<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
CVF CORP.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C>
NEVADA 87-0429335
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 INTERNATIONAL DRIVE, SUITE 100
WILLIAMSVILLE, NEW YORK 14221
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(Address of principal executive offices) (Zip Code)
</TABLE>
(716) 626-3044
----------------------------------
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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</TABLE>
Securities to be registered under Section 12(g) of the Act:
Common Shares, par value $0.001 per share
---------------------------------------------------
(Title of class)
---------------------------------------------------
(Title of class)
<PAGE> 2
TABLE OF CONTENTS
This Form 10-SB/A has been prepared pursuant to Alternative 2 as set forth in
Form 10-SB.
Page
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<TABLE>
<S> <C> <C>
PART I .............................................................. 1
ITEM 6. DESCRIPTION OF BUSINESS ................................. 1
Background ............................................ 1
History and Business Plan of CVFLP .................... 2
The Corporations ...................................... 3
Financial Considerations .............................. 6
ITEM 7. DESCRIPTION OF PROPERTY ................................. 7
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES . 7
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS .................. 7
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITY HOLDERS ...................................... 9
Voting Securities and Principal Holders ............... 9
Options, Warrants and Rights .......................... 10
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 10
ITEM 12. SECURITIES BEING OFFERED ................................ 11
Common Shares ......................................... 11
Preferred Stock ....................................... 11
Warrants .............................................. 12
PART II .............................................................. 13
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS ................... 13
Market Information ..................................... 13
Dividends .............................................. 13
ITEM 2. LEGAL PROCEEDINGS ........................................ 13
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................... 13
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES .................. 13
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS ................ 14
PART F/S ............................................................. 15
PART III ............................................................. 15
ITEM 1. INDEX OF EXHIBITS ........................................ 15
ITEM 2. DESCRIPTION OF EXHIBITS .................................. 15
INDEX TO FINANCIAL STATEMENTS ........................................ F-1
SIGNATURES
INDEX TO EXHIBITS
</TABLE>
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SPECIAL NOTE REGARDING FORWARD - LOOKING STATEMENTS
Certain statements in this Registration Statement, under the captions "The
Corporations," "Financial Considerations" and elsewhere, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve unknown and uncertain risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. See "Financial Considerations." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements.
<PAGE> 4
PART I
ITEM 6. DESCRIPTION OF BUSINESS
Background
CVF Corp. (the "Company") was incorporated on January 10, 1986, under the laws
of the State of Utah under the name of Sierra Growth Corporation. On December
30, 1993, the Company changed its name to Western Growth Corporation and its
domicile to the State of Nevada in connection with a reincorporation merger.
The Company was organized in order to acquire or enter into a business or
business opportunity. In connection with its organization, the Company issued
an aggregate of 4,000,000 Common Shares to its original directors and officers.
In 1987, the Company completed a public offering under Regulation A of the 1933
Act of 8,280,000 Common Shares at an offering price of $0.01 per share from
which the Company received net proceeds of approximately $67,850. Immediately
following the closing of the offering, there were 12,280,000 Common Shares
issued and outstanding. During 1988 and 1989, the Company acquired a majority
ownership interest in a corporation for $62,500, which the Company planned to
transfer to its stockholders in a "spin-off" transaction. The Company
subsequently determined that the spin-off was not feasible, however, and in
1991 the subsidiary corporation was liquidated.
At a Special Stockholders Meeting held December 3, 1993, the Company's
stockholders approved proposals to: (i) effect a 1-for-10 reverse stock split
in the issued and outstanding Common Shares thereby reducing the number of
outstanding shares from 12,280,000 to 1,228,000; (ii) change the state of
incorporation of the Company from Utah to Nevada; (iii) change the name of the
Company from Sierra Growth Corporation to Western Growth Corporation; (iv)
authorize 500,000 shares of Preferred Stock; and (v) elect L. Dee Hall as the
sole director of the Company. All of such proposals were implemented during
December 1993. During the period of December 1993 until August 1995, the Company
conducted no material business.
Prior to August 20, 1995, the Company had no material operations. On August 20,
1995, the Company entered into an asset purchase agreement (the "Asset Purchase
Agreement") with Canadian Venture Founders Limited Partnership ("CVFLP"), under
which the Company agreed to purchase all of the assets and assume all of the
liabilities of CVFLP. Pursuant to the terms of the Asset Purchase Agreement, the
Company issued to CVFLP 4,763,918 Common Shares, 25,000 shares of its Series "A"
Preferred Stock (the "Preferred Shares") and a warrant (the "Warrant") entitling
CVFLP to purchase approximately 952,784 additional Common Shares. At a Special
Stockholders' Meeting held September 12, 1995, the Company's stockholders
approved proposals to: (i) approve the Asset Purchase Agreement and the issuance
of the securities of the Company to CVFLP; (ii) change the name of the Company
from Western Growth Corporation to CVF Corp.; (iii) effect a 1-for-2 reverse
split of the Common Shares; and (iv) elect Jeffrey Dreben, Malcolm Gissing,
Robert Nally and P. Anthony Bordes, Jr. as the directors of the Company.
Following the consummation of the above transactions, L. Dee Hall resigned as a
director of the Company. On September 29, 1995, CVFLP assigned the Warrant to
Canadian Venture Founders Management Limited ("CVF Management") which was the
general partner of CVFLP.
In October 1996, the Company instituted a stock repurchase program pursuant to
which it commenced the repurchase in the marketplace or otherwise, in accordance
with all applicable securities laws, up to 300,000 Common Shares. To date, the
Company has repurchased approximately 70,000 Common Shares.
<PAGE> 5
History and Business Plan of CVFLP
CVFLP was formed under the laws of Ontario, Canada in 1989, to engage in the
business of developing and managing early stage and start-up companies engaged
in the information and environmental technologies areas. In August 1989, CVFLP
completed a private securities offering in which commitments for approximately
$14,600,000 were received from a number of pension funds, insurance companies
and corporate groups, which commitments were paid for between 1989 and 1995.
Since 1989, CVFLP has acquired ownership interests in each of the following
privately held Canadian corporations: Biorem Technologies Inc., Canadian Venture
Founders Leasing Corporation, Dantec Systems Corporation, Ecoval Inc., Omphalos
Recovery Systems Inc., Solaria Research Enterprises Ltd., and Turbotak
Technologies, Inc. (the "Corporations"). CVFLP worked to start, build and grow
the Corporations. The Company's mandate is to acquire significant holdings in
new and emerging companies primarily in the technology area, to assist in the
management of such companies and through them to engage in the businesses
engaged in by such companies. Each of the Corporations generally requires
additional capital to meet its business plans beyond the Company's initial
involvement. The Company intends to actively assist in the management of the
Corporations as well as in the obtaining of additional capital either from its
own resources or other participants. There can be no assurance that the
Corporations will raise sufficient amounts to remain in business and/or to meet
their respective business plans.
The Company plans to generate revenue and profit through the consolidation of
revenues and profits from the Corporations and also through the sale of all or a
portion of its holdings in companies when the Company determines that its funds
can be better deployed in other industries or companies. The Company's success
is solely dependent upon the success of the Corporations. The Company plans to
conduct its business operations so as not to be deemed to be an investment
company and thereby be subject to the Investment Company Act of 1940, which
would require it to register as an investment company under such Act.
The Company believes that the Corporations have the potential to develop
meaningful growth over the next three to five years. However, additional
capital contributions in the Corporations by the Company and others will be
required to facilitate such growth.
As of the date hereof, the Company has positions, each of which is a controlling
position, in the following companies. The Company will generally supply officers
and directors to each of these companies and actively participates in their
management.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
CORPORATION OF VOTING SECURITIES
- ----------- --------------------
<S> <C>
Biorem Technologies Inc. 60%
Canadian Venture Founders
Leasing Corporation 100%
Dantec Systems Corporation 39%
Ecoval Inc. 25%
Omphalos Recovery Systems, Inc. 60%
Solaria Research Enterprises Ltd. 51%
Turbotak Technologies, Inc. Convertible Debentures
</TABLE>
Personnel
As of May 10, 1997, the Company had three full-time and two part-time
employees.
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The Corporations
The following paragraphs provide a brief description of the Corporations. Each
Corporation has its own business plan, history and financial statements. Each
Corporation has completed the development of products, established markets and
distribution channels, has sold products and has put management teams in place
or is currently working to improve its management teams. Each Corporation is
working to improve its production capability to handle future growth in sales.
The additional capital required by each of the Corporations is primarily for
expansion of sales and production capability to enable the Corporations to
realize their commercial potential over the next three to five years. As is
common with early stage technology companies, each of the Corporations has
historically operated at a loss or at break-even and many will continue to
operate at a loss for at least the foreseeable future.
Biorem Technologies, Inc. Biorem, a spin-off company from the University of
Waterloo, is an industrial biotech company that is engaged in the business of
applying bioconversion and biotransformation technology to a variety of
industrial applications such as the treatment or clean-up of organic toxic
chemicals in soil or groundwater, the treatment of industrial waste streams for
liquids or air and for use in the food processing, agriculture and
pharmaceutical manufacturing industries. Biorem has certain proprietary
industrial fermentation techniques which enabled it to produce new biological
materials for use in the bioremediation, industrial waste stream treatment,
food processing, agriculture and pharmaceutical industries and markets. Biorem
provides on-site turn key remediation capability. Biorem has developed
technology for economical and effective cleaning of contaminated soils.
Biorem plans to raise an additional $2,000,000 during the next year in order to
fulfill its current business plan. It will attempt to raise such additional
capital through private placements. The Company may participate in such
securities offerings subject to the financial requirements of its other
holdings.
Canadian Venture Founders Leasing Corporation ("CVFLC"). CVFLC was founded in
order to offer equipment leases to the Corporations as well as to offer
short-term funding to the Corporations for such items as inventory and
receivables. CVFLC is a wholly owned subsidiary of the Company and is managed
by the management team of the Company.
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Dantec Systems Corporation. Dantec, an industrial automation company, using
unique process control algorithms developed at the University of Waterloo, is in
the business of developing, manufacturing and marketing a range of automated
precision moisture detection measurement and manufacturing control systems for
the food processing, wood processing, pharmaceutical, polymer and various other
material processing markets and industries. Dantec has sold its systems to
various North American corporations in the above mentioned industries and has a
strategic marketing partnership with Honeywell to sell computerized moisture
control systems into the North American baked goods industry. During the fiscal
year ended February 28, 1995, Dantec made a strategic decision to invest mainly
in introducing its progress control systems into a series of new markets
including the pharmaceuticals, wood processing and food industries. Sales
remained flat during the 1996 fiscal year compared to the previous year.
However, several important contracts have been signed in 1997 which are expected
to substantially increase revenues.
Dantec plans to raise an additional $1,000,000 during the next year in order to
fulfill its current business plan. It will attempt to raise such additional
capital through private placements of its securities. The Company may
participate in such securities offerings subject to the financial requirement
of its other holdings.
Ecoval, Inc. Ecoval is a Montreal, Quebec-based company formed to manufacture
and market a range of 100% natural fertilizers, environmentally friendly
organic herbicides and tree recovery systems. Ecoval has received U.S. patents
for its herbicide and its 4-4-8 tree recovery fertilizer. Research results
show the herbicide to be non-toxic and bio-degradable and more effective than
chemical products. Ecoval's herbicide is currently going through the
registration and approval process with Agriculture Canada and the Environmental
Protection Agency in the U.S. and Ecoval is expecting to launch its herbicide
in 1997. The company also has proprietary binder technology to enable the
granulation of gypsum, bloodmeal, bonemeal and feathermeal and other 100%
natural ingredients. The company has shipped its product to customers in
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Florida, California and Texas and throughout Canada. Approximately forty
municipalities in Ontario have purchased and re-ordered the product, along with
many professional lawn care and landscaping contractors. In Canada, retail
distribution has been established along with sales to over twenty golf courses.
In the U.S., eight golf courses are currently using the product. A new plant
with 25,000 ton per year capability was recently constructed in Montreal in
order to meet the growing demand for its product. Ecoval receives an average
price of approximately $600 per ton for its products. In February 1997, Ecoval
obtained approximately $6,000,000 in a private placement from a group of U.S.
and Canadian investors to provide working capital for operations and market
expansion. It is anticipated that Ecoval will operate at a loss in its current
fiscal year.
Omphalos Recovery Systems, Inc. (GemprintTM). GemprintTM is in the business of
providing products and services to the insurance industry, as well as the
consumer and wholesale jewelry markets to enable diamonds and other precious
gems to be uniquely identified non-invasively (fingerprinted) using a patented
low power laser imaging system. The results are stored in a data base for later
verification and recovery of lost or stolen gems. GemprintTM currently sells
its RSi 2000 laser GemprintTM machine to jewelers for $15,000. Currently, each
consumer who gets his or her gem "Gemprinted"TM by the jeweler's RSi 2000
machine pays the jeweler $35 of which $15 goes to GemprintTM pursuant to
licensing agreements. GemprintTM owns and operates the GemprintTM data base.
Law enforcement agencies and many insurance companies support the GemprintTM
system (approximately 25 insurance companies offer a 10% discount on diamond
insurance policies if a gem is GemprintedTM). Currently 110 jewelers own
GemprintTM machines throughout North America and actively use the system.
GemprintTM also recently received a letter of intent for the purchase of 300
GemprintTM machines for $7,500 each from a group in the United Kingdom.
GemprintTM has recently developed a next generation machine with built-in
appraisal software. The additional expense of developing this machine is
expected to result in operating losses at least until the fiscal year ending
March 31, 1998.
GemprintTM plans to raise an additional $2,500,000 during the next year in
order to fulfill its current business plan. It will attempt to raise such
additional capital through private placements. The Company may participate in
such securities offerings subject to the financial requirements of its other
holdings.
Solaria Research Enterprises, Ltd. Solaria is the business of developing,
manufacturing and marketing a family of low cost, high efficiency programmable
electronic motor speed control products for battery-powered vehicles such as
material handling equipment (fork lift trucks, etc.). Solaria supplies both
original equipment manufacturers ("OEM") and the aftermarket with products.
Solaria has shipped over 500 units to date to North American customers. A North
American distribution network of 28 distributors having 113 branches has been
set up over the past three years. Solaria is now marketing the latest version
of its product. Solaria has entered into a strategic OEM joint
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venture with a North American manufacturer of fork lift trucks to
develop and manufacture a range of electronic controllers for their D.C.
engines.
Solaria plans to raise an additional $1,500,000 during the next year in order
to fulfill its current business plan. It will attempt to raise such additional
capital through private placements. The Company may participate in such
securities offerings subject to the financial requirements of its other
holdings.
Turbotak Technologies, Inc. Turbotak is a spin-off from the University of
Waterloo and is engaged in the business of researching, developing and
marketing a range of air pollution control products and systems for a variety
of industries worldwide. Recently it has developed a volatile organic compound
("VOC") removal and recovery technology for the printing, automobile, wood,
bakery and numerous other industries which produce VOC's. This technology is
cost effective in that the solvents are re-covered for resale or reuse.
Turbotak has sold its products in the pulp and paper industry and also in a
variety of other markets.
Turbotak recently executed a letter of intent pursuant to which Sonic
Environmental Systems, Inc. ("Sonic"), a publicly-traded, New Jersey based, air
pollution control products company shall acquire Turbotak in exchange for
common stock of Sonic. As a result of the transaction, Turbotak shareholders
will own approximately 82% of the outstanding common stock of Sonic. Upon
consummation of the transaction, the Company's convertible debenture in
Turbotak will be convertible into approximately 13% of the common stock of
Sonic.
Financial Considerations
Early Stage Development Companies. Each of the Corporations (other than
Canadian Venture Founders Leasing Corporation) is an early stage development
Company with a limited relevant operating history upon which an evaluation of
its prospects can be made. As such, there can be no assurance of the future
success of any of the Corporations.
Quarterly Fluctuations. The Company's operating results have historically
been, and will continue to be, subject to quarterly and annual fluctuations due
to a variety of factors. Any shortfall in revenues in a given quarter may
impact the Company'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 the Company will be able to grow in future
periods or that it will be able to sustain its level of total revenues or its
revenue growth on a quarterly or annual basis.
Rapid Technological Change. The markets for the Corporations' products are
generally characterized by rapidly changing technology, evolving industry
standards, changes in customer needs and frequent new product introductions.
The Corporations' future success will depend on their ability to enhance
current products, develop new products on a timely and cost-effective basis
that meet changing customer needs and to respond to emerging industry standards
and other technological changes. There can be no assurance that the
Corporations will be successful in developing new products or enhancing their
existing products on a timely basis, or that such new products or product
enhancements will achieve market acceptance.
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ITEM 7. DESCRIPTION OF PROPERTY
The Company currently leases space for its principal executive offices which
are located at 300 International Drive, Suite 100, Williamsville, New York
14221.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jeffrey Dreben 50 Director; Chief Executive Officer; and President
Robert Nally 48 Director; Secretary; and Treasurer
Malcolm Gissing 65 Director; and Consultant
George Khouri 50 Director; Consultant
</TABLE>
Jeffrey Dreben has been President, Chief Executive Officer and Director of the
Company since September 1995. From 1989 until September 1995, Mr. Dreben was
Vice President and Treasurer of CVF Management and was its original founder. CVF
Management was the general partner of CVFLP. Mr. Dreben has been working in the
investment industry since 1979, beginning his career with Merrill Lynch and
subsequently founding his own firm. Mr. Dreben has been working in the venture
capital industry in the United States and Canada since 1985. Mr. Dreben received
an Honors Bachelor of Arts degree from Loyola College of the University of
Montreal.
Robert Nally has been Secretary, Treasurer and Director of the Company since
September 1995. From 1989 until 1995, Mr. Nally was Vice President and Secretary
of CVF Management and one of its cofounders. Prior to that time, Mr. Nally
provided commercial development consulting services to the University of
Waterloo as Technology Transfer and Commercial Development Officer. Prior to
joining the University of Waterloo, he worked for NCR Canada, LTD. for 10 years
as Manager of Strategic Planning and New Business Engineering. He earned a
Bachelor of Science degree in electrical engineering and a Master of Science
degree from the University of Waterloo.
Malcolm Gissing has been a Consultant to and a Director of the Company since
September 1995. From 1989 until September 1995, Mr. Gissing was President and
Chief Executive Officer of CVF Management and one of its cofounders. Prior to
that time, Mr. Gissing was employed by Hewlett Packard as President of
Hewlett-Packard Canada. Mr. Gissing earned his Electronics degree from Kingston
College of Advanced Technology in England and is a graduate of the Stanford
University Business School Executive Program.
George Khouri has been a consultant to and a Director of the Company since April
1997. From 1993 until September 1996, Mr. Khouri was managing Director-Capital
Markets for Nomura Securities International Inc. Prior to that time, Mr. Khouri
was a member of Trigon Group, an investment Banking boutique, and has served as
President of Prudential Bache Capital Partners. Mr. Khouri received a Bachelor
of Arts degree from Tufts University and a masters degree in Business
Administration, Investments, from New York University.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
Prior to September 20, 1995, the Company's sole director and officer was L.Dee
Hall. Mr. Hall did not receive or accrue any compensation for his services as
a director or officer of the Company. The following is a summary of the
renumeration paid to the three highest paid persons for the period ending
December 31, 1996 who were officers or directors during such period.
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<TABLE>
<CAPTION>
NAME OF INDIVIDUAL CAPACITIES IN WHICH AGGREGATE
OF IDENTITY OF GROUP REMUNERATION WAS RECEIVED REMUNERATION
-------------------- --------------------------------- -------------
<S> <C> <C>
Jeffrey Dreben Director, Chief Executive Officer
and President $102,765
Robert Nally Director, Secretary, Treasurer $ 80,543
Malcolm Gissing Director, Consultant $ 44,580
</TABLE>
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ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
Voting Securities and Principal Holders
The following table sets forth, as of June 30, 1997, the approximate number
of Common Shares of the Company owned of record or beneficially by each person
who owned of record, or was known by the Company to own beneficially, more than
10% of the Company's Common Shares, and the name and shareholdings of each
officer and director, and all officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNTS OF AMOUNTS OF PERCENTAGE OF
NAME AND ADDRESS COMMON SHARES OWNED COMMON SHARES OWNED
--------------------------- ------------------- -------------------------
<S> <C> <C>
Jeffrey Dreben (1) 414,353 7.1%
300 International Drive
Suite 100
Williamsville, NY 14221
Malcolm Gissing (2) 413,802 7.1%
300 International Drive
Suite 100
Williamsville, NY 14221
Robert Nally (1) (3) 414,353 7.1%
300 International Drive
Suite 100
Williamsville, NY 14221
Prudential Insurance Co. 610,750 10.5%
200 Consilium Place
Scarborough, Ontario
M1H 3E6
Bansco Group (4) 694,081 12.0%
c/o The Bank of Nova Scotia
Securities Department
Lower Concourse
Scotia Plaza
44 King Street West
Toronto, Ontario M5H 1H1
Stepworth Holdings Inc. (5) 638,467 11.0%
C/O Stephen Bronfman
Claridge Grove
1170 Rue Peel
Montreal, Quebec Canada
H3B 4P2
Directors and Officers as 1,263,272 21.3%
Group (4 persons) (1) (2) (3)
</TABLE>
- ------------
(1) The Warrant for a total of 952,784 Shares is held and is exercisable by CVF
Management. A portion (approximately 22.43%) of the Shares (i.e., 213,709
Shares) underlying the Warrant are attributed to each of Messrs. Dreben and
Nally because Mr. Dreben's wife and Mr. Nally's wife each owns
approximately 22.43% of the beneficial interest in CVF Management. Each of
Messrs. Dreben and Nally expressly disclaims beneficial ownership in the
Common Shares issuable upon exercise of the Warrant.
(2) Attributed to Mr. Gissing in the table are 213,138 of the Shares issuable
upon exercise of the Warrant, because of Mr. Gissing's ownership of
approximately 22.37% of the beneficial interest in CVF Management, holder
of the Warrant.
(3) Includes 200,664 Shares owned by Mr. Nally's wife as to all of which
Mr. Nally disclaims beneficial ownership.
(4) Bansco Group is the nominee for Dofasco Employees' Saving and Profit
Sharing Fund and Dofasco Supplementary Retirement Income Plan. Dofasco Inc.
is a public Canadian steel company.
(5) Stepworth Holdings Inc. is a private holding company, the shareholders of
which are Stephen Rosner Bronfman Substitute Trust and 3220834 Canada Inc.
The directors of Stepworth Holdings Inc. are Arnold M. Ludwick (also
President), Richard P. Doyle (also Vice-President, Corporate Planning),
Andrew J. Parsons (also Vice-President, Finance and Administration), and
Robert S. Vineberg, each of whom is a Canadian resident.
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OPTIONS, WARRANTS AND RIGHTS
The following table sets forth, as of May 10, 1997 the outstanding options
and warrants issued by the Company:
<TABLE>
<CAPTION>
NAME OF TITLE AND EXERCISE DATE OF
HOLDER AMOUNT OF SECURITIES PRICE EXERCISE
- -------------------- -------------------- -------- ----------------------
<S> <C> <C> <C>
CVF Management(1) Warrant to acquire $3.05 Exercisable as to
952,784 Common one fifth until
Shares September 20, 2000
if any former limited
partner of CVFLP sells
any number of Common
Shares prior to that
date, and as to the
balance for a period of
six months thereafter
</TABLE>
- ---------
(1) Formerly CVFLP's general partner
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN
TRANSACTIONS
Effective June 30, 1995, the Company issued to CVF, Inc., a management company
the shareholders of which were Jeffrey Dreben, Malcolm Gissing and Robert Nally,
601,932 Common Shares as payment in full for consulting and intermediary
services rendered to the Company in connection with the Company's proposal to
acquire the assets of CVFLP. The shareholders of CVF, Inc. included Jeffrey
Dreben, Malcolm Gissing and Robert Nally, all of whom are directors of the
Company. The Company and CVF, Inc. agreed that the value of the services
rendered to the Company and the 601,932 Common Shares issued was $55,000.
Pursuant to a stock purchase agreement, dated February 5, 1997, the Company
repurchased the 601,932 Common Shares from CVF Inc., for an aggregate purchase
price of $10.00. Also on February 5, 1997, the Company issued an aggregate of
601,932 options to purchase Common Shares for $.05 per share to its three
executive officers. The transactions of February 5, 1997 were structured to be a
like-kind exchange with no effect on earnings. On May 30, 1997, these options
were exercised.
The Company has also entered into a Service Agreement dated February 10, 1997
with D and N Consulting Corporation ("D and N"), pursuant to which D and N
provides a variety of administrative, managerial and clerical services to the
Company. Under the Service Agreement, D and N would be responsible for all
administrative requirements of the Company, including, but not limited to,
maintaining the books of the Company, preparing periodic reports to the Board of
Directors of the Company and providing office facilities and travel expenses. In
return for the above services, D and N is to be paid a service fee based on an
annual budget prepared by D and N and approved by the full Board of Directors of
the Company. The particulars of this fee arrangement have not yet been
determined. Messrs Dreben and Nally are each officers and 50% shareholders of
D and N. The Company and D and N have mutually agreed to indefinitely defer
operation of the Service Agreement. Instead, the services continue to be
provided by officers, employees and consultants of the Company, and the Company
has neither paid nor accrued service fees under the Service Agreement.
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ITEM 12. SECURITIES BEING OFFERED
The Company's authorized capital consists of 50,000,000 Common Shares, $0.001
par value, and 500,000 Preferred Shares, $0.001 par value. As of May 10, 1997
5,390,414 Common Shares and 25,000 Preferred Shares are currently issued and
outstanding.
Common Shares
Holders of the Common Shares are entitled to one vote per share on each matter
submitted to vote at any meeting of shareholders. Common Shares do not carry
cumulative voting rights and, therefore, holders of a majority of the
outstanding shares of Common Shares will be able to elect the entire Board of
Directors, and, if they do so, minority shareholders would not be able to elect
any members to the Board of Directors. The Company's Board of Directors has
authority, without the action by the Company's shareholders, to issue all or
any portion of the authorized but unissued Common Shares, which would reduce
the percentage ownership of the Company of its shareholders and which may
dilute the book value of the Common Shares.
The Company's by-laws provide that a majority of the voting power of all
outstanding securities entitled to vote on a matter shall constitute a quorum
for shareholders' meetings, except with respect to matters for which a greater
quorum is required by law.
Shareholders of the Company have no pre-emptive rights to acquire additional
Common Shares. The Common Shares are not subject to redemption and carry no
subscription or conversion rights. In the event of liquidation of the Company,
the Common Shares are entitled to share equally in corporate assets after
satisfaction of all liabilities. All of the Common Shares currently issued and
outstanding are fully paid and non-assessable.
Holders of Common Shares are entitled to receive such dividends as the Board of
Directors may from time to time declare out of funds legally available for the
payment of dividends. The Company has not paid dividends on its Common Shares
and there can be no assurance that it will pay dividends in the foreseeable
future.
Preferred Stock
Preferred Shares may be issued from time to time in one or more series as may
from time to time be determined by the board of directors. Each series shall
be distinctly designated. All shares of any one series shall be alike in every
particular, except that there may be different dates from which dividends
thereon, if any, shall be cumulative, if made cumulative. The powers,
preferences, participating, optional, and other rights of each of such series
and the qualifications, limitations, or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. Except
as provided in the Company's Certificate of Incorporation, the board of
directors of the Company is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of each particular
series of Preferred Shares the designation, powers, preferences, and relative
participating, optional, and other rights and the qualifications, limitations,
and restrictions thereof, if any, of such series.
11
<PAGE> 15
The Company currently has outstanding a series of Preferred Stock designated as
Series "A" Preferred Stock. The following discussion of the general terms of
the Series "A" Preferred Stock is set forth solely to provide a basic
understanding of the preferences and characteristics of the Series "A"
Preferred Stock as set forth in the Certificate of Designation of Voting
Powers, Preferences, Rights and Limitations of Series "A" Preferred Stock (the
"Certificate") which was filed with the Secretary of State of Nevada on
September 12, 1995. Each share of Series "A" Preferred Stock has a stated
value (the "Stated Value") of the U.S. dollar equivalent of Cdn$25.00
determined at the date of issuance by reference to the noon spot rate for
conversion of Canadian dollars into U.S. dollars as published by the National
Bank of Canada on the business day immediately preceding the date of issuance.
The holders of Series "A" Preferred Stock will be entitled to cumulative
dividends at the rate of 5% of the Stated Value plus accrued but unpaid
dividends. The dividends will have priority over any payments of dividends on
the Common Shares and on all other shares of preferred stock ranking junior to
the Series "A" Preferred Stock. Except as otherwise required by Nevada law,
the holders of Series "A" Preferred Stock shall not have any voting rights.
The Series "A" Preferred Stock is not convertible into Common Shares or into
any other security of the Company. The Company may, at its option, redeem all
or part of the Series "A" Preferred Stock from the holders thereof.
Additionally, at any time after five years from the date of issuance, a holder
of Series "A" Preferred Stock may require the Company to redeem any or all of
the Series "A" Preferred Stock held by such holder. The redemption price shall
be the Stated Value plus all accrued but unpaid dividends.
Warrants
Pursuant to the terms of the Asset Purchase Agreement, the Company issued to
CVFLP Warrants entitling it to purchase approximately 952,784 additional shares
of the Company's Common Shares. Each Warrant entitles the holder to purchase
one Common Share at a price of $3.05 per share. CVFLP has distributed the
Warrants to Canadian Venture Founders Management Limited, its general partner.
Until September 20, 2000, the Warrants may only be exercised if a former
limited partner of CVFLP sells any Common Shares which were issued to such
limited partner in connection with the Transaction. In such event, the Warrant
holders may purchase one Common Share for each five Common Shares sold by such
limited partner. Any Warrants not exercised before September 20, 2000, may be
exercised by the holder during the six month period immediately following the
end of such five year period. All shares issuable upon exercise of the
Warrants will be restricted securities as that term is defined in Rule 144
under the 1933 Act.
12
<PAGE> 16
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Market Information
The Common Shares are traded in the over-the-counter market and quoted on the
NASD OTC Bulletin Board, a regulated quotation service that captures and
displays real-time quotes and indications of interest in securities not listed
on The Nasdaq Stock Market or any U.S. exchange. The following table sets
forth the high and low bid price quotations for the Common Shares in the
over-the-counter market as provided by the National Quotation Bureau, Inc.
during the periods indicated. The quotations reflect inter-dealer prices,
without retail markup mark-down on commission and may not represent actual
transactions. All prices are shown in U.S. dollars.
<TABLE>
<CAPTION>
LOW HIGH
------------- -------------
<S> <C> <C> <C>
1995 - 1st Quarter not available not available
2nd Quarter not available not available
3rd Quarter not available not available
4th Quarter 1.50 3.25
1996 - 1st Quarter
(excluding January 8) 2.75 3.25
2nd Quarter 2.75 3.625
3rd Quarter 3.50 5.375
4th Quarter 5.00 6.875
1997 - 1st Quarter 6.50 6.875
2nd Quarter
(through May 10, 1997) 6.875 7.25
</TABLE>
As of May 10, 1997, there were 5,992,346 outstanding shares of Common
Stock, held by holders of record.
Dividends
The Company has never paid a dividend on the Common Shares. The payment of any
future dividends will be at the sole discretion of the Company's Board of
Directors. The Company intends to retain earnings to finance the expansion of
its business and does not anticipate paying dividends on the Common Shares in
the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
and, to the best of its knowledge, no such action by or against the
Company has been threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
13
<PAGE> 17
The following is a summary of all securities of the Company sold within the past
three years which were not registered under the Securities Act of 1933, as
amended (the "Act"). All of the sales listed below were exempt from
registration under the Act in that they did not involve a public offering within
the meaning of section 4(2) of the Act and Regulation D, promulgated thereunder.
All such sales were to "accredited investors".
On September 20, 1995, the Company issued to CVFLP, 4,763,918 Common Shares,
25,000 Series A Preferred Shares and the Warrant to acquire 952,784 Common
Shares, at an exercise price of $3.05 per Common Share. See "Options, Warrants
and Rights". On September 29, 1995, CVFLP assigned the Warrant to CVF
Management. See "Description of Business".
On June 30, 1995, the Company issued to CVF, Inc., a management company the
shares of which were owned by Messrs Dreben, Nally and Gissing, 601,932 Common
Shares as payment for consulting and intermediary services in connection with
the acquisition of the CVFLP assets. See "Interests of Management and Others in
Certain Transactions." On February 5, 1997 CVF, Inc. sold such Common Shares to
the Company and the Company issued to Messrs Dreben, Nally and Gissing, options
to acquire an aggregate of 601,932 Common Shares at an exercise price of $0.05
per share. These options were exercised on May 30, 1997.
On September 20, 1995, the Company sold 10,000 and 2,500 Common Shares to Mr.
Noland Schneider and to Alpine Securities Corp., respectively, as a finders fee
payment in connection with the acquisition of the CVFLP assets.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law permits a corporation to
indemnify any person who was, or is, or is threatened to be made a party in a
completed, pending or threatened proceeding, whether civil criminal,
administrative or investigative (except an action by or in the right of the
corporation), by reason of being or having been an officer, director, employee
or agent of the corporation or serving in certain capacities a the request of
the corporation. Indemnification may include attorneys' fees, judgments, fines
and amounts paid in settlement. The person to be indemnified must have acted in
good faith and in a manner he or she reasonable believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action, such person must have had no reasonable cause to believe his conduct was
unlawful. With respect to actions by or in the right of the corporation,
indemnification may not be made for any claim, issue or matter as to which such
a person has been finally adjudged by a court of competent jurisdiction to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action was brought or
other court of competent jurisdiction determines upon application that in view
of all circumstances the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
Article VIII of the Company's By-Laws provides that the Company shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he is or
was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgements, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
14
<PAGE> 18
PART F/S
Please refer to the Consolidated Financial Statements and the index thereto
which appear on page F-1 to F-19 hereof.
PART III
ITEM 1. INDEX OF EXHIBITS
See the "Index to Exhibits" which appears after page F-19.
ITEM 2. DESCRIPTION OF EXHIBITS
<TABLE>
<S> <C>
2.1* Articles of Incorporation of CVF Corp.
2.2* By-Laws of CVF Corp.
3.1* Form of Common Stock Certificate
3.2* Form of Series A Preferred Stock Certificate
3.3* Form of Warrant Certificate
5.1 Opinion of Cohne, Rappaport & Segal
6.1* Asset Purchase Agreement dated as of August 20, 1995
6.2* Stock Pledge Agreement dated as of September 20, 1995
6.3* Service Agreement dated as of February 10, 1997
10 Consent of Feldman Radin & Co., P.C.
27 Financial Data Schedule
* Previously filed
</TABLE>
15
<PAGE> 19
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENT OF OPERATIONS F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENT OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
INDEX TO UNAUDITED FINANCIAL STATEMENTS F-21
</TABLE>
F-1
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To The Stockholders and
Board of Directors of
CVF Corp.
We have audited the accompanying consolidated balance sheet of CVF Corp.
and Subsidiaries (formerly Western Growth Corporation) as of December 31,
1996, and the related statements of operations, stockholders' equity and cash
flows for years ended December 31, 1996 and 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CVF Corp.
and Subsidiaries (formerly Western Growth Corporation) as of December 31, 1996,
and the results of its operations and cash flows for each of the years ended
December 31, 1996 and 1995, in conformity with generally accepted accounting
principles.
/s/ Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
March 14, 1997
F-2
<PAGE> 21
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,895,276
Accounts receivable 510,289
Inventory 225,209
Prepaid expenses and other 72,110
--------------
TOTAL CURRENT ASSETS 2,702,884
PROPERTY AND EQUIPMENT, net of accumulated depreciation 217,579
HOLDINGS, carried at cost or equity 2,051,913
SECURITIES AVAILABLE FOR SALE , at market 22,302,960
GOODWILL, net of accumulated amortization 1,862,619
--------------
$ 29,137,955
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,467,639
Bank lines of credit 707,324
Accrued income taxes 892,790
--------------
TOTAL CURRENT LIABILITIES 3,067,753
--------------
LONG TERM DEBT 438,332
DEFERRED INCOME TAXES 7,451,840
MINORITY INTEREST 292,000
REDEEMABLE PREFERRED STOCK, issued and outstanding 25,000 shares 456,250
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, authorized 50,000,000 shares,
issued 5,992,349 shares, outstanding 5,982,349 shares and
10,000 shares in treasury 5,992
Additional paid in capital 12,930,787
Treasury stock (55,011)
Translation adjustment (277,252)
Unrealized gain on available for sale securities 13,840,070
Retained earnings (accumulated deficit) (9,012,806)
--------------
TOTAL STOCKHOLDERS' EQUITY 17,431,780
--------------
$ 29,137,955
==============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 22
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
SALES $ 1,866,176 $ 763,009
COST OF SALES 1,029,638 530,540
-------------- --------------
GROSS PROFIT 836,538 232,469
-------------- --------------
EXPENSES:
Selling, general and administrative 3,317,739 2,354,488
Research and development 257,913 215,003
-------------- --------------
TOTAL EXPENSES 3,575,652 2,569,491
-------------- --------------
INCOME (LOSS) FROM OPERATIONS (2,739,114) (2,337,022)
-------------- --------------
OTHER INCOME AND (EXPENSES):
Interest income (expense), net 37,300 (24,923)
Other income (expense), net 102,933 246,533
Income (loss) from equity affiliates (296,762) 881,091
Gain (loss) on sale of investments 3,204,185 --
Minority interest 400,449 169,515
-------------- --------------
TOTAL OTHER INCOME AND (EXPENSES) 3,448,105 1,272,216
-------------- --------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 708,991 (1,064,806)
Provision for income taxes 892,790 --
-------------- --------------
NET INCOME (LOSS) $ (183,799) $ (1,064,806)
-------------- --------------
NET INCOME (LOSS) PER SHARE $ (0.03) $ (0.22)
-------------- --------------
WEIGHTED SHARES USED IN COMPUTATION 5,989,849 4,978,115
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 23
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Common Stock Paid-in (Accumulated Treasury Translation Stockholders'
Shares Amount Capital Deficit) Stock Other Adjustment Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1995 4,578,096 $ 4,578 $12,636,955 $(7,764,201) $ -- $ -- $(407,719) $ 4,469,613
Sale of shares 185,821 186 486,017 -- -- -- -- 486,203
Shares issued in connection
with reverse acquisition 1,228,432 1,228 (192,185) -- -- -- -- (190,957)
Net (loss) -- -- -- (1,064,806) -- -- -- (1,064,806)
Translation adjustment -- -- -- -- -- -- 130,467 130,467
--------- ------- ------------ ------------ -------- ----------- --------- -----------
BALANCE - December 31, 1995 5,992,349 5,992 12,930,787 (8,829,007) -- -- (277,252) 3,830,520
Purchase of treasury stock -- -- -- -- (55,011) -- (55,011)
Net (loss) -- -- -- (183,799) -- -- (183,799)
Unrealized gain on
securities available for
sale, net of taxes -- -- -- -- -- 13,840,070 -- 13,840,070
Translation adjustment -- -- -- -- -- -- -- --
--------- ------- ------------ ------------ -------- ----------- --------- -----------
BALANCE - December 31, 1996 5,992,349 $ 5,992 $12,930,787 $(9,012,806) $(55,011) $13,840,070 $(277,252) $17,431,780
========= ======= ============ ============ ======== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 24
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (183,799) $ (1,064,806)
------------- --------------
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 257,459 176,006
(Income) loss from equity affiliates 296,762 (881,091)
Gain on sale of investments (3,204,185) -
Minority interest in earnings (losses) of subsidiaries (400,449) (169,515)
Changes in operating assets and liabilities :
(Increase) decrease in accounts receivable (172,437) (201,536)
(Increase) decrease in inventory (3,617) (170,543)
(Increase) decrease in prepaid expenses and other 15,010 59,346
(Increase) decrease in other assets 68,588 (64,609)
Increase (decrease) in accounts payable and accrued
expenses 293,326 785,059
Increase (decrease) in income taxes payable 892,790 -
Increase (decrease) in other current liabilities (80,922) 1,026
-------------- --------------
(2,037,675) (465,857)
-------------- --------------
CASH PROVIDED (USED) IN OPERATING ACTIVITIES (2,221,474) (1,530,663)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (174,316) (50,998)
Investments in and advances to equity affiliates (1,066,596) (317,304)
Proceeds from sale of investments 3,683,362 -
Acquisitions, net of cash acquired - (190,957)
-------------- --------------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES 2,442,450 (559,259)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of debt 830,522 62,319
Borrowings (payments) of debt to related parties (133,561) 1,026
Issuance of equity securities - 504,000
Purchase of treasury stock (55,011) -
Minority investments in subsidiaries 586,835 292,000
-------------- --------------
CASH PROVIDED (USED) IN FINANCING ACTIVITIES 1,228,785 859,345
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS - (33,667)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,449,761 (1,264,244)
CASH AND CASH EQUIVALENTS - beginning of year 445,515 1,709,759
-------------- --------------
CASH AND CASH EQUIVALENTS - end of year $ 1,895,276 $ 445,515
============== ==============
CASH PAID DURING THE YEAR FOR:
Interest $ 116,616 $ 33,390
============== ==============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 25
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS DESCRIPTION
The Company was incorporated on January 10, 1986, under the laws of
the State of Utah under the name of Sierra Growth Corporation. On
December 30, 1993, the Company changed its name to Western Growth
Corporation and its domicile to the State of Nevada.
In September 1995, the Company acquired all of the assets and
assumed all of the liabilities of Canadian Venture Founders Limited
Partnership ("CVFLP") in exchange for the issuance of its equity
securities to the partners of CVFLP.
CVFLP was formed under the laws of Ontario, Canada in 1989, to
engage in the business of developing and managing early stage and
start-up companies engaged in the information and environmental
technologies areas. In August 1989, CVFLP completed a private securities
offering in which approximately $14,600,000 was raised from a number of
pension funds, insurance companies and corporate groups. Since 1989,
CVFLP has acquired ownership interests in several privately held Canadian
corporations.
In connection with the acquisition of CVFLP the Company changed its
name to CVF Corp.
The Company holds majority ownership positions in the following
companies:
Biorem Technologies, Inc. ("Biorem") Biorem, a spin-off company
from the University of Waterloo, is an industrial biotech company that is
engaged in the business of applying bioconversion and biotransformation
technology to a variety of industrial applications such as the treatment
or clean-up of organic toxic chemicals in soil or groundwater, the
treatment of industrial waste streams for liquids or air and for use in
the food processing, agriculture and pharmaceutical manufacturing
industries. At December 31, 1996, the Company had a 69% ownership
interest in Biorem.
Omphalos Recovery Systems, Inc. ("Gemprint") Gemprint is in the
business of providing products and services to the insurance industry, as
well as the consumer and wholesale jewelry markets to enable diamonds and
other precious gems to be uniquely identified non-invasively using a low
power laser imaging system unique to Gemprint.
F-7
<PAGE> 26
The results are stored in a data base for later verification and recovery
of lost or stolen gems. At December 31, 1996, the Company had a 64%
ownership interest in Gemprint.
Solaria Research Enterprises, Ltd. ("Solaria"), an Ontario company
in the business of developing, manufacturing a marketing a line of
electronic motor speed control products for battery-operated vehicles.
At December 31, 1996, the Company had a 51% ownership interest in
Solaria.
Canadian Venture Founders Leasing Corporation ("Leasing") Leasing
provides funding to various investees of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation - The financial statements include
the accounts of the Company and its majority-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The fiscal year ends of the subsidiaries vary, in most cases from
those of the Company. The consolidated financial statements combine
periods which are within three months of the Company's reporting period,
for all the companies in accordance with Securities and Exchange
Commission rules. Material differences resulting from the combination of
different periods are reconciled and accounted for.
In September 1995, immediately prior to the Asset Purchase Agreement
with the Company, CVFLP transferred substantially all of its debt
investments in subsidiaries and investee companies to Leasing in exchange
for 100% of the common stock of Leasing. The acquisition is accounted
for as a combination of companies under common control, and Leasing is
consolidated with the Company for all periods presented.
The subsidiary companies have various debt and equity securities
outstanding which are convertible into common stock. Any such
conversions would not materially decrease the Company's interest in the
net assets of any subsidiary.
Gemprint has outstanding 4,678,953 Class B voting shares with a
stated value of Cdn $1,250,000 issued to third parties, and 1,871,581
Class C voting shares with a stated value of Cdn $2,396,913 issued to
the Company. Each Class B and C share is convertible into one share of
common stock, and features cumulative dividends of 10%. All such shares
are retractable at the option of the holders between the October 23, 1997
and November 1, 1997. Such shares are included in the determination of
the Company's proportionate ownership interest.
b. Statement of Cash Flows - The Company considers all highly
liquid temporary cash investments, with an original maturity of three
months or less when purchased to be
F-8
<PAGE> 27
cash equivalents. The effect of exchange rate changes on cash balances
resulting from the translation process is presented as a separate
component of the statement of cash flows.
c. Accounts Receivable - Accounts receivable are presented net of
allowance for doubtful accounts. The allowance was $29,200 at December
31, 1996. Amounts charged to expense were $29,200 during the year ended
December 31, 1996 and immaterial during 1995.
d. Inventories - Inventories are stated at the lower of cost or
market using first-in, first-out costing.
e. Property and Equipment - Property and equipment are stated at
cost. Depreciation is calculated using the straight-line and accelerated
methods over the estimated useful lives of the assets, which range from 5
to 10 years.
f. Goodwill - Goodwill is recorded in connection with the
acquisition of subsidiaries. Goodwill is also imputed in connection with
the acquisition of equity basis holdings, representing the difference
between the underlying equity interest purchased and the amount paid for
the interest. All goodwill is being amortized over a period of 15 years.
Amounts amortized in connection with subsidiaries is charged to
amortization expense. Amounts amortized in connection with equity basis
holdings is expensed as a reduction in the carrying value of the
holdings.
The Company assesses the recoverability of goodwill by determining
whether the amortization of goodwill balance over its remaining life can
be recovered through projected, undiscounted, future cash flows of the
related companies.
g. Loss Per Share - Loss per share is based on the weighted average
number of common shares and dilutive securities outstanding during the
periods, after giving effect to cumulative preferred stock dividends.
h. Securities Issued for Services - The Company accounts for stock
and options issued for services by reference to the fair market value of
the Company's stock on the date of stock issuance or option grant.
Compensation expense is recorded for the fair market value of the stock
issued, or in the case of options, for the difference between the stock's
fair market value on the date of grant and the option exercise price.
In 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting
for Stock Based Compensation." SFAS No. 123 permits companies to choose
to follow the accounting prescribed by SFAS No. 123 for securities issued
to employees, or to continue to follow the accounting treatment
prescribed by Accounting Principles Board Opinion No. 25
F-9
<PAGE> 28
("APB No. 25") along with the additional disclosure required under SFAS
No. 123 if the Company elects to continue to follow APB No. 25. The
Company adopted the disclosure-only provisions of SFAS No. 123 in the
beginning of fiscal 1996. The adoption of this statement did not have a
material impact on the Company's financial statements.
i. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
j. Fair Value of Financial Instruments - For its fiscal year ended
December 31, 1996, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments whether or not recognized in the balance sheet.
The carrying amounts reported in the balance sheet for cash, receivables
and accounts payable approximate fair value based on the short-term
maturity of these instruments.
Management believes that the fair market value of long term
receivables is not materially different than the carrying value.
k. Income Taxes - The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), which requires the use of the liability
method. Under the liability method, a deferred tax asset or liability is
determined based upon the tax effect of the differences between the
financial statement and tax basis of assets and liabilities as measured
by the enacted rates which will be in effect when these differences
reverse. Provision is made for all applicable U.S. and foreign income
taxes pursuant to this standard. Canadian tax credits attributable to
research and development expenditures which are refundable regardless of
whether there is taxable income, are accounted for as a reduction in
research and development expense.
l. Gains (Losses) on Subsidiary and Equity Method Investee Equity
Transactions - The Company records as gains or losses the change in its
proportionate interest in the net book value of its investment resulting
from equity transactions by subsidiary companies and equity basis
investees in accordance with Securities and Exchange Commission Staff
Accounting Bulletin Topic 5-H.
m. Reverse Split - In September 1995, in connection with the
acquisition of CVFLP, the Company effected a 1-for-2 reverse split of its
common stock. All share data
F-10
<PAGE> 29
in these financial statements is restated to reflect this reverse split.
n. Foreign Currency Translation - The Company's functional currency
is deemed to be the Canadian dollar. The translation adjustment resulting
from the translation of the Company's financial statements into U.S.
currency is recorded as an element of stockholders' equity.
o. Minority Interest - Minority common equity interests are charged
with their proportionate share of subsidiary losses to the extent
positive equity-adjusted holdings. Excess losses are deferred, and will
be charged against these interests when applicable future income becomes
available. Minority interests in outstanding subsidiary preferred
securities are presented together with the minority's common equity
interests.
p. Holdings - The Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This SFAS requires,
among other things, that securities designated as "available for sale" be
revalued at each period end with the unrealized gain or loss, net of tax
effect, recorded as an element of stockholders' equity.
The held to maturity classification includes debt securities that
the Corporation has the positive intent and ability to hold to maturity
which are carried at amortized cost. The available for sale
classification includes debt and equity securities which are carried at
fair value. Unrealized gains or losses on securities available for sale
are included as a separate component of stockholders' equity, net of tax
effect. Gains or losses on sales of securities are recognized by the
specific identification method and are recorded in investment securities
gains net.
q. Treasury Stock - Treasury stock is accounted for under the cost
method.
3. ASSET PURCHASE AGREEMENT
On August 20, 1995, the Company entered into an asset purchase
agreement (the "Asset Purchase Agreement") with CVFLP, under which the
Company agreed to purchase all of the assets and assume all of the
liabilities of CVFLP. Pursuant to the terms of the Asset Purchase
Agreement, the Company issued to CVFLP 4,763,918 Common Shares, 25,000
shares of its Series "A" Preferred Stock (the "Preferred Shares") and
warrants (the "Warrants") entitling CVFLP to purchase approximately
952,784 additional Common Shares. At a Special Stockholders' Meeting
held September 12, 1995, the Company's stockholders adopted proposals to:
(i) approve the Asset Purchase Agreement and the issuance of the
securities of the Company to CVFLP; (ii) change the name of the Company
from Western Growth Corporation to CVF Corp.; (iii) effect a 1-for-2
reverse split of the Common Shares; and (iv) elect certain members as the
directors of the Company.
F-11
<PAGE> 30
The transaction has been accounted for as a reverse acquisition
under the purchase method for business combinations. Accordingly, the
merger of the two companies is recorded as a recapitalization of CVFLP,
with CVFLP being treated as the continuing entity. Prior to consummating
the share exchange, the Company did not have any significant operations.
The cost of the acquisition was recorded at the value of the
Company's (the acquired company) net tangible assets on the date of the
exchange, in accordance with Securities and Exchange Commission
guidelines. On such date, the Company had assets consisting of $43,651
in cash, offset by $5,354 of accounts payable. Costs associated with the
acquisition, consisting of professional fees totaling $229,254, were
charged against additional paid in capital.
4. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
The Company's authorized capital consists of 50,000,000 Common
Shares, $0.001 par value, and 500,000 Preferred Shares, $0.001 par value.
a. Common Shares - Holders of the Common Shares are entitled to one
vote per share on each matter submitted to vote at any meeting of
shareholders. Common Shares do not carry cumulative voting rights and,
therefore, holders of a majority of the outstanding shares of Common
Shares will be able to elect the entire Board of Directors, and, if they
do so, minority shareholders would not be able to elect any members to
the Board of Directors. The Company's Board of Directors has authority,
without the action by the Company's shareholders, to issue all or any
portion of the authorized but unissued Common Shares, which would reduce
the percentage ownership of the Company of its shareholders and which may
dilute the book value of the Common Shares.
b. Redeemable Preferred Stock - Preferred Shares may be issued from
time to time in one or more series as may from time to time be determined
by the board of directors. Each series shall be distinctly designated.
The Company currently has outstanding a series of Preferred Stock
designated as Series "A" Preferred Stock. Each share of Series "A"
Preferred Stock has a stated value (the "Stated Value") of the U.S.
dollar equivalent of Cdn$25.00 determined at the date of issuance by
reference to the noon spot rate for conversion of Canadian dollars into
U.S. dollars as published by the National Bank of Canada on the business
day immediately preceding the date of issuance. The holders of Series
"A" Preferred Stock are entitled to cumulative dividends at the rate of
5% of the Stated Value plus accrued but unpaid dividends. The dividends
have priority over any payments of dividends on Common Shares and on all
other shares of preferred stock ranking junior to the Series "A"
Preferred Stock. Except as otherwise required by Nevada law, the holders
of Series "A" Preferred Stock do not have any voting rights.
F-12
<PAGE> 31
The Series "A" Preferred Stock is not convertible into Common Shares
or into any other security of the Company. The Company may, at its
option, redeem all or part of the Series "A" Preferred Stock from the
holders thereof. Additionally, at any time after five years from the
date of issuance, a holder of Series "A" Preferred Stock may require the
Company to redeem any or all of the Series "A" Preferred Stock held by
such holder. The redemption price shall be the Stated Value plus all
accrued but unpaid dividends. In light of the future mandatory
redemption feature, the preferred stock is classified outside of
permanent equity.
c. Warrants - Pursuant to the terms of the Asset Purchase
Agreement, the Company issued to CVFLP Warrants entitling it to purchase
approximately 952,784 additional shares of the Company's Common Shares
(approximately 15.9% of the total issued and outstanding Common Shares).
Each Warrant entitles the holder to purchase one Common Share at a price
of $3.05 per share. CVFLP has distributed the Warrants to Canadian
Venture Founders Management Limited, its general partner. Until
September 20, 2000, the Warrants may only be exercised if a former
limited partner of CVFLP sells any Common Shares which were issued to
such limited partner in connection with the Asset Purchase Agreement. In
such event, the Warrant holders may purchase one Common Share for each
five Common Shares sold by such limited partner. Any Warrants not
exercised before September 20, 2000, may be exercised by the holder
during the six month period immediately following the end of such five
year period. All shares issuable upon exercise of the Warrants will be
restricted securities as that term is defined in Rule 144 under the 1933
Act.
5. RELATED PARTY TRANSACTIONS
The General Partner of CVFLP had retained its affiliate, Canadian
Venture Founders Corporation ("CVF Corporation"), to provide
administrative and managerial services to CVFLP. CVF Corporation was
paid an annual management fee of 2.75% of the first $22 million of
committed capital and 2.50% of original committed capital over $22
million. The management fee was determined based on capital committed on
formation of $15 million. The amount of management fee included in the
Company's statements of operations was $490,564 for the year ended
December 31, 1995. This arrangement terminated with the Asset Purchase
Agreement in September 1995.
6. EXPORT SALES
The Company, to date, has conducted substantially all its business
in Canada and the U.S. Export sales, primarily to the U.S., amounted to
approximately $1,115,803 for the year ended December 31, 1996 and
$454,000 for the year ended December 31, 1995.
F-13
<PAGE> 32
7. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statement
and tax basis of assets and liabilities, and for the expected future tax
benefit to be derived from tax loss and tax credit carryforwards. SFAS 109
additionally requires the establishment of a valuation allowance to reflect
the likelihood of the realization of deferred tax assets. As of December
31, 1996, the Company had no deferred tax assets. Deferred income tax
liabilities of $7,451,840 are recorded in connection with the unrealized
gain attributable to the securities available for sale valued at market.
The net operating loss carryforward at December 31, 1995 amounted to
approximately $90,000, and consisted exclusively of losses incurred by CVF
Corp. subsequent to the combination with CVFLP in September 1995. Prior
losses of CVFLP, losses incurred by Canadian subsidiaries (which are not
consolidated with the Company for tax purposes) and losses attributable to
equity basis holdings are permanent differences and are not available to
offset income of the Company.
The benefit (provision) for income taxes differs from the amount
computed by applying the statutory income tax rate to net income (loss)
before provision for income taxes as follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------
December 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Income tax (provision) benefit
computed at statutory rate $ 64,000 $ 373,000
Tax benefit of net operating loss
carryforward 32,000 0
Effect of permanent differences (988,790) (341,000)
Tax benefit of net operating
loss not recognized 0 (32,000)
--------------- ---------------
Benefit (provision) for income
taxes reported $ (892,790) $ 0
============== ===============
</TABLE>
F-14
<PAGE> 33
8. HOLDINGS CARRIED AT COST OR EQUITY
Holdings in which the Company has a 20% or greater ownership interest
are accounted for under the Equity Method. Holdings in which the Company
has a less than 20% ownership interest are accounted for under the Cost
Method and the provisions of SFAS No. 115.
The Company has equity method holdings in the following companies:
a. Ecoval, Inc. ("Ecoval"), a Montreal company which manufactures and
markets natural fertilizers and environmentally safe organic herbicides.
b. Dantec Systems Corporation ("Dantec"), an Ontario company in the
business of developing, manufacturing and marketing a range of automated,
precision moisture detection and manufacturing control systems.
c. Petrozyme Technologies, Inc. ("Petrozyme"), a company in the start-up
stage of developing and marketing processes for the degradation of
petroleum waste products.
Holdings consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
Notes
Percent Equity- and
Ownership Adjusted Cost Advances Reserve Total
--------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Ecoval 30% $(2,838,006) $ 3,247,075 $(127,415) $ 281,654
Dantec 41% 742,748 - - 742,748
Petrozyme 50% 140,712 - - 140,712
Certicom 12% (A) 732,146 (222,476) 509,670
Turbotak - - 732,099 (365,000) 367,099
Other - - 10,030 - 10,030
------------ ----------- ---------- ----------
Total $(1,954,546) $ 4,721,350 $(714,891) $2,051,913
============ =========== ========== ==========
</TABLE>
(A) The investment in Certicom common stock is carried at market.
F-15
<PAGE> 34
Holdings in which the Company has a 20-50% ownership position are accounted
for under the equity method of accounting as required by Accounting Principles
Board Opinion No. 18. The Company records losses to the extent of any positive
equity interest plus loans and advances. Holdings of less than 20% are accounted
for under the provisions of SFAS No. 115, namely, at cost for securities
classified as "held to maturity", at market (with unrealized gains or losses
booked to stockholders' equity) for securities classified as "available for
sale" and at market (with unrealized gains or losses recorded into income) for
securities classified as "trading".
The Company's holdings in investee debt are classified as
"held-to-maturity" securities, and as such are carried at amortized cost, with
provision made for what is deemed a permanent decline in value.
In December 1995, Certicom completed an initial public offering, pursuant
to which the Company's ownership percentage fell below 20%. At such time, the
Company discontinued the use of the equity method.
Prior to December 1994, the Company held investments in Ecoval
Technologies, Inc., and a related predecessor entity, Terra Care Corporation
(which was subsequently dissolved). In October 1994, Ecoval Technologies was
acquired by Ecoval, Inc. Upon the acquisition, the Company received a 33%
interest in Ecoval, Inc. and received a debenture equal to all previous amounts
invested in Ecoval Technologies and Terra Care.
The aggregate cost of investments in associated companies accounted for
under the equity method of accounting was $5,650,131 at December 31, 1996.
F-16
<PAGE> 35
The following table gives certain combined summarized financial information
related to the Company's equity in investees:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 1,396,027 $ 1,090,773
Gross profit on sales 70,789 237,524
Net loss (2,713,912) (1,644,736)
------------ ------------
CVF Corp.'s share of net loss $ (840,929) $ (563,113)
============ ============
Current assets $ 1,260,130 $ 1,820,937
Noncurrent assets 5,924,516 8,232,657
------------ ------------
Total assets $ 7,184,646 $ 10,053,594
============ ============
Current liabilities $ 1,204,872 $ 1,904,558
Noncurrent liabilities 11,581,846 9,798,172
Equity (deficit) (5,602,072) (1,649,136)
------------ ------------
Total liabilities and equity $ 7,184,646 $ 10,053,594
============ ============
CVF Corp.'s share of
accumulated deficit $(1,659,763) $(1,030,388)
============ ============
</TABLE>
The amount of CVF Corp.'s above share of net loss differs from income
(loss) from equity affiliates appearing in the statement of operations
primarily due to equity transactions with third parties and amortization of
goodwill.
The investee companies have various debt and equity securities
outstanding which are convertible into common stock. Any such conversions
would not materially decrease the Company's interest in the earnings or net
assets of any investee.
F-17
<PAGE> 36
9. SECURITIES AVAILABLE FOR SALE AT MARKET
The investment in Certicom common stock, which had an equity-adjusted
cost basis of $1,011,050 at December 31, 1996, is deemed to be an
"available for sale" security (as that term is defined in SFAS No. 115) and
accordingly is recorded at its fair market value of $22,302,960 (based on
the quoted market price) at December 31, 1996. This results in the booking
of an unrealized gain of $21,291,910. This unrealized gain (net of
deferred income taxes of $7,451,840) is recorded as an element of
stockholders equity, as required by SFAS No. 115. The amount under the
category of "notes and advances" for Certicom includes preferred stock with
a cost basis of $682,799.
10. GOODWILL
Goodwill consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
Accumulated
Original basis amortization Net
-------------- ------------ ----------
<S> <C> <C> <C>
Solaria $ 360,183 $(125,820) $ 234,364
Biorem 188,750 (33,220) 155,529
Gemprint 1,683,468 (210,744) 1,472,724
---------- --------- ----------
Total $2,232,401 $(369,784) $1,862,617
========== ========= ==========
</TABLE>
Additionally, goodwill attributable to equity basis investments which
is part of the carrying cost of such investments consisted of the
following:
<TABLE>
<CAPTION>
Accumulated
Original basis amortization Net
-------------- ------------ ----------
<S> <C> <C> <C>
Ecoval $1,502,478 $(200,331) $1,302,147
Petrozyme 135,050 (1,501) 133,549
Dantec 964,800 (304,286) 660,514
---------- --------- ----------
Total $2,602,328 $(506,118) $2,096,210
========== ========= ==========
</TABLE>
Amortization of goodwill in subsidiaries totaled $133,861 and $132,027
for the years ended December 31, 1996 and 1995. Amortization of goodwill in
equity basis in investees totaled $185,233 and $151,174 for the years ended
December 31, 1996 and 1995.
F-18
<PAGE> 37
11. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Convertible debenture issued by Gemprint, bearing
interest at 5% per annum and due May 1, 2001.
Convertible at the option of the holder into
Gemprint common stock at a price predicated on the
price paid in the next third party common stock sale
in excess of $730,000. $ 219,000
Non-convertible debenture issued by Gemprint,
bearing interest at 13.5%, repayable in February 2000. 136,875
Other 82,457
----------
$ 438,332
==========
</TABLE>
12. LINES OF CREDIT
Biorem has two bank lines of credit. One is with a major Canadian
bank with a balance of $281,050 at December 31, 1996. The line has a
maximum availability of $340,000, bears interest at prime plus 3 percent
and is payable on demand. The other line is with another major Canadian
bank with a maximum availability of $219,000, which is outstanding at
December 31, 1996. The loan bears interest at prime plus 1.5% and is
payable on demand.
Gemprint has a line of credit with a major Canadian bank with a
balance outstanding of $139,050 at December 31, 1996. This loan is payable
on May 30, 1997 and bears interest at prime plus 1%. The loan is
guaranteed by CVF Corp. and is secured by 20,000 shares of Certicom common
stock held by CVF.
13. SUBSEQUENT EVENTS
A. Subsequent to December 31, 1996 and through March 14, 1997, the
Company sold substantially all of its remaining common stock in Certicom,
realizing net proceeds of approximately $19,000,000.
B. In February 1997, the Company issued an aggregate of 601,932 options
to purchase common stock for $.05 per share to its three executive
officers. Simultaneously,
F-19
<PAGE> 38
a corporation owned by the officers, sold back to the Company an identical
number of shares of Company common stock which it owned, for aggregate
consideration of $10. The Company is treating these transactions as an
equilibrium exchange; accordingly, there will be no earnings effect.
F-20
<PAGE> 39
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
<TABLE>
<S> <C>
CONSOLIDATED BALANCE SHEET (UNAUDITED) F-22
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) F-23
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-25
</TABLE>
F-21
<PAGE> 40
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,014,540
Accounts receivable 482,198
Inventory 203,295
Prepaid expenses and other 430,059
------------
TOTAL CURRENT ASSETS 20,130,092
PROPERTY AND EQUIPMENT, net of accumulated depreciation 153,229
HOLDINGS 2,185,577
SECURITIES AVAILABLE FOR SALE , at market 1,484,619
GOODWILL, net of accumulated amortization 1,829,154
============
$ 25,782,671
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,156,746
Bank debt 723,448
Due to related parties 63,135
Accrued income taxes 7,294,890
------------
TOTAL CURRENT LIABILITIES 9,238,219
------------
LONG TERM DEBT 615,032
DEFERRED INCOME TAXES 564,290
MINORITY INTEREST 292,000
REDEEMABLE PREFERRED STOCK 456,250
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, authorized 50,000,000 shares,
issued 5,992,349 shares, outstanding 5,357,517 shares and
634,832 shares in treasury 5,992
Additional paid in capital 12,930,787
Treasury stock (213,609)
Translation adjustment (277,252)
Unrealized gain on available for sale securities 846,441
Retained earnings (accumulated deficit) 1,324,521
------------
TOTAL STOCKHOLDERS' EQUITY 14,616,880
------------
$ 25,782,671
============
</TABLE>
See notes to consolidated financial statements
F-22
<PAGE> 41
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Sales $ 261,855 $ 488,157
COST OF SALES 85,668 297,203
------------ ------------
GROSS PROFIT 176,187 190,954
------------ ------------
EXPENSES:
Selling, general and administrative 804,546 728,475
Research and development 11,579 12,652
------------ ------------
TOTAL EXPENSES 816,125 741,127
------------ ------------
INCOME (LOSS) FROM OPERATIONS (639,938) (550,173)
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest income (expense), net 80,611 14,405
Other income (expense), net 196,899 11,273
Income (loss) from equity affiliates (165,780) (143,039)
Gain (loss) on sale of investments 18,160,425 --
Minority interest -- 77
------------ ------------
TOTAL OTHER INCOME AND (EXPENSES) 18,272,155 (117,284)
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 17,632,217 (667,457)
Provision for income taxes 7,294,890 1,168
------------ ------------
NET INCOME (LOSS) $ 10,337,327 $ (668,625)
============ ============
NET INCOME (LOSS) PER SHARE $ 1.73 $ (0.11)
============ ============
WEIGHTED SHARES USED IN COMPUTATION 5,974,716 5,992,349
============ ============
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 42
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1997 1996
--------------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,337,327 $ (668,625)
--------------- ------------
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 72,177 80,242
Loss on disposal of fixed assets 27,676 --
(Income) loss from equity affiliates 165,780 143,039
Gain on sale of investments (18,160,425) --
Minority interest in earnings (losses) of subsidiaries -- (77)
Changes in operating assets and liabilities :
(Increase) decrease in accounts receivable 28,091 (263,314)
(Increase) decrease in inventory 21,914 4,380
(Increase) decrease in prepaid expenses and other (357,949) (52,820)
(Increase) decrease in other assets -- 68,588
Increase (decrease) in accounts payable and accrued
expenses (310,893) 657,010
Increase (decrease) in income taxes payable 6,402,100 --
--------------- ------------
(12,111,529) 637,048
--------------- ------------
CASH PROVIDED (USED) IN OPERATING ACTIVITIES (1,774,202) (31,577)
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,289) (13,265)
Investments in and advances to equity affiliates (299,444) (241,089)
Proceeds from sale of investments 19,097,838 --
--------------- ------------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES 18,796,105 (254,354)
--------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of debt 192,824 34,536
Borrowings (payments) of debt to related parties 63,135 (133,561)
Purchase of treasury stock (158,598) --
--------------- ------------
CASH PROVIDED (USED) IN FINANCING ACTIVITIES 97,361 (99,025)
--------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS -- (33,667)
--------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,119,264 (418,623)
CASH AND CASH EQUIVALENTS - beginning of period 1,895,276 445,515
--------------- ------------
CASH AND CASH EQUIVALENTS - end of period $ 19,014,540 $ 26,892
=============== ===========
</TABLE>
See notes to consolidated financial statements
F-24
<PAGE> 43
CVF CORP. AND SUBSIDIARIES
(FORMERLY WESTERN GROWTH CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1997 1996
--------- --------
<S> <C> <C>
Net sales $ 186,137 $ 231,386
Gross profit on sales 48,627 117,025
Income (loss) from
continuing operations (160,919) (520,389)
Net income (loss) (160,919) (520,389)
</TABLE>
F-25
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 10-SB and has duly caused this registration statement amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
CVF CORP.
By: /s/Jeffrey Dreben
----------------------------------
Name: Jeffrey Dreben
Title: President and Chief Executive Officer
Date: August 22, 1997
<PAGE> 45
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No.
----------- --------------------------------------------
<S> <C>
2.1* Articles of Incorporation
2.2* By-Laws of CVF Corp.
3.1* Form of Common Stock Certificate
3.2* Form of series A Preferred Stock Certificate
3.3* Form of Warrant Certificate
5.1 Opinion of Cohne, Rappaport & Segal
6.1* Asset Purchase Agreement dated as of August 20, 1995
6.2* Stock Pledge Agreement dated as of September 20, 1995
6.3* Service Agreement dated as of February 10, 1997
10 Consent of Feldman Radin & Co., P.C.
27 Financial Data Schedule
</TABLE>
*Previously filed
<PAGE> 1
[LOGO]
August 20, 1997
Board of Directors
CVF Corp.
300 International Drive, Suite 100
Williamsville, NY 14221
Ladies and Gentlemen:
We have been retained as Special Counsel by CVF Corp., a Nevada corporation
("the Company") to render an opinion as to the authorization and issuance of
shares of the company's Common Stock and Series "A" Preferred Stock from the
date of its formation through the date hereof. The Company was formed under the
laws of the State of Utah on January 10, 1986 under the name of Sierra Growth
Corporation. In December 1993, the Company changed its domicile to the State of
Nevada and its name to Western Growth Corporation in connection with a
reincorporation merger. In September 1995, the Company changed its name to CVF
Corp. pursuant to an amendment to its Articles of Incorporation filed with the
office of the Nevada Secretary of State.
As such Special Counsel, we have examined and are familiar with (i) the
Company's Articles of Incorporation, as amended, as currently in effect, (ii)
the Company's By-Laws, as currently in effect, and (iii) the minutes of the
meetings of the stockholders and directors of the Company held from the date of
its formation through the date hereof.
As to factual matters material to our opinions, we have relied upon the
representations and warranties of the Company, upon certificates of persons who
were and who are the officers of the Company and upon certificates of public
officials. In our examination, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures and
the conformity to authentic original documents of all documents submitted to us
as certified or photostatic copies. We have also relied on Company records and
have assumed the accuracy and completeness thereof.
We express no opinion as to the laws of any jurisdiction other than those
of the United States of America, and the Business Corporation Act of the State
of Nevada.
Based on the foregoing, it is our opinion that:
1. The shares of the Company's Common Stock, $0.001 par value, issued and
outstanding, have been duly authorized, and are validly issued and fully paid
and are non-assessable.
2. The shares of the Company's Series "A" Preferred Stock, $25.00 stated
value, issued and outstanding have been duly authorized, and are validly issued
and fully paid and are non-assessable.
This opinion letter speaks only as of the date hereof and only as to the
shares of the Company's Common Stock and Series "A" Preferred Stock issued and
outstanding as of the date hereof. The opinions and other statements expressed
herein above shall not be deemed to relate to the facts and conditions
prevailing, or any law in effect, at any time after the date hereof. This
opinion is rendered to you solely in connection with the filing of a Form 10-SB,
and any amendments thereto, with the Securities and Exchange Commission.
Sincerely,
COHNE, RAPPAPORT & SEGAL, P.C.
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form 10-SB
of our report dated March 14, 1997 related to the consolidated financial
statements of CVF Corp. and Subsidiaries for the years ended December 31, 1996
and 1995.
/s/ Feldman Radin & Co., P.C.
-----------------------------
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
August 22, 1997
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