DEFERRED INCOME TAXES.............................................. 724,124
MINORITY INTEREST.................................................. 992,800
REDEEMABLE PREFERRED STOCK......................................... 456,250
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, authorized 50,000,000 shares:
issued 5,992,349 shares, outstanding 5,895,449 shares and
232,900 shares in treasury..................................... 5,992
Additional paid in capital....................................... 13,657,952
Treasury stock................................................... (1,636,759)
Translation adjustment........................................... (277,066)
Unrealized gain on available for sale securities................. 1,213,438
Retained earnings................................................ (49,563)
-----------
TOTAL STOCKHOLDERS' EQUITY..................................... 12,913,994
-----------
$21,194,161
===========
See notes to consolidated financial statements.
Page 3 of 11 Pages
4
CVF CORPORATION AND SUBSIDIARIES
--------------------------------
(FORMERLY WESTERN GROWTH CORPORATION)
-------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(UNAUDITED)
- ---------
Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
SALES $ 240,609 $ 177,835 $ 795,850 $ 1,182,341
COST OF SALES 115,616 145,407 253,566 810,177
------------ ------------ ------------ ------------
GROSS PROFIT 124,993 32,428 542,284 372,164
------------ ------------ ------------ ------------
EXPENSES:
Selling, general and administrative 1,417,695 281,744 2,973,365 1,762,400
Research and development 3,107 174,377 15,026 204,469
------------ ------------ ------------ ------------
TOTAL EXPENSES 1,420,802 456,121 2,988,391 1,966,869
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,295,809) (423,693) (2,446,107) (1,594,705)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest income (expense), net 260,400 (40,661) 432,163 (68,078)
Other income (expense), net 15,473 (116,684) 150,311 40,578
Income (loss) from equity affiliates (402,995) (361,548) (363,111) (712,149)
Gain (loss) on sale of investments - 3,197,339 18,332,223 3,197,339
Minority interest - - - -
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSES) (127,122) 2,678,446 18,551,586 2,457,690
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (1,422,931) 2,254,753 16,105,479 862,985
Provision (benefit) for income taxes (452,806) 948,832 7,142,236 950,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,875,737) $ 1,305,921 $ 8,963,243 $ (87,015)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ (0.31) $ 0.22 $ 1.50 $ (0.01)
============ ============ ============ ============
WEIGHTED SHARES USED IN COMPUTATION 5,960,349 5,992,349 5,981,682 5,992,349
============ ============ ============ ============
See notes to consolidated financial statements.
Page 4 of 11 Pages
5
CVF CORPORATION AND SUBSIDIARIES
--------------------------------
(FORMERLY WESTERN GROWTH CORPORATION)
-------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(UNAUDITED)
-----------
Nine Months Ended September 30,
--------------------------------
1997 1996
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,963,243 $ (87,015)
------------ ------------
Adjustment to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 154,937 155,821
(Income) loss from equity affiliates 363,111 712,149
Gain on sale of investments (18,332,223) (3,197,339)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 433,777 34,386
(Increase) decrease in inventory (86,156) 97,737
(Increase) decrease in prepaid expenses and other 10,213 (12,827)
(Increase) decrease in other assets - (41,086)
Increase (decrease) in accounts payable and accrued expenses 231,428 189,913
Increase (decrease) in income taxes payable 2,232,861 950,000
Increase (decrease) in other current liabilities - 150,372
------------ ------------
(14,992,052) (960,874)
------------ ------------
CASH PROVIDED (USED) IN OPERATING ACTIVITIES: (6,028,809) (1,047,889)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (69,338)
Acquisition of subisidiary (1,361,450) -
Investments in and advances to equity affiliates (823,915) (462,316)
Repayment of advances by equity affiliates 321,000 -
Proceeds from sale of investments 19,097,838 3,710,745
------------ ------------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES 17,233,473 3,179,091
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of debt 339,178 212,103
Borrowings (payments) of debt to related parties 105,534 9,031
Purchase of treasury stock (1,581,748) -
------------ ------------
CASH PROVIDED (USED) IN FINANCING ACTIVITIES (1,137,036) 221,134
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS - -
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,067,628 2,352,336
CASH AND CASH EQUIVALENTS -beginning of period 1,895,276 445,515
------------ ------------
CASH AND CASH EQUIVALENTS - end of period $ 11,962,904 $ 2,797,851
============ ============
See notes to consolidated financial statements
Page 5 of 11 Pages
6
CVF CORPORATION AND SUBSIDIARIES
--------------------------------
(FORMERLY WESTERN GROWTH CORPORATION)
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------
(UNAUDITED)
-----------
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 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.
2. INCOME (LOSS) PER SHARE
-----------------------
Per share information is computed based on the weighted
average number of shares outstanding during the period with net income
(loss) reduced by cumulative preferred stock dividends.
3. INVESTMENTS
-----------
The following table gives certain summarized financial
information related to the Company's equity basis holdings:
Nine months ended
September 30, 1997
--------------------
--------------------
Net sales $ 1,332,750
Gross profit on sales 371,333
Income (loss) from continuing
operations (2,508,488)
Net income (loss) $ (2,508,488)
Page 6 of 11 Pages
7
4. INTERIM FINANCIAL STATEMENT DISCLOSURES
---------------------------------------
Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted from the
accompanying unaudited interim financial statements. Reference is to
the Company's audited financial statements for the year ended December
31, 1996 included in the Company's Registration Statement on Form
10-SB/A filed with the Securities and Exchange Commission on May 30,
1997.
On August 28, 1997 the Company acquired approximately 70% of
Dantec Electronics, Limited for $1,400,000 payable for $1,100,000 in
cash plus a note payable over two years.
Page 7 of 11 Pages
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 compared to September 30,
1996.
In the first nine months of 1997 the Company recorded a net
profit of $8,963,243 compared to a loss of $87,015 in the comparable period of
1996.
The nine month results were principally impacted by the sale
of all but 65,605 shares of its position in Certicom, one of its investments.
This sale created a pre-tax gain of $18,332,223. There were no similar sales of
securities in 1996. Additionally, the 1997 nine month results were affected by
an operating loss of $2,446,107 after a decline in revenues of $386,491 as
compared to the previous year and an increase of $1,210,965 in selling, general
and administrative expenses. The decline in revenues is principally attributable
to Biorem Technologies Inc., one of the Company's investments. Biorem's revenue
tends to come through large contracts (over $250,000) which can take as long as
two to three years until the contracts are committed to by their clients.
Therefore, Biorem's revenues can fluctuate from period to period.
The increase in selling, general and administrative expenses
is principally attributable to an increase in salaries and bonuses, much of
which was paid as a one time withholding tax to cover an exercise of management
stock options. The cost to the Company of paying this withholding tax is offset
by a tax deduction attributable to the exercise of the options which is not
recorded as an expense for financial reporting purposes.
CVF Corporation, on a non-consolidated basis, has no sales
from operations. Sales and gross profits from sales reflect the operations of
the Company's consolidated subsidiaries only. These subsidiaries include
Biorem, Gemprint, Solaria, Dantec Electronics Limited and Canadian Venture
Founders Leasing Corp. Entities that are not consolidated include Ecoval,
Dantec Systems, Petrozyme and Turbotak.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company recorded stockholders'
equity of $12,913,994 as compared to $17,431,780 at December 31, 1996. This
decrease of $4,517,786 was primarily attributable to the Company utilizing
$1,581,748 for the repurchase of the Company's own stock that was then put into
treasury and from the loss from operations. The current ratio of the Company at
September 30, 1997 was 2.5 to 1 as compared to .88 to 1 at December 31, 1996.
The principal reason for this improvement was the cash proceeds from the sale of
the Certicom shares.
The Company experienced a net increase in cash and cash
equivalents of $10,067,628 for the nine month period ended September 30, 1997
compared to an increase in cash of $2,352,336 in the same period of 1996. Cash
provided by investing activities was $17.2 million consisting of $19.1 million
of proceeds from the sale of Certicom stock offset by cash used for the
acquisition of Dantec Electronics Limited and for advances to affiliates. Cash
used for operating activities was approximately $6 million, primarily due to
operating losses of $2.4 million and income tax payments of $4.2 million.
Page 8 of 11 Pages
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities.
----------------------
None.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On August 21, 1997, the Company held its Annual Meeting of
Stockholders. At the Annual Meeting, the following three directors were elected
to serve until the next Annual Meeting:
Name Vote For Vote Withheld
---- -------- -------------
Jeffrey Dreben 4,299,806 -0-
Robert Nally 4,299,806 -0-
George Khouri 4,299,806 -0-
In addition, a proposal to amend the Company's Articles of
Incorporation to change the Company's name from CVF Corp. to CVF Corporation was
approved.
For 4,299,806
---
Against -0-
-------
Abstain -0-
-------
Item 5. Other Information.
------------------
None.
Page 9 of 11 Pages
10
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
3(i) Articles of Incorporation, as amended (filed herewith).
(ii) Bylaws (incorporated by reference to Exhibit 2.2 to
Form 10-SB filed February 12, 1997).
(27) Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
(1) Filed October 31, 1997
Reporting a change in the Company's principal
accountant.
Page 10 of 11 Pages
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATED: November 14, 1997
CVF CORP.
By: /s/Jeffrey Dreben
---------------------------------------
Name: Jeffrey Dreben
Title: Chairman of the Board, President
and Chief Executive Officer
By: /s/Robert Nally
---------------------------------------
Name: Robert Nally
Title: Secretary and Treasurer
Page 11 of 11 Pages