ITEM 1. Description of Business
(a) Development
Mirenco, Inc. (“the Company”, “our”, “we”) was organized and incorporated in the State of Iowa on February 21, 1997. We develop, market and distribute technologically advanced products improving efficiencies in engine combustion and equipment application. The Company also offers consultative services in evaluating diesel engines through its Mirenco Diesel Evaluation Procedure (‘MDEP”) which consists of testing procedures, comparison to other engines on its proprietary data base and making recommendations for maintenance activities and/or application of the Company’s patented technology.
(b) Business
Our primary products are derived from technology patented in the United States. They are D-Max, C-Max, HydroFireInjection, HydroFireFluid, HydroFireLubricant, EconoCruise and Fuel-Tracker.
(1) Products and Services
D-Max and C-Max are devices that improve engine exhaust emissions and fuel mileage while reducing vehicle maintenance costs using precise programmable computer management of the vehicle's throttle position. The device controls the fuel flow directly proportional to the engine’s combustion capability and desired rate of acceleration. This product is designed for diesel powered vehicles, with a high frequency of starting and stopping, such as buses, over-the-road trucks, delivery vehicles and construction equipment.
The C-Max product is primarily the same as the D-Max except it operates on digitally controlled engines, thus opening up a completely new market relative to the heavy-duty diesel engine. The application for this technology is the same as the D-Max. It has been particularly effective in the reduction of black smoke or Diesel Particulate Matter, DPM, in off-road construction equipment as well as heavy-duty underground equipment used in mining, gravel, and sandpit operations.
The HydroFire System is a sophisticated fuel alternative that provides all the benefits of the D-Max plus the additional benefit of cutting oxides of nitrogen (“NOx”) emissions under performance conditions where NOx is produced. Specifically, NOx is produced under heavy loads and high engine temperatures. When these conditions occur, HydroFire Injection injects a patented fluid, HydroFireFluid, into the engine to reduce the NOx production by approximately 50%. The HydroFireFluid, a water-alcohol-lubricant mixture and blending process, is patented. Specifically, water cuts the NOx production, alcohol serves as antifreeze for the water, and HydroFireLubricant serves to eliminate the potential solvent and/or corrosive characteristics of the hydrous alcohol in the engine and/or storage containers. HydroFire Systems are designed primarily for heavy transport vehicles such as buses and over-the-road trucks.
EconoCruise, currently in development, is a highly sophisticated throttle control system which provides advanced levels of "intelligence" to common cruise control technology. EconoCruise utilizes Global Positioning System signals to "know" the topography of the road ahead, thereby allowing the vehicle to best manage throttle and emissions. We anticipate that this product will be marketable to the population of existing vehicles as an "add-on" and that the rights to the patented technology and proprietary design work will be marketable to automakers.
The Fuel-Tracker system was designed to meet our customers’ demand to accurately monitor fuel consumption for individual pieces of equipment. The Fuel-Tracker system uses a diesel engine’s turbo boost pressure to correlate fuel consumption of the engine. With this system it is possible to provide basic fuel consumption information that many customers are looking for, as well as many other management tools. Data from the Fuel-Tracker system provides equipment productivity in percentage of horse power, equipment idle time, shut down time, location for each unit of fuel consumed and much more. Fuel-Tracker technology has proven to be an effective tool to manage equipment maintenance, productivity and operator efficiency.
Mirenco, Inc. also offers MDEP (Mirenco Diesel Evaluation Procedure). MDEP consists of an evaluation of a diesel engine based on a comparison with like engines. An evaluation is completed by performing a modified SAE-J1667 as well as a MIR 120 Second Transient evaluation. The Company has developed an extensive database of evaluation results for thousands of diesel engines using these techniques.
From these results, the Company can evaluate the condition of the engine, determine commonalities among engine types, evaluate the entire fleet and recommend appropriate maintenance procedures for each specific vehicle. From these results, we can also make recommendations for the appropriate engine service that will improve engine combustion.
The Company’s MDEP has been successfully applied in the underground mining industry to reduce diesel particulate matter. This industry is under strict regulation from the Mining Safety and Health Administration (“MSHA”) to reduce particulate emissions for the safety of its workers’ health. Beginning in 2005, the Company introduced the combustion management program, MDEP, D-Max and C-Max products throughout the United States.
(2) Marketing methods
Our strategy is to market and sell our products primarily through third party distributors and to a lesser extent through direct sales. For the year ended December 31, 2010, sales through third party distributors accounted for 67% of our sales. As disclosed in an 8-K dated January 15, 2009, we have entered into a distributor agreement with Whayne Supply Company (“Whayne”). We expect that Whayne will be the exclusive distributor for our MDEP, Fuel Tracker, data base management and related services for off-road, heavy equipment and on-highway vehicles and equipment markets throughout the United States and Canada. We believe that our relationship with Whayne will bring value to the Company by providing exposure to 60 Caterpillar dealers and their customers across the US and Canada. Revenues during 2010 fell below the Company’s expectations and Whayne did not meet the minimum sales requirements defined in the contract, however, fourth quarter sales showed a significant improvement and we believe sales will continue to grow. We believe that our continued relationship with Whayne will significantly improve the Company’s revenues in the future. The Company signed an amended agreement with Whayne, as disclosed on our 8K, dated May 5, 2010.
(3) Competition
The market for our products and services is characterized by rapid technological developments, frequent new product introductions and evolving, varying industry and regulatory standards. We believe there is no known vehicle retrofit device that can compete with our current or contemplated spectrum of products and services. The Company’s technologies and solutions are aimed at reducing wasted fuel and excess emissions through engine maintenance, repair and fine tuning. We believe our greatest advantage over other competing products is that the Company’s overall program keeps engines burning fuel efficiently thereby extending the vehicle’s useful life. In our view, this is the Company’s advantage over other environmental solutions which either filter engine exhaust emissions (with the risk of clogging) or exhaust catalysts that burn fuel with no useful application of the energy produced.
(4) Production suppliers
We currently outsource the production of D-Max and C-Max according to our specifications to ICE Corporation, an FAA certified electronic manufacturing company located in Manhattan, Kansas. Generally all materials required to manufacture and assemble our product line are readily available shelf items. Orders are typically manufactured and delivered within, at most, a ten week time frame. We believe that our payment terms are standard for the industry. We are not required to order or accept delivery of any product based on a predetermined time schedule, and production unit costs decrease with increasing quantities.
At the present time, we intend to continue outsourcing production to companies that can meet our specifications for high quality and reliability. Management has contacted other companies capable of producing our products at the desired levels should the need arise.
(5) Patents and trademarks
The following patent applications have been filed by Dwayne Fosseen, Chief Executive Officer and President and are currently pending in the patent office:
1.
Application 12/130,098 for Fuel Tracking System; filed May 30, 2008.
The following patents have been issued, with ownership as described below:
1.
US Patent No. 6,845,314 for Method and Apparatus for Remote Communication of Vehicle Combustion Performance Parameters; Issued 1/18/2005; Valid until 1/2/2023 (assuming maintenance fees are paid); owned by Mirenco.
2.
US Patent No. 6,370,472 for Method and Apparatus for Reducing Unwanted Vehicle Emissions Using Satellite Navigations; Issued 4/9/2002; Valid until 9/15/2020 (assuming maintenance fees are paid); owned by Mirenco.
3.
US Patent No. 5,315,977 for Fuel Limiting Method and Apparatus for an Internal Combustion Engine; Issued 5/31/1994; Valid until 5/31/2011; owned by Dwayne Fosseen, subject to a 1993 license to American Technologies, LC, which license was assigned by American Technologies to Mirenco in 1999.
4.
US Patent No 7,454,284 for Method and Apparatus for Remote Communication and Control of Engine Performance; Issued 11/24/2008; Valid until 2/25/2025; owned by Dwayne Fosseen, subject to a 1993 license to American Technologies, LC which license was assigned by American Technologies to Mirenco in 1999.
We currently own the registered trademark for Mirenco, issued October 6, 2009. We have also made the following Trademark filings:
1.
US Application No. 77/895,107 for “MIRENCO” - Notice of Allowance received, statement of use due July 13, 2011.
2.
US Application No. 77/895,100 for “MIRENCO - YOU CANNOT MANAGE WHAT YOU CANNOT MEASURE (DESIGN)” - Notice of Allowance Received, statement of use due July 13, 2011.
(6) Government regulation
Currently, all conventional vehicles, as well as most alternate fuel vehicles and certain retrofit technologies legally sold in the United States, must be "verified" by the Environmental Protection Agency (“EPA”) to qualify for the "Low Emission Vehicle" ("LEV") classification necessary to meet federal fleet vehicle conversion requirements. Our products have not been verified by the EPA, however, we do not currently market our products for use in federal fleets.
In addition, the MSHA has been performing extensive air quality testing in underground mines. This activity has produced a new emphasis on the underground mining industry to consider new methods to improve the air quality for its employees. We have made significant inroads in marketing both our methodology and technology in the underground mining markets.
We believe our products to be "retrofit devices" as defined under EPA regulations. We are, however, subject to the regulatory risk that the EPA may construe distribution of the products to be also governed by "fuel additive" regulations. These more stringent regulations sometimes require scientific testing for both acute and chronic toxicity, which is not required for approval of pollution control products deemed as "retrofit devices". Such additional compliance procedures could substantially delay the wide commercialization of HydroFire products. We believe the EPA "fuel additive" regulations do not apply to our DriverMax products, since our product does not involve the introduction of additives into the engine air intake system, as those terms are defined in EPA regulations and generally understood in the automotive engineering community.
We are not aware of any proposed regulatory changes that could have a material adverse effect on our operations and/or sales efforts. Further, we have not been required to pay any fines for, and are not aware of any issues of, noncompliance with environmental laws.
(7) Research and development
The Company expenses research and development costs as incurred, classifying them as operating expenses. Such costs include certain prototype products, test parts, consulting fees, and costs incurred with third parties to determine the feasibility of products. Costs incurred for research and development were $54,426 and $58,064 for 2010 and 2009, respectively.
(8) Employees
As of December 31, 2010 and April 12, 2011, we had 10 fulltime employees. There have been no management-labor disputes, and we are not a party to any collective bargaining agreement.
ITEM 1(A). Risk Factors
N/A for smaller reporting companies
ITEM 2.
ITEM 2. Properties
Mirenco, Inc. owns a 21,600 square foot office, warehouse and distribution facility located in Radcliffe, Iowa. The building is located on 1.2 acres of land.
In addition, Mirenco, Inc. rents an adjacent shop building on a month to month basis for $800 per month, from an officer and stockholder.
ITEM 3.
ITEM 3. Legal Proceedings
None.
PART II
ITEM 4.
ITEM 4. (Removed)
ITEM 5.
ITEM 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
Mirenco, Inc. common stock is traded on the over-the-counter "bulletin board" market under the symbol "MREO.OB".
Price Range of Common Stock
The following table sets forth the high and low sale prices of the Company's common stock as obtained from the Quotes tab at the Internet site www.otcbb.com. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
(b) Approximate Number of Equity Security Holders
(1) Reflected in the number of stockholders of record are shares held in "nominee" or "street" name.
(c) Dividend History and Restrictions
The Company has never paid a cash dividend on its common stock and has no present intention of paying cash dividends in the foreseeable future. Future dividends, if any, will be determined by the Board of Directors in light of the circumstances then existing, including the Company's earnings, financial requirements, general business conditions and any future possible credit agreement restrictions.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
We adopted our 2008 Stock Option Plan in September 2008. The plan provides for the grant of options intended to qualify as "incentive stock options" and options that are not intended to so qualify or "non-statutory stock options." The total number of shares of common stock reserved for issuance under the plan is 1,000,000, subject to adjustment in the event of a stock split, stock dividend, recapitalization or similar capital change.
The plan is presently administered by our board of directors, which selects the eligible persons to whom options shall be granted, determines the number of common shares subject to each option, the exercise price therefore and the periods during which options are exercisable, interprets the provisions of the plan and, subject to certain limitations, may amend the plan. Each option granted under the plan is evidenced by a written agreement between us and the optionee.
Item 6.
Item 6. Selected Financial Data
N/A
ITEM 7.
ITEM 7. Management's Discussion and Analysis or Plan of Operation
General and Background
We have incurred annual losses since inception, while developing and introducing our original products and focusing management and other resources on capitalizing the Company to support future growth. Relatively high management, personnel, consulting and marketing expenditures were incurred in prior years in preparation for the commercialization of our products. We expect distribution, selling, general and administrative expenses to increase directly with sales increases, however, as a percentage of sales, these expenses should decline.
Plan of Operation
From January 2003 until July 2003, the Company concentrated on verification by the EPA and the California Air Resources Board (“CARB”). The verification efforts were considered important to receive federal monies for the DriverMax technology and to receive certification from CARB as an emissions control device.
In July 2003, the Company shifted its emphasis since its primary markets are outside the Federal Government and its technology had already been certified by CARB as a fuel saving device.
Approximately August 1, 2003, the Company began changing from a Research and Development Company to a Marketing Company. The Company began determining its markets, the effectiveness of its efforts in Mexico and Canada, the effectiveness of its international sales representative and the effectiveness of its other sales representative and distribution arrangements in relation to its markets.
Mirenco determined its markets to be segmented into eight groups:
1.
Metropolitan Transit Authorities
2.
Bus Manufacturers
3.
Mining Operations
4.
School Buses
5.
Government Entities
6.
Over-the Road Transportation Companies
7.
Company Owned Fleets
8.
Other (Construction, Agriculture, etc.)
During 2009 and 2010, due to increased regulation and economic issues, Mirenco recognized the growing importance of tailpipe emissions control and the cost of vehicle operation. We believe that market attention to tailpipe emissions and demand for “green technologies” such as our DriverMax technology and our Mirenco Diesel Evaluation Procedure methodology will increase due to our distributor contract with Whayne, a Caterpillar dealer in Kentucky. As stated in our agreement with Whayne, we expect that Whayne will be the exclusive distributor for our MDEP, Fuel Tracker, data base management and related services for off-road, heavy equipment and on-highway vehicles and equipment markets throughout the United States and Canada. We believe that our relationship with Whayne will bring value to the Company by providing exposure to 60 Caterpillar dealers and their customers across the US and Canada. Revenues during 2010 fell below the Company’s expectations. Due to improved fourth quarter revenues through Whayne, we believe that our continued relationship with Whayne will significantly improve the Company’s revenues in the future. The Company amended its contract with Whayne, as described in our 8K, dated May 5, 2010. The Company continues to develop its data base as a significant component to its MDEP. With over 1,000,000 data points and a growing number of engines involved, the Program allows for a comparison of like engines to determine commonalities which are useful in recommended maintenance and technology application.
The Company is expanding its research and development activities. These activities are concentrated in expanding current DriverMax applications. In addition, the Company is researching other fuel saving products, both proprietary and other equipment manufacturing, to offer to its customers.
Combining the ability to measure fuel usage with the FuelTracks fuel sensor and the combustion condition of an engine with MDEP, an emission factor can now be determined for every vehicle. An emission factor allows for real-time tracking of total emissions produced by each vehicle based on the vehicles actual emissions and total fuel consumed.
Results of Operations
Twelve Months Ended December 31, 2010 Compared to Twelve Months Ended December 31, 2009:
Percent
Change
Total Revenue
$442,329
$336,724
31%
Total Cost of Sales
330,327
256,927
29%
Gross Profit
112,002
79,797
40%
Operating Expenses
555,215
625,841
(11%)
Interest Expense
77,534
32,451
139%
Net (Loss)
($520,747)
($578,492)
(10%)
Sales increased $105,605 (31% increase) in the year ended December 31, 2010 compared to the same period for 2009. Product sales for 2010 were $247,275 and sales for services during 2010 were $195,054, compared to $144,953 and $191,771, respectively, for 2009. The increase in total sales is due mostly to fourth quarter product sales to Whayne Supply. During 2010, we continued to focus management and other resources on developing our products and relationships with distributors. Fourth quarter sales were greatly improved over the prior three quarters of 2010.
During 2010, we continued developing the sales strategy founded upon collecting emissions data before and after the use of our products and providing continuing emission testing services of our installed products. In addition, the Company believes the development of a database cataloguing the results of testing without the use of Mirenco’s products has provided a source of information for customers for determining the need, and in some cases, the nature of maintenance needed. The cost of sales increase of 29% is consistent with the prior year as total cost of sales was approximately 75% of total revenue in 2010 compared to 76% of total revenue in 2009.
Percent
OPERATING EXPENSES
Change
Total Salaries and Benefits
$344,810
$386,189
(11%)
Total Travel
3,862
7,313
(47%)
Total Facilities
40,225
42,874
(6%)
Total Outside Services
113,263
130,514
(13%)
Total Advertising
486%
Total Depreciation and Amortization
30,501
30,784
(1%)
Total General & Administrative
21,792
28,037
(22%)
TOTAL OPERATING EXPENSES
$555,214
$625,842
(11%)
The major components of our operating expenses are as follows:
Operating expenses in 2010 decreased $70,627 (11%) from 2009. The decrease is mostly attributed to a reduction in salaries and benefits by $41,379 due to a reduction in staff and outside professional fees were reduced by $17,251 (13%), as the Company utilized outside database training services in 2009 that were not used in 2010. Travel and general office expenses were also reduced 47% and 22% respectively due to cost saving measures.
Royalty expense for each of the years ended December 31, 2010 and 2009 was 3% of sales calculated per the patent purchase agreement with American Technologies, and amounted to $13,026 and $10,102, respectively. The increase is attributable to the increase in sales in 2010.
Interest expense in 2010 was $77,536 in 2010 compared to $32,451 in 2009. An increase of 139% in 2010 over 2009. The increase is due to increased borrowing from related parties, also converting debt to an employee to a note payable, and additional loans of $367,500 in the aggregate, from a major shareholder.
Liquidity and Capital Resources
Overview: We have not yet commenced generating substantial revenue. The Company expects to incur losses until we are able to generate sufficient income and cash flows to meet operating expenditures and other requirements. The following table highlights certain information in relation to our liquidity and capital resources at December 31:
Working Capital
Percent
Change
Total Current Assets
$ 265,979
$ 117,897
126%
Total Current Liabilities
623,464
417,960
49%
Working Capital (Deficit)
$ (357,485)
$ (300,063)
116%
As of December 31, 2010, the Company had total current assets of $265,979 and current liabilities of $623,464, resulting in a working capital deficit of ($357,485). Total current assets increased by 126% due to the purchase of C-Max units by Whayne Supply during the fourth quarter. Total current liabilities increased by 49% mostly due to increased accounts payable and an increase in the current portion of debt, as well as an increase in interest due to additional borrowing. The Company’s available sources for generating cash for working capital have been through the issuance of common stock, preferred stock and notes payable and, eventually, we expect that working capital will be available through the development of profitable operations.
The Company’s future capital requirements will depend on many factors, including expansion of our business; increased sales of both services and products, development of our database to increase services to our clients, new revenue resources and administrative expense. We do not expect to expand our facilities during 2011.
Effective January 4, 2008, the Company obtained a bridge loan of $50,000 which was due February 15, 2008, plus accrued interest at 5.15%. In addition, effective January 18, 2008, the Company obtained a line of credit that calls for maximum borrowings of $301,500. The line bears interest at 8% per annum and is due January 18, 2018. As of the date of these financial statements, aggregate draws of $335,000 have been made against the line of credit and the bridge loan plus accrued interest was repaid from proceeds of the line of credit in January 2009. There are no restrictive covenants on this credit. No draws were made during 2010. Principal payments of $21,435 were made during 2010. The outstanding balance as of December 31, 2010 is $267,205. No additional borrowing is available on this note.
During 2010, the Company obtained proceeds of $367,500 of convertible debt from a major shareholder. The notes bear 9% interest payable quarterly with balloon payments of principal due plus any accrued interest beginning July 2011 to December 2013. These notes are convertible at the shareholder’s option at anytime to shares of the Company’s common stock at the lesser of $.10 per share of the then current market price per common share.
Cash Flows for the Years Ended December 31, 2010 and 2009
Percent
Change
Cash Flows (Used in) Operating Activities
($317,709)
($417,889)
(24%)
Cash Flows (Used in) Investing Activities
-
(921)
(100%)
Cash Flows Provided by Financing Activities
462,681
332,059
39%
Net Increase (Decrease) in Cash
$144,972
($86,751)
267%
Net cash used in operating activities for the years ended December 31, 2010 and 2009 was $317,709 and $417,889, respectively. Net cash generated from operating activities increased by $100,180 over 2009. The decrease in net cash Used in operating activities was primarily driven by the aggregate effect of the year over year changes in the Company’s net loss, accounts payable, accounts receivable, accrued expenses and prepayments.
Net cash used in investing activities for the years ended December 31, 2010 and 2009 was $0 and $921, respectively. Investing activities in 2009 consisted of the capitalization of patent expense and the purchase of new computer equipment. Net cash provided by financing activities for the year ended December 31, 2010 and 2009 was $462,681 and $332,059, respectively. Equity and borrowed funds from stockholders and others were obtained in the year ended December 31, 2010. Principal payments on long-term debt were made in both years.
Net cash provided by financing activities increased to $462,681 at December 31, 2010, compared to $332,059 at December 31, 2009. The increase is primarily attributable to obtaining additional loans from a majority shareholder and proceeds of the issuance of redeemable convertible preferred stock, partially offset by principal payments on long-term debt in 2010, compared to 2009.
Summary of Significant Accounting Policies
Inventories. Inventories, consisting of purchased finished goods ready for sale, are stated at the lower of cost (as determined by the first-in, first-out method) or market. We evaluate our inventory value at the end of each quarter to ensure that actively moving inventory, when viewed by category, is carried at the lower of cost or market. In addition, we maintain a reserve for the estimated value associated with damaged, excess or obsolete inventory. The reserve generally includes inventory that has turn days in excess of 365 days, or discontinued items. At December 31, 2010, our inventory reserve amounted to $54,323.
Accounts Receivable. Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances. We use the direct write-off method for accounts receivable that are determined to be uncollectable and believe there is no material difference in this method from the allowance method.
Revenue Recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectibility is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:
Revenue is recognized from sales when a product is shipped and from services when they are performed.
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has incurred and may continue to incur net losses in the future. The Company has a working capital deficit of ($357,485) and accumulated deficit of ($13,431,694) as of December 31, 2010; and if revenues do not increase substantially in the near future, additional sources of funds will be needed to maintain operations. These matters give rise to substantial doubt about the Company’s ability to continue as a going concern.
Management and other personnel have been focused on product and service development in lieu of product marketing. From that exploration, the Company has decided it is in its best interests to explore the use of existing, well-established distribution channels for marketing and selling the DriverMax product line, which resulted a contract with Whayne, a Caterpillar dealer in Kentucky as announced in the Company’s 8-K, dated January 15, 2009. The Company amended the contract as disclosed in our 8-K, dated May 5, 2010. Management believes a large market exists for the Company’s products, testing services and the information provided by those services. A combination of the products and services has been developed as a long-term program for customers, particularly in regulated markets. Management will focus on the Company’s efforts on the sales of products, services, and programs with sensible controls over expenses. Management believes these steps, if successful, will improve the Company’s liquidity and operating results, allowing it to continue in existence.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
N/A for smaller reporting companies
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
Financial Statements and Report of Independent Registered Public Accounting Firm
Mirenco, Inc.
December 31, 2010 and 2009
C O N T E N T S
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT)
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
MIRENCO, Inc.
We have audited the accompanying balance sheets of MIRENCO, Inc. as of December 31, 2010 and 2009, and the related statements of operations, changes in stockholders' equity (deficit), and cash flows for the years then ended. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MIRENCO, Inc. as of December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B, the Company incurred net losses of $520,747 and $578,492 during the years ended December 31, 2009 and 2010. This, among others factors, as discussed in Note B to the financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ StarkSchenkein, LLP
Denver, Colorado
March 28, 2011
MIRENCO, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2010 and 2009
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
1.
Nature of Business
MIRENCO, Inc. (“the Company”) was organized and incorporated as an Iowa corporation on February 21, 1997. The Company develops, markets and distributes certain technologically advanced products for which it has exclusive licensing rights. These products are for throttle control of internal combustion vehicles, primarily to improve fuel efficiency, reduce vehicle maintenance costs, reduce environmental emissions and improve overall vehicle performance. The Company's products are sold primarily in the domestic market.
2.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
3.
Revenue Recognition
In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectibility is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:
Revenue is recognized from sales when a product is shipped and from services when they are performed. During 2010, revenues from products were $248,525 compared to $144,953 in 2009. Revenues from services were $193,804 and $191,771 in 2010 and 2009, respectively.
4.
Accounts Receivable
Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectibility, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances.
5.
Inventories
Inventories, consisting of purchased finished goods ready for sale, are stated at the lower of cost (as determined by the first-in, first-out method) or market. We evaluate our inventory value at the end of each quarter to ensure that actively moving inventory, when viewed by category, is carried at the lower of cost or market. In addition, we maintain a reserve for the estimated value associated with damaged, excess or obsolete inventory. The reserve generally includes inventory that has turn days in excess of 365 days, or discontinued items. As of December 31, 2010 and 2009, our inventory reserve amounted to $54,323.
6.
Income Taxes
The Company accounts for income taxes under the asset and liability method, whereby 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 applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recognized to the extent management believes that it is more likely than not that they will be realized.
7.
Patents and Trademarks
Patents and trademarks are amortized on the straight-line method over their legal lives. The Company recorded patent amortization expense of $1,848 and $2,080, respectively, in 2010 and 2009.
8.
Property and Equipment
Property and equipment are stated at cost. The Company provides for depreciation on the straight-line method over the estimated useful lives of 3 years for computer equipment, 5 years for manufacturing and test equipment and other equipment, and 39 years for buildings.
9.
Impairment of Long-Lived Assets
The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that suggest impairment. During the years ended December 31, 2010 and 2009, no material impairment has been indicated. Should there be any impairment in the future, the Company will measure the amount of the impairment based on the amount that the carrying value of the impaired assets exceeds its fair value.
10.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.
The Company accounts for stock based compensation with the costs resulting from all share-based transactions recorded in the financial statements. Fair value is the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. Fair value is the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based transactions.
11.
Net (Loss) Per Share
Basic (loss) per share is calculated by dividing net (loss) by the weighted average number of common shares outstanding for the period. Diluted (loss) per share is calculated by dividing net (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti dilutive.
12.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2010 and 2009. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.
The carrying value of the Company’s long-term debt approximated its fair value based on the current market conditions for similar debt instruments.
13.
Royalty Expense
Royalty expense is recorded and paid based upon the sale of products, services, and rights related to patents according to a contractual agreement (see Note H). Royalty expense incurred for the years ended December 31, 2010 and 2009 amounted to $13,026 and $10,102, respectively.
14. Advertising
Advertising costs are charged to expense as incurred and amounted to $762 and $130 for the years ended December 31, 2010 and 2009, respectively.
15. Software Development Costs
In connection with the development of software, the Company will incur external costs for software, and consulting services, and internal costs for payroll and related expenses of its technology employees directly involved in the development. Purchased software costs are capitalized. All other costs will be reviewed to determine whether they should be capitalized or expensed as product development costs.
16. Research and Development
The Company expenses research and development costs as incurred. Such costs include certain prototype products, test parts, consulting fees, and costs incurred with third parties to determine feasibility of products. Costs incurred for research and development were $54,426 and $58,064 in 2010 and 2009, respectively.
17. Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.
Significant estimates are used when accounting for the Company’s carrying value of inventory, fixed assets, depreciation, accruals, taxes and contingencies, which are discussed in the respective notes to the financial statements.
18. Segment Information
Certain information is disclosed, based on the way management organizes financial information for making operating decisions and assessing performance. The Company currently operates in a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
19. Recent Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The provisions of ASU 2010-01 have not had a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued ASU 2010-04, Accounting for Various Topics - Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical corrections to existing SEC guidance, including the following topics: accounting for subsequent investments, termination of an interest rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. The adoption of ASU 2010-04 has not had a material impact on the Company’s financial statements.
In January 2010, the FASB issued ASU 2010-05, Compensation - Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation. The adoption of ASU 2010-05 has not had a material impact on its financial statements.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which provides amendments to FASB ASC topic Fair Value Measurements and Disclosures that will provide more robust disclosures about (i) the different classes of assets and liabilities measured at fair value, (ii) the valuation techniques and inputs used, (iii) the activity in Level 3 fair value measurements, and (iv) the transfers between Levels 1, 2 and 3. ASU 2010-06 is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption has not had a material effect on our disclosures.
In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855). The amendments remove the requirements for an SEC filer to disclose a date, in both issued and revised financial statements, through which subsequent events have been reviewed. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. ASU 2010-09 is effective for interim or annual financial periods ending after June 15, 2010. Adoption of the provisions of ASU 2010-09 has not had a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB issued ASU 2010-12. Income Taxes (Topic 740). ASU 2010-12 amends FASB Accounting Standard Codification (“ASC”) subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30, 2010 The President signed the Health Care & Education Affordable Care Act reconciliation bill that amends its previous Act signed on March 23, 2010. FASB Codification topic 740, Income Taxes, requires the measurement of current and deferred tax liabilities and assets to be based on provisions of enacted tax law. The effects of future changes in tax laws are not anticipated.” Therefore, the different enactment dates of the Act and reconciliation measure may affect registrants with a period-end that falls between March 23, 2010 (enactment date of the Act), and March 30, 2010 (enactment date of the reconciliation measure). However, the announcement states that the SEC would not object if such registrants were to account for the enactment of both the Act and the reconciliation measure in a period ending on or after March 23, 2010, but notes that the SEC staff “does not believe that it would be appropriate for registrants to analogize to this view in any other fact patterns.” The adoption of this standard has not had a material impact on the Company’s financial position and results of operations.
In April 2010, the FASB issued ASU 2010-17, Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. Adoption of the provisions of ASU 2010-17 did not have a material effect on the financial position, results of operations or cash flows of the Company.
On August 2, 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules-Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. The ASU reflects changes made by the Securities and Exchange Commission (“SEC”) in Final Rulemaking Release No. 33-9026, which was issued in April 2009 and amended SEC requirements in Regulation S-X (17 CFR 210.1-01 et seq.) and Regulation S-K (17 CFR 229.10 et seq.) and made changes to financial reporting requirements in response to the FASB's issuance of SFAS No. 141(R), Business Combinations (ASC 805), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 (FASB ASC 810). Adoption of the provisions of ASU 2010-21 did not have a material impact on the Company’s financial statements.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
20. Reclassifications
Certain reclassifications have been made to the prior year financial statements, in order to conform to the current year presentation.
NOTE B - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has incurred and may continue to incur net losses in the future. Net losses for the years ended December 31, 2010 and 2009 were ($520,747) and ($578,492), respectively, and the company had a working capital deficit of ($357,485) and an accumulated deficit of ($13,431,694) at December 31, 2010. If revenues do not increase substantially in the near future, additional sources of funds will be needed to maintain operations. These matters give rise to substantial doubt about the Company’s ability to continue as a going concern.
Management and other personnel have been focused on product and service development in lieu of product marketing. The Company’s management team has diligently explored several market segments relative to the Company’s product and service lines. From that exploration, the Company has decided it is in its best interests to explore the use of existing, well-established distribution channels for marketing and selling the DriverMax product line. Management also believes a large market exists for the Company’s testing services and the information provided by those services through the Company’s business relationship with Whayne Supply, a Caterpillar dealer in Kentucky. This exclusive contract was announced in the Company’s 8-K filing of January 15, 2009. The Company amended its contract with Whayne Supply as disclosed in the Company’s 8-K dated May 5, 2010. A combination of the products and services has been developed as a long-term program for current and potential customers, particularly in regulated markets. Management will focus on the Company’s efforts on the sales of products, services, and programs with sensible controls over expenses. Management believes these steps, if successful, will improve the Company’s liquidity and operating results, allowing it to continue in existence.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2010 and 2009:
The Company recorded $28,653 and $28,704 of depreciation expense for the years ended December 31, 2010 and 2009, respectively. The building is collateral on the note payable of $267,205 as of December 31, 2010 (See Note E).
NOTE D - ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 2010:
Accrued expenses consisted of the following at December 31, 2009:
NOTE E - NOTES PAYABLE
Notes payable consisted of the following at December 31, 2010:
Current
Long-term
Total
Portion
Portion
Note payable to bank in monthly installments of
$1,464, including principal and variable interest,
currently 6%, guaranteed by stockholder,
guaranteed by Small Business Administration
$ 54,981
$ 14,668
$ 40,313
Note payable to bank in monthly installments of
$3,659, including principal and interest at 8%.
267,205
23,664
243,541
$ 322,186
$ 38,332
$ 283,854
Effective January 18, 2008, the Company obtained a line of credit that calls for maximum borrowings of $301,500. The line bears interest at 8% per annum and is due January 18, 2018. As of the date of these financial statements, aggregate draws of $335,000 have been made against the line of credit. There are no restrictive covenants on this line of credit. The outstanding balance as of December 31, 2010 is $267,205. The building with a net book value of $407,232 as of December 31, 2010, is collateral on the note.
Maturities of notes payable are as follows:
$ 38,332
$ 41,173
$ 44,228
$ 38,167
$ 32,412
Thereafter
$ 127,872
Notes payable to related parties consisted of the following at December 31, 2010:
NOTE F - CONCENTRATION OF CUSTOMERS
At December 31, 2010, the Company had 3 customers who accounted for 86% of sales and 4 customers who accounted for 90% of accounts receivable. At December 31, 2009, the Company had 5 customers who accounted for 85% of 2009 sales and 3 customers who accounted for 91% of accounts receivable.
NOTE G - INCOME TAXES
The Company accounts for income taxes using of the liability method, which provides that deferred tax assets and liabilities are recorded based on the differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:
As of December 31, 2010, the Company has a net operating loss carryforward of approximately $10,297,000. This loss carryforward will be available to offset future taxable income. If not used, this carryforward will expire through 2030. The deferred tax asset of approximately $3,501,000 relating to the operating loss carryforward has been fully reserved as of December 31, 2010. The increase the valuation allowance related to the deferred tax asset was approximately $174,000 during 2010. The principal differences between the accumulated deficit for income tax purposes and for financial reporting purposes are related to stock based compensation and depreciation expense.
NOTE H - RELATED PARTY TRANSACTIONS
In 2010 and 2009, the Company incurred annual rent expense in the amount of $9,600 payable to an officer and majority stockholder, which is included in due to an officer and an affiliate at December 31, 2010 and 2009. Payments to related parties in 2010 and 2009 amounted to $902 and $18,240, respectively, for interest. During 2009, the Company issued 197,875 shares of common stock at $0.18 per share, which were issued for debt and accrued interest payable to related parties of $35,617. At December 31, 2010 and 2009, the Company owed an officer and majority shareholder $65,272 and $44,110, respectively, for salary and past expenses paid on behalf of the Company. During 2009, expenses were incurred in the amount of $36,525 and repayments of $77,924, with $42,308 paid in cash and $35,617 converted into stock, were made to this individual.
The Company has an agreement that provides for royalty payments in the amount of 3% of gross sales (including product sales, service revenues, and all revenues from sales of patent rights) for the twenty years which began November 1, 1999. This agreement can be terminated by the seller if the Company fails to make the above payments or becomes insolvent. The Company incurred royalty expense to a company partially owned by the majority stockholder of the Company for the years ended December 31, 2010 and 2009, in the amounts of $13,026 and $10,102 respectively.
NOTE I - COMMON STOCK OPTIONS AND WARRANTS
Options
During 2009, the Company granted 4,000 options as shown below. Of these, 4,000 options were issued to directors to purchase common stock at $0.12 per share. Their options are exercisable at those prices until Janary 31, 2018. The options are fully vested. An additional 20,000 options granted in 2007 became fully vested in 2009. No compensation costs have been recorded in conjunction with the issuances of the options, as the historical fair market values of the shares on the dates of grant have been de minimus in comparison to the exercise prices.
Warrants
In conjunction with the return of 1,000,000 common shares in 2004 the Company issued 1,000,000 warrants to purchase common stock at $.25 per share to an officer. The warrants have no expiration date.
NOTE J - STOCKHOLDERS' (DEFICIT)
During 2009, the Company issued 197,875 shares of common stock at $.18 per share, which was issued for a note payable to a related party and accrued interest, totaling $35,617. Also during 2009, 357,580 shares of common stock were issued at $.10 per share for cash of $35,758.
During 2010, the company issued 475,250 shares of common stock at $.06 per share, which was issued for a note payable to an employee and accrued interest, totaling $28,515.
NOTE K - REDEEMABLE, CONVERTIBLE PREFERRED STOCK
In December 2006, the Company offered minimum $3,000 investments for 25,000 shares of its common stock at $0.12 per share, plus 500 shares of convertible, redeemable preferred stock valued by the Company at $1 per share. In connection with this offering, 13,900 shares of the convertible, redeemable preferred stock were issued in 2006. An additional 4,356 shares were issued in 2007. Each preferred share is convertible at the holder’s option, to five shares of the Company’s common stock, and carries a cumulative 6% dividend rate through December 31, 2011. The preferred shares may be redeemed by the Company any time after December 31, 2009, and must be fully redeemed on December 31, 2011, together with all cumulative dividends in arrears. Accordingly, $146,256 preferred shares are presented as shares subject to mandatory redemption in the accompanying financial statements.
In the second quarter of 2010, as disclosed in an 8K filing dated June 4, 2010, Mirenco offered Series A convertible, redeemable preferred stock at $.10 per share. Each share of Series A Preferred Stock shall be convertible into one share of Common Stock. A total of 5,000,000 Series A convertible, redeemable, preferred shares were approved by the board of directors, for a total potential investment of $500,000. In connection with this offering, 1,280,000 shares of the Series A convertible, redeemable preferred stock were issued, for cash proceeds of $128,000. Each Series A share plus any unpaid dividends is convertible at the holder’s option, to one share of the Company’s common stock, and carries a cumulative 6% dividend rate through December 31, 2015. Any time, or from time to time, after December 31, 2011, the Company may redeem any or all outstanding shares of Series A Preferred Stock upon thirty (30) days advance written notice to the holder and payment of the Redemption Price plus all accrued and unpaid dividends up to the date of redemption. The Series A convertible, redeemable, preferred shares must be fully redeemed on December 31, 2015, at $.10 per share together with all cumulative dividends in arrears. Accordingly, the preferred shares are presented as shares subject to mandatory redemption in the accompanying financial statements.
NOTE L - SUBSEQUENT EVENTS
The Company issued 20,000 shares of Series A Preferred Stock at $.10 per share for cash proceeds of $2,000 during February of 2011. The Company has evaluated all transactions through the date these financial statements were available for issuance. Management has determined that there are no further subsequent events that would require disclosure.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
ITEM 9A(T).
ITEM 9A(T). Controls and procedures
(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on his evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2010.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting throughout 2011.
Management’s Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) and has assessed the effectiveness of its control using the components established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of inherent limitations in any internal control over financial reporting, misstatements may occur and not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Management performed this evaluation as of December 31, 2010. As a result of this evaluation, management concluded that Mirenco, Inc. maintained effective internal control over financial reporting as of December 31, 2010.
This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that require only management’s report in this annual report on Form 10-K.
ITEM 9 B.
ITEM 9 B. Other Information Required to be Reported on Form 8-K
None
PART III
ITEM 10.
ITEM 10. Directors, Executive Officers and Those Charged with Corporate Governance
As of the date of this Annual Report, based solely upon a review of copies of Forms 3, 4 and 5 and amendments thereto furnished to the Company during its most recent fiscal year, management believes that all directors and officers, both past and present, are in compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.
Biographical summaries concerning individuals serving on the Board of Directors, the Company's executive officers and significant employees, are shown below.
Dwayne L. Fosseen, age 65, is founder, Chief Executive Officer (CEO), Chairman of the Board of Directors, and Principal (controlling) Stockholder of Mirenco, Inc. Mr. Fosseen has been CEO and a director of the Company since its inception. Mr. Fosseen has personally been involved in major projects with the U.S. Department of Agriculture, the U.S. Department of Energy, the Iowa Corn Growers Board, the National BioDiesel Board and the Iowa Soybean Promotions Board. Mr. Fosseen has over 15 years experience in the field of heavy-duty engines and has directed major EPA testing efforts at Ortech Corporation, an international emissions testing company.
Director Tim Neugent, age 61, is a graduate of Marquette University and is currently Vice President and Chief Operating Officer (COO) of Powerfilm Solar of Ames, Iowa. Previously he was Director of American Auto Finance and has owned and operated several companies in Central Iowa. Mr. Neugent brings valuable business and marketing expertise to the Board of Directors.
Merlin Hanson, age 71, Director, is a Certified Public Accountant and a graduate of the University of Minnesota. Mr. Hanson is a retired partner with McGladrey and Pullen with over 35 years experience with the firm. Mr. Hanson also serves on the board of Powerfilm Solar of Ames, Iowa as Chairman of the Board and Chairman of the Audit Committee and also serves on the board of Emerging Growth Group as a director. In the past, Mr. Hanson served as the Chairman of the Board for Goodwill Industries, International. Mr. Hanson is currently employed by Direct Communications Incorporated.
Don D. Williams, age 76, a lifelong resident of Williams, Iowa, has been involved in the grain business and is a major producer of livestock. Mr. Williams has also been associated with real estate as a licensed associate. Mr. Williams has served as an officer of the County Farm Bureau Board, Heart of Iowa Realtors Board, and the County Compensation and Extension Board. A director of Mirenco, Inc. since June 1, 1998, Mr. Williams is also a veteran of the Korean War.
Mr. Hanson and Mr. Neugent serve on the Company’s Audit Committee. Mr. Hanson qualifies as a financial expert with his long career as a Certified Public Accountant, with practice experience in reporting matters for publicly held companies.
Glynis M. Hendrickson, age 50, became Chief Financial Officer in February, 2007. Mrs. Hendrickson graduated from the University of Northern Iowa in 1996. Mrs. Hendrickson started with Mirenco, Inc. in 2005 as controller. Mrs. Hendrickson has 8 years of accounting experience in the manufacturing industry prior to coming to Mirenco.
Daniel Bina, age 30, became COO in October of 2008. Mr. Bina holds a degree in Mechanical Engineering from Iowa State University. Mr. Bina joined the Mirenco team in 2003 as an engineer. Mr. Bina was promoted to Chief Engineer in 2005 and most recently promoted to COO in October of 2008.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics to provide guiding principles to all of our employees. Our Code of Business Conduct and Ethics does not cover every issue that may arise, but it sets out basic principles to guide our employees and provides that all of our employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. Our Code of Business Conduct and Ethics provides that any employee who violates our Code of Business Conduct and Ethics will be subject to disciplinary action, up to and including termination of his or her employment. Generally, our Code of Business Conduct and Ethics provides guidelines regarding:
·
compliance with laws, rules and regulations,
·
conflicts of interest,
·
competition and fair dealing,
·
discrimination and harassment,
·
health and safety,
·
record keeping,
·
confidentiality,
·
protection and proper use of company assets,
·
reporting any illegal or unethical behavior, and
·
compliance procedures.
In addition, we have also adopted an Insider Trading Policy for our directors, officers, employees and their family members, in order to comply with federal and state securities laws governing (a) trading in Mirenco, Inc. (“Company”) securities while in the possession of “material nonpublic information” concerning the Company, and (b) tipping or disclosing material nonpublic information to outsiders, in order to prevent even the appearance of improper insider trading or tipping.
The Code of Ethics and Insider Trading Policy are posted on our website under the investor relations section of our website: www.mirenco.com.
AUDIT COMMITTEE
The Board of Directors has an audit committee composed of Merlin Hanson and Tim Neugent. Mr. Hanson is considered the financial expert on the audit committee. He is a retired partner of RSM McGladrey, a public accounting firm.
ITEM 11.
ITEM 11. Executive Compensation
The following table sets forth the compensation of the named executive officers for each of the Company's last two completed fiscal years.
Summary Compensation Table
Name and Principal Position
Year
Salary
Bonus
Options Awarded
All Other Compensation
Total
Dwayne Fosseen, CEO
$ 65,000
$ -
$ -
$ -
$ 65,000
$ 65,000
$ -
$ 120
$ -
$ 65,120
Mr. Fosseen’s compensation is comprised of a base salary and a bonus agreement. The bonus agreement would be based on an annual bonus pool subject to the Board of Directors determination and objective goals determined by the Board of Directors. No bonus has been awarded to Mr. Fosseen. Stock options are awarded to Mr. Fosseen for board meeting attendance. These options are fully vested at the award date.
Option Grants
All options are fully vested when granted.
Aggregate Option Exercises and Fiscal Year-End Option Value
There were no stock options exercised during the years ended December 31, 2010 and 2009.
Compensation of Directors
The following table sets forth with respect to the directors, compensation information inclusive of equity awards and payments made for the fiscal year ended December 31, 2010:
Name
Fees Earned or Paid in Case ($)
Options Awarded
All Other Compensation
Total
Dwayne Fosseen
$ -
$ 0
$ -
$ 0
Donald Williams
$ -
$ 0
$ -
Merlin Hanson
$ -
$ 0
$ -
$ 0
Timothy Neugent
$ -
$ 0
$ -
$ 0
Stock options are awarded to board members for board meeting attendance. These options are fully vested at the award date.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth the individuals serving on the Board of Directors, the Company’s executive officers and significant employees, and information with respect to the number of shares of the Company’s common stock beneficially owned by each of them directly or indirectly as of December 31, 2010. The number of shares beneficially owned includes shares, if any, held in the name of the spouse, minor children, or other relatives of the individual living in his home, as well as shares, if any, held in the name of another person under an arrangement whereby the individual enjoys the right to vote or the use of the income, or whereby the individual can vest or re-vest title in himself or herself at once or at some future time.
(a)
Dwayne Fosseen's beneficial ownership includes 1,443,150 shares which are acquirable pursuant to the exercise of outstanding stock options and warrants, 2,000 shares owned by family members in his household and 4,250 shares, which are acquirable pursuant to the exercise of outstanding stock options owned by his spouse.
(b)
Glynis Hendrickson’s beneficial ownership includes 76,500 shares which are acquirable pursuant to the exercise of outstanding stock options.
(c)
Don William’s beneficial ownership includes 23,000 shares, which are acquirable pursuant to the exercise of outstanding stock options.
(d)
Tim Neugent’s beneficial ownership includes 19,000 shares, which are acquirable pursuant to the exercise of outstanding stock options.
(e)
Merlin Hanson’s beneficial ownership includes 20,000 shares, which are acquirable pursuant to the exercise of outstanding stock options.
(f) Daniel Bina’s beneficial ownership includes 6,000 shares, which are acquirable pursuant to the exercise of outstanding stock options.
(g)
The beneficial ownership of all directors and officers as a group includes 221,900 shares which are acquirable pursuant to the exercise of outstanding stock options and 1,370,000 shares which are acquirable pursuant to the exercise of outstanding warrants.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
During 2010, the Company issued 475,250 shares of common stock at $.06 per share, which was issued for a note payable to an employee, plus accrued interest, totaling $28,515.
During 2009, the Company issued 197,875 shares of common stock at $.18 per share, which was issued for a note to related parties, plus accrued interest, totaling $35,617.
The Company has an agreement that provides for royalty payments in the amount of 3% of gross sales (including product sales, service revenues, and all revenues from sales of patent rights) for 20 years, which began November 1, 1999. This agreement can be terminated by the seller if the Company fails to make the above payments or becomes insolvent. The Company incurred royalty expense to a company partially owned by the majority stockholder of the Company for the years ended December 31, 2010 and 2009 in the amounts of $13,026 and $10,102 respectively.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s board of directors reviews and approves audit and permissible non-audit services performed by its independent accountants, as well as the fees charged for such services. In its review of non-audit service fees and its appointment of StarkSchenkein, LLP as the Company's independent accountants, the board of directors considered whether the provision of such services is compatible with maintaining independence. All of the services provided and fees charged by StarkSchenkein, LLP in 2010 and 2009 were approved by the board of directors.
Audit Fees
The aggregate fees billed for professional services for the audit of the annual financial statements of the Company and the reviews of the financial statements included in the Company's quarterly reports on Form 10-Q for 2010 and 2009 were $37,198 and $38,135 respectively, net of expenses.
Audit-Related Fees
There were no other fees billed during the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company's financial statements and not reported under "Audit Fees" above.
Tax Fees
There were no fees billed during the last two fiscal years for professional services rendered for tax compliance.
All Other Fees
There were no other fees billed during the last two fiscal years for products and services provided.
ITEM 15.
ITEM 15. Exhibits
a)
The following documents are filed as part of this report:
1 and 2. The following financial statements are included in Item 8 of this Annual Report:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2010 and 2009
Statements of Operations for the years ended December 31, 2010 and 2009
Statements of Stockholders' (Deficit) for the years ended December 31, 2010 and 2009
Statements of Cash Flows for the years ended December 31, 2010 and 2009
Notes to Financial Statements
3. The following are the exhibits to this annual report.
3.2(a)
Articles of Amendment to Articles of Incorporation (incorporated by reference to the Company’s 10QSB for the quarter ended June 30, 2004 filed on August 10, 2004)
3.2(b)
Certificate of Incorporation and Certificates of Amendment to the Certification of Incorporation of Registrant (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
3.3
Bylaws of Registrant (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.2(d)
Stock Option Agreement between Registrant and Betty Fosseen (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.2(f)
Stock Option Agreement between Registrant and J. Richard Relick (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.4
Purchase Agreement Between Registrant and American Technologies, LLC (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.5
Environmental Regulatory Approvals with the U.S. Environment Protection Agency and California Air Resources Board (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.6
Summary of Patents and Associated Service Marks (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.7
Copies of U.S. and Canadian Patents Issued to Dwayne L. Fosseen (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.8
Summary of Mexican Patents and Associated Protections Issued to Dwayne L. Fosseen (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.9
Rental Agreement Between Registrant and Fosseen Manufacturing & Development, Inc (incorporated by reference to the Company’s Registration Statement filed on July 10, 2000).
10.13(a)
Stock Option Agreement between Registrant and Betty Fosseen (incorporated by reference to the Company’s Registration Statement Amendment filed on April 17, 2001).
1.14
2001 Common Stock Compensation Plan (incorporated by reference to the Company’s 10KSB for the fiscal year ended December 31, 2001).
10.30 2004 Common Stock Compensation Plan (incorporated by reference to the Company’s 10KSB, filed April 15, 2005).
10.31
2008 Common Stock Incentive Compensation Plan(incorporated by reference to the Company’s 14C filed on September 17, 2008.
10.32
Distributor Agreement with Whayne Supply, dated January 13, 2009
10.33
Amendement to Distributor Agreement with Whayne Supply, dated April 30, 2010 (incorporated by reference to the Company’s 8K filed on May 5, 2010.
* 31.1
Certification of Dwayne Fosseen, Principal Executive Officer,dated April 14, 2011 pursuant to Rule 31a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
* 31.2
Certification of Glynis Hendrickson, Principal Financial Officer,dated April 14, 2011 pursuant to Rule 31a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
* 32
Certifications of Dwayne Fosseen, Principal Executive Officer, and Glynis Hendrickson, Principal Financial Officer, dated April 14, 2011 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
·
Filed with this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Mirenco, Inc.
(Registrant)
By: /s/ Glynis M. Hendrickson
--------------------------------------
Glynis M. Hendrickson
Principal Financial Officer
and Principal Accounting Officer
Date: April 14, 2011
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Dwayne Fosseen
-------------------------------------
Dwayne Fosseen
Chairman of the Board,
Principal Executive Officer
and Director
Date: April 14, 2011
By: /s/ Don Williams
-----------------------------------
Don Williams
Director
Date: April 14, 2011
By: /s/ Timothy Neugent
-----------------------------------
Timothy Neugent
Director
Date: April 14, 2011
By:: /s/ Glynis M. Hendrickson
--------------------------------------------
Glynis M. Hendrickson
Secretary
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
I, Dwayne Fosseen, Principal Executive Officer and President of Mirenco, Inc. certify that:
1.
I have reviewed this report on Form 10-K the Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
.
Date: April 14, 2011
/s/Dwayne Fosseen
Dwayne Fosseen,
President and Principal Executive Officer
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
I, Glynis Hendrickson, Principal Financial Officer of Mirenco, Inc. certify that:
1.
I have reviewed this report on Form 10-K the Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
.
Date: April 14, 2011
/s/Glynis Hendrickson
Glynis Hendrickson,
Principal Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Dwayne Fosseen, Chief Executive Officer and I, Glynis Hendrickson, Principal Financial Officer of Mirenco, Inc. (the “Company”), certify that
(1)
I have reviewed the annual report on Form 10-K of Mirenco, Inc.;
(2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this annual report.
Date: April 14, 2011
/s/ Dwayne Fosseen
Dwayne Fosseen
Chief Executive Officer and President
/s/ Glynis Hendrickson
Principal Financial Officer