Conforce International, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION OF OFFICER PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc.	cfri10q20101231ex32-1.htm
EX-32.2 - CERTIFICATION OF OFFICER PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc.	cfri10q20101231ex32-2.htm
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc.	cfri10q20101231ex31-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002 - Conforce International, Inc.	cfri10q20101231ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 001-34203

CONFORCE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		68-6077093
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

51A Caldari Road

2nd Floor

Concord, Ontario L4K 4G3

Canada

(Address of principal executive offices)

(416) 234-0266

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer,, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of December 31, 2010, 133,334,333 shares of the Company’s common stock, $0.0001 par value, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I – FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	17
ITEM 4. CONTROLS AND PROCEDURES.	17

PART II – OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.	17
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.	18
ITEM 4. (REMOVED AND RESERVED).
ITEM 5. OTHER INFORMATION.	18
ITEM 6. EXHIBITS.	18

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Conforce International Inc.

UNAUDITED CONSOLIDATED BALANCE SHEETS

As at December 31, 2010 and March 31, 2010

	December 31, 2010			March 31, 2010


Assets
Current Assets
Cash	$	569,065		$	146,304
Accounts receivable		189,444			83,760
Inventory		97,842			108,688
Prepaid expenses		-			16,736
Current assets of discontinued operations (note 11)		-			331,755
		856,351			687,243

Property, plant and equipment		1,313,522			459,229
Intangible assets		17,722			20,628
Other non-current assets		30,960			14,161
Non-current assets of discontinued operations (note 11)		-			1,212,653

	$	2,218,555		$	2,393,914

Liabilities
Current Liabilities
Accounts payable and accrued liabilities	$	262,345		$	189,367
Current portion of term loan (note 5)		23,407			23,247
Current liabilities of discontinued operations (note 11)		-			475,967

		285,752			688,581
Deferred rent		1,929			8,779
Related party loans payable (note 6)		1,053,642			1,824,168
Term loan (note 5)		182,934			197,570
Non-current liabilities of discontinued operations (note 11)		-			390,866

		1,524,257			3,109,964

Shareholders’ deficiency
Share capital (note 7)		1,889,152			9,157
Contributed surplus		1,303,837			531,825
Accumulated other comprehensive income (loss)		(89,290	)		(110,308	)
Accumulated deficit		(2,409,401	)		(1,407,113	)
		694,298			(976,439	)

Noncontrolling interest in discontinued operations		-			260,389
Total shareholders’ equity (deficiency)		694,298			(716,050	)

	$	2,218,555		$	2,393,914
Going concern (note 2) Commitments (note 8)
The accompanying notes are an integral part of these consolidated financial statements.

Conforce International Inc.

UNAUDITED CONSOLIDATED INTERIM STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

For the three and nine month periods ending December 31, 2010 and 2009

	Three months ended						Nine months ended
	December			December			December			December
	2010			2009			2010			2009

Product revenue	$	14,810		$	280,181		$	70,529		$	861,830

Cost of product revenue		64,224			320,736			123,519			918,346
Gross loss		(49,414	)		(40,555	)		(52,990	)		(56,516	)

Expenses
General and administrative		341,846			77,638			704,877			233,558
Research and development		97,343			68,091			109,226			68,091
Stock based compensation (note 7)		51,769			821			142,582			63,406
Amortization of plant and equipment		28,785			26,616			77,538			78,178
Amortization of intangible assets		1,034			1,241			3,061			3,556

		520,777			174,407			1,037,284			446,789

Loss before non-operating items		(570,191	)		(214,962	)		(1,090,274	)		(503,305	)

Interest on related party loans payable (note 6)		17,848			5,407			45,684			14,512
Interest on term loan		3,119			2,897			8,953			8,624
Interest and bank charges		47			110			443			269
Foreign exchange loss		16,933			1,574			18,994			12,889
Loss before discontinued operations and non-controlling interest in subsidiary		(608,138	)		(224,950	)		(1,164,348	)		(539,599	)

Gain on sale of subsidiary company (note 6)		-			-			(150,675	)		-
Net loss (income) on discontinued operations (note 11)		-			(6,439	)		1,641			(88,747	)

Income (loss)		(608,138	)		(218,511	)		(1,015,314	)		(450,852	)

Noncontrolling interest		-			3,213			(13,026	)		44,284

Net loss attributable to Conforce International Inc.		(608,138	)		(221,724	)		(1,002,288	)		(495,136	)

Other Comprehensive income (loss):
Translation adjustment on foreign exchange		1,227			(5,934	)		21,018			(31,431	)

Total comprehensive loss	$	(606,911	)	$	(227,658	)	$	(981,270	)	$	(526,567	)

Loss per share - basic and diluted
From continuing operations	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)
From discontinued operations	$	0.00		$	0.00		$	(0.00	)	$	0.00
Weighted average number of shares outstanding		132,609,696			120,001,000			124,219,182			120,001,000

The accompanying notes are an integral part of these consolidated financial statements.

Conforce International Inc.

UNAUDITED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

For the nine month periods ending December 31, 2010 and 2009

	December 31			December 31
	2010			2009
Operating activities
Net loss attributable to Conforce International Inc.	$	(1,002,288	)	$	(495,136	)
Items not affecting cash
Amortization of property, plant and equipment		77,538			78,178
Amortization of intangible assets		3,061			3,556
Imputed interest on related party loans payable (note 6)		45,684			14,512
Deferred rent		(6,799	)		(6,315	)
Stock based compensation		142,582			63,406
Gain on sale of discontinued operations		(150,675	)		-
		(890,897	)		(341,799	)
Changes in non-cash working capital (note 13)		(4,807	)		40,018
Net cash used in operating activities		(895,704	)		(301,781	)

Net cash used in discontinued operations		(31,018	)		(129,383	)

Investing Activities
Purchase of property, plant and equipment		(909,071	)		(12,189	)
Increase in non-current assets		(16,298	)		(4,295	)

Net cash used in investing activities		(925,369	)		(16,484	)

Cash provided by investing activities for discontinued operations		-			2,833

Financing Activities
Repayment of term loan		(16,495	)		(15,004	)
Issuance of common shares		1,879,995			-
Advances from related parties		401,858			133,633

Cash provided by financing activities		2,265,358			118,629

Cash provided by financing activities from discontinued operations		5,174			14,859

Effect of foreign exchange on cash		4,320			13,683

Increase (decrease) in cash during the period		422,761			(38,878	)

Cash, beginning of period		146,304			72,232

Cash, end of period	$	569,065		$	33,354

Supplemental cash flow information
Cash paid for interest	$	8,953		$	8,624

The accompanying notes are an integral part of these consolidated financial statements.

Conforce International Inc.

UNAUDITED CONSOLIDATED INTERIM STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIENCY)

For the nine month period ended December 31, 2010

	Common Stock				Contributed		Accumulated			Accumulated other comprehensive			Noncontrolling			Total
	Shares		Amount		Surplus		Deficit			Income (loss)			Interest


Balance as at March 31, 2010		120,001,000	$	9,157	$	531,825	$	(1,407,113	)	$	(110,308	)	$	260,389		$	(716,050	)

Issuance of common shares (net of issuance costs) (note 7)		13,333,334		1,879,995		-		-			-			-			1,879,995
Stock based compensation				-		142,582		-			-			-			142,582
Gain on imputed interest (note 6)				-		629,430		-			-			-			629,430
Noncontrolling interest				-		-		-			-			(13,026	)		(13,026	)
Net loss				-		-		(1,002,288	)		-			-			(1,002,288	)
Translation adjustment				-		-		-			21,018			-			21,018
Sale of interest in subsidiary				-		-		-			-			(247,363	)		(247,363	)

Balance as at December 31, 2010		133,334,334	$	1,889,152	$	1,303,837	$	(2,409,401	)	$	(89,290	)	$	-		$	694,298

The accompanying notes are an integral part of these consolidated financial statements.

DESCRIPTION OF BUSINESS

The Company has developed a polymer based composite flooring system for the transportation industry trademarked under the name EKO-FLOR through its 100% owned subsidiary Conforce Container Corporation. The composite flooring product has been designed to provide an environmentally friendly product to increase ocean-going container and highway trailer performance while reducing overall costs.

The Company was incorporated on May 18, 2004 in the state of Delaware as Now Marketing Corp. and was renamed on May 25, 2005 to Conforce International Inc. During the quarter ended December 31, 2010, the Company incorporated two 100% owned subsidiaries, Conforce Holdings, Inc. and Conforce USA, Inc. Both subsidiaries were incorporated in the State of Delaware.

GOING CONCERN

These consolidated financial statements have been prepared on the basis of United States generally accepted accounting principles ("GAAP") applicable to a 'going concern', which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. For the nine months ended December 31, 2010 the Company had net cash outflows from continuing operations of $895,704 and will require additional funding which, if not raised, may result in the curtailment of activities. During the quarter, the Company closed on a private placement in the amount of $1.9 million. The Company has incurred a net loss of $1,002,288 for the nine months ended December 31, 2010 and has an accumulated deficit of $2,409,401 as at December 31, 2010. The Company's ability to continue as a going concern depends on its ability to generate positive cash flow from operations or secure additional debt or equity financing.

Management regularly reviews and considers the current and forecast activities of the Company in order to satisfy itself as to the viability of operations. These ongoing reviews include consideration of current orders and future business opportunities, current development and production activities, customer and supplier exposure and forecast cash requirements and balances. Based on these evaluations management concluded that the Company is able to continue as a going concern for the next 12 months.

There can be no assurances that the Company's activities will be successful or sufficient and as a result there is doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate. If the "going concern" assumption were not appropriate for these consolidated financial statements, then adjustments to the carrying values of the assets and liabilities, the reported revenues and expenses and the balance sheet classifications, which could be material, would be necessary.

BASIS OF PREPARATION

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial statements and are presented in US dollars, unless otherwise noted. Accordingly, they do not include all of the information and footnotes required by GAAP for annual consolidated financial statements.

The accompanying financial information reflects all adjustments, consisting primarily of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for interim periods. Operating results for the nine months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2011. The accounting policies used in the preparation of these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the financial statements for the year ended March 31, 2010. These interim consolidated financial statements follow the same accounting policies as the audited consolidated financial statements for the year ended March 31, 2010 with the additional policy applicable to the accumulated amortization of buildings. Certain operations were sold during the nine months ended December 31, 2010 and the comparative financial statements have classified the applicable assets, liabilities, cash flows and income and loss as discontinued operations.

New Accounting Policies

Buildings

Buildings are recorded at cost less accumulated amortization and are amortized from the date of acquisition. Amortization is calculated using the straight line method of cost less estimated salvage value over a period of 20 years.

The Company reviews the recoverability of the carrying amount of buildings when events or circumstances indicate that the carrying amounts may not be recoverable. This evaluation is based on projections of future undiscounted net cash flows. The total of these projected net cash flows is referred to as the “net recoverable amount.” If the net recoverable amount is less than the carrying value, the asset is written down to fair value.

NEW ACCOUNTING STANDARDS

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the Company’s financial statements.

In February 2010, the FASB issued Accounting Standards Update No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 addresses both the interaction of the requirements of Topic 855 with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provisions related to subsequent events. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective immediately. The adoption of the new guidance did not have a material impact on the Company’s financial statements.

Effective July 1, 2009, we adopted “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.” This standard establishes only two levels of GAAP, authoritative and non-authoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, non-governmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. We began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on our consolidated financial statements.

TERM LOAN

In November 2008, the company entered into a loan agreement in the amount of CAD $ 250,000 under the Canada Small Business Financing Act for the purchase of machinery and equipment to be used in the manufacturing of the composite flooring. The loan is secured with a first charge on the equipment purchased and a CAD $62,500 personal guarantee provided by the CEO.

The term of the loan is ten years with interest at a floating rate of prime + 3%. The minimum blended loan and re- payments for the next 5 years and thereafter, assuming, the floating interest rate remains constant at 5.75% are as follows:

Repayment of the term loan for the twelve month period ended December 31,

2011	$	23,407
2012		24,789
2013		26,252
2014		27,802
2015		29,444
Thereafter		74,647
Total amount payable		206,341
Less Current portion		23,407
	$	182,934

RELATED PARTY LOANS PAYABLE AND RELATED PARTY TRANSACTIONS

	December 31, 2010			March 31, 2010
Due to shareholder	$	-		$	224,143
Due to related parties		1,856,244			546,684
		1,856,244			770,827
Less: discount to fair value		(802,602	)		(91,119	)
		1,053,642			679,708
Fair value of amount due to discontinued operations		-			1,144,460
	$	1,053,642		$	1,824,168

The amounts due to shareholder and amounts due to related party are unsecured, non-interest bearing with no specific terms of repayment. The amounts due to related parties arise from cash advances from the shareholder and other related parties made to the Company for the purchase of machinery and equipment, primarily relating to the development of the composite flooring product and to fund ongoing operating activities.

The related party loans payable were advanced at different increments depending on the needs of the Company and repayment was originally estimated to occur in 2012. During the quarter ended December 31, 2010, as a condition on the issuance of common shares (note 7), the Company agreed to defer the repayment of the related party loans payable for a period of 10 years from the date of the original advance but no earlier than April 2017. As a result of this deferral, initial repayment of the loans is expected to occur in 2017 and the fair value of the loans has been recalculated resulting in an additional discount of $635,598. The imputed interest rates have been assumed to remain as previously estimated at prime plus 4% resulting in rates ranging from 6.25% to 8.75% depending on the date of the original loan advance. This additional discount to the face value of the loans has been charged to contributed surplus. Imputed interest for the three and nine month periods ended December 31, 2010 was $17,848 and $45,684 respectively (2009: $ 5,407 and $14,512 respectively).

Effective, July 1, 2010, the Company sold its 50.1% interest in the container terminal business to Marino Kulas, the CEO of Conforce International for the sum of $417,989 (CAD $445,000). The consideration is in the form of a reduction of the face value of the related party loans payable.

The gain on the sale of the container terminal is calculated as follows:

Fair value of consideration received	$	417,989
Carrying value of noncontrolling interest		247,363
Less carrying value of assets of discontinued operations		(514,677	)

Gain on sale of discontinued operations	$	150,675

As a result of the disposal of the container terminal division, the loan between the terminal division and EKO-FLOR division was fair valued. Based on the same assumptions subjected to the related party loans, the fair value of the amount due was $1,144,460.

SHARE CAPITAL

Preferred Shares

At December 31, 2010, the Company had authorized 5,000,000 preferred shares with a par value of $.0001 per share and may be issued in designated series from time to time by one or more resolutions adopted by the Board of Directors.

As at December 31, 2010 and March 31, 2010 no preferred shares were issued and outstanding.

Common Stock

At December 31, 2010 and March 31, 2010, the Company had authorized 250,000,000 shares of Common Stock at a par value of CAD $.0001 per share.

During the quarter ended December 31, 2010, the company issued 13,333,334 common shares for gross proceeds of $2,000,000. A finder’s fee was paid in the amount of $120,005 for net proceeds of $1,879,995. The net proceeds are expected to be used for the purchase of a manufacturing facility in the United States and deposits on equipment necessary for establishing a production facility for the EKO-FLOR product.

Stock based transactions

On October 31, 2008, the Company extended the VP Product Development’s employment agreement for twelve months to October 31, 2009. Under this extension, the Company granted 80,000 common shares at the end of the renewal period (October 31, 2009) from a previous agreement for which the performance criteria has been met. A founding shareholder agreed to provide these additional common shares. As at March 31, 2009, a total of 33,333 common shares were expensed under this provision with a fair value of $4,333 based on the trading value of shares as at March 31, 2009. For the nine months ended December 31, 2009, an additional 46,667 shares were expensed under this compensation arrangement with a fair value of $5,418. The remainder of these shares were expensed subsequent to December 31, 2009 in the year ended March 31, 2010.

Effective April 1, 2009, the Company entered into an employment agreement with its VP Business Development for an initial term of twelve months. For the first nine months of this agreement the VP Business Development would be entitled to 400,000 common shares in lieu of cash compensation. A founding shareholder of Conforce has agreed to provide the common shares in satisfaction of this agreement. As at December 31, 2009, 400,000 common shares have been expensed under this agreement with a fair value of $57,988, based on the trading value at the date of grant, being April 1, 2009.

In November 2009, the Company extended the VP Product Development’s employment agreement to April 30, 2010. Under the terms of this extension, the Company agreed to provide 400,000 common shares, conditional upon the successful certification of the EKO-FLOR product for commercialization. A founding shareholder agreed to provide these common shares. The certification was completed in January 2010 and the 400,000 common shares were considered compensation and expensed in the year ended March 31, 2010 with a fair value of $60,525.

Effective April 1, 2010, the Company extended the employment agreement with its VP Business Development for an additional twelve month term. Under this agreement the VP Business Development would be entitled to 600,000 common shares upon the completion of the twelve month period. A founding shareholder of Conforce has agreed to provide the common shares in satisfaction of this agreement. As at December 31, 2010, 450,000 common shares have been expensed under this agreement with a fair value of $66,628, based on the trading value at the date of grant, being April 1, 2010.

Effective May 1, 2010, the Company extended the employment agreement with its VP Product Development for an additional twelve month term. Under this agreement the VP Product Development would be entitled to 400,000 common shares upon the completion of the twelve month period. In addition the VP Product Development is entitled to an additional 200,000 common shares conditional on certain milestones being completed within the twelve month period. A founding shareholder of Conforce has agreed to provide the common shares in satisfaction of this agreement. As at December 31, 2010, a total of 266,668 common shares have been expensed under this agreement with a fair value of $47,544, based on the trading value at the date of the grant, being May 1, 2010. The compensation tied to the certain milestones has not been expensed as the conditions have not been met as at December 31, 2010, consequently no expense has been recorded for the conditional consideration.

In October, 2010, the Company entered into an employment agreement with a VP Business Development – Trailer Services for an initial term of twelve months. Upon completion of the twelve month period, the individual would be entitled to 200,000 common shares. A founding shareholder of Conforce has agreed to provide the shares in satisfaction of this agreement. As at December 31, 2010 a total of 33,334 shares have been expensed under this agreement with a fair value of $11,190, based on the trading value at the date the agreement commenced, being October 25, 2010.

During the nine month period ended December 31, 2010, the Company issued 177,907 common shares to a service provider, in settlement of outstanding invoices in lieu of cash. A founding shareholder agreed to provide these shares. The fair value of the shares is $17,220, being the outstanding amount of the invoices settled.

COMMITMENTS

The Company leases office space under a five year lease which runs through April 2012. Monthly lease payments are approximately $4,150.

In December 2008, the Company entered into a three year lease for its production and development centre site space. The monthly payments are approximately $9,886 and will run until March 2011.

In November 2010, the company assumed an operating lease for a vehicle for the remaining one year term of the lease with monthly payments of $617 until the end of the lease in October 2011.

Future lease commitments for the fiscal years ending:

2011	$	87,304
2012		54,122
	$	141,426

FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable and debt instruments including related party loans payable. The carrying values of financial instruments, other than debt instruments, are representative of their fair values due to their short-term maturities. The carrying values of the Company’s long-term debt instruments excluding related party loans are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates offered to the Company.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has determined that there were no assets or liabilities that fall into the “Level 1” category, which values assets at the quoted prices in active markets for identical assets. The Company has determined that there were no assets or liabilities that fall into the “Level 2” category, which values assets and liabilities from observable inputs other than quoted market prices. The Company’s related party loans fall into “Level 3” category, which values assets and liabilities from inputs that are generally less observable from objective sources. The fair value of the Company’s related party loans have been determined by discounting the loans based on inputs from the Company’s other debt instruments and expensing the imputed interest over a range of periods of up to 10 years after the initial related party advance, although not before April 2017. The fair value of the Company’s related party loans totalled $1,053,642 as of December 31, 2010 and $1,824,168 as of March 31, 2010.

10.

BUSINESS SEGMENTS

Prior to June 30, 2010, the Company operated in two reportable business segments; Container Terminal and EKO-FLOR. The Container Terminal operations was organized as Conforce 1 Container Terminals, Inc., a 50.1% owned subsidiary of the Company and responsible for all container terminal operations. EKO-FLOR is organized as Conforce Container Corporation a 100% owned subsidiary of the Company. This subsidiary is responsible for the development, manufacturing, sales and marketing of the Company’s EKO-FLOR product.

Effective July 1, 2010, the Company sold its interest in the container terminal business resulting in a single reportable business segment.

11.

DISCONTINUED OPERATIONS

Effective July 1, 2010, the Company sold its interest in Conforce 1 Container Terminals, a 50.1% owned subsidiary to the Company’s Chairman and CEO and the container terminal’s minority shareholder (see note 6 Related party transactions). As a result of this transaction, for comparative purposes, the results of this subsidiary are presented separately on the consolidated statements of operations as discontinued operations.

An analysis of the financial results of the discontinued operations is as follows:

	Three months ended				Nine months ended
	December		December		December			December
	2010		2009		2010			2009

Revenues	$	-	$	255,699	$	292,505		$	780,430
Cost of revenues		-		134,368		145,510			374,368
Gross profit		-		121,331		146,995			406,062
Expenses		-		108,206		145,511			263,528
Income before tax of discontinued operations		-		13,125		1,484			142,534
Income tax expense		-		6,686		3,125			53,787
Income (loss) from discontinued operations	$	-	$	6,439	$	(1,641	)	$	88,747

The financial position of the discontinued operations as at March 31, 2010 was:

	March 31, 2010

Cheques issued in excess of cash	$	(3,166	)
Accounts receivable		334,921
Plant and equipment		68,193
Loan receivable from Conforce Corporation		1,144,460
Accounts payable and accrued liabilities		(206,638	)
Income taxes payable		(263,164	)
Shareholder loan payable		(6,165	)
Deferred rent		(27,481	)
Related party loans payable		(363,385	)
Net book value of discontinued operations	$	677,575

12.

ECONOMIC DEPENDENCE

For the three months and nine month period ended December 31, 2010, revenue was generated from one and three customers respectively. For the three and nine months period ended December 31, 2009, revenue was generated from a single customer.

13.

CHANGES IN NON-CASH WORKING CAPITAL

	Nine month period ended
	December 31			December 31
	2010			2009

Accounts receivable	$	(102,588	)	$	42,212
Inventory		11,762			73,303
Prepaid assets		16,561			-
Accounts payable and accrued liabilities		69,458			(75,497	)
	$	(4,807	)	$	40,018

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Safe Harbor Act Disclaimer for Forward-Looking Statements

Certain statements in this document may contain words such as “anticipates,” “believes,” “could,” “estimates,” "expects," "intends," “may,” “projects,” “plans,” “targets” and other similar language and are considered forward-looking statements. These statements are based on management’s current expectations, estimates, forecasts and projections about the success of its container terminal operations, its newly developed container and trailer flooring products, as well as certain other composite based flooring products in various stages of development. These forward-looking statements are subject to important assumptions, risks and uncertainties which are difficult to predict and therefore the actual results may be materially different from those discussed.

PLAN OF OPERATIONS

In fiscal 2011, the Company’s primary focus continues to be on the commercialization of EKO-FLOR.

With the successful testing and certification of the flooring system to-date and the resultant positive response from potential customers, the Company is focusing its attention on the three EKO-FLOR products, as described below. Consequently, effective July 1, 2010, the Company sold its 50.1% interest in the container terminal business to Marino, Kulas, CEO of Conforce International Inc, (“Purchaser”) for the sum of $417,989 (CAD $445,000). Consideration was the reduction of amounts the Company owes to related parties, specifically Marino Kulas and Tony Kulas. The Purchaser assumed certain property and equipment leases and all obligations related to the container terminal business. In addition the Purchaser will personally indemnify the Company with respect to any claims or demands applicable to the container terminal business.

Expansion for Conforce is expected to come primarily from sales of EKO-FLOR cs-4 and xts in fiscal 2011, where the Company believes significant growth potential exists with the introduction of composite flooring to the transportation industry. To that end, on October 15, 2010, the Company purchased a 155,000 square foot facility in Peru, Indiana dedicated to the production of EKO-FLOR xts panels for the highway trailer industry. The Company expects to be ramping up volume in calendar first and second quarters of 2011 with full production commencing in June 2011. The Company also expects to establish manufacturing operations in China in calendar fourth quarter of 2011 for the production of EKO-FLOR cs-4 panels for the container industry.

EKO-FLOR cs-4: The Company expects that trials with two major shipping lines will be completed in calendar 2011. Once trials are completed and depending on the outcome of such trials, the Company intends to secure EKO-FLOR cs-4 orders for production commencing in or around calendar fourth quarter of 2011. Provided that a combination of volume commitments, letters of intent, supply agreements or other similar written expressions of interest are secured and that such commitments are in-line with Conforce expectations for year one production, the Company will begin the process of formalizing the details of a financial offering to adequately capitalize the establishment of a company owned facility in Asia. The Company projects that the amount required will be between $15 and $20 million dollars. Currently, there is no such financing in place, although there have been numerous discussions with a number of interested parties. However, there are no guarantees that the Company will be able to close on these discussions under reasonable terms.

EKO-FLOR ms-1: EKO-FLOR ms-1 is a variation of the cs-4 container flooring panel designed for use as load bearing shelving panels in special application military containers. Although the initial one-year term of the contract in connection with the sale of ms-1 to the Company’s US military sub-contractor ended in January 2010, Conforce expects that should the US Military require additional product, the Company would receive ms-1 orders under similar terms and conditions as stated in the original agreement between Conforce and its military sub-contractor.

EKO-FLOR xts: Based on customer evaluations of EKO-FLOR xts, a modified variation of the cs-4 container panel, the Company expects to receive, in the near term, a combination of volume commitments, letters of intent, supply agreements or other similar written expressions of interest. As such, the Company has purchased a facility in Peru, Indiana for the production of xts panels. At full capacity, the output of the facility is flooring for approximately 50,000 full sized 53’ highway trailers. The Company projects that the amount required will be between $7 and $8 million dollars. During the quarter the Company has raised, by way of a private placement gross proceeds of $2,000,000 with costs of $120,005 for net proceeds of $1,879,995. Currently, for the balance of $5 - 6 million, there is no financing in place although there have been numerous discussions with a number of interested parties, however, similar to the cs-4 funding requirements, there are no guarantees that the Company will be able to close on these discussions under reasonable terms.

LIQUIDITY AND CAPITAL RESOURCES

During the quarter the Company has raised, by way of a private placement gross proceeds of $2,000,000 with costs of $120,005 for net proceeds of $1,879,995. This Company issued a total of 13.3 million shares at $0.15 per share, such price being the market value of the securities at the time the terms of the issuance were established. These funds are being used to establish a manufacturing facility in the United States, including the acquisition of a 155,000 square foot facility in Peru, Indiana and deposits on necessary plant and equipment to manufacture EKO-FLOR products for the transportation industry.

The Company also intends to raise, either through a Public Offering of its securities, a Private Placement, the use of Debt financing instruments, or combination thereof, the capital required for the establishment and operation of multi-line EKO-FLOR manufacturing facility in Asia, which combined with expansion of the United States facility, are currently estimated to be approximately $20 - 25 million. The company will make the decision in terms of the establishment of the production facility in Asia at such time as volume commitments, letters of intent, supply agreements or other similar written expressions of interest are secured with shipping lines, leasing companies, and container manufacturers.

The Company does not currently have any outstanding lines or letters of credit. Conforce does have a business development loan through a government sponsored program originally in the amount of $250,000 payable over 10 years (due January 2019). The loan was made through the small business development loan program (SBL) and is limited in its use to the purchases of equipment. Funds from the loan have been used to finance a portion of the production equipment in the Company’s development and production facility in Concord, Ontario and such equipment has been used as collateral for the loan. Under the rules governing SBL’s, in the event the Company defaults on the loan, the Company is only responsible for repayment of an amount equal to 25% of the total funds advanced, of which 10% has already been provided by the Company by way of down payment on the loan.

RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTH INTERIM PERIODS ENDED DECEMBER 31, 2010 COMPARED WITH THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2009.

For the three month period ended December 31, 2010 the Company had gross revenues of $14,810 compared with gross revenues of $280,181 for the three month period ended December 31, 2009. This significant decrease is a result of the Company having a significant EKO-FLOR ms-1 military shelving order during the three months ended December 31, 2009 without a similar significant order in the same period in 2010. This lack of new orders is due to the transition of migrating to in-house manufacturing. In 2009 the manufacturing was outsourced at a cost greater than the revenue generated.

For the nine month period ended December 31, 2010, the Company had gross revenues of $70,529 compared with $861,830 for the same period in 2009. Similar to the three month period ended December 31, 2010, the Company had a significant single order in 2009 that was replaced due to the transition to a manufacturing facility. It is expected that revenues will remain low in first quarter of calendar 2011 with orders increasing in the second quarter of calendar 2011 when the manufacturing facility is expected to become operational.

For the three month period ended December 31, 2010, cost of revenues was $64,224 compared with $320,726 for the three month period ended December 31, 2009. The decline is related to the reduction of sales. Gross margins were negative 333% for the three month period ended December 31, 2010 compared with a negative 14.4% gross margin for the same period in 2009. For the three months ended December 31, 2010, the additional cost of revenues is primarily due to additional labour costs and small lot transportation of materials into the Company’s research facility in order to produce panels for optimization and small lot production runs for trial product. These negative gross margins are a function of fulfilling trial production orders in a limited run research facility. For the three months ended December 31, 2009, the additional costs are as a result of outsourced production in order to fulfill the order.

For the nine month period ended December 31, 2010, cost of revenues was $123,519 compared with $918,346 for the same period in 2009. Similar to the three months ended December 31, 2010, the decrease in cost of sales relates to decreased sales. Gross margins for the nine month period ended December 31, 2010, were negative 75% compared with negative 7% for the same period in 2009. The negative margins for the nine months ended December 31, 2010 is a result of attempting to fulfil small lot orders in the Company’s research and development facility and for the nine months ended December 31, 2009, are as a result of outsourcing production for ms-1 military racking panels.

General and administrative expenses consist of labour and salaries, rent, professional fees, utilities and office supplies. General and administrative expenses for the three and nine month periods ended December 31, 2010 were $341,846 and $704,877 respectively, compared with $77,638 and $233,558 for the three and nine month periods ended December 31, 2009. For the three and nine month periods ended December 31, 2010, the increase in general and administrative expenses is due to additional professional fees incurred in order to improve the financial reporting information as well as having advisors and employees for the entire period compared with a partial period in the comparative months in 2009. Rent expense has increased for the third quarter as the Company no longer shares the cost of its main office with Conforce 1 which was sold in July 2010. There has also been a significant increase in insurance due to the additional equipment and buildings acquired during the quarter. Finally, travel expense has increased to facilitate the acquisition of the Peru facility and promote the EKO-FLOR product to potential customers in anticipation of having manufacturing capability in the second quarter of calendar 2011.

Research and development costs consist of materials, supplies and consultants for the development of the EKO-FLOR product and for the optimization of the production process. Research and development costs for the three and nine month periods ended December 31, 2010 were $97,343 and $109,226 respectively, compared with $68,091 for both the three and nine month periods ended December 31, 2009. The research and development activities is impacted by the level of production for customers. With reduced operation of equipment for customer orders the facility is used for product development. The variability depends on the availability of materials, human resources and capital equipment utilization.

Stock based compensation consists of common shares issued to senior employees involved in the EKO-FLOR operation, either as compensation in lieu of cash or in addition to the cash compensation under employment agreements. The common shares issued under these arrangements have been made available by a founding shareholder and are not additional share issuances. Stock based compensation for the three and nine month periods ended December 31, 2010 were $51,769 and $142,582 respectively, compared with $821 and $63,406 for the same periods ended December 31, 2009. This increase is due to a higher per share fair value attributed to stock based compensation as well as increased recurring compensation attributable to monthly employment rather than based on granting stock compensation based on specific milestone events.

The related party loans payable are unsecured and interest free and have a fair value calculated using an imputed interest rate of between 6.25% and 8.75% depending on the timing of the advance. The imputed interest rate is calculated at Prime + 4%. Interest on related party loans payable for the three and nine month periods ended December 31, 2010 was $17,848 and $45,684, respectively, compared with $5,407 and $14,512 for the same periods in 2009. This increase is due to the increase in loans outstanding as the related parties, prior to the issuance of additional common shares, continued to provide the necessary funding for the Company. The repayment of the related party loans payable was originally estimated to occur on or around March 31, 2012. However, as a condition of the $2 million private placement, repayment of the related party loans has been deferred for 10 years from the initial advance or at least until April 2017. This has resulted in the re-calculation of the fair value of the related party loans payable for the quarter ended December 31, 2010 with the additional discount of $635,598 charged to contributed surplus.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future affect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

LIABILITIES

The Company had accounts payable of $262,345 at December 31, 2010 compared with $189,366 for the year ended March 31, 2010, a decrease of $72,980.

At December 31, 2010, the Company has related party loans payable of $1,053,642 compared with $1,824,168 as at March 31, 2010 The related party loans payable are interest free with no fixed terms of repayment and have been calculated assuming they will be repaid at the earliest opportunity, being 10 years from the date of original grant but no earlier than April 2017 and with an imputed interest charged at rates between 6.25% and 8.75% based on the date of the grant. Given the long term nature of these loans, each time an amount is advanced by a related party, a fair value calculation has been recorded with the discount on the loan being charged to contributed surplus.

The face value of the related party loans payable as at December 31, 2010 is $1,856,244 (March 31, 2010: $1,812,950). The imputed interest for the three and nine month periods ended December 31, 2010 was $17,848 and $45,684 respectively compared with $5,407 and $14,512 for the same periods in 2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable as Conforce is a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the reporting period covered by this report, December 31, 2010, our Chief Executive Officer and Acting Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as defined in Securities Exchange Act of 1934 Rule 13a-15(e).

The Chief Executive Officer and Acting Chief Financial Officer have concluded, based on their evaluation, that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as a result of the material weakness in internal control discussed below.

Identification of a Material Weakness

Management has identified a lack of accounting direction for the daily accounting functions and guidance and direction in the proper accounting for transactions. This lack of direction results in a number of quarter end adjustments that detract from effectiveness of ongoing monitoring and oversight by management as well as reliance on external consultants to make the necessary corrections during the preparation of the financial report preparation. Specific areas of concern that were noted include the incorrect recording of transactions, a lack of timely reconciliations and an absence of supporting schedules.

Changes in Internal Control Over Financial Reporting

Management has engaged the services of a chartered accountant, for the preparation of the quarter and year end reporting and will continue to look to further strengthen the finance and accounting group with qualified staff.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the Company. There are no material proceedings to which any director, officer or affiliate of the Company or security holder is a party adverse to the Company or has a material interest adverse to the Company.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (REMOVED AND RESERVED).

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit No.

Description

2.0

Acquisition Agreement and Plan of Merger dated May 24, 2005 (1)

3.1

Certificate of Incorporation for Conforce International, Inc. (1)

3.1.1

Certificate of Incorporation for Conforce Container Corporation (1)

3.1.2

Certificate of Incorporation for Conforce 1 Container Terminals, Inc. (1)

3.2

Bylaws (1)

10.1

Canada Small Business Financial Loan dated November 26, 2008 (2)

10.2

Sea Box, Inc. Purchase Order dated November 25, 2009 (3)

10.3

Letter of Agreement in Connection with the Strategic Partnership Between Conforce International, Inc. and Bayer MaterialScience, LLC. dated February 2, 2009 (3)

10.4

Advisory Agreement between WorldWide Associates, Inc. and Conforce International, Inc. dated April 2, 2007 (3)

10.5

Employment Renewal Proposal for Joseph DeRose dated October 31, 2008 (4)

31.1

Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.

31.2

Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.

32.1

Certification of Officer pursuant to section 906 of the Sarbanes - Oxley Act of 2002.

32.2

Certification of Officer pursuant to section 906 of the Sarbanes - Oxley Act of 2002.

(1) Denotes previously filed exhibits: filed on February 9, 2009 with Conforce International, Inc.’s 10-12G Registration Statement.

(2) Denotes previously filed exhibits: filed on May 28, 2009 with Conforce International, Inc.’s 10-12G/A Registration Statement.

(3) Denotes previously filed exhibits: filed on June 29, 2009 with Conforce International, Inc.’s 10-12G/A Registration Statement.

(4) Denotes previously filed exhibits: filed on August 19, 2009 with Conforce International, Inc.’s 10-12G/A Registration Statement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

	Conforce International, Inc.

February 14, 2011	By:	/s/ Marino Kulas
		Marino Kulas
		Chairman & CEO

Attached files

Stock widget

Investing forum

Conforce International, Inc. Reports