Filing Identification and Business Context
The supplied filing is a Form 10-Q for Bioflamex Corporation (formerly Deer Bay Resources Inc.), not Cann American Corp. It covers the quarter and nine months ended November 30, 2011, with a fiscal year ending February 28, 2012. The request metadata identifies “Cann American Corp.” and “2010 Q3,” which does not match the filing text.
Bioflamex is a Nevada development-stage company developing, producing, and marketing environmentally friendly fire-extinguishing and fire-prevention products. It acquired related intellectual property on January 25, 2011, in exchange for 38 million shares valued at $1.191 million. The company had not commenced significant operations or generated revenue.
Financial Results and Position
| Metric | Three months ended Nov. 30, 2011 | Three months ended Nov. 30, 2010 | Nine months ended Nov. 30, 2011 | Nine months ended Nov. 30, 2010 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $43,805 | $15,593 | $95,261 | $35,668 |
| Net loss | $49,001 | $15,593 | $100,497 | $35,668 |
| Basic and diluted loss per share | $0.00 | $0.00 | $0.00 | $0.00 |
Revenue and operating margins were not meaningful because the company had no revenue. The nine-month loss increased by approximately $64,829, or 182%, versus the prior-year period. The filing reports $235,080 of cumulative development-stage losses since inception.
- Cash: $276 at November 30, 2011, compared with $59 at February 28, 2011.
- Current assets: $10,276, including $10,000 of prepaid expenses.
- Current liabilities: $89,556, producing a reported working-capital deficit of $79,280.
- Debt: $60,500 convertible debenture; $4,034 unsecured related-party note bearing 15% interest; and $5,374 of accrued interest.
- Cash flow: Operating activities used $53,817 during the nine months; investing activities used no cash; financing activities provided $54,034.
- Equity financing: The company issued 333,334 restricted shares for $50,000 in April 2011 and 200,000 shares for services valued at $30,000.
- Intangible assets: Patents and trademarks were recorded at $1.191 million, acquired through a related-party share issuance.
Material Changes Versus the Prior Comparable Period
- Nine-month operating expenses rose from $35,668 to $95,261, primarily due to $30,000 of stock-based compensation, higher professional fees, $16,791 of office expenses, and $3,979 of consulting fees.
- Nine-month net loss increased from $35,668 to $100,497.
- Nine-month operating cash usage increased from $8,285 to $53,817.
- Cash remained extremely limited despite $54,034 of financing inflows.
- The company issued additional shares, increasing outstanding common shares from 92,466,667 at February 28, 2011 to 93,000,001 at November 30, 2011.
- New related-party borrowings and accrued liabilities were recorded during the period.
Outlook, Risks, Contingencies, and Unusual Items
Management expects no revenue until the products are fully developed, tested, approved, and marketed. The company states that it requires approximately $2 million to begin operations, launch marketing and branding, manufacture and deliver products, and generate revenue. It had no formal financing commitments and stated that it did not have sufficient cash to operate at its current level for the next twelve months or to achieve its business goals.
The financial statements include a going-concern warning. Continued operations depend on obtaining additional debt or equity financing or achieving profitable operations; management states that failure to obtain financing would make continued operation unlikely.
- Products remained in final testing and development, with required patents, certifications, and regulatory approvals still pending.
- The $60,500 convertible debenture is convertible at $0.01 per share for two years. Upon default, the holder may demand 120% of the outstanding amount in cash or shares.
- After November 30, 2011, the company issued an unsecured, demand convertible promissory note for $11,000 bearing 6% interest.
- The company reported no pending legal proceedings and no off-balance-sheet arrangements.
- Disclosure controls and procedures were deemed ineffective due to inadequate segregation of duties, ineffective risk assessment, and insufficient written accounting and reporting policies. Remediation depended substantially on obtaining financing.
- The filing contains apparent balance-sheet presentation inconsistencies: total assets of $1,201,276 do not equal the reported total liabilities and stockholders’ equity of $1,132,219 at November 30, 2011. The February 28, 2011 figures also appear inconsistent. The filing text does not provide a clear corrected value.
Key Facts for Investor Verification
- Confirm the correct issuer and reporting period, because the supplied metadata does not match the filing.
- Verify the balance-sheet totals and the apparent $69,057 discrepancy between assets and reported liabilities plus equity at November 30, 2011.
- Assess the company’s ability to obtain the stated $2 million of required funding and its near-term liquidity given only $276 of cash.
- Review the terms, conversion mechanics, and potential dilution or default consequences of the $60,500 convertible debenture and subsequent $11,000 convertible note.
- Evaluate the valuation and recoverability of the $1.191 million related-party intangible asset while the company has generated no revenue.
- Monitor product testing, patent filings, regulatory certifications, commercialization timing, and remediation of ineffective disclosure controls.