LOSS BEFORE INCOME TAX RECOVERY (43,787) (78,328)
Income Tax Recovery - 5,556
NET LOSS ($43,787) ($72,772)
BASIC LOSS PER COMMON SHARE ($0.00) ($0.00)
FULLY DILUTED LOSS PER COMMON SHARE ($0.00) ($0.00)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING FOR THE PERIOD 27,163,006 26,238,006
See Notes To Condensed Consolidated Financial Statements
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PART 1 FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIENCY) (Amounts Expressed In U.S. Dollars)
NOT AUDITED
Common Stock Additional Cumulativ
Issued and Outstanding Paid In Translati
Shares Amount Capital Deficit Adjustmen
$ $ $ $
Balance June 30, 2000 24,847,031 248,470 5,126,586 (7,229,318) 310,124
Issued For Services 77,260 773 8,499
Issued For Debt
Reduction 1,313,715 13,137 144,508
Net Loss (158,586)
Cumulative Translation
Adjustment 10,998
Balance, December 31,
2000 26,238,006 262,380 5,279,593 (7,387,904) 321,122
Balance June 30, 2001 27,163,006 271,630 5,342,204 (7,557,014) 327,035
Net Loss (45,974)
Cumulative Translation
Adjustment 43,461
Balance, December 31,
2001 27,163,006 271,630 5,342,204 (7,602,988) 370,496
See Notes To Consolidated Financial Statements
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PART 1 FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amount Expressed In U.S. Dollars)
Not Audited
Six Month Six Month
Period Ended Period Ended
December 31, December 31,
2001 2000
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss ($45,974) ($158,586)
Adjustment to reconcile net loss to
net cash used by operating activities
Depreciation and amortization 11,507 11,665
Issue of Stock For Services 58,871
(Increase) Decrease In Accounts
Receivable (14,479) 3,955
(Increase) Decrease In Prepaid Expenses (556) (24,169)
(Increase) Decrease In Inventory 11,128 (1,102)
Increase (Decrease) In Accounts Payable
And Accrued Expense 43,336 101,299
4,962 (8,067)
CASH FLOW FROM INVESTING ACTIVITIES
(Increase) Decrease In Deposits 315 (33,334)
(Increase) Decrease In Advances to
Stockholders (26) (1,145)
Acquisition of Equipment & Property - (6,223)
289 (40,702)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable to Cooper
Financial (11,520) (15,774)
Proceeds from Private Lenders - 5,516
Proceeds from (repayments of)
Stockholders' Loans 11,228 (46,726)
Proceeds from issue of shares for
Stockholders' Loans - 108,045
(292) 51,061
EFFECT OF EXCHANGE RATE ON CASH (21,102) (3,841)
NET INCREASE (DECREASE) IN CASH BALANCE
FOR THE PERIOD (16,143) (1,549)
Cash Balance, begining of period 22,960 4,963
Cash Balance, end of period $6,817 $3,414
PAYMENTS MADE DURING THE PERIOD FOR INTEREST $8,630 $7,857
See Notes To Condensed Consolidated Financial Statements
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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES :
a) The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the six months ended December 31, 2001 are not necessarily indicative of the results that may be expected for the year ended June 30, 2002. For further information refer to the financial statements and footnotes thereto included in the annual report on form 10-KSB for the year ended June 30, 2001.
b) Principals Of Consolidation
The consolidated financial statements include the accounts of Technical Ventures Inc. ("TVI") and its majority-owned subsidiaries, Mortile Industries Ltd., ("Mortile"), Fam Tile Restoration Services Ltd. And MPI Perlite Ltd. All material intercompany transactions and balances have been eliminated.
c) Foreign Currency Translation
Mortile maintains its books and records in Canadian dollars. Foreign currency transactions are reflected using the temporal method. The translation of the financial statements of the subsidiary from Canadian dollars into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been or could be realized at the conversion rates. Adjustments resulting from the translation are included in the accumulated comprehensive income in stockholders' deficiency.
d) Fair Value Presentation
There are financial instruments, none of which are held for trading purposes. Estimates that the fair value of all financial instruments at December 31, 2001, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that could realize in a current market exchange.
e) Net Income (Loss) Per Share
Basic net income (loss) per share is computed based on the average number of common shares outstanding during the period. Fully diluted net income
(loss) per share reflects the potential dilution that could occur if securities, or other contracts to issue common stock, were exercised
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or converted into common stock or resulted in the issuance of common stock that then shared in any income. Such securities or contracts are not considered in the calculation of diluted income per share if the effect of their exercise or conversion would be antidilutive.
f) Stock Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was issued. It introduced the use of a fair value-based method of accounting for stock-based compensation. It encourages, but does not require, companies to recognize compensation expense for stock-based compensation to employees based on the new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. However, SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro forma net income and earnings per share under the new method. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 15, 1995. The disclosure provisions of SFAS No. 123 has been adopted.
NOTE 2: GOING CONCERN
Significant operating losses have been sustained since inception and there is substantial doubt as to the ability to continue as a going concern. Continued existence is dependent upon the ability to generate sufficient cash flow to meet obligations on a timely basis. As a result there is need of additional financing. No adjustment has been made to the value of assets in consideration of the financial condition.
NOTE 3: INVENTORY:
Inventory is comprised of the following:
Dec. 31, 2001
Raw Materials $57,975
NOTE 4: LONG TERM DEBT:
At December 31, 2001 a note payable to Ontario Development Corporations [I.O.C.] and a lease payable to FBX Holdings Inc. are in default. The respective creditor, FBX Holdings, has not called the obligation, payments are due on demand and accordingly the balance is reflected on the December 31, 2001 balance sheet as a current liability. On June 25, 2001, I.O.C. agreed, on the basis of two payments from the company totalling U.S.$86,000 (Canadian $130,000) plus interest by February 25, 2002, to discharge its security on its note and to assign its 30% interest in Mortile to Mortile for cancellation. In accordance with SFAS No. 140, this transaction
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would be treated as a sale and the resulting gain would be recorded in the fiscal year ending June 30, 2002 should the payments be made by February 25, 2002 and the company be released from its obligations.
In August 1999 refinancing of the note payable to Cooper Financial Corp. was completed. This obligation, is guaranteed by a stockholder. A refinancing charge was assessed, increasing the principal owed to $95,999 US. At December 31, 2001 the new loan provisions of $3,150 payments, monthly, have been maintained; with a payable balance of $25,173 US. Interest charged is 10% per annum calculated over a period of 35 months.
NOTE 5: CONTINGENT LIABILITY AND RELATED COSTS:
Contingent liability under a breach of secrecy agreements, fiduciary duty and misuse of confidential information lawsuit. Company's attorneys are of the opinion that it's defences are meritorious and the lawsuit will result in no material losses. Accordingly, no provision is included in the accounts for possible related losses. However, legal and any other related costs incurred, are reflected for any contingencies, as a charge to operations for the year in which the expenditures are determined.
NOTE 6: COMMON SHARES
Common shares were issued in consideration of services rendered and consulting services for financing incurred. The shares have been valued at their fair market value considering that they are restricted shares. The excess of the fair market value of the shares over the consideration received at their issue has been charged to expenses in the current period as the period over which the services have been rendered does not extend beyond the balance sheet date.
The shares issuance's for the six months ended December 31, 2001 are summarized as follows:
The share issuance's for the six months ended December 31, 2000 are summarized as follows:
Nature Of Number of Paid Up Additional Issue Subscription
Payments Shares Capital Paid In Expense Proceeds Expense
Capital
None - - - - - -
TOTALS - - - - - -
The share issuance's for the six months ended December 31, 2000 are summarized as follows:
Nature Of Number of Paid Up Additional Issue Subscription
Payments Shares Capital Paid In Expense Proceeds Expense
Capital
In Exchange
For Loans
& Accounts
Payable 1,390,975 13,910 153,007 166,917 -
TOTALS 1,390,975 13,910 153,007 166,917 - - -
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NOTE 7: MAJOR CUSTOMERS
Four customers accounted for 74 % of consolidated net revenues for the six month period of fiscal 2002 ending December 31, 2001 and for the corresponding period of fiscal 2001, 80 % of consolidated revenues were accounted for by two customers. The loss of one or more of these customers would have a detrimental effect on operating results.
NOTE 8: ACQUISITION LETTER OF INTENT
On October 1, 2000, the company entered into a letter of intent to acquire by November 1, 2000, all of the outstanding shares of an unrelated company in exchange for the issuance of 2,125,000 shares of common stock at fair market value on the date of closing. Subsequently, both parties agreed to postpone the closing date and currently, negotiations are still on-going. This acquisition, if completed, will be accounted for as a purchase. The acquiree company is a manufacturer of industrial products compatible to current operations.
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PART 1 - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
During the first six months of fiscal 2002 the company incurred an operating loss of ($45,974), on net sales revenues of $547,666. Operations were funded by accounts receivable, an increase in accounts payable and shareholder loans.
Two of the Company's long term debt financing arrangements, [Note 4], are in arrears, as such these debt's continue to be reflected as current liabilities on the December 31, 2001 balance sheet. The amount of debt, including both principal and accrued interest is as follows: ODC [formerly IOC] is $402,701; FBX Holdings $131,469. Debtor, FBX Holdings, clearly understands the Company's financial position and as such has verbally agreed to a moratorium on principal repayments until the Company is in a financial position to make a payment [s] or suggest an alternate and acceptable method[s] of settlement.
The Ontario Development Corporation [ODC] accepted, and delivered definitive agreement, relative to the Company's offer to extinguish the ODC's investment in the Company's 70% owned subsidiary (Mortile). The Company has offered to purchase the portfolio for an aggregate amount of $130,000. CAD. The amount is payable as follows: $50,000 CAD - 120 days from the closing under the definitive agreements and $80,000. CAD - 245 days from the closing under the definitive agreement. Additionally, interest of 8% per annum, calculated monthly, including default and judgment, until such time as actual payment plus interest is made. The purchase will be funded through investment in the company. At December 31, 2001 TVI was unable to complete the first principal and interest payment and the agreement is considered in default. It is expected the total commitment will be fullfilled on or before the final closing date.
An income tax claim relative to R&D expenses has been filed for fiscal 2001 of approximately $30,000 CND, The claim has been approved and payment is expected during the third fiscal quarter of 2002. The tax department has expressed their intent to audit all such claims submitted.
Continued existence is dependent upon the ability to generate sufficient cash flow to meet obligations on a timely basis. It is anticipated that cash flows from operations in the immediate future will be minimally sufficient to meet the Company's requirements, however, there can be no assurance of this and in order that current operations, continued development and growth be sustained, there is therefore the need of additional financing, which is currently being sought.
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In that regard, on January 22, 2002 TVI secured private placement financing agreement has been secured which will, upon completion, provide US$1.120 million in equity capital to TVI and is to be completed to later than the close of business on April 30, 2002.
The company previously had concluded in late January 1999, a Private Offering under Regulation D of the Securities Act of 1933. The offering consisting of an 8 % Convertible Debentures in the aggregate of $225,000; additionally as part thereof, Non-Redeemable Warrants of a three year term, allowing the investor to purchase shares of the Corporation's Common Stock. Accordingly the company has set aside the appropriate number of shares from the authorized and unissued shares of common stock for issuance upon conversion of the Debentures and exercise of the Warrants issued in connection with the offering.
In that regard, in March 2001 an agreement was reached with one holder of the above referenced debentures. The holder agreed to convert the debenture and all accrued interest to 475,000 Restricted Common Shares of the company. The debenture holder, an existing stockholder of the company, did not wish to exercise the warrant option attached to the debenture, at that time. The price per share agreed upon was $0.10 per share. Fair market value per share on the date of consideration was $0.07 per share.
TVI will continue to assess and investigate all avenues in respect of it's financial requirements. If it is deemed to be in the best interest of the Company and its stockholders, serious consideration will be given to raising additional funds through private or public issuance's in the future.
Significant property and equipment purchases and/or expansion of facilities will only be considered if demand for company products warrant such expansion and the financing of such expansion would not adversely effect the Company's financial condition.
Should TVI's sales efforts come to fruition, immediate expansion of existing warehouse facilities by approximately 30% and consideration of acquiring additional manufacturing equipment will become necessary.
On September 19, 2000 the company reached agreement in principal to acquire control of Multi-Web Lamination Inc. a Canadian corporation located in Woodbridge, Ontario, Canada; in consideration of certain commitments which were to take place over the next 30 - 60 days, one of which being a Definitive Agreement was to be concluded by no later than November 1, 2000.
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Multi-Web Lamination will survive as a corporation, as a wholly owned subsidiary of the company. Multi-Web currently has annual sales of $1 Million CAD and is forecasting sales of $2 Million CAD during the current financial year. A Letter of Intent was signed on October 1, 2000 outlining the basic agreement, subject to the purchase being effected in accordance with a negotiated definitive agreement containing representations and other terms, in which the company will acquire control of all outstanding shares of Multi-Web Laminations Inc. in exchange for 2,125,000 Restricted Common Shares of Technical Ventures Inc. Talks with Multi-Web were put on hold during the final stages of negotiations with the Ontario Development Corporation, these talks have now resumed to explore the feasibility of a merger or strategic alliance. Multi-Web has sales of (Plus/Minus)$1.5 million but is limited to the Canadian market due to the cost of raw materials currently purchased in the USA. Technical Venture's in cooperation with Multi-Web, manufacturers of CushionAir underlay, have an excellent opportunity to enter into this segment of the market with it's large potential for consumption of the unique underlay on offer from the new venture. Multi-web currently supplies large box stores like Home Depot, and has generated a lot of interest from the carpet industry.
Additionally, the patented rotary mould with it's well tested and proven benefits, offers a product destined to generate a great deal of market acceptance.
Multi-web is looking for resources to expand. The cross linked polyethylene product has superior attributes over urethanes and rubber under- cushion, the main competitors. The product contains no clay fillers or latex, nor is there any presence of cyanide or formaldehyde present in some products currently in use. Furthermore, after passing through the rotary mould, cushionaire has 280% more support capacity than the best high-end rebound product on the market. Cross linked polyethylene products are closed cell and therefore waterproof. This prevents the mildew and mold growth where moisture is present. The underlay will therefore not absorb excess carpet cleaning chemicals or spills as well as soiling.
At December 31, 2001, the Letter of Intent remains effective and negotiations have resumed until such time as evaluations are completed and results deemed acceptable. At the date of this report the status remains the same, however, due to reorganization and financing of Multiweb it is anticipated that the matter will now proceed or be rejected by the end of March 2002.
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Results of Operations:
Net sales revenues for the first six months of fiscal 2002 decreased 20% , when compared to those for the corresponding period of the previous year. The majority decrease taking place in in specialty compounding, with that segement of revenue down by 47% when compared to the previous year's corresponding period. However, it should also be noted that at December 31, 2001 there was an order back log of $123,340 of which the majority was specialty compounding. These orders were not completed due to required maintenance on manufacturing equipment and Holiday periods observed in late December.
Comparative gross margins however, as a percent of revenue, increased to 27% from 22 %. for the six month period. This improvement is primarily based on increased picing for polymer products and specialty compounding service
[excluding the provision of materials] and, as well improved manufacturing processes.
Total expenses declined by $117,990 in comparison to the corresponding period of the previous year. The majority of decline due to reduced administration and financial expenses in aggregate of $101,440., when compared to the corresponding period of the previous year.
TVI continues to develop and market the specialty compounding, with this segment representing 73 % of total revenues during the first six months of fiscal 2002. There have been some decreases in this area of the company's business in the year to date, stemming from several existing customers. Additionally there are new customers in this market which the company is developing and has secured minimal initial orders. The Company will continue to assess all potential and additional opportunities in it's expertise of specialty compounding.
Administrative expenses decreased 60 %, when compared to those for the corresponding six month period of the previous year as administrative expense arose on the issue of common stock in fiscal 2001.
Financial expenses decreased 30 % when compared to those for the corresponding six month period of the previous year, as expenses such as accrued interest declined due to reduction of debt through the issue of stock in the previous year, the reduction in ODC/IOC and stockholder interest.
R&D expenses increased minimally when compared to those for the corresponding period of the previous year and selling expenses declined 25 % when compared to the previous years corresponding period, this decline the result of reduction of sales coverage expenses and resources being redirected to product development and improvements.
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In the fiscal quarter October 1st through December 31, 2001a decline in net revenues of 45% produced a gross margin 42 % less when compared to the corresponding period of the previous year, however the gross margin as a percentage of net revenues increased slightly. Operating expenses declined 40% encompassing major reductions in administrative expenses and selling expenses. The operational loss for the second qauarter, before extrordinary items, was 39% less than the corresponding period of the previous year.
Sales revenue in foaming products have more than doubled over the corresponding period of the previous year and future sales appear even more promising.
Foaming products are for the plastics and rubber industry, and are a processing aid, providing significant cost reductions by reducing the amount of plastic consumed, but also provides many other advantages to the industry, such as improved surface finishes, physical properties and sink mark elimination, lower part weight and shorter cycle times. Morfoam is a concentrate encapsulated in an olefin binder, presented in pellet form to be easily blended or metered into the users formulations. The product improves cell structure and reduces voids when nitrogen is used as the primary foaming agent.
At December 31, 2001 there was a back log of orders totaling $123,340
Forward Looking Statements:
This Form 10-QSB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward looking statements.
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PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
A legal action was commenced against the Corporation, its subsidiary , Mortile Industries Ltd., their President, Frank Mortimer and the Dow Chemical Company, on June 4,1999 in the Ontario Superior Court of Justice (Commerical List); by a former customer, Endex Polymer Additives Inc., Endex Polymer Additives Inc. (USA), Endex International Limited and G. Mooney And Associates. The Dow Chemical Company is defending separately.
The claims allege breach of secrecy agreements, fiduciary duty and misuse of Endex confidential information. The Plaintiffs are seeking CAD $10 Million compensatory damages, further punitive damages of CAD $1 Million and interlocutory and permanent injunctions.
Based on prior written legal opinions from its patent attorneys that the allegations are without merit, the Corporation retained a law firm specializing in Intellectual Property Law and is vigorously defending the action.
After submission of the Defendants' evidence, the Plaintiffs abandoned their claim for an interim injunction. The Defendants have moved for an expeditious trial. The Court has ordered the parties to combine the examinations for injunction proceedings with those for the preparation for trial.
On September 16-17, 1999, at the hearing of the interlocutory injunction motion, the parties agreed, on consent, to adjourn the motion until trial. The parties agreed to expedite the matter to trial with an original target date of about December 1999.
AT DECEMBER 31, 2001 NO FURTHER DIRECTION HAD BEEN RECEIVED BY THE COMPANY'S COUNSEL AS TO WHEN THE MATTER MIGHT PROCEED TO TRIAL NOR HAD ANY DIRECTION BEEN RECEIVED AT THE TIME OF FILING THIS REPORT.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 22, 2002, TVI secured private placement financing for a total of USD$1,120,000. This placement financing involved the sale, pursuant to Rule 144, of 3.5 million shares at $0.08 USD per share, to be completed to later than the close of business on April 30, 2002. Additionally, for each share purchased, the subscriber will receive
1.6 warrants to purchase additional common shares at a strike price of $0.15 per share up to December 31, 2002.
Completion of the subscription, including the exercise of warrants, will increase the then issued and outstanding stock by 9,100,000 shares.
The funds raised will be used, in part, to purchase additional equipment to expand the manufacturing capacity to meet demand from new and existing customers.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K
(a) Exhibits - none
(b) Reports - none
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TECHNICAL VENTURES INC.
Date: February 12, 2002 BY: /S/Frank Mortimer
Frank Mortimer, President and
Chief Executive Officer
Date: February 12, 2002 BY: /S/Larry Leverton
Larry Leverton
Chief Financial Officer |
