Attached files
| file | filename |
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| EXCEL - IDEA: XBRL DOCUMENT - Corruven, Inc. | Financial_Report.xls |
| EX-31.1 - EXHIBIT 31.1 - Corruven, Inc. | v406358_ex31-1.htm |
| EX-31.2 - EXHIBIT 31.2 - Corruven, Inc. | v406358_ex31-2.htm |
| EX-32.1 - EXHIBIT 32.1 - Corruven, Inc. | v406358_ex32-1.htm |
| EX-32.2 - EXHIBIT 32.2 - Corruven, Inc. | v406358_ex32-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to _____________
Commission File No. 000-29735
___________________________
CORRUVEN, INC.
| Nevada | 01-0949620 | |
| (State or other jurisdiction | (IRS Employer | |
| of Incorporation) | Identification Number) |
Alain Belanger, Chief Executive Officer
Corruven, Inc.
264 Notre Dame
Kedgwick, New Brunswick E8B 1H9
Canada
Phone: (877) 284-3101
Fax: (506) 284-3153
(Name, address and telephone number of agent for service)
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $.001 par value common stock |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ 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 ¨ No x
As of June 30, 2014 the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $5,636,893.95 based on of the last price at which the Company sold its shares ($0.675 per share of common stock). Shares of common stock held by each officer and director and by each person or group who owns 10% or more of the outstanding common stock on June 30, 2014 amounting to approximately 14,041,674 shares have been excluded in that such persons or groups may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of April 13, 2015, there were 22,392,628 shares of our common stock issued and outstanding.
Documents Incorporated by Reference: None
Corruven, Inc.
Annual Report on Form 10-K
Table of Contents
Forward Looking Statements
This Annual Report on Form 10-K and all other reports filed by Corruven, Inc., a Nevada corporation (“Corruven” or the “Company”), from time to time with the Securities and Exchange Commission (the “SEC” and collectively the “Filings”) contain or may contain forward looking statements and information that are based upon beliefs of, and information currently available to, the management of Corruven as well as estimates and assumptions made by Corruven management. The forward-looking statements and associated risks set forth in this Annual Report include or relate to, among other things, (a) our growth strategies, (b) anticipated trends in our industry, (c) our ability to obtain and retain sufficient capital for future operations, and (d) our anticipated needs for working capital. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Business,” as well as in this Annual Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Annual Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report will in fact occur.
The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions described herein. The assumptions are based on judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in forward-looking statements will be realized. In addition, as disclosed elsewhere in the “Risk Factors” section of this filing, there are a number of other risks inherent in our business and operations which could cause our operating results to vary markedly and adversely from prior results or the results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause us to alter marketing, capital investment and other expenditures, which may also materially adversely affect our results of operations. In light of significant uncertainties inherent in the forward-looking information included in this filing, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
Some of the information in this annual report contains forward-looking statements that involve substantial risks and uncertainties. Any statement in this filing and in the documents incorporated by reference into this filing that is not a statement of an historical fact constitutes a “forward-looking statement”. Further, when we use the words “may”, “expect”, “anticipate”, “plan”, “believe”, “seek”, “estimate”, “internal”, and similar words, we intend to identify statements and expressions that may be forward- looking statements. We believe it is important to communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that could cause our future results to differ materially from those expressed in any forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements. Important factors that may cause our actual results to differ from such forward-looking statements include, but are not limited to, the risk factors discussed herein.
Although Corruven believes that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, management does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with Corruven’ consolidated financial statements and the related notes filed herewith.
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Item 1. Description of Business
Corruven, Inc. (“Corruven” or the “Company”) intends to develop and market a lightweight composite panel, the Corruven® composite panel (the “Corruven Composite Panel”), which we believe, when fully developed, will provide numerous advantages over conventional panels when used in applications including building materials, furniture components, transportation and in other potential industries and applications. As currently designed, the Corruven Composite Panels: (i) contain approximately 75% air making them extremely lightweight compared to other conventional panels; (ii) utilize approximately 25% of the raw material required to produce traditional panels (e.g.: FRP (“Fiberglass Reinforced Plastic”), Fiber Cement, MDF (“Medium Density Fiberboard”), HDF (“High Density Fiberboard”), OSB (“Oriented Stranded Board”), plywood, etc.); and (iii) use environmentally friendly formaldehyde-free glues which increase our distinction in the “green product” market.
We were incorporated under the laws of the State of Nevada on January 4, 2010 as Corruven, Inc. Our head offices are located at 264 Notre-Dame Street, Kedgwick, New Brunswick E8B 1H9. Our U.S. offices are located at the offices of our counsel, The Bingham Law Group, APC, at 2173 Salk Avenue, Suite 250, Carlsbad, California 92008. We maintain a website at www.corruven.com, however, the information in, or that can be accessed through, our web site, is not part of this report.
Overview
Corruven, Inc. intends to develop and market a lightweight composite panel, the Corruven® composite panel (the “Corruven Composite Panel”), which we believe, when fully developed, will provide numerous advantages over conventional panels when used in applications including building materials, furniture components, transportation and in other potential industries and applications. As currently designed, the Corruven Composite Panels: (i) contain approximately 75% air making them extremely lightweight compared to other conventional panels; (ii) utilize approximately 25% of the raw material required to produce traditional panels (e.g.: FRP, Fiber Cement, MDF, HDF, OSB, plywood, etc.); and (iii) use environmentally friendly formaldehyde-free glues which increase our distinction in the “green product” market.
All of the intellectual property rights, including trademark rights and patent rights (collectively the “Corruven IP”), underlying the Corruven Composite Panel are owned by Corruven Canada, Inc. (“Corruven Canada”), a Canadian corporation of which the majority of the shares are owned and/or controlled by certain principal shareholders and Directors of the Company. The patent applications are entitled "(Elastic) Waved Wood Assembly and Method of Making Same". The International Patent Application was filed on November 27, 2009 claiming a priority of November 28, 2008, and has since entered a national phase in Canada, the United States, Brazil, Chile, China, the European Patent Office, Israel, India and South Korea. The applications are currently pending in each of the aforementioned countries, except in Canada, where the patent has already issued. The Corruven® trademark is registered in Canada and in the United States. There can be no assurance any additional patents will be granted or, even if they are, that we will have the resources to enforce these patents through litigation or otherwise. In addition, patents granted by the Canadian Patent Office do not guarantee that competitors in overseas locations will not imitate our products, or patent similar products in other nations.
On July 5, 2010, the Company entered into an exclusive world-wide license agreement (the "License Agreement") with Corruven Canada. The License Agreement granted the Company an exclusive world-wide license to manufacture, market, and sell the Corruven Composite Panels and to utilize any products, methods, structures, assemblies and devices which exist or may in the future be derived from, or utilize, the Corruven IP. The License Agreement also provides the Company with the right to sub-license the Corruven IP and will remain in force and effect until the expiration date of the patents.
Coincidentally with the granting of the License Agreement, the Company and Corruven Canada entered into a Research and Development Agreement (the “R&D Agreement”). The R&D Agreement, as amended, provides that Corruven Canada is required to perform all research and development related to the finalization and commercial application of the Corruven Composite Panel, for which the Company is required to pay: (i) a total of $1,928,820 over a five year period as follows: $495,982 on or before January 5, 2012; $440,873 on or before January 5, 2013; $385,764 on or before January 5, 2014; $330,655 on or before January 5, 2015;and (ii) $275,546 on or before January 5 of each following year thereafter for the life of the R&D Agreement. In addition the Company is required to pay to Corruven Canada a “development fee” of two percent (2%) of net sales proceeds of the Company after January 5, 2013. Title to the equipment and related machinery developed under the R&D Agreement will be owned by Corruven Canada.
We have had no revenue since our formation. There can be no assurance that we will complete the development of our product, and even if completed that the marketplace will generate any revenues. Further, there can be no assurance that even if revenues are generated, that those revenues will be sufficient to enable the Company to maintain its operations. The Company believes it will need to secure additional financing in the future to continue to develop the product, attract customers, and start generating revenues. There can be no assurance that the Company will be able to raise additional capital.
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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. To date, proceeds from the sale of Common Stock, Preferred Stock and extremely limited initial sales have provided the funds to support the Company's operations through approximately June 30, 2015. Accordingly, the Auditor's Report included in our audited financial statements for the years ending December 31, 2014 and December 31, 2013 included language raising doubt about our ability to continue as a going concern. Our business plans estimate that we will need to raise additional capital to fund our operations after June 30, 2015 and there can be no assurance that we will be able to raise any or all of the capital required. However, without further funding, we anticipate running out of cash after June 30, 2015, and accordingly our current cash balances will not be sufficient to fund our operating expenses and the continued development of our marketplace after June 30, 2015. We have generated limited revenues since our inception and have incurred net losses from operations since inception, resulting in an accumulated deficit of $2,545,503 as of December 31, 2014. Unless we begin generating revenues in the near future, we anticipate that we will continue to incur net losses in the near term, and we may never be able to achieve profitability. We expect to continue to incur losses for the foreseeable future. In order to achieve profitable operations we need to generate significant revenues. We cannot be certain that our business strategies will be successful or that will we generate significant revenues and become profitable. As such, we believe we will need to obtain additional public or private equity financings or debt financings in order to continue operations.
The Product
The Corruven Composite Panels are created as an engineered structure composed at a basic level of a corrugated veneer core, proprietary glue, a special paper and two veneer faces. The production concept requires heat pressing paper backed veneer sheets in a corrugated shaped press which creates the core of the lightweight panels. The outer face veneer sheets are then glued to the corrugated core material and structural outer edges of the panel are then installed. The Corruven Composite Panels can be customized with various materials found in industry to address specific customer requirements in terms of structure (wood species, plastics, steel, etc.) and faces (aluminum, HDF, laminates, paperboard, etc.). In addition to the composite panel technology protected by the Corruven IP, the proprietary materials and the entire production process and assembly line is a proprietary process that we believe none of our competitors maintain the knowledge or experience to replicate.
Traditional Wood Panels
Over the years, a few techniques have been used to “flex” veneer, all of which have remained tied to a low production environment and rudimentary production equipment due to a very limited niche market. Briefly, 2-ply veneer is usually described as being wood-on-wood or paperbacked. However, through the years, the term has also been used for a product with 3 layers; 2 sheets of veneer that are bonded to each face of a paper backing. The flexing or tenderizing process (mechanical, no chemicals required) begins thereafter, conferring great flexibility to the veneer sheets in the direction of the wood grain.
Since the 1970’s, flexible veneer has been used exclusively in woodworker projects for decorative purposes (custom designs for furniture, architectural finishes, etc.). During the 1990’s, usage of 2-ply veneer was initiated in commercial packaging (wine bottles, etc.) but remains a low volume market. To this day, these applications remain the main commercial and industrial uses of 2-ply veneer.
With regards to Particleboard, Fiberboard, Flake board and such, these products were developed to use fiber waste generated from sawmill processes and provide a relatively low cost panel for non-structural applications (contrary to plywood and OSB). Although they remain interesting products for various purposes, their weight, glue and formaldehyde content and poor track record in humid conditions leave several sectors of manufacturing looking for alternative solutions.
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Corruven Composite Panels; The New Generation of Paneling
We believe the Corruven Composite Panels provide numerous advantages over the traditional type wood panels and boards for applications in a multitude of sectors focused mainly within the building materials, furniture and transportation sectors. One of its interesting particularities is that our panels contain approximately 75% air, which makes them extremely lightweight compared to other conventional panel (e.g. FRP, Fiber Cement, MDF, HDF, OSB, Plywood, etc.). We do not intend to replace products traditional products in all applications, but rather in those applications which generate the most value for the end user (i.e. weight reduction in the construction and transportation sectors).
Furthermore, we believe the Corruven Composite Panel is one of the “greenest” panels on the market today by reducing the need for and therefore preserving approximately 75% of the raw materials necessary for competing panels (thus reducing our production line capital costs as well) and allowing for final assembly closer to market and therefore substantially reducing the CO2 emissions associated with transportation.
This is contrary to large traditional panel manufacturers which require a very large infrastructure in one place to maximize plant output due to high capital costs related to production line equipment. We believe our production model will allow us to significantly reduce transportation costs, giving us and our clients a sharp advantage on our competitors when it comes to delivering product to market.
Market for the Product
The Corruven Composite Panel is oriented towards a multitude of markets where a combination of lightweight and relative strength is required, such as furniture components, watercraft/boat components, industrial packaging and Recreational Vehicles. Furthermore, with an edged panel, the insulation factor becomes appealing for ceiling overhead panels as well as acoustic applications (speaker enclosures, sound barriers). We believe our products provide advantages over traditional wood panels including:
| - | Opportunity to considerably reduce shipping costs due to the products light weight and potential to conduct final assembly closer to end user/market; |
| - | The Corruven Composite Panel, with its light weight, low production costs and overall green appeal can help manufacturers gain a competitive edge by reducing their respective product weight without retooling their production line and, as an added bonus, reap the advantages of using an “eco-friendly” product. |
| - | The fact that the Corruven Composite Panel manufacturing process and machinery requires significantly less capital investment than other traditional panel production lines, we can consider assembling the panels as close as possible to end user/market, thus considerably reducing final product transportation costs. |
| - | With the ability to use various grades of veneer as panel faces, it will be to our advantage to attract premium markets by adding exotic/high quality veneer faces, thus considerably increasing the potential return on investment and product notoriety. |
Initial Commercial Applications
Large scale users of traditional wood panels, in mostly non-structural applications, are usually furniture manufacturers and cabinet makers. The shipping and handling costs of their products, due to increasing crude oil prices and overall cost increases therewith, are forcing these sectors to reconsider the design of their products and further manage the weight of said products, especially in connection with shipping expense.
Because of the interest expressed in the furniture manufacturing sector for light weight panels, it is our intent to allocate a large portion of our startup production to this market. However, the overall focus for Corruven Composite Panel will be to penetrate markets attracting premium pricing for added value products, such as natural wood finished ceiling tiles, luxury jet interior design, marine/yacht cabinetry & design and other lower volume / higher margin sectors. Other sectors like marine and aviation require light weight panels offering a high quality finish to maintain the luxury niche while reducing the overall weight of their products.
The following market analysis covers the four (4) key market segments we initially plan to penetrate.
1. Furniture
We believe that furniture and cabinet manufacturers are actively seeking lightweight panels for their products. One of the furniture industry’s major concerns is not being able to ship their products via standard shipping (UPS, FedEx, etc.) because of the weight of their products and the added costs that are attributable to weight. We believe that furniture and cabinets manufactured using our light weight panels would reduce these shipping weight costs and allow for more use of the standard shipping options.
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2. Marine, Recreational Vehicles and Aviation
We believe this market represents an opportunity for our light weight Corruven Composite Panel. The Market already utilizes lightweight panels and we believe our panels present a viable alternative. We will manufacture our Corruven Composite Panels following strict industry guidelines regarding requirements of product stability and moisture resistance. We expect we may have to use a more moisture resistant core product to comply with industry standards. Several products are available, including the utilization of Teak wood sheets to produce the panels to increase marine appeal and humidity tolerance.
3. Shelves and Shelving Units
The current materials utilized for shelves and shelving units are mostly particleboard and MDF. These products are unnecessarily very heavy and oversized. The large quantity of material (and weight) is not necessary to support the products’ own structure. The Corruven Composite Panel, when utilized in this application, would make a much lighter product that is both easier to handle and less costly to ship.
4. Ceiling Tiles
This is a niche market. We believe this segment would be willing to pay a premium price for our product as it offers all of the key product characteristics with reduced weight and shipping costs.
Competition
When we become operational and commence offering our Corruven Composite Panels, we will face strong competition from competitors in all of the countries and regions in which we intend to operate. In the case of our products, we face competition from foreign competitors in other regions of the world. In the future we may face increased competition in other countries in which we intend to operate from domestic or foreign competitors, most of which have greater financial resources than we do. In addition, we may face increased competition as a result of existing competitors increasing their production capacity. An increase in competition in the wood market or other value added wood products markets could adversely affect both our potential share of those markets and the price at which we are able to sell our products.
A multitude of wood and composite panels are offered on the market today. All of them are conceived and marketed to respond to a market need. Most of these businesses are relying on large volumes to generate revenue (requiring great quantities of raw material) to earn income, as their gross margins are small. The summary below and product specific comments give an overview and non-inclusive summary of the competition that the Company believes it faces.
Honeycomb
The most popular type of light weight panel is the “honeycomb” type which is a cardboard (or other materials such as aluminum or fiberglass) core, whose configuration resembles “honeycomb”, sandwiched between other substrates serving as faces (Veneer, HDF, Hardboard, Aluminum, Stainless steel, rubber, vinyl). The honeycomb core material is stretched or preformed into a hexagonal structure to which is bonded facing skins to form the sandwich panel. The bonding process for Honeycomb Panels is carried out in a heated hydraulically controlled press to ensure uniformity of each panel. The panel remains in the press during the adhesive curing process. The cost of producing honeycomb structures is high and requires sophisticated and expensive equipment and when adding the use of higher cost materials such as aluminum or fiberglass for the production of the honeycomb structure, the sheer cost of such panels is prohibitive for many sectors.
The advantage of honeycomb structures is the light weight it confers to a panel. However, honeycomb core panels require costly adapted hardware/anchoring systems, costly fabrication processes and sophisticated equipment.
World-wide distribution is limited to a few large-large scale manufacturers including:
- Egger, an Austrian company producing a product line called EuroLight;
- CCV (Canadian Commercial Vehicles) Corporation produces composite panels, mostly for the automotive industry;
- Cascades, a North American Company, has a product line called Enviropac oriented towards the packaging industry; and
- Bellcomb Technologies, a North American Company based in Minnesota, offers a variety of composite panel solutions with honeycomb structures.
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Particleboard
The particleboard panel is a product generally utilized for interior applications. It is an engineered wood product manufactured from wood particles, such as wood chips, sawmill shavings, or even saw dust, and a synthetic resin or other suitable binder, which is pressed and extruded. Particleboard is a type of fiberboard, a composite material, but it is made up of larger pieces of wood than medium-density fiberboard and hardboard.
Particleboard is cheaper, denser and more uniform than conventional wood and plywood and is substituted when appearance and strength are less important than cost. However, particleboard can be made more attractive by painting or the use of wood veneers that are glued onto surfaces that will be visible. Though it is denser than conventional wood, it is the lightest and weakest type of fiberboard, except for insulation board. Medium-density fiberboard and hardboard, also called high-density fiberboard, are stronger and denser than particleboard.
A major disadvantage of particleboard is that it is very prone to expansion and discoloration due to moisture, particularly when it is not covered with paint or another sealer. Accordingly, it is rarely used outdoors or places that have high levels of moisture
Medium Density Fiberboard (MDF)
Medium-density fiberboard (MDF or MDFB) is an engineered wood product formed by breaking down softwood into wood fibers, often in a defibrator, combining it with resin, and forming panels by applying high temperature and pressure. It is a building material similar in application to plywood but made up of separated fibers, not wood veneers. It is denser than normal particleboard.
Benefits of MDF:
| - | Some varieties are less expensive than many natural woods; |
| - | Isotropic (no grain), so no tendency to split; |
| - | Consistent in strength and size; |
| - | Flexible. Can be used for curved walls or surfaces; and |
| - | Shapes well with a router. |
Drawbacks of MDF:
| - | Heavier (due to the resins weights); |
| - | Swells and breaks when waterlogged; |
| - | Warps or expands if not sealed; |
| - | Contains urea-formaldehyde which may cause eye and lung irritation when cutting and sanding; |
| - | Dulls blades more quickly than many woods; and |
| - | Subject to significant shrinkage in low humidity environments |
High Density Fiberboard (HDF or Hardboard)
Similar to MDF panels, the HDF or Hardboard is produced under increased pressure and temperature conditions. With its higher density Hardboard, also called high-density fiberboard, is a type of fiberboard, which is an engineered wood product. It is similar to particleboard and medium-density fiberboard, but is denser and much stronger and harder because it is made out of exploded wood fibers that have been highly compressed. It differs from particleboard in that the bonding of the wood fibers requires no additional materials, although resin is often added. Unlike particleboard, it has significant structural strength and will not split or crack. It is used in construction and furniture.
Plywood
Plywood is a type of engineered wood made from thin sheets of wood veneer called plies or veneers. The layers are glued together, each with its grain at right angles to adjacent layers for greater strength. There are usually an odd number of plies, as the symmetry makes the board less prone to warping, and the grain on the outside surfaces runs in the same direction. The plies are bonded under heat and pressure with strong adhesives, usually phenol formaldehyde resin, making plywood a type of composite material. Plywood is sometimes called the original engineered wood. The plies are usually 3mm in thickness.
A common reason for using plywood instead of plain wood is its resistance to cracking, shrinkage, twisting/warping, and its general high degree of strength. It has replaced many dimensional lumbers on construction applications for these reasons.
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Raw Materials
Production startup will require a steady supply of low grade veneer and composite sheets to produce the Corruven Composite Panel cores as well as other composite substrates required as per potential client’s request for face finishes. Such supply can be provided from local producers as well as overseas suppliers. The overseas market for veneer and composite sheets is both a cost efficient and reliable source of raw material. The raw material cost is significant for those overseas operators but their manufacturing is stronger and sees greater value than we do domestically.
The required grade of veneer and composite to produce the Corruven Composite Panel corrugated cores is considered of low value and in abundance in present market conditions, without any projected changes in the near future. Therefore, this underutilized resource use benefits everyone: the sellers get income for an often unwanted product and the Company obtains its raw material at reduced costs. Cosmetic defects do not affect the quality of our final product as these layers reside within the panel. The difference, once again, is that visual defects (knots, stains, discoloration) do not affect the Corruven Composite Panel, thus reducing raw material cost.
Marketing
We anticipate that our future marketing activities may include all or some of the below activities:
| - | Press releases and nurturing relationships with industry thought leaders to gain third-party validation and generate positive coverage for the Company; |
| - | Participation in industry events and trade shows, etc. to create customer awareness, trust and enthusiasm; |
| - | Search engine marketing and search engine optimization; |
| - | Web site development and design to create a pleasant and productive user-experience, engage and educate prospects and generate interest through information and demonstration, case studies, and marketing collateral; |
| - | Marketing campaigns to capture leads, promote the brand, conduct surveys and communicate information about our products; |
| - | Use of customer testimonials and case studies; |
| - | Promotions, partnerships and sponsorships as appropriate; |
| - | Advertising in industry related websites, blogs, e-newsletters and publications; and |
| - | Industry contacts and relationships. |
Customer Service and Support
We anticipate that following the commercial launch of our Corruven Composite Panel, basic customer support during business hours will be available to Corruven customers.
Environmental and Other Regulatory Matters
Our proposed operations may be subject to extensive U.S., Canadian and other international federal, state and local environmental laws and regulations relating to, among other things, the generation, storage, handling, emission, transportation and discharge of regulated materials into the environment. Permits may be required for certain of our operations, and these permits may be subject to revocation, modification and renewal by issuing authorities. Governmental authorities may have the power to enforce compliance with their regulations, and violations may result in the payment of fines or the entry of injunctions, or both. We may also incur liability for investigation and clean-up of soil or groundwater contamination on or emanating from our proposed facilities at which regulated materials are located where we are identified as a responsible party. We do not believe we will be required under existing environmental laws and enforcement policies to expend amounts that will have a material adverse effect on our results of operations, financial condition or cash flows. The requirements of such laws and enforcement policies, however, have generally become more stringent over time. Also discovery of unknown conditions could require responses that could result in significant costs. Accordingly, we are unable to predict the ultimate cost of compliance with environmental laws and enforcement policies.
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Intellectual Property
All of the Corruven IP underlying the Corruven Composite Panel are owned by Corruven Canada, Inc. The patent applications are entitled "(Elastic) Waved Wood Assembly and Method of Making Same". The International Patent Application was filed on November 27, 2009 claiming a priority of November 28, 2008, and has since entered a national phase in Canada, the United States, Brazil, Chile, China, the European Patent Office, Israel, India and South Korea. The applications are currently pending in each of the aforementioned countries, except in Canada, where the patent has already issued. The Corruven® trademark is registered in Canada and in the United States. There can be no assurance any additional patents will be granted or, even if they are, that we will have the resources to enforce these patents through litigation or otherwise. In addition, patents granted by the Canadian Patent Office do not guarantee that competitors in overseas locations will not imitate our products, or patent similar products in other nations.
On July 5, 2010, the Company entered into an exclusive world-wide License Agreement with Corruven Canada, a Canadian corporation of which the majority of the shares are owned and/or controlled by certain principal shareholders and Directors of the Company. The License Agreement granted the Company an exclusive world-wide license to manufacture, market, and sell the Corruven Composite Panels and to utilize any products, methods, structures, assemblies and devices which exist or may in the future be derived from, or utilize, the Corruven IP. The License Agreement also provides the Company with the right to sub-license the Corruven IP and will remain in force and effect until the expiration date of the patents.
Coincidentally with the granting of the License Agreement, the Company and Corruven Canada entered into the R&D Agreement. The R&D Agreement, as amended, provides that Corruven Canada is required to perform all research and development related to the finalization and commercial application of the Corruven Composite Panel, for which the Company is required to pay: (i) a total of $1,928,820 over a five year period as follows: $495,982 on or before January 5, 2012; $440,873 on or before January 5, 2013; $385,764 on or before January 5, 2014; $330,655 on or before January 5, 2015; and (ii) $275,546 on or before January 5 of each following year thereafter for the life of the R&D Agreement. In addition the Company is required to pay to Corruven Canada a “development fee” of two percent (2%) of net sales proceeds of the Company after January 5, 2013. Title to the equipment and related machinery developed under the R&D Agreement will be owned by Corruven Canada.
The following description of the License Agreement and R&D Agreement is a summary only, and is qualified in its entirety by the actual R&D Agreement and License Agreement (and amendments thereto), copies of which have been attached to our Registration Statement filed with the SEC on June 10, 2013 and are hereby incorporated in their entirety by reference.
Employees
We currently have three employees consisting of our management team of Alain Belanger, Conrad Belanger and Daniel Beauregard-Long. At the present time, none of our management team receives a salary from the Company. All other work that is not handled by our management is outsourced to qualified professionals and consultants as deemed necessary. We intend to hire employees and independent contract labor on an as needed basis. Following the completion of our Line of Production (defined below), we intend to maintain a highly competitive team of experienced and technically proficient employees and consultants and motivate them through a positive work environment and stock ownership. We believe that employee ownership, which may be encouraged through a stock option plan, is helpful for attracting, retaining and motivating qualified personnel. While we have not yet adopted a stock option plan, however, we may do so in the future.
Risks Related to Our Business
We have limited history.
We have very limited business operations. Our plans and businesses are “proposed” and “intended” but we may not be able to successfully implement them. As a growth-stage company we are subject to all of the risks, uncertainties, expenses, delays, problems, and difficulties typically encountered in the establishment of a new business. As a growth-stage company, our expected and future cash flows may be insufficient to meet expenses relating to our operations and the growth of our business, and may be insufficient to allow us to develop new and existing products. We expect that unanticipated expenses, problems, and technical difficulties will occur and that they will result in material delays in the development of our projects. We may not obtain sufficient capital or achieve a significant level of operations and, even if we do, we may not be able to conduct such operations on a profitable basis. We are only begging to commercially market our product and we cannot be certain that we will ever be able to develop, manufacture, market or sell any product.
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There is substantial doubt as to whether our Company can continue as a going concern.
We have generated limited revenues since our inception and have incurred substantial losses. As of December 31, 2014, we have an accumulated deficit of $2,545,503 and net cash used in operations of $842,991. Unless we begin generating revenues in the near future, we anticipate that we will continue to incur net losses in the near term, and we may never be able to achieve profitability. Our business plans estimate that we will need to raise additional capital to fund our operations going forward and there can be no assurance that we will be able to raise any or all of the capital required. These factors indicate that we may be unable to continue as a going concern, particularly in the event that we cannot generate sufficient cash flow or raise sufficient capital to conduct our operations. Our financial statements do not include any adjustments to the value of our assets or the classification of our liabilities that might result if we would be unable to continue as a going concern.
We may experience difficulties that may delay or prevent our development, introduction or our products.
We intend to continue to invest in product and technology development. The development of new or enhanced products is a complex and uncertain process. We may experience research and development, manufacturing, marketing and other difficulties that could delay or prevent our development, introduction or marketing of our products or enhancements. We cannot be certain that:
| - | any of the products under development will prove to be effective in generating sales demand; |
| - | we will be able to obtain, in a timely manner or at all, regulatory approval, if required, to market any of our products that are in development or contemplated; or |
| - | the products we develop can be manufactured at acceptable cost and with appropriate quality, or these products, if and when approved, can be successfully marketed. |
The factors listed above, as well as manufacturing or distribution problems, or other factors beyond our control, could delay our product launch. In addition, we cannot assure you that the market will accept these products. Accordingly, there is no assurance that our overall revenue will increase if and when our products are launched.
Investors may lose their entire investment if we fail to reach profitability.
We commenced business in January of 2010. We have no demonstrable operations record from which you can evaluate the business and its prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. We cannot guarantee that we will be successful in accomplishing our objectives. Investors should therefore be aware that they may lose their entire investment.
We are dependent on certain key personnel, the loss of whom could materially affect our financial performance and prospects.
Our success depends substantially upon the continued services of our executive officers and other key members of management, particularly our Chief Executive Officer Alain Belanger. We do not have an employment agreement with our Chief Executive Officer and, therefore, he could terminate his employment with us at any time. We do not maintain key person life insurance policies on our Chief Executive Officer. The loss of the services of our Chief Executive Officer could seriously harm our business.
Our Chief Executive Officer is also the Chief Executive Officer of Corruven Canada and such other company's interests may conflict with the best interests of the Company. The business interests of the Company and Corruven Canada may directly compete, and a conflict may arise with regard to the time devotion required of Mr. Belanger, or a corporate opportunity learned of by Mr. Belanger. To the extent that any conflict of corporate opportunity or in his fiduciary duties to both companies may arise in the future, the conflict will be resolved in favor of the Company. Notwithstanding, should Mr. Belanger not resolve any conflict that may arise between the Company and Corruven Canada, the Company may be adversely affected.
Our existing principal stockholder exercises control of our Company.
Mr. Alain Belanger, our Chief Executive Officer and a Director, will control approximately 52.71% of our issued and outstanding common stock and 100% of our Series A Preferred Stock. Accordingly, Mr. Belanger will be able to control the election of directors and all other matters subject to stockholder votes. This concentration of ownership may have the effect of delaying or preventing a change in control of the Company, even if this change in control would benefit stockholders.
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We need to attract qualified employees.
Our future success depends in large part upon our ability to attract, train, retain and motivate employees. Qualified individuals of the requisite caliber and number needed to fill positions are in short supply in some areas. Although we plan to offer competitive salaries and benefits, we may have to increase spending in order to retain present and future personnel. The success of our growth plan will be dependent on our ability to promote and/or recruit enough qualified personnel to support our future growth. The time and effort required to train and supervise new managers and employees may divert resources from our existing operations and negatively affect our operating and financial performance.
Supporting a future customer base could strain our personnel and corporate infrastructure, and if we are unable to scale our operations and increase productivity when necessary, we may not be able to successfully implement our business plan.
Our current management and human resources infrastructure is comprised of our officers and several outsourced consultants. Our success will depend, in part, upon the ability of our management to manage our proposed business effectively. To do so, we will need to hire, train and manage new employees as needed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully scale our operations, we will be unable to execute our business plan.
Possible Fluctuations in the Cost of Materials
Our future financial condition and results may be affected by fluctuations in the cost of materials. The current principal raw materials used in the manufacturing of the Corruven Composite Panel consist of veneer, paper, plywood and glue. The Company does not currently maintain any supplier agreements for these raw materials and purchases its raw materials on the open market from various suppliers. The price and availability of these materials are subject to market conditions affecting supply and demand. Although the Company believes its needed raw materials are in abundant supply and available in a competitive market, our potential profitability may be negatively affected by increases in material costs to the extent we are unable to pass on such higher costs to our customers.
If we deliver products with defects, our credibility may be harmed, market acceptance of our products may decrease and we may be exposed to liability.
The manufacturing and marketing of our products will involve an inherent risk of product liability claims. In addition, our product development is, and production will be, complex and could expose our products to defects. Any defects could harm our credibility and decrease future market acceptance of our products. In the event that we are held liable for a claim for which we are not indemnified or insured that claim could materially damage our business and financial condition. Even if we are indemnified, we may not be able to obtain reimbursement of our damages from the indemnifying party, because for example they do not have sufficient funds or insurance coverage to pay us. If a claim is made for which we have insurance coverage, we cannot be certain that the amount of such coverage will be sufficient, or that we will be able to collect on a claim when we make it.
Because we have only just begun to sell our products, we have not obtained insurance covering product liability claims or product recall claims against us. If and when we begin to market our products, such insurance may not be available to us, or not available on terms which we find acceptable. We may determine that the cost of such insurance is too high when compared to the risks of not having coverage and we may determine not to obtain policies insuring such risks, or we may obtain policies with a high deductible.
Our ability to grow our business may depend on developing a positive brand reputation and customer loyalty.
Establishing and maintaining a positive brand reputation and nurturing customer loyalty is critical to attracting new customers. We expect to expend reasonable but limited resources to develop, maintain and enhance our brand in the near future. If we are unable to develop, maintain and enhance our brand reputation and customer participation, our ability to attract customers will be harmed.
Our expansion strategy will be dependent upon the availability of adequate capital.
Our expansion strategy will require additional capital for, among other purposes, research and development, inventory, property and equipment, integration into new markets and other costs associated with our proposed business plan. If cash generated internally is insufficient to fund capital requirements, or if funds are not available, we will require additional debt or equity financing. Adequate financing may not be available or, if available, may not be available on terms satisfactory to us. If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our expansion. As a result, there can be no assurance that we will be able to fund our current business plans.
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Failure to fund continued capital expenditures could adversely affect results.
If our anticipated revenues substantially decrease as a result of market fluctuations or otherwise, we may have a limited ability to expend the capital necessary to maintain business operations at expected levels in the future, resulting in a decrease in revenue over time. If our expected cash flow from anticipated operations is not sufficient to satisfy our capital expenditure requirements, there can be no assurance that additional debt or equity financing or other sources of capital will be available to meet these requirements.
We rely on a variety of intellectual property rights. Any threat to, or impairment of, these rights could cause us to incur costs to defend these rights.
We license the intellectual property to our proposed products from Corruven Canada, an affiliated licensor. In addition the management of the Company also acts as management in Corruven Canada and therefore inherent conflicts of interest may arise.
As a Company that plans to develop, manufacture and market branded products, we will rely heavily on the Corruven IP to protect our brand. Corruven Canada maintains a number of patent applications pending and we rely on such protection for certain of our technologies. There is a risk that third parties, including our competitors, will infringe on our licensed Corruven IP rights, in which case we or the parties owning such rights would have to defend these rights. There is also a risk that third parties, including our competitors, will claim that our products infringe on their intellectual property rights. These third parties may bring infringement claims against us or our customers, which may harm our operating results.
While we currently license certain U.S., Canadian and worldwide patent applications from Corruven Canada, we may need to pursue additional protections for our Corruven IP as we develop new products and enhance existing products and technologies. We may not be able to obtain appropriate protections for our Corruven IP in a timely manner, or at all. Our inability to obtain appropriate protections for our Corruven IP may allow competitors to enter our markets and produce or sell the same or similar products.
In addition to patents, we rely on a combination of trade secrets, nondisclosure agreements and other contractual provisions and technical measures to protect our Corruven IP rights. Nevertheless, these measures may not be adequate to safeguard the technology underlying our products. If these measures do not protect our rights, third parties could use our technology and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our Corruven IP, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our Corruven IP rights in some foreign countries.
We rely heavily upon outside sources for the research and development related to our Corruven Composite Panel and related technology.
The Company relies heavily upon Corruven Canada for the research and development related to the finalization and commercial application of the Corruven Composite Panel. Pursuant to the terms of the R&D Agreement, the Company is required to pay: (i) a total of $1,928,820 over a five year period as follows: $495,982 on or before January 5, 2012; $440,873 on or before January 5, 2013; $385,764 on or before January 5, 2014; $330,655 on or before January 5, 2015; and (ii) $275,546 on or before January 5 of each following year thereafter for the life of the R&D Agreement. In addition the Company is required to pay to Corruven Canada a “development fee” of two percent (2%) of net sales proceeds of the Company after January 5, 2013.
The R&D Agreement allows for termination: (i) for failure of any payment due and owing to Corruven Canada under the R&D Agreement; and (ii) by either party at any time upon the receipt of ninety (90) days written notice to the other party. In the event the R&D Agreement is terminated for any reason, although the Company will maintain the exclusive world-wide license to manufacture, market, and sell the Corruven Composite Panels and to utilize any products, methods, structures, assemblies and devices which exist or may in the future be derived from, or utilize, the Corruven IP, the Company may no longer have immediate access to the machinery involved in the Line of Production (as defined herein) and will lose much of the technological and mechanical progress made pursuant to the relationship between the Company and Corruven Canada under the License Agreement and R&D Agreement. The termination of such relationships and agreements with Corruven Canada would be a tremendous setback to the Company’s forward progress. However, considering the relationship between the Company and Corruven Canada, and the fact the current management of the Company and Corruven Canada are the same individuals, the Company does not foresee any termination of, nor change in the relationship between the entities.
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We are an “emerging growth company,” and any decision on our part to comply only with certain reduced disclosure requirements applicable to “emerging growth companies” could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act and Exchange Act of 1934 (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to opt in to the extended transition period for complying with the revised accounting standards.
Because we have elected to defer compliance with new or revised accounting standards, our financial statement disclosure may not be comparable to similar companies.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of our election, our financial statements may not be comparable to companies that comply with public company effective dates.
Our status as an “emerging growth company” under the JOBS Act of 2012 may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
We currently do not have adequate insurance coverage for claims against us.
We face the risk of loss resulting from product liability, securities, fiduciary liability, intellectual property, antitrust, contractual, warranty, environmental, fraud and other lawsuits, whether or not such claims are valid. In addition, we do not have adequate or in some cases, any product liability, fiduciary, directors and officers, property, natural catastrophe and comprehensive general liability insurance. To the extent we secure adequate insurance it may not be adequate to cover such claims or may not be available to the extent we expect. If we are able to secure adequate insurance our costs could be volatile and, at any time, can increase given changes in market supply and demand. We may not be able to obtain adequate insurance coverage in the future at acceptable costs. A successful claim that exceeds or is not covered by our policies could require us to pay substantial sums. Even to the extent we are able to acquire adequate insurance, we may not be able to afford to continue coverage through a policy period or in multiple and successive policy periods.
Currency risks and fluctuations could negatively impact our Company.
We anticipate that some of our revenues may be received in currencies other than US Dollars. Foreign currency can fluctuate against the US dollar in which the Company’s financial statements are prepared. There is no assurance that any currency exchange will be favorable and given that some or our major expenses are fixed in US dollars, our operating results could be negatively impacted by such currency fluctuations.
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Risks Related to Our Industry
We may become dependent on specific industries. Lower than expected growth or a downturn in demand for our products in those industries could adversely affect our results of operations.
The future sales of our products are dependent to a significant degree on the level of activity in the industries we may target. Because of the possible cyclical demand for our products, we may have short or long-term overcapacity. A decreased demand for wood products may result in an inability to maximize our resources. Furthermore, it is possible that our expected growth in demand from companies in the industries we target may not occur. The demand for such products can be adversely affected by several factors, including decreases in the level of new residential construction activity, which is subject to changes in economic conditions, increases in interest rates, decreases in population and other factors. Additionally, weakness in the economies of countries in which we intend to sell our products, especially in the United States and Canada, as well as any downturn or continuation of current downturns in these economies, are likely to have a material adverse effect.
Most of our current and potential competitors have longer operating histories, larger customer, greater brand recognition, greater access to brand name suppliers, and significantly greater financial, marketing and other resources than we do.
Most of our current and potential competitors can devote substantially more resources to the development of their business operations than we can at present. Larger, well-established and well-financed entities may acquire, invest in or form joint ventures with other established competitors or with specific product manufacturers, which will allow them pricing advantages due to economies of scale or pursuant to distribution agreements with suppliers. Some large product distributors may also have exclusive distribution agreements or protected territories in which they can sell specific brand name products at a significant discount, or territories in which they may seek to exclude us from selling a specific brand of product. These types of arrangements between our competitors and manufacturers and suppliers may limit our ability to distribute certain products and could adversely affect our revenues.
We may face significant competition in the markets in which we intend to sell our products, which could adversely affect both our potential share of those markets as well as the price at which we intend to sell our products.
We expect to face strong competition from competitors in all of the countries and regions in which we intend to operate. In the case of our products, we face competition from foreign competitors in other regions of the world. In the future we may face increased competition in other countries in which we intend to operate from domestic or foreign competitors, most of which have greater financial resources than we do. In addition, we may face increased competition as a result of existing competitors increasing their production capacity. An increase in competition in the wood market or other value added wood products markets could adversely affect both our potential share of those markets and the price at which we are able to sell our products.
We depend on free international trade and the absence of import and export restrictions in our principal markets.
Our ability to compete effectively in our proposed markets could be materially and adversely affected by a number of factors relating to government regulation of trade. Exchange rate manipulation, subsidies or the imposition of increased tariffs, or other trade barriers could materially affect our ability to move raw materials and/or finished products across national borders. Thus, our business, financial condition, and results of operations could be adversely affected.
Some of our products may experience high price volatility, and prolonged or severe weakness in our proposed markets could adversely affect our financial condition and results of operations.
Our products and their competitive products are a globally traded commodity and are subject to competition from manufacturers worldwide. Historical prices for our products have been volatile, and we, like other participants in the industry, have limited influence over the timing and extent of price changes. Product pricing is significantly affected by the relationship between supply and demand in the building products industry. Demand is also subject to fluctuations due to changes in economic conditions, interest rates, population growth, weather conditions, and other factors. We are not able to predict with certainty market conditions and selling prices for our products and prices may decline from current levels. A prolonged and severe weakness in the markets could adversely affect our financial condition and results of operations.
The majority of raw wood materials used to produce our wood products are supplied by outside mills and companies and the potential increased cost and limited availability of raw materials may have a material adverse effect on our business and results of operations.
We plan to procure the majority of the raw wood materials that we will use in our products from companies in the United States and internationally. We may not be able to create or maintain these relationships and secure the raw materials necessary to manufacture our products. In addition, the prices we pay for raw materials may increase as a result of higher fuel costs paid by our suppliers. An inability to secure the raw materials used in the production of our wood products or to transport such materials in a cost-effective manner could have an adverse effect on our operations. Prices of certain materials used in our products can be volatile and change dramatically with changes in supply and demand. Certain products may be purchased from overseas and may be dependent upon vessel shipping schedules and port availability. Further, certain of our suppliers may operate at or near capacity, resulting in some products having the potential of being put on allocation. The current credit crisis and its impact on the financial and housing markets may also impact our suppliers and affect the availability or pricing of materials. Our potential future sales levels and operating results could be negatively impacted by changes in any of these items.
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Changes in environmental regulations to which we may be subject to could adversely affect our business, financial condition, results of operations, and prospects.
We may be subject to extensive and changing international, national and local environmental laws concerning, among other things, health, the handling and disposal of wastes, and discharges into the air and water. We expect to make substantial expenditures to complying with such environmental requirements. Environmental regulations have become increasingly stringent in recent years, particularly in connection with the approval of new projects, and this trend is likely to continue. Future developments in the establishment or implementation of environmental requirements, or in the interpretation of such requirements, could result in substantially increased capital, operating, or compliance costs or otherwise adversely affect our business, financial condition, results of operations, and prospects. Additionally, we may be subject to forestry management, endangered species, and other environmental regulations in these jurisdictions. Changes in such laws, or the interpretation of such laws, may require us to incur significant unforeseen capital or operating expenditures to comply with such requirements. The occurrence of such events could have an adverse effect on our business, financial condition, results of operations, and prospects.
Risks Related to our Stock
Issuing preferred stock with rights senior to those of our Common Stock could adversely affect holders of Common Stock.
Our charter documents give our board of directors (the “Board”) the authority to issue series of preferred stock (“Preferred Stock”) without a vote or action by our stockholders. The Board also has the authority to determine the terms of Preferred Stock, including, but not limited to, price, preferences and voting rights. The rights granted to holders of Preferred Stock may adversely affect the rights of holders of our Common Stock. For example, the Company currently has a class of Series A Preferred Stock issued and outstanding that provides such holders superior voting rights. In addition, the issuance of Preferred Stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock. As a result, Common Stockholders could be prevented from participating in transactions that would offer an optimal price for their shares.
In order to execute our business plan, we expect we will need to raise additional capital. If we are unable to raise additional capital, we may not be able to achieve our business plan and our investors could lose their investment.
We may need to raise additional funds through public or private debt or equity financings as well as obtain credit from vendors to be able to fully execute our business plan. Any additional capital raised through the sale of equity may dilute our shareholders’ ownership interest. We may not be able to raise additional funds on favorable terms, or at all. If we are unable to obtain additional funds or credit from our vendors, we will be unable to execute our business plan.
Our principal stockholders have the ability to exert significant control in matters requiring stockholder vote and could delay, deter or prevent a change in control of our Company.
Since our stock ownership is concentrated among a limited number of holders, including holders of our Preferred Stock, those holders have significant influence over all actions requiring stockholder approval, including the election of our Board. Through their concentration of voting power, they could delay, deter or prevent a change in control of our Company or other business combinations that might otherwise be beneficial to our other stockholders. In deciding how to vote on such matters, they may be influenced by interests that conflict with other stockholders.
We may issue additional shares and dilute shareholder ownership percentage.
Our bylaws allow the Board to issue Common Stock and Preferred Stock without stockholder approval. Currently, the Board is authorized to issue a total of 95,000,000 shares of Common Stock, of which 22,392,628 have been issued or reserved for issuance as of the date of this filing. In addition, the Board is authorized to issue up to 5,000,000 preferred shares, of which 100,000 shares are issued and outstanding as of the date of this filing. We may issue additional shares of Common Stock which could result in further dilution. If additional funds are raised through the issuance of equity securities, the percentage of equity ownership of the existing stockholders will be reduced. We are authorized to issue more shares of Common Stock and Preferred Stock. We have the right to raise additional capital or incur borrowings from third parties to finance our business. Our Board has the authority, without the consent of any of the stockholders, to cause us to issue more shares or our Common Stock and shares of our Preferred Stock at such price and on such terms and conditions as are determined by the Board in our sole discretion. The issuance of additional shares of capital stock by us would dilute the stockholders’ ownership in us.
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Requirements associated with becoming a publicly traded company will require significant Company resources and management attention.
It is the Company’s goal to become a publicly traded company, however, such goals are not guaranteed. We have only recently been subject to the reporting requirements of the Securities and Exchange Act of 1934 (the “Exchange Act”), and the other rules and regulations of the Commission or any securities exchange relating to public companies. We are working with independent legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, we cannot assure our investors that these and other measures we may take will be sufficient to allow us to satisfy our obligations as a public company on a timely basis. In addition, compliance with reporting and other requirements applicable to public companies such as Sarbanes Oxley will create additional costs for us, will require the time and attention of management and will require the hiring of additional personnel and outside consultants. We cannot predict or estimate the amount of the additional costs we may incur, the timing of such costs or the degree of impact on our management's attention to these matters will have on our business. In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors' and officers' liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as executive officers.
If we become a publicly traded company, our stock price could be extremely volatile and, as a result, our investors may not be able to resell their shares at or above the price paid.
An active public market for our Common Stock may not develop or be sustained after this offering. Further, the market price of our Common Stock may decline below the price paid for by our shareholders.
Among the factors that could affect our stock price are:
| - | industry trends and the business success of our vendors and franchisees; |
| - | actual or anticipated fluctuations in our quarterly and annual financial and operating results; |
| - | our failure to meet the expectations of the investment community and changes in investment community recommendations or estimates of our future operating results; |
| - | strategic moves by our competitors, such as product announcements or acquisitions; |
| - | regulatory developments; |
| - | litigation; |
| - | general market conditions; |
| - | other domestic and international macroeconomic factors unrelated to our performance; and |
| - | additions or departures of key personnel. |
The stock market has from time to time experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These kinds of broad market fluctuations may adversely affect the market price of our Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. If a securities class action suit is filed against us, we would incur substantial legal fees and our management's attention and resources would be diverted from operating our business in order to respond to the litigation.
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Our shares are subject to the U.S. "Penny Stock" Rules and investors who purchase our shares may have difficulty re-selling their shares as the liquidity of the market for our shares may be adversely affected by the impact of the "Penny Stock" Rules.
Our stock is subject to U.S. "Penny Stock" rules, which may make the stock more difficult to trade on the open market. Our common shares are not currently traded on any public market, but it is the Company's plan that the common shares be quoted on the OTC Bulletin Board. A "penny stock" is generally defined by regulations of the Commission as an equity security with a market price of less than US$5.00 per share. However, an equity security with a market price under US$5.00 will not be considered a penny stock if it fits within any of the following exceptions:
(i) the equity security is listed on NASDAQ or a national securities exchange;
(ii) the issuer of the equity security has been in continuous operation for less than three years, and either has (a) net tangible assets of at least US$5,000,000, or (b) average annual revenue of at least US$6,000,000; or
(iii) the issuer of the equity security has been in continuous operation for more than three years, and has net tangible assets of at least US$2,000,000.
Our Common Stock does not currently fit into any of the above exceptions.
If an investor buys or sells a penny stock, Commission regulations require that the investor receive, prior to the transaction, a disclosure explaining the penny stock market and associated risks. Furthermore, trading in our Common Stock will be subject to Rule 15g-9 of the Exchange Act, which relates to non-NASDAQ and non-exchange listed securities. Under this rule, broker/dealers who recommend our securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if their market price is at least $5.00 per share. Since our Common Stock is currently deemed to fall under penny stock regulations, it may tend to reduce market liquidity of our Common Stock, because they limit the broker/dealers' ability to trade, and a purchaser's ability to sell, the stock in the secondary market.
The low price of our Common Stock has a negative effect on the amount and percentage of transaction costs paid by individual shareholders. The low price of our Common Stock also limits our ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of certain institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker's commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, the Company's shareholders may pay transaction costs that are a higher percentage of their total share value than if our share price were substantially higher.
We do not anticipate paying dividends on our capital stock in the foreseeable future.
We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of the instruments governing our existing debt and any future debt or credit facility may preclude us from paying any dividends.
Compliance with Sarbanes-Oxley could be time consuming and costly, which could cause our independent registered public accounting firm to conclude that our internal control over financial reporting is not effective.
As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting.
During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We also expect the new regulations to increase our legal and financial compliance cost, make it more difficult to attract and retain qualified officers and members of our Board of Directors (particularly to serve on an audit committee) and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404.
If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations since there is presently no precedent available by which to measure compliance adequacy.
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If we are unable to conclude that we have effective internal control over financial reporting then we may not be able to raise capital from certain sources, or list on exchanges or the NASDAQ and investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. In addition, we may not be able to complete our audits or financial statements in a timely fashion resulting in trading stoppages or delistings from the OTC Bulletin Board system.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current and may adversely affect any market for, and the liquidity of, our common stock.
Item 1b. Unresolved Staff Comments
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
Item 2. Description of Properties
Our head offices are located at the offices of our Chief Executive Officer, Alain Belanger, for which we currently pay no rent.
Our manufacturing and research & development facilities are located at 355 Chemin du Pouvoir, Edmundston, New Brunswick, Canada (the “355 Chemin Property”). As further described in the notes to the financial statements, the 355 Chemin Property was purchased on April 29, 2013 and the total purchase price of the 355 Chemin Property was $300,000 CAD. The Company made an initial deposit related to the Purchase Agreement on March 26, 2013, totaling $25,000 CAD, and $125,000 CAD was paid on April 29, 2013. The remaining balance due ($150,000 CAD) is due as follows, $75,000 CAD due on March 29, 2015 and $75,000 due on March 29, 2016.
Our U.S. executive offices are located at the offices of our attorney, The Bingham Law Group, APC, for which we currently pay no rent.
We are not currently a party to any legal proceedings nor are any contemplated by us at this time.
Item 4. Mine Safety Disclosures
Not Applicable.
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information.
There has never been a public market for our common stock.
(b) Approximate number of equity security holders
As of April 13, 2015, there were approximately 140 holders of record of our common stock.
(c) Dividends
We have never declared or paid a cash dividend and do not foresee paying one in the near future. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our stockholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
(d) Securities authorized for issuance under equity compensation plans
The Company does not currently maintain any stock option plan, whether approved by shareholders or otherwise, however, the Company does, on occasion issue equity or options as compensation to consultants and employees. Additional detailed information relating to stock and option grants during 2014 can be found below in “Item 11, Executive Compensation” and Item 5(e) “Recent sales of unregistered securities”, the provisions of which are incorporated herein.
(e) Recent sales of unregistered securities.
The Company has 95,000,000 authorized shares of $0.001 par value Common Stock, of which 22,392,628 and 21,926,111 shares were issued and outstanding at December 31, 2014 and 2013, respectively.
Common Stock Issuances (2014)
On October 24, 2014, we sold 20,000 shares of our common stock and warrants to purchase another 10,000 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, we sold 6,730 shares of our common stock and warrants to purchase another 3,365 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $4,542. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, we sold 74,075 shares of our common stock and warrants to purchase another 37,038 shares, exercisable at $0.75 per share over a thirty six month period, to one of our directors, a qualified investor pursuant to a unit offering in exchange for proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 16, 2014, we sold 20,000 shares of our common stock and warrants to purchase another 10,000 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 29, 2014, we sold 3,704 shares of our common stock and warrants to purchase another 1,852 shares, exercisable at $0.75 per share over a thirty six month period, to our VP of Business Development, a qualified investor pursuant to a unit offering in exchange for proceeds of $2,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 23, 2014, we sold 2,000 shares of our common stock and warrants to purchase another 1,000 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $1,350. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
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On September 29, 2014, we sold 134,289 shares of our common stock and warrants to purchase another 67,145 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $90,646. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 134,289 shares of our common stock and warrants to purchase another 67,145 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $90,645. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 13,493 shares of our common stock and warrants to purchase another 6,747 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $9,108. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 13,493 shares of our common stock and warrants to purchase another 6,747 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $9,107. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 22,222 shares of our common stock and warrants to purchase another 11,111 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 22,222 shares of our common stock and warrants to purchase another 11,111 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
Common Stock Issuances (2013)
During the year ended December 31, 2013, the Company granted 651,582 common shares to investors for proceeds of $423,713. The common stock granted included: 325,798 Series A-100 warrants to purchase 325,798 shares of common stock at $0.65 per share; 162,892 Series A-200 warrants to purchase 162,892 shares of common stock at $1.25 per share; and 162,892 Series A-300 warrants to purchase 162,892 shares of common stock at $1.75 per share.
During December 2013, the Company and 671530 N.B. Inc., a New Brunswick corporation entered into a Subscription Agreement (the “Subscription Agreement”). Pursuant to the terms of the Subscription Agreement, 671530 N.B. Inc. purchased a total of 1,100,000 shares of the Company’s common stock and warrants to purchase up to 1,100,000 shares of Common Stock at $0.75 per shares for a total purchase price of $660,000. The Warrants expire on December 6, 2018.
Warrants Granted (2014)
On October 24, 2014, the Company issued warrants to purchase 10,000 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, the Company issued warrants to purchase 3,365 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $4,542. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, the Company issued warrants to purchase 37,038 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 16, 2014, the Company issued warrants to purchase 10,000 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
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On September 29, 2014, the Company issued warrants to purchase 1,852 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $2,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 23, 2014, the Company issued warrants to purchase 1,000 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $1,350. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 23, 2014, the Company issued warrants to purchase 67,145 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $90,646. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 23, 2014, the Company issued warrants to purchase 67,145 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $90,645. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 5, 2014, the Company issued warrants to purchase 6,747 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $9,108. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 5, 2014, the Company issued warrants to purchase 6,747 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $9,107. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On August 19, 2014, the Company issued warrants to purchase 11,111 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On August 18, 2014, the Company issued warrants to purchase 11,111 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
The relative fair value of the warrants attached to the common stock issued in 2014 was estimated at the date of grant using the Black-Scholes Options Pricing Model. The relative fair value of the warrants attached to the common stock issued in 2014 is $59,311 and the relative fair value of the common stock is $255,587 as of the grant date. The Black-Sholes Options Pricing Model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.76-1.06%; expected volatility of 218-226%, and warrant term of 3 years.
Warrants Granted (2013)
During the year ended December 31, 2013, the Company granted 651,582 common shares to investors for proceeds of $423,713. The common stock granted included: 325,799 Series A-100 warrants to purchase 325,799 shares of common stock at $0.65 per share, exercisable over thirty six months from the date of grant; 162,892 Series A-200 warrants to purchase 162,892 shares of common stock at $1.25 per share, exercisable over thirty six months from the date of grant; and 162,892 Series A-300 warrants to purchase 162,892 shares of common stock at $1.75 per share, exercisable over forty eight months from the date of grant.
On December 6, 2013, the Company issued a total of 1,100,000 shares of the Company’s common stock and warrants to purchase up to 1,100,000 shares of common stock at $0.75 per share, exercisable over sixty months from the date of grant.
The relative fair value of the warrants attached to the common stock issued in 2013 was estimated at the date of grant using the Black-Scholes Options Pricing Model. The relative fair value of the warrants attached to the common stock issued in 2013 is $383,829 and the relative fair value of the common stock is $699,694 as of the grant date. The Black-Scholes Options Pricing Model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.38-1.51%; expected volatility of 273-1,003%, and warrant term of 3-5 years.
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Warrants Expired
A total of 7,500 and -0- warrants expired during the years ended December 31, 2014 or 2013, respectively. The expired warrants during the year ended December 31, 2014, carried weighted average exercise prices of $0.85 per share.
Warrants Exercised
No warrants were exercised during the years ended December 31, 2014 or 2013.
All of the above offerings and sales were deemed to be exempt under Regulation D, Regulation S and/or Section 4(1) or 4(2) of the Securities Act, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited or exempted investors, business associates of the Company or executive officers of the Company, and transfer was restricted by the Company in accordance with the requirements of the Securities Act. In addition to representations by the above-referenced persons, where applicable, we have made independent determinations that the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment.
Item 6. Selected Financial Data
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis in this Annual Report on Form 10-K should be read in conjunction with the accompanying Consolidated Financial Statements and related notes. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in ‘‘Critical Accounting Policies,’’ and have not changed significantly.
In addition, certain statements made in this report may constitute forward-looking statements. These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Specifically, but not limited to, 1) our ability to obtain necessary regulatory approvals for our products; and 2) our ability to increase revenues and operating income, is dependent upon our ability to develop and sell our products, general economic conditions, and other factors. You can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues" or the negative of these terms or other comparable terminology. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. Although we believe that the expectations reflected-in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are only predictions. The forward-looking events discussed in this Quarterly Report, the documents to which we refer you, and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties, and assumptions about us. For these statements, we claim the protection of the “bespeaks caution” doctrine. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.
Overview
Corruven, Inc. intends to develop and market a lightweight composite panel, the Corruven® composite panel (the “Corruven Composite Panel”), which we believe, when fully developed, will provide numerous advantages over conventional panels when used in applications including building materials, furniture components, transportation and in other potential industries and applications. As currently designed, the Corruven Composite Panels: (i) contain approximately 75% air making them extremely lightweight compared to other conventional panels; (ii) utilize approximately 25% of the raw material required to produce traditional panels (e.g.: FRP (“Fiberglass Reinforced Plastic”), Fiber Cement, MDF (“Medium Density Fiberboard”), HDF (“High Density Fiberboard”), OSB (“Oriented Stranded Board”), plywood, etc.); and (iii) use environmentally friendly formaldehyde-free glues which increase our distinction in the “green product” market.
We were incorporated under the laws of the State of Nevada on January 4, 2010 as Corruven, Inc. Our head offices are located at 264 Notre-Dame Street, Kedgwick, New Brunswick E8B 1H9. Our U.S. offices are located at the offices of our counsel, The Bingham Law Group, APC, at 2173 Salk Avenue, Suite 250, Carlsbad, California 92008. We maintain a website at www.corruven.com, however, the information in, or that can be accessed through, our web site, is not part of this filing.
We are a business that has had extremely limited revenue from our initial sales since our formation. There can be no assurance that we will complete the development of our product, and even if completed that the marketplace will generate any revenues. Further, there can be no assurance that even if more substantial revenues are generated, that those revenues will be sufficient to enable the Company to maintain its operations. The Company believes it will need to secure additional financing in the future to continue to develop the product, attract customers, and start generating revenues. There can be no assurance that the Company will be able to raise additional capital.
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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. To date, proceeds from the sale of Common Stock, Preferred Stock and extremely limited initial sales have provided the funds to support the Company's operations through approximately June 30, 2015. Accordingly, the Auditor's Report included in our audited financial statements for the years ending December 31, 2014 and December 31, 2013 included language raising doubt about our ability to continue as a going concern. Our business plans estimate that we will need to raise additional capital to fund our operations after June 30, 2015 and there can be no assurance that we will be able to raise any or all of the capital required. However, without further funding, we anticipate running out of cash after June 30, 2015, and accordingly our current cash balances will not be sufficient to fund our operating expenses and the continued development of our marketplace after June 30, 2015. We have generated limited revenues since our inception and have incurred net losses of $790,506 and $477,818 for the years ended December 31, 2014 and 2013, respectively, and used net cash in operations of $842,991 and $274,216 for the years ended December 31, 2014 and 2013, respectively. Unless we begin generating revenues in the near future, we anticipate that we will continue to incur net losses in the near term, and we may never be able to achieve profitability. We expect to continue to incur losses for the foreseeable future. In order to achieve profitable operations we need to generate significant revenues. We cannot be certain that our business strategies will be successful or that will we generate significant revenues and become profitable. As such, we believe we will need to obtain additional public or private equity financings or debt financings in order to continue operations.
Company Business Model and Proposed Revenue Generation
As of the date of this filing, through the R&D Agreement with Corruven Canada, the Company is currently in the process of developing and completing the pilot technology and machinery involved in the line of production and production processes needed to produce the Corruven Composite Panel (the “Line of Production”). The Company has two initial proposed business models designed to generate future revenues through: (i) sales of the Corruven Composite Panel as an end user product; and (ii) the Line of Production license model.
Sales of Corruven Products
Our initial business model focuses on the generation of revenues through the sale of the Corruven Composite Panel product line itself. Following the completion of the pilot Line of Production, we intend to generate revenues through the development of sales contracts relating to the purchase by manufacturers of the Corruven Composite Panel product line. Once our pilot Line of Production and initial production facilities are complete, we plan to begin production initially for this target market.
Line of Production License Model
Our long term business model focuses on the potential for licensing our Line of Production and necessary raw materials related to the production of the Corruven Composite Panel. We hope to be less dependent on the manufacturing sector’s fluctuations by potentially focusing on the business of licensing the Line of Production equipment in different sectors while generating revenue from: (i) the sale and license of equipment and related technology; (ii) ongoing royalties from the output of such licensed equipment; and (iii) the raw materials used in the Line of Production and end product to be provided to the licensee by the Company. This allows for a business model that we believe does not depend on the local or regional health of the economy to generate balanced revenues. We expect that the Line of Production clients will develop new applications for the products on a case-by-case basis and thus increase its reach in the market place. Each Line of Production license and the related equipment and technology will be tailored to the individual licensee’s needs.
As described above, our initial revenue generating business model relates to the sale of Corruven Composite Panel products. Following the completion of the pilot Line of Production, we intend to launch the line of Corruven Composite Panel products and generate potential revenues through the development of sales contracts relating to the purchase by manufacturers of our line of Corruven Composite Panel products. Once our pilot Line of Production is complete, we plan to begin production initially for this target market.
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Results of Operations for the Years Ended December 31, 2014 and December 31, 2013:
| For the Years Ended | ||||||||||||
| December 31, | Increase / | |||||||||||
| 2014 | 2013 | (Decrease) | ||||||||||
| Revenues | $ | 31,701 | $ | - | $ | 31,701 | ||||||
| Cost of goods sold | (26,660 | ) | - | 26,660 | ||||||||
| Gross Profit | 5,041 | - | 5,041 | |||||||||
| Research and development | 713,950 | 385,764 | 328,186 | |||||||||
| Selling, general and administrative | 105,452 | 110,907 | (5,455 | ) | ||||||||
| Total operating expenses | 819,402 | 496,671 | 322,731 | |||||||||
| Net operating loss | (814,361 | ) | (496,671 | ) | 317,690 | |||||||
| Total other income (expense) | 23,855 | 18,853 | 5,002 | |||||||||
| Net loss | $ | (790,506 | ) | $ | (477,818 | ) | $ | 312,688 | ||||
Revenues
For year ended December 31, 2014, we recognized only $31,701 in total revenues, of which $11,759 was generated from related parties. We had no sales for the comparative year ended December 31, 2013. We do not expect to begin generating substantial revenues until we complete our pilot Line of Production and begin offering our product and services on a larger scale.
Cost of Goods Sold
For year ended December 31, 2014, we incurred $26,660 in costs of goods sold from related parties, resulting in gross profit of $5,041. We had no cost of goods sold for the comparative year ended December 31, 2013.
Research and Development
Research and development expenses were $713,950 for the year ended December 31, 2014, compared to $385,764 for the year ended December 31, 2013, an increase of $328,186, or 85%. The expenses consisted of the continued research and development costs related to the development of our corrugated panels.
Selling, General and Administrative
Selling, general and administrative expenses consisting primarily of marketing, professional fees, travel, and other miscellaneous corporate costs, which totaled approximately $105,452 during the year ended December 31, 2014, compared to $110,907 during the year ended December 31, 2013, a decrease of $5,455, or 5%. Selling, general and administrative expenses decreased primarily due to efficiencies realized in our professional fees during the year ended December 31, 2014.
Net Operating Loss
Net operating loss for the year ended December 31, 2014 was $814,361, compared to a net operating loss of $496,671 for the year ended December 31, 2013, an increase of $316,690, or 64%. Net operating loss increased, as set forth above, primarily due to increased research and development costs related to the continued development our corrugated panels.
Other Income and Expenses
For the year ended December 31, 2014, the Company recognized $23,855 in other total other income on a net basis, compared to other income on a net basis of $18,853 during the year ended December 31, 2013, an increase of $5,002, or 27%. Other income consisted primarily of rental income from related parties, which increased by $10,578, or 54%, to $30,000 during the year ended December 31, 2014, from $19,422 during the year ended December 31, 2013. Other income, including grant income and interest income was minimal and decreased by $3,025, or 69%, to $1,349 during the year ended December 31, 2014, from $4,374 during the year ended December 31, 2013. The Company also incurred interest expense totaling $7,494 for the year ended December 31, 2014, compared to $4,943 for the year ended December 31, 2013, an increase of $2,551, or 52%. Interest expense increased due to our property mortgage that originated on April 29, 2013 being outstanding for the full year in 2014.
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Net Loss
Net losses attributable to common stockholders for the year ended December 31, 2014 were $(790,506), or $(0.04) per share, compared to net losses attributable to common stockholders for the year ended December 31, 2013 of $(477,818), or $(0.02) per share, an increase of $312,688, or 65%. Net loss increased, as set forth above, primarily due to increased research and development costs related to the continued development our corrugated panels.
Capital Resources and Liquidity
Cash Flows
The following table provides information about our net cash flow for the years ending December 31, 2014 and 2013.
| Year Ended | ||||||||
| Cash Flow | December 31, | |||||||
| 2014 | 2013 | |||||||
| Net cash used in operating activities | $ | (842,991 | ) | $ | (274,216 | ) | ||
| Net cash used in investing activities | - | (171,415 | ) | |||||
| Net cash provided by financing activities | 314,898 | 1,083,713 | ||||||
| Effect of exchange rate changes on cash | (23,824 | ) | (24,610 | ) | ||||
| Net increase in cash | (551,917 | ) | 613,472 | |||||
| Cash at beginning of the period | 669,688 | 56,216 | ||||||
| Cash at end of the period | $ | 117,771 | $ | 669,688 | ||||
Operating Activities
Net cash used in operating activities was $842,991 for the year ended December 31, 2014, as compared to $274,216 used in operating activities during the prior year, and increase of $568,775. The increased net cash used in operating activities was primarily due to general operations of our business, and payments for research and development costs paid to Corruven Canada, Inc., which were $713,950 during the year ended December 31, 2014, compared to $312,945 paid during the year ended December 31, 2013, an increase of $401,005.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2014 was $-0-, as compared to $171,415 used in investing activities during the prior year. The net cash used in investing activities was due to the purchase of an industrial building, land and related building improvements during the year ended December 31, 2013.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2014 and 2013, was $314,898 and $1,083,713, respectively. The net cash received from financing activities from both years was attributable to aggregate proceeds received from the sale of Common Stock and Warrants.
Need for Additional Capital
As of December 31, 2014 the Company had $117,771 cash on hand. We anticipate that this amount is not sufficient to satisfy our cash requirements for the following six months without additional funding. The Company has funded its operations and met its capital expenditures requirements primarily through cash generated from the sale of securities. We do not have any financing commitments and no assurance can be made that we will be obtaining financing at the times and terms needed. Therefore, there is substantial doubt that we will be able to continue as a going concern as we believe we will need substantial additional capital during the next six months on order to complete our business plan.
During the subsequent twelve month period, the Company believes that it will expend funds primarily on the completion of the Line of Production equipment, with additional potentially substantial costs associated with being a reporting company under the Exchange Act, including legal, accounting and audit costs. Although the Company hopes it will begin generating substantial revenues during the year ending 2015, management does not believe that such revenues will provide sufficient capital to sustain its current and execute its proposed operations for the next twelve month period without raising additional capital. Accordingly, we expect that we will require additional funding through additional equity and/or debt financings. Although the Company has been able to historically raise capital sufficient to continue its R&D, there can be no assurance that any additional financing will become available to us, and if available, on terms acceptable to us.
| 25 |
Any financing, if available, may involve restrictive covenants that may impact our ability to conduct our business or raise additional funds on acceptable terms. If we are unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back or discontinue our expansion plans. In the event we are unable to raise additional capital we will not be able to sustain any growth or continue to operate.
As indicated above, we believe that we may only have sufficient funds to complete the pilot Line of Production and continue business operations through June 30, 2015. It is anticipated that the Company may begin generating more substantial revenues by June 30, 2015, however, there can be no assurance that the Company will be able to generate these revenues by that date and, if in fact the Company does generate revenue, that such revenues would be sufficient to sustain or grow the operations. It is therefore anticipated that the Company will need additional capital in order to continue operations.
The Company presently does not have any available credit, bank financing or other external sources of liquidity. Due to its brief history and historical operating losses, the Company's operations have not been a source of liquidity. The Company will need to obtain additional capital in order to continue operations. In order to obtain capital, the Company may need to sell additional shares of its securities or borrow funds from private lenders. There can be no assurance that additional financing will be available in amounts or on terms acceptable to the Company, if at all.
The Company cannot guarantee that it will be able to obtain additional capital. The Company will seek capital from the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. The recent downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if the Company is able to raise the funds required, it is possible that it could incur unexpected costs and expenses, or experience unexpected cash requirements. Further, if the Company issues additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of the Company's Common Stock. If additional financing is not available or is not available on acceptable terms, the Company will have to curtail or may even cease its operations.
Off Balance Sheet Arrangements
None.
Going Concern
Language regarding the Company's ability to continue as a going concern has been included in the Auditor's Report included in our audited financial statements for the years ending December 31, 2014 and December 31, 2013. The accompanying financial statements have been prepared assuming we will continue as a going concern. We have had substantial operating losses for the past years and are despite limited recent revenues, we are dependent upon outside financing to continue operations. If we are not successful in generating sufficient liquidity from Company operations or in raising sufficient capital resources, on terms acceptable to us, this would have a material adverse effect on the Company's business, results of operations, liquidity and financial condition. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plan to raise necessary funds from shareholders to satisfy the expense requirements of the Company.
Critical Accounting Policies
Basis of Presentation
Our financial statements are prepared using the accrual method of accounting as generally accepted in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC).
JOBS Act
We are an “emerging growth company” as defined in the recently-enacted JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not “emerging growth companies.” As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain reporting and disclosure requirements, which may make our future public filings different than that of other public companies.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain new accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
| 26 |
We will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement, (iii) the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated filer” as defined under the federal securities laws.
Reclassifications
In the current year, the Company separately classified research and development costs from selling, general and administrative expenses in the statements of operations. For comparative purposes, amounts in prior periods have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the 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.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, prepaid expenses and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments.
Cash and Cash Equivalents
The Company maintains cash balances in non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.
Other Receivables
Other receivables consist of HST receivables, which represent amounts paid by the Company to sales taxes authorities for initial payments of products and services made to Corruven Canada. Initial payments include a tax amount for all payments made, regardless of the nature of the expense. On a quarterly basis, the Company requests refunds from the tax authority for overpayments of sales taxes made which are related to non-taxable items. Amounts paid on non-taxable items are then refunded to the Company by the tax authority. At December 31, 2014 and 2013 these amounts were $12,755 and $4,708, respectively.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated depreciation, and we depreciate it on a straight-line basis over the estimated useful lives of the assets. Additions and improvements (including interest costs for construction of qualifying long-lived assets) are capitalized. Maintenance and repair expenses are charged to expense as incurred. The cost of property and equipment sold or disposed of and the related accumulated depreciation are eliminated from the property and related accumulated depreciation accounts, and any gain or loss is credited or charged to other income (expense).
We generally provide for depreciation over the following estimated useful service lives. Additionally, if there are indicators that certain assets may be potentially impaired we will analyze such assets in accordance with the related GAAP standard. The estimated useful lives for significant property, plant and equipment categories are as follows:
| Years | ||
| Equipment | 5 | |
| Building and improvements | 18 |
| 27 |
Revenue Recognition
For revenue from product sales, the Company recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Stock-Based Compensation
Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. There was no stock based compensation issued for services during the years ended December 31, 2014 and 2013, respectively.
Basic and Diluted Loss Per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations.
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
| 28 |
Foreign Currency Translation
The Company’s functional currency is the Canadian dollar. The Company uses the United States dollar for financial reporting purposes. Assets and liabilities of foreign operations are translated using current rates of exchange prevailing at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transaction occurred. Statement of operations amounts are translated at average rates in effect for the reporting period. The foreign currency translation adjustment loss of $23,824 and $24,610 for the years ended December 31, 2014 and 2013, respectively, have been reported as a component of comprehensive loss in the statement of stockholders’ equity. Translation gains or losses are shown as a separate component of stockholders’ equity.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
| 29 |
Item 8. Financial Statements and Supplementary Data
CORRUVEN, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Corruven, Inc.
Carlsbad, California
We have audited the accompanying balance sheets of Corruven, Inc. as of December 31, 2014 and 2013 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 2014 and 2013. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Corruven, Inc. as of December 31, 2014 and 2013, and the results of its operations and cash flows for the periods described above in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has insufficient working capital, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
April 13, 2015
| F-1 |
The accompanying notes are an integral part of these financial statements.
| F-2 |
The accompanying notes are an integral part of these financial statements.
| F-3 |
The accompanying notes are an integral part of these financial statements.
| F-4 |
The accompanying notes are an integral part of these financial statements.
| F-5 |
Corruven, Inc.
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
Corruven, Inc. (“the Company”) was incorporated in the State of Nevada on January 4, 2010 (“Inception”). The Company develops and markets a lightweight composite panel, Corruven, fabricated mainly from rotary veneer providing numerous advantages for various applications in different construction sectors.
Basis of Presentation
Our financial statements are prepared using the accrual method of accounting as generally accepted in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC).
JOBS Act
We are an “emerging growth company” as defined in the recently-enacted JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not “emerging growth companies.” As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain reporting and disclosure requirements, which may make our future public filings different than that of other public companies.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain new accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement, (iii) the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated filer” as defined under the federal securities laws.
Reclassifications
In the current year, the Company separately classified research and development costs from selling, general and administrative expenses in the statements of operations. For comparative purposes, amounts in prior periods have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the 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.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, prepaid expenses and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments.
| F-6 |
Corruven, Inc.
Notes to Financial Statements
Cash and Cash Equivalents
The Company maintains cash balances in non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.
Other Receivables
Other receivables consist of HST receivables, which represent amounts paid by the Company to sales taxes authorities for initial payments of products and services made to Corruven Canada. Initial payments include a tax amount for all payments made, regardless of the nature of the expense. On a quarterly basis, the Company requests refunds from the tax authority for overpayments of sales taxes made which are related to non-taxable items. Amounts paid on non-taxable items are then refunded to the Company by the tax authority. At December 31, 2014 and 2013 these amounts were $12,755 and $4,708, respectively.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated depreciation, and we depreciate it on a straight-line basis over the estimated useful lives of the assets. Additions and improvements (including interest costs for construction of qualifying long-lived assets) are capitalized. Maintenance and repair expenses are charged to expense as incurred. The cost of property and equipment sold or disposed of and the related accumulated depreciation are eliminated from the property and related accumulated depreciation accounts, and any gain or loss is credited or charged to other income (expense).
We generally provide for depreciation over the following estimated useful service lives. Additionally, if there are indicators that certain assets may be potentially impaired we will analyze such assets in accordance with the related GAAP standard. The estimated useful lives for significant property, plant and equipment categories are as follows:
| Years | ||||
| Equipment | 5 | |||
| Building and improvements | 18 | |||
Revenue Recognition
For revenue from product sales, the Company recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Stock-Based Compensation
Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. There was no stock based compensation issued for services during the years ended December 31, 2014 and 2013, respectively.
Basic and Diluted Loss Per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
| F-7 |
Corruven, Inc.
Notes to Financial Statements
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations.
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Foreign Currency Translation
The Company’s functional currency is the Canadian dollar. The Company uses the United States dollar for financial reporting purposes. Assets and liabilities of foreign operations are translated using current rates of exchange prevailing at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transaction occurred. Statement of operations amounts are translated at average rates in effect for the reporting period. The foreign currency translation adjustment loss of $23,824 and $24,610 for the years ended December 31, 2014 and 2013, respectively, have been reported as a component of comprehensive loss in the statement of stockholders’ equity. Translation gains or losses are shown as a separate component of stockholders’ equity.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.
| F-8 |
Corruven, Inc.
Notes to Financial Statements
In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
Note 2 – Going Concern
As shown in the accompanying financial statements, the Company has minimal revenues and incurred net losses from operations since inception, resulting in an accumulated deficit of $2,545,503 as of December 31, 2014. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Related Parties
Common Stock Issuances (2014)
On October 20, 2014, we sold 74,075 shares of our common stock and warrants to purchase another 37,038 shares, exercisable at $0.75 per share over a thirty six month period, to one of our directors, a qualified investor pursuant to a unit offering in exchange for proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 29, 2014, we sold 3,704 shares of our common stock and warrants to purchase another 1,852 shares, exercisable at $0.75 per share over a thirty six month period, to our VP of Business Development, a qualified investor pursuant to a unit offering in exchange for proceeds of $2,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
Product sales, Groupe Regenord, Inc.
The Company recorded revenues related to the sale of products to Groupe Regenord, Inc. during the year ended December 31, 2014, totaling $6,000. Groupe Regenord, Inc. made payments to the Company totaling $6,000 during the year ended December 31, 2014, and no amounts were due from Groupe Regenord, Inc. at December 31, 2014. Groupe Regenord, Inc. is a company in which Alain Belanger, the Company's CEO and majority shareholder, owns a majority stake.
| F-9 |
Corruven, Inc.
Notes to Financial Statements
R&D and License Agreements, Corruven Canada, Inc.
On January 5, 2010, the Company entered into an Intellectual Property License Agreement with Corruven Canada, Inc. (the “License”). The License provided the Company an exclusive license for various patents and patent applications related to materials, methods and devices relating to Corruven wood panel. The License provides that the Company shall pay to Corruven Canada, Inc. an annual royalty license fee of one percent (1%) of net sales of the products sold by the Company pursuant to the License. In addition, the Company entered into a Research and Development Agreement (the “R&D Agreement”) with Corruven Canada, Inc. in which the Company agreed to expend certain funds for the right of using the technologies and patents developed by Corruven Canada, Inc. Corruven Canada, Inc. is considered a related party due to the ownership by Alain Belanger, the Company's CEO and majority shareholder. The R&D Agreement provided that Corruven Canada was required to perform all research and development related to the finalization and commercial application of the Corruven Composite Panel, for which the Company was required to pay certain research and development costs to Corruven Canada consisting of: (i) a total of $1,928,820 over a five year period as follows: $495,982 on or before January 5, 2012; $440,873 on or before January 5, 2013; $385,764 on or before January 5, 2014; $330,655 on or before January 5, 2015; and (ii) $275,546 on or before January 5 of each following year thereafter for the life of the R&D Agreement. On June 30, 2014, the Company and Corruven Canada amended and restated the R&D Agreement wherein the above scheduled research and development cost payment schedule was terminated and the parties agreed that the Company would provide such research and development costs to Corruven Canada on an “as needed” basis when requested by Corruven Canada. In addition the Company is required to pay to Corruven Canada a “development fee” of two percent (2%) of net sales proceeds of the Company after January 5, 2013.
The R&D Agreement can be terminated by either party at any time upon the receipt of 90 days written notice to the other party. Upon notification of termination, Corruven Canada Inc. shall proceed in an orderly fashion to limit or terminate any outstanding commitments and/or to conclude any research being developed as a result of the R&D Agreement.
The following represents payments the Company has made to Corruven Canada through December 31, 2014:
| Amount | ||||
| Paid | ||||
| 2014 | $ | 713,950 | ||
| 2013 | 312,945 | |||
| 2012 | 647,651 | |||
| 2011 | 463,738 | |||
| 2010 | 150,000 | |||
| Total | $ | 2,288,284 | ||
The amounts paid in 2010 of $150,000 were applied to the accrual of and balance due at January 5, 2013. Due to the June 30, 2014 amendment, there are no longer any liabilities for amounts due under this agreement.
Cost of Goods Sold, Corruven Canada, Inc.
The Company is a sales and research company with exclusive commercialization rights over the Corruven® technology. The Company does not maintain inventory on hand. The Company currently purchases finished panels and/or core from Corruven Canada, Inc. and resells it without holding the inventory. Currently, all manufacturing operations and inventory are manufactured and held by Corruven Canada, Inc. The Company made purchases related to products sold totaling $26,660 during the year ended December 31, 2014.
Lease Agreement, Corruven Canada, Inc.
Effective May 1, 2013, the Company entered into a lease agreement with Corruven Canada, Inc., a related party, wherein the Company leased a portion of industrial space at the Property to Corruven Canada, Inc. The lease agreement terminates on May 1, 2015, and Corruven Canada, Inc. is required to pay $30,000 per year in base rent to the Company. Rental income related to this lease agreement is classified as other income on the accompanying unaudited statement of operations. The Company is due $-0- under this agreement at December 31, 2014.
| F-10 |
Corruven, Inc.
Notes to Financial Statements
Note 4 – Fair Value of Financial Instruments
The Company adopted FASB ASC 820-10 upon inception at January 4, 2010. Under FASB ASC 820-10-5, fair value is defined as 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 (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of December 31, 2014 and 2013, respectively:
| Fair Value Measurements at December 31, 2014 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | 117,771 | $ | - | $ | - | ||||||
| Total assets | 117,771 | - | - | |||||||||
| Liabilities | ||||||||||||
| Note payable, net of discount of $5,665 | - | 123,639 | - | |||||||||
| Total liabilities | - | 123,639 | - | |||||||||
| $ | 117,771 | $ | (123,639 | ) | $ | - | ||||||
| Fair Value Measurements at December 31, 2013 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents | $ | 669,688 | $ | - | $ | - | ||||||
| Total assets | 669,688 | - | - | |||||||||
| Liabilities | ||||||||||||
| Note payable, net of discount of $13,493 | - | 126,453 | - | |||||||||
| Total liabilities | - | 126,453 | - | |||||||||
| $ | 669,688 | $ | (126,453 | ) | $ | - | ||||||
The fair value of our note payable is deemed to approximate book value, and is considered a Level 2 input as defined by ASC Topic 820-10-35.
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the years ended December 31, 2014 and 2013.
| F-11 |
Corruven, Inc.
Notes to Financial Statements
Note 5 – Property, Plant and Equipment
Property, plant and equipment, as adjusted for foreign currency translations, consist of the following at December 31, 2014 and 2013, respectively:
| December 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Building and improvements | $ | 254,823 | $ | 276,382 | ||||
| Land | 15,437 | 16,743 | ||||||
| 270,260 | 293,125 | |||||||
| Less: accumulated depreciation | (23,522 | ) | (10,313 | ) | ||||
| $ | 246,738 | $ | 282,812 | |||||
Depreciation expense totaled $14,877 and $10,711 for the years ended December 31, 2014 and 2013, respectively.
Note 6 – Note Payable
Note payable consists of the following at December 31, 2014 and 2013, respectively:
| December 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Effective April 29, 2013, the Company entered into a purchase agreement (the “Purchase Agreement”) to acquire an industrial building located at 355 Chemin du Pouvoir, Edmundston, New Brunswick, Canada (the “Property”). The total purchase price of the Property was $300,000 CAD. The Company made an initial deposit related to the Purchase Agreement on March 26, 2013, totaling $25,000 CAD, and $125,000 CAD was paid on April 29, 2013. Half of the remaining balance of $150,000 CAD is due on March 29, 2015 and the other half is due on March 29, 2016. The amounts due under the Purchase Agreement are non-interest bearing. The Purchase Agreement contains a negative covenant that restricts the Company from taking out an additional mortgage on the Property of more than 80% of the Property’s market value, if the Property‘s market value is less than $750,000 CAD. The Company applied an effective interest rate of 5.95% to the amount due under the Purchase Agreement, and recorded a discount of $19,235 related to the amount due. The Company recorded the purchase of the Property at cost, and capitalized approximately $33,361 CAD in additional expenses related to conditioning the Property for use. The Company estimates an 18 year useful life. The Company estimated land associated with Purchase Agreement and the Property to be valued at $17,908 CAD. | $ | 129,304 | $ | 140,239 | ||||
| Less: current portion of unamortized debt discounts | (4,625 | ) | - | |||||
| Less: current portion, net discounts of $4,625 and $-0-, respectively | (60,025 | ) | - | |||||
| Less: unamortized debt discounts | (1,040 | ) | (13,786 | ) | ||||
| Note payable, less current portion, net discounts of $1,040 and $13,786, respectively | $ | 63,614 | $ | 126,453 | ||||
The Company recorded interest expense in the amount of $7,494 and $4,943 related to the amortization of the debt discount for the years ended December 31, 2014 and 2013, respectively.
| F-12 |
Corruven, Inc.
Notes to Financial Statements
Note 7 – Stockholders’ Equity (Deficit)
Series A Preferred Stock
The Company has 5,000,000 authorized shares of Preferred Stock, of which 100,000 shares of $0.001 par value Series A Preferred Stock were issued and outstanding at December 31, 2014 and 2013, respectively. The Series A Preferred Stock have voting rights to vote as a single class upon any matter submitted to the stockholders. The Series A shareholder shall have such number of votes as is determined by multiplying: (a) the number of shares of Series A Preferred Stock held by such shareholder; (b) the sum of the number of issued and outstanding shares of Series A Preferred Stock, any other series of preferred and Common Stock on a fully diluted basis; and (c) 0.000006. The Series A Preferred Stock has no conversion, dividend, or liquidation rights.
Common Stock
The Company has 95,000,000 authorized shares of $0.001 par value Common Stock, of which 22,392,628 and 21,926,111 shares were issued and outstanding at December 31, 2014 and 2013, respectively.
Common Stock Issuances (2014)
On October 24, 2014, we sold 20,000 shares of our common stock and warrants to purchase another 10,000 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, we sold 6,730 shares of our common stock and warrants to purchase another 3,365 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $4,542. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, we sold 74,075 shares of our common stock and warrants to purchase another 37,038 shares, exercisable at $0.75 per share over a thirty six month period, to one of our directors, a qualified investor pursuant to a unit offering in exchange for proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 16, 2014, we sold 20,000 shares of our common stock and warrants to purchase another 10,000 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 29, 2014, we sold 3,704 shares of our common stock and warrants to purchase another 1,852 shares, exercisable at $0.75 per share over a thirty six month period, to our VP of Business Development, a qualified investor pursuant to a unit offering in exchange for proceeds of $2,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 23, 2014, we sold 2,000 shares of our common stock and warrants to purchase another 1,000 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $1,350. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 134,289 shares of our common stock and warrants to purchase another 67,145 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $90,646. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 134,289 shares of our common stock and warrants to purchase another 67,145 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $90,645. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
| F-13 |
Corruven, Inc.
Notes to Financial Statements
On September 29, 2014, we sold 13,493 shares of our common stock and warrants to purchase another 6,747 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $9,108. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 13,493 shares of our common stock and warrants to purchase another 6,747 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $9,107. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 22,222 shares of our common stock and warrants to purchase another 11,111 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
On September 29, 2014, we sold 22,222 shares of our common stock and warrants to purchase another 11,111 shares, exercisable at $0.75 per share over a thirty six month period, to a qualified investor pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis. The shares were subsequently issued on October 31, 2014.
Common Stock Issuances (2013)
During the year ended December 31, 2013, the Company granted 651,582 common shares to investors for proceeds of $423,713. The common stock granted included: 325,798 Series A-100 warrants to purchase 325,798 shares of common stock at $0.65 per share; 162,892 Series A-200 warrants to purchase 162,892 shares of common stock at $1.25 per share; and 162,892 Series A-300 warrants to purchase 162,892 shares of common stock at $1.75 per share.
During December 2013, the Company and 671530 N.B. Inc., a New Brunswick corporation entered into a Subscription Agreement (the “Subscription Agreement”). Pursuant to the terms of the Subscription Agreement, 671530 N.B. Inc. purchased a total of 1,100,000 shares of the Company’s common stock and warrants to purchase up to 1,100,000 shares of Common Stock at $0.75 per shares for a total purchase price of $660,000. The Warrants expire on December 6, 2018.
Note 8 – Warrants
Warrants Granted (2014)
On October 24, 2014, the Company issued warrants to purchase 10,000 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, the Company issued warrants to purchase 3,365 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $4,542. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 20, 2014, the Company issued warrants to purchase 37,038 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $50,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On October 16, 2014, the Company issued warrants to purchase 10,000 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $13,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 29, 2014, the Company issued warrants to purchase 1,852 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $2,500. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 23, 2014, the Company issued warrants to purchase 1,000 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $1,350. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
| F-14 |
Corruven, Inc.
Notes to Financial Statements
On September 23, 2014, the Company issued warrants to purchase 67,145 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $90,646. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 23, 2014, the Company issued warrants to purchase 67,145 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $90,645. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 5, 2014, the Company issued warrants to purchase 6,747 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $9,108. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On September 5, 2014, the Company issued warrants to purchase 6,747 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $9,107. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On August 19, 2014, the Company issued warrants to purchase 11,111 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
On August 18, 2014, the Company issued warrants to purchase 11,111 shares of common stock, exercisable at $0.75 per share over a thirty six month period pursuant to a unit offering in exchange for proceeds of $15,000. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.
The relative fair value of the warrants attached to the common stock issued in 2014 was estimated at the date of grant using the Black-Scholes Options Pricing Model. The relative fair value of the warrants attached to the common stock issued in 2014 is $59,311 and the relative fair value of the common stock is $255,587 as of the grant date. The Black-Sholes Options Pricing Model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.76-1.06%; expected volatility of 217-226%, and warrant term of 3 years.
Warrants Granted (2013)
During the year ended December 31, 2013, the Company granted 651,582 common shares to investors for proceeds of $423,713. The common stock granted included: 325,799 Series A-100 warrants to purchase 325,799 shares of common stock at $0.65 per share, exercisable over thirty six months from the date of grant; 162,892 Series A-200 warrants to purchase 162,892 shares of common stock at $1.25 per share, exercisable over thirty six months from the date of grant; and 162,892 Series A-300 warrants to purchase 162,892 shares of common stock at $1.75 per share, exercisable over forty eight months from the date of grant.
On December 6, 2013, the Company issued a total of 1,100,000 shares of the Company’s common stock and warrants to purchase up to 1,100,000 shares of common stock at $0.75 per share, exercisable over sixty months from the date of grant.
The relative fair value of the warrants attached to the common stock issued in 2013 was estimated at the date of grant using the Black-Scholes Options Pricing Model. The relative fair value of the warrants attached to the common stock issued in 2013 is $383,829 and the relative fair value of the common stock is $699,694 as of the grant date. The Black-Scholes Options Pricing Model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.38-1.51%; expected volatility of 273-1,003%, and warrant term of 3-5 years.
Warrants Expired
A total of 7,500 and -0- warrants expired during the years ended December 31, 2014 or 2013, respectively. The expired warrants during the year ended December 31, 2014, carried weighted average exercise prices of $0.85 per share.
| F-15 |
Corruven, Inc.
Notes to Financial Statements
Warrants Exercised
No warrants were exercised during the years ended December 31, 2014 or 2013.
The following is a summary of activity of outstanding common stock warrants:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number | Exercise | Contractual | ||||||||||
| of Shares | Price | Life | ||||||||||
| Balance, December 31, 2012 | 1,188,041 | $ | 1.12 | 1.06 | ||||||||
| Warrants granted | 1,751,583 | 0.87 | 2.98 | |||||||||
| Warrants expired | - | - | - | |||||||||
| Warrants cancelled | - | - | - | |||||||||
| Warrants exercised | - | - | - | |||||||||
| Balance, December 31, 2013 | 2,939,624 | 1.12 | 4.04 | |||||||||
| Warrants granted | 233,261 | 0.75 | 2.74 | |||||||||
| Warrants expired | (7,500 | ) | (0.32 | ) | - | |||||||
| Warrants cancelled | - | - | - | |||||||||
| Warrants exercised | - | - | - | |||||||||
| Balance, December 31, 2014 | 3,165,385 | $ | 0.96 | 2.15 | ||||||||
| Exercisable, December 31, 2014 | 3,165,385 | $ | 0.96 | 2.15 | ||||||||
Note 9 – Income Taxes
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For the years ended December 31, 2014 and 2013, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2014, and December 31, 2013, the Company had approximately $2,562,000 and $1,716,000 of federal net operating losses, respectively. The net operating loss carry forwards, if not utilized, will begin to expire in 2031.
The components of the Company’s deferred tax asset are as follows:
| December 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | 896,700 | $ | 600,649 | ||||
| Net deferred tax assets before valuation allowance | $ | 896,700 | $ | 600,649 | ||||
| Less: Valuation allowance | (896,700 | ) | (600,649 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
Based on the available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at and December 31, 2014 and 2013, respectively.
| F-16 |
Corruven, Inc.
Notes to Financial Statements
A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and state statutory income tax rate to pre-tax loss is as follows:
| December 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Federal and state statutory rate | 35 | % | 35 | % | ||||
| Change in valuation allowance on deferred tax assets | (35 | %) | (35 | %) | ||||
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 10 – Subsequent Events
The Company has evaluated subsequent events from December 31, 2014 through the date whereupon the financial statements were issued and has determined that there are no items to disclose.
| F-17 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2014, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.
Management’s report on internal controls over financial reporting.
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, management believes that, as of December 31, 2014, the Company’s internal control over financial reporting was ineffective based on the COSO criteria, due to the following material weakness listed below.
Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended December 31, 2014, the company internally performed all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact these duties were performed oftentimes by the same people, a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
Insufficient corporate governance policies. Our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.
Dependency on outside advisers. We are dependent on outside advisers for the preparation of our financial statements and these advisors are not sufficiently conversant with all our activities to be able to ensure they are reported on an accurate and timely basis.
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies and we intend to consider the results of our remediation efforts and related testing as part of our next year-end assessment of the effectiveness of our internal control over financial reporting.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in internal controls over financial reporting.
There have been no changes in our internal control over financial reporting during the fiscal year ending 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 30 |
None.
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers
The Directors and executive officers of Corruven, Inc., as of the date of this filing are set forth below:
| Name | Position | ||
| Alain Belanger | Chief Executive Officer, Director | ||
| Daniel Beauregard-Long | Secretary and Director | ||
| Conrad Belanger | Chief Financial Officer | ||
| Patrick J. Durepos | Director | ||
| Raymond Ouellette | Director | ||
| Thomas Soucy | Director | ||
| Maurice Guitton | Director |
Alain Belanger, Chief Executive Officer and Chairman of the Board of Directors
Mr. Belanger, the inventor of the “Corruven Composite Panel” and the founder of Corruven Inc., is our Chief Executive Officer and Chairman of the Board from our inception. Since inception he has been serving in these positions and currently and in the foreseeable future devotes approximately 90% of his professional time to the affairs of the Company. Mr. Belanger is also the President and director of Corruven Canada, Inc. since its inception in February of 2008. From December 2003 to present, Mr. Belanger has held the position of President and director of Groupe Regenord, Inc., an integrated territory management company focusing on forestry and land management. As an entrepreneur, Mr. Belanger has spend the last 25 years managing and developing his owned businesses, from forestry management and training methodology to trading wood logs and wood products all around the world. Mr. Belanger has also received extensive exposure to a wide variety of organizations and industries and has been awarded multiple prestigious awards including: specialist in developing Service New Brunswick in various African countries; Team Canada Mission to Russia, Germany and Atlanta participant; Board member of New Brunswick Economic Development Council; Board member of the Atlantic Innovation Council; Member of the Association of Registered Professional Foresters of New Brunswick; Award for “Innovation In Forestry Technology” by New Brunswick Forestry Association; Award of Africa-Canada Partnership; and “New Brunswick's Entrepreneur Of The Year” by the Economic Development Council of New Brunswick. Mr. Belanger graduated from Laval University of Quebec with a bachelor’s degree in forest engineering. Mr. Belanger is the founder of our Company and his extensive expertise and experience in the forestry and wood products industries provides invaluable guidance and leadership to our management and Board.
Daniel Beauregard-Long, Secretary and Director
Mr. Long is our secretary and one of our Directors. From February 2012 to present, Mr. Long has been working with Corruven, Inc. with responsibilities in operations and finance. From 2010 to present, Mr. Long has held the position of Vice President of Napco Industries, Inc., an infrastructure service company focused on the industrial market. From 2011 to 2012, Mr. Long worked as an analyst for Raymond Chabot Grant Thornton LLP, an accounting firm, on restructurings, expansion projects, and buyouts. From 2007 to 2012, Mr. Long worked as project manager for the construction company Action Plus, Inc. in multi-residential projects, commercial construction, and industrial projects. Mr. Long studied at McGill University earning a Bachelor of Commerce in Finance and Accounting. Mr. Long’s business, finance and construction background brings a valued element to our Board.
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Conrad Belanger, Interim Chief Financial Officer
Mr. Conrad Belanger is our interim Chief Financial Officer. Mr. Belanger had been the financial controller of Regenord, Ltd., a forest management company, from 1998 to 2003. From 1990 to 1998, Mr. Belanger was the financial controller of J’MiralU.S. Inc. which operated four McDonald’s stores in Maine and New Brunswick. Mr. Belanger worked for Fraser Papers, Inc. from 1951 to 1990, including seventeen years as manager of internal audit with a focus on operational and financial functions. In addition, from 1993 to 2001, Mr. Belanger was president of the Investment Committee of the Caisse Populaire Acadiennes. Mr. Belanger graduated with a Bachelor of Commerce at Université Sacré-Coeur in New Brunswick and brings to our management team a comprehensive experience in financial reporting and accounting. Mr. Conrad Belanger is the uncle of Alain Belanger, our Chief Executive Officer and Director.
Patrick J. Durepos, Director
Mr. Durepos is one of our Directors. In addition, Mr. Durepos is the President of Keal Technology, Inc. and Chairman of Alliance Assurance, Inc. Mr. Durepos started in business with the purchase of a small insurance brokerage and grew it to the current Alliance Assurance, Inc. with 53 employees and annual revenues of $34M. Mr. Durepos joined Keal Technology, Inc. in the mid-1990s as a minority shareholder. Mr. Durepos led the purchase of the broker management system division from CGI Group, Inc. in 2000 and helped transform Keal Technology, Inc. into the second largest software company for insurance brokers in Canada with over 13,000 users. Mr. Durepos is also president of Broadway Place Ltd. a New Brunswick real estate company. Mr. Durepos is presently a director of ANBL (Alcohol New Brunswick) and a past director of Bruncor, Inc., the holding company of the New Brunswick Telephone Company, where he sat on the pension and audit committees. He was the founding president of the Community Futures Committee (known as CBDC) which is a network of non-profit organization that works with the private sector and governments to meet the needs of small businesses. Mr. Durepos graduated from the University of Moncton earning a Bachelor of Commerce in Accounting. Mr. Durepos brings to our Board significant board experience and a broad contact network.
Raymond Ouellette, Director
Mr. Ouellette is one of our Directors. Mr. Ouellette founded Novatech Group in 1982 and held the position of President from 1982 to 2011, and has held the position of Chairman from 2011 to present. Novatech Group is a global window and door manufacturing company based in Quebec, Canada with 450 employees, 10 divisions, and sales in North America, Europe, and Africa. From 1978 to 1982, Mr. Ouellette was the General Manager of Unik Industries Ltd, a door and molding manufacturer. From 1974 to 1976, Mr. Ouellette was the General Manager of Industries Philias Flamand Ltd, a window and door manufacturer. From 2009 to present, Mr. Ouellette has sat on the board of PPD Group. From 2012 to present, he has sat on the board of Norbec and The County of Shefford Agricultural Society. From 1999 to 2011, he served on the board of Dutailier. He also served on the board of Orientech from 2007 to 2011. Mr. Ouellette graduated with an engineering degree from the Technical University of Nova Scotia (now Dalhousie University) and an MBA from the University of Sherbrooke. Mr. Ouellette brings to our Board significant experience in manufacturing, international sales, and negotiations.
Thomas Soucy, Director
Mr. Soucy is one of our Directors. From 1996 to present, Mr. Soucy has been the Chief Executive Officer and President of Groupe Westco, Inc., a Canadian chicken production company with a focus on poultry farms, chicken processing plants, and poultry transportation. Groupe Westco, Inc. and its affiliates presently have operations in Nova Scotia, Prince Edward Island, New Brunswick, Quebec and Manitoba, Canada. In addition, Groupe Westco, Inc. has made investments in companies focusing on various additional sectors, owning 300,000 acres of land which maintain hydroelectric dams, forestry operations and saw mills. Today, the group of companies directed by Mr. Soucy generates over $325M in revenue annually and has more than 800 employees. From 1996 to present, Mr. Soucy has been representing the feather industry and a voting member at the Canadian poultry and egg processor council, a trade association representing processors and distributors of poultry, turkey and egg. From 2001 to 2004, Mr. Soucy sat on the board of the New Brunswick Power Corporation, a public utility with power generation and distribution operations. Mr. Soucy graduated with a BBA from the University of New Brunswick and followed with graduate studies at the University of New Brunswick campus and Western campus. Mr. Soucy has gathered significant background experience in operating, managing and acquiring businesses in various types of industries bringing significant value to our Board.
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Maurice Guitton, Director
Mr. Guitton is one of our Directors. From 2012 to present, Mr. Guitton has been the President of Versa Tech Consulting, Ltd., a small and medium enterprise (SME) consulting company with a focus on product development and continuous improvement. From 1987 to 2011, Mr. Guitton has held positions with Composites Atlantic, Ltd., including President and Chief Executive Officer from 2004 to 2011. A subsidiary of the European Aeronautics Defense and Space (EADS) SOGERMA Group, Composites Atlantic, Ltd. is a manufacturing company of advanced composites for the aeronautic, space, and defense industries with approximately $50M in annual revenue. Mr. Guitton has also held the position of director of the manufacturing division of Rossignol Skis working with the company from 1967 to 1987. Mr. Guitton was responsible for putting in place a manufacturing division and multiple plants for Rossignol Skis in North America. From 2004 to present, Mr. Guitton has been President and founder of the French Chamber of Commerce Atlantic Region. From 1995 to 2003, Mr. Guitton sat on the board of EADS Canada Ltd., a $450M annual revenue division of the European EADS Group. Mr. Guitton studied in mechanics, industrial design, and management at various institutions in France including E.N.P., F.P.A., and B.T.S. Mr. Guitton has developed significant experience in starting new manufacturing plants and product development, in addition to his top management experience in the composite industry which brings significant value to our Board.
Involvement in Certain Legal Proceedings
Except as set forth herein, no Officer or Director of the Company has, during the last five years: (i) been convicted in or is currently subject to a pending a criminal proceeding; (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any federal or state securities or banking laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law, nor (iii) has any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy of for the two years prior thereto.
Family Relationships
Alain Belanger and Conrad Belanger are cousins. Other than the relationship between Alain and Conrad Belanger, there are no family relationships among any of our other officers or directors.
Director Compensation
The Directors of the Company may receive stock compensation for their services as members of the Board of Directors, and are entitled to reimbursement for expenses incurred in connection with their attendance at Board of Directors’ meetings. Officers are appointed by the Board of Directors and serve at the discretion of the Board.
Director Independence
Our Board is currently composed of six members, who do not qualify as independent directors in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our Board has not made a subjective determination as to each director that no relationships exists which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our Board made these determinations, our Board would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and stockholders holding more than 10% of our outstanding common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on review of the copies of such reports furnished to us for the year ended December 31, 2014, not all Section 16(a) reports required to be filed by our executive officers, directors and greater-than-10% stockholders were filed on a timely basis.
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Audit Committee
Presently, our Board of Directors is performing the duties that would normally be performed by an audit committee. We intend to form a separate audit committee, and plan to seek potential independent directors. In connection with our search, we plan to appoint an individual qualified as an audit committee financial expert.
Item 11. Executive Compensation
Our management receives no compensation and has agreed not to accept any compensation for their services provided until such time as either significant revenues are generated and deemed sufficient to sustain paying related salaries or until we are able to raise additional funds. Such decision to compensate our management will be at the discretion of the Board.
All directors receive reimbursement for reasonable out-of-pocket expenses in attending Board meetings and for promoting our business. From time to time we may engage certain members of the Board to perform services on our behalf. In such cases, we compensate the members for their services at rates no more favorable than could be obtained from unaffiliated parties.
Set forth below is information concerning the compensation paid for services in all capacities to our President and Executive Officers for the years ended December 31, 2014, 2013 and 2012.
Summary Compensation Table
| Name And Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||
| Alain Belanger | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Chairman of the Board & Chief | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Executive Officer | 2012 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Daniel Beauregard-Long | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Secretary and Director | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Conrad Belanger | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Interim Chief Financial Officer | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Patrick Durepos | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Director | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Thomas Soucy | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Director | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Maurice Guitton | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Director | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Raymond Ouellette | 2014 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Director | 2013 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
Option/SAR Grants in Fiscal Year 2013
None.
Employment Agreements
There are no written employment agreements with management. Management compensation will be determined by the board of directors based upon revenues and profits, if any, of the Company.
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Limitations on Liability and Indemnification of Officers and Directors
Our certificate of incorporation includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, to the fullest extent permitted by Nevada Revised Statutes. Our certificate of incorporation also provides that we must indemnify our directors and officers to the fullest extent permitted by Nevada law and advance expenses to our directors and officers in connection with a legal proceeding to the fullest extent permitted by Nevada law, subject to certain exceptions.
The limitation of liability and indemnification provisions in our certificate of incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. They may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though an action of this kind, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. However, we believe that these indemnification provisions are necessary to attract and retain qualified directors and officers.
SEC Policy on Indemnification
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information, as of the date of this filing, with respect to any person (including any "group", as that term is used in Section 13(d)(3) of the Exchange Act) who is known to us to be the beneficial owner of more than five percent (5%) of any class of our voting securities, and as to those shares of our equity securities beneficially owned by each of our directors and executive officers and all of our directors and executive officers as a group. Unless otherwise specified in the table below, such information, other than information with respect to our directors and executive officers, is based on a review of statements filed with the Commission pursuant to Sections 13 (d), 13 (f), and 13 (g) of the Exchange Act with respect to our Common Stock. As of the date of this filing, there were 22,392,628 shares of our Common Stock outstanding.
| Name And Address | Common Stock Beneficially Owned | Percentage of Common Stock Beneficially Owned | Series A Preferred Stock Beneficially Owned | Percentage of Series A Preferred Stock Beneficially Owned | ||||||||||||
| Alain Belanger(1) | 11,804,880 | 52.71 | % | 100,000 | 100 | % | ||||||||||
| Daniel Beauregard-Long (2) | 431,209 | 1.92 | % | - | - | |||||||||||
| Conrad Belanger(3) | 11,000 | 0.04 | % | - | - | |||||||||||
| Patrick Durepos(4) | 230,296 | 1.02 | % | - | - | |||||||||||
| Raymond Ouellette(5) | 434,289 | 1.93 | % | - | - | |||||||||||
| Thomas Soucy(6) | 1,130,000 | 5.04 | % | - | - | |||||||||||
| Maurice Guitton(7) | - | -0- | % | - | - | |||||||||||
| Officers and Directors as a Group | 14,041,674 | 62.66 | % | 100,000 | 100 | % | ||||||||||
| (1) | Alain Belanger is the President and Chairman of the Board of Directors of the Company. 11,448,591 shares of Common Stock are held in the name of SDNA Management, Inc. Alain Belanger is the President and maintains ownership and dispositive control over such interest. 356,289 shares of Common Stock are held in the name of Northeast Innovations, Inc. Alain Belanger is the President of Northeast Innovations, Inc. and maintains ownership and dispositive control over such interest. |
| (2) | Daniel Beauregard-Long is the Secretary and Director of the Company. |
| (3) | Conrad Belanger is the Interim Chief Financial Officer of the Company. |
| (4) | Patrick Durepos is a Director of the Company. |
| (5) | Raymond Ouellette is a Director of the Company. 434,289 shares of Common Stock are held in the name of Gestion Davray, Inc. Raymond Ouellette is the President of Gestion Davray, Inc. and maintains ownership and dispositive control over such interest. |
| (6) | Thomas Soucy is a Director of the Company. 1,100,000 shares of Common Stock are held in the name of 671530 N.B., Inc., Inc. Thomas Soucy is the President of 671530 N.B., Inc. and maintains ownership and dispositive control over such interest. |
| (7) | Maurice Guitton is a Director of the Company. |
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Beneficial Ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options, warrants, or convertible debt currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this filing are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of shares of Common Stock outstanding on the date of this filing and the shares issuable upon the exercise of options, warrants exercisable, and debt convertible on or within 60 days of the date of this filing.
Option Grants in Last Fiscal Year
We have not awarded options to our executive officers during the years ended December 31, 2014 and 2013.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
There were no options issued or exercised by our executive officers during the years ended December 31, 2014 and 2013.
Employment Contract and Termination of Employment Agreements
We have no employment agreements with any officers or employees.
Long Term Incentive Plans
There are no long term incentive plans.
Item 13. Certain Relationships and Related Transactions.
A variety of conflicts of interest exist, and may continue to exist, from time to time, primarily as a result of our principal owners maintaining control of the Company, and our License Agreement and R&D Agreement with Corruven Canada, Inc.
Corruven Canada is a separate entity which owns the intellectual property rights, including trademark rights and patent rights (collectively the “Corruven IP”), underlying the Corruven Composite Panel. The Company and Corruven Canada entered into: (i) the License Agreement which provides the Company with 100% exclusive worldwide license and sub-license rights to the Corruven IP in exchange for an annual royalty fee to Corruven Canada equal to one percent (1%) of the Company’s net profits; and (ii) the R&D Agreement (as amended) wherein Corruven Canada is required to provide all research and development related to the finalization of the Line of Production and commercial application of the Corruven Composite Panels, and the Company is required to deliver to Corruven Canada for R&D purposes: (i) a total of $1,928,820 over a five year period in a set payment schedule; (ii) $275,546 annually for the remaining life of the License Agreement and R&D Agreement; and (iii) a “development fee” equal to two percent (2%) of net sales proceeds beginning on the third anniversary of the effective date of the R&D Agreement. Mr. Alain Belanger is the Chief Executive Officer, Director and majority shareholder of Corruven, Inc. and the President, Director and majority shareholder of Corruven Canada. Considering the position held by Mr. Belanger in both Corruven, Inc. and Corruven Canada and the relationship between the two entities in connection with the License Agreement and R&D Agreement, an inherent conflict of interest exists.
On May 1, 2013, the Company entered into a Lease Agreement (the “Lease Agreement”) with Corruven Canada related to the lease of certain real property owned by the Company located at 355 Chemin du Pouvoir, Edmundston, New Brunswick, Canada (the “355 Chemin Property”). Pursuant to the terms of the Lease Agreement, the Company leased to Corruven Canada a portion of 355 Chemin Property under a two year lease with lease payments of $30,000 per year due and payable quarterly in the amount of $7,500 per quarter. Considering the positions held by Mr. Belanger in both Corruven, Inc. and Corruven Canada and the relationship between the two entities in connection with the Lease Agreement, an inherent conflict of interest exists. Although the fair market value of the leased property is difficult to determine due to the fact similar properties in the local area are sparse, the Company believes the terms of the lease and the lease payments represent a fair market value. A copy of the Lease Agreement has been exhibited to our Registration Statement filed with the SEC on June 10, 2013 and incorporated by reference in its entirety.
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In addition, Mr. Alain Belanger, our Chief Executive Officer, owns and controls the Series A Preferred Stock which gives him preferential voting control over the Company as described below in the section entitled “Description of Securities”. As a result of high level of control by Mr. Belanger due to his positions as Directors, officers and large shareholders of the Company and Corruven Canada, and his ability to appoint Directors and officers, and, as a result of the outstanding Series A Preferred Stock held by Mr. Belanger, Mr. Belanger has, and will continue to have and shall be able to exert, substantial control over the Company’s day to day operations, contracts, and long term prospects.
Item 14. Principal Accountant Fees and Services
M&K CPAS, PLLC (“M&K”) was the Company’s independent registered public accounting firm for the years ended December 31, 2014 and 2013 and has served the Company as its independent registered public accounting firm since our inception.
Audit and Non-Audit Fees
The following table presents fees for professional services rendered by M&K for the audit of the Company’s annual financial statements for the years ended December 31, 2014 and 2013.
| Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Audit fees(1) | $ | 21,300 | $ | 20,100 | ||||
| Audit related fees | - | - | ||||||
| Tax fees | 525 | 1,575 | ||||||
| All other fees | - | - | ||||||
| Total | $ | 21,825 | $ | 21,675 | ||||
_________________________________
| (1) | Audit fees were principally for audit services and work performed in the preparation and review of the Company’s quarterly reports on Form 10-Q. |
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Item 15. Exhibits, Financial Statement Schedules.
The following exhibits are included as part of this report.
| Exhibit # | Description | |
| 3.1 | Articles of Incorporation of Corruven, Inc. as amended (incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 3.2 | Corporate Bylaws for Corruven, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 10.1 | Intellectual Property License Agreement with Corruven Canada, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 10.2 | Research and Development Agreement with Corruven Canada, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 10.3 | Amendment to Research and Development Agreement with Corruven Canada, Inc. (incorporated by reference to Exhibit 5.1 to the Company’s Form S-1 filed with the Securities and Exchange Commission on June 10, 2013) | |
| 10.4 | Amended and Restated Research and Development Agreement with Corruven Canada, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the period ending June 30, 2014 filed with the Securities and Exchange Commission on August 19, 2014) | |
| 10.5 | Industrial Lease Agreement with Corruven Canada, Inc. (incorporated by reference to Exhibit 5.1 to the Company’s Form S-1 filed with the Securities and Exchange Commission on June 10, 2013) | |
| 10.6 | Sample Series A-100 Warrant (incorporated by reference to Exhibit 10.3 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 10.7 | Sample Series A-200 Warrant (incorporated by reference to Exhibit 10.4 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 10.8 | Sample Series A-300 Warrant (incorporated by reference to Exhibit 10.5 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 31, 2012) | |
| 10.9 | Sample Series A-400 Warrant (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 10, 2013) | |
| 10.10 | Sample Series A-500 Warrant (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 18, 2014) | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CORRUVEN, INC. | ||
| Date: April 13, 2015 | ||
| /s/ Alain Belanger | ||
| By: Alain Belanger | ||
| Its: Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Alain Belanger | CEO, President and Chairman of the Board of Directors | April 13, 2015 |
| Alain Belanger | (Principal Executive Officer) | |
| /s/ Conrad Belanger | Interim Chief Financial Officer | April 13, 2015 |
| Conrad Belanger | (Principal Financial Officer and Principal Accounting Officer) | |
| /s/ Daniel Beauregard-Long | Secretary and Director | April 13, 2015 |
| Daniel Beauregard-Long | ||
| /s/ Patrick Durepos | Director | April 13, 2015 |
| Patrick Durepos | ||
| /s/ Thomas Soucy | Director | April 13, 2015 |
| Thomas Soucy | ||
| /s/ Maurice Guitton | Director | April 13, 2015 |
| Thomas Soucy | ||
| /s/ Raymond Ouellette | Director | April 13, 2015 |
| Raymond Ouellette |
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