Filing Overview
The supplied filing is Bioflamex Corporation’s Form 10-Q for the quarter ended August 31, 2011, not Cann American Corp. for 2010 Q2 as indicated in the request metadata. Bioflamex, formerly Deer Bay Resources Inc., is a Nevada development-stage company headquartered in Denmark. The company develops environmentally friendly fire-extinguishing and fire-prevention products and has not commenced significant operations or generated revenue.
The filing compares the three- and six-month periods ended August 31, 2011 and 2010, with a balance-sheet comparison to February 28, 2011. The financial statements are unaudited.
Financial Condition and Results
| Metric | Three Months Ended August 31, 2011 | Six Months Ended August 31, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $17,076 | $51,456 |
| Net loss | $17,116 | $51,496 |
| Operating cash flow | Not provided for the quarter | $(49,963) |
| Net loss per share | $(0.00) | $(0.00) |
- Six-month operating expenses increased from $20,075 in 2010 to $51,456 in 2011, primarily because of higher professional fees and office expenses.
- Six-month net loss increased from $20,075 in 2010 to $51,496 in 2011. The three-month net loss increased from $11,524 to $17,116.
- Cash and cash equivalents were $96 at August 31, 2011, compared with $59 at February 28, 2011.
- Current assets were $10,096 and current liabilities were $9,873, producing working capital of only $223.
- Total assets were $1.201 million, substantially consisting of $1.191 million of patents and trademarks recorded from the January 2011 asset acquisition.
- Total liabilities were $70,373, including $60,500 of convertible debt. The debt is convertible into 6,050,000 common shares and matures December 13, 2012; the company may redeem it before maturity for $72,600, subject to the holder’s conversion right.
- Financing activities provided $50,000 during the six months through an April 2011 private placement. No investing cash was used during the period.
- There were 92,800,001 common shares outstanding at August 31, 2011. No stock options or warrants were outstanding.
Material Changes and Unusual Items
- In January 2011, the company acquired fire-extinguishing and fire-prevention intellectual property in exchange for 38,000,000 shares. The transaction was recorded as a $1.191 million intangible asset and involved individuals who became the company’s directors and senior officers.
- In April 2011, the company issued 333,334 restricted shares for $50,000.
- The accumulated deficit increased from $134,581 at February 28, 2011 to $186,077 at August 31, 2011.
- Officers advanced funds for expenses during the quarter and were repaid in part; $368 remained payable to related parties at August 31, 2011.
- The filing reports no pending legal proceedings, no off-balance-sheet arrangements, and no material subsequent events through the financial-statement submission date.
Outlook, Liquidity, Controls, and Risks
Management expects to complete product testing and development, pursue patents and certifications, and establish distribution relationships in the United States and selected international markets. The filing provides no revenue or earnings guidance and states that revenue is not expected until the products are fully developed and marketable.
Management estimates that a cash injection of approximately $2.0 million is required to begin operations, launch marketing and branding, manufacture and deliver products, and develop revenue. The company states that it lacks sufficient cash to operate at its current level for the next twelve months and has no formal financing commitments. Continued operations depend on obtaining additional debt or equity financing or achieving profitable operations.
The financial statements include a going-concern uncertainty. Management states that financing may not be available on acceptable terms, or at all, and that failure to obtain financing or achieve profitability could make continued operations unlikely.
Disclosure controls and procedures were deemed ineffective due to material weaknesses involving inadequate segregation of duties and risk assessment, and insufficient written accounting and financial-reporting policies. Planned remediation depends substantially on obtaining additional financing. The company is a smaller reporting company and did not provide quantitative market-risk disclosures or a separate risk-factor section.
Key Facts to Verify
- Verify the issuer and reporting period: the supplied filing identifies Bioflamex Corporation and August 31, 2011, while the request identifies Cann American Corp. and 2010 Q2.
- Verify whether the $1.191 million intellectual-property asset is recoverable, as the company has generated no revenue and remains development-stage.
- Assess the availability and terms of the approximately $2.0 million financing required to execute the business plan.
- Review the conversion and redemption terms of the $60,500 convertible debenture and potential dilution from 6,050,000 shares.
- Evaluate the going-concern disclosure and the company’s ability to fund operations beyond the next twelve months.
- Monitor remediation of the material weaknesses in disclosure controls and internal control over financial reporting.