<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-2775-A
TECHNICAL VENTURES INC.
(Exact name of registrant as specified in its charter)
New York State 13-3296819
(State or other Jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
3411 McNicoll Avenue, Unit 11
Scarborough, Ontario, Canada M1V 2V6
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 299-9280
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB [ ]
State Issuer's revenues for its most recent fiscal year, $1,504,339
The appropriate aggregate market value of the voting stock of the Registrant
held by non-affiliates of the Registrant as of August 30, 1996 (based upon the
average bid and asked prices as reported by the National Association of
Securities Dealers Automatic Quotation System) was approximately $1,006,237.
The number of shares outstanding of the Registrant's common stock, as of June
30, 1996 is 14,586,341.
Exhibit index is located on page 13 of this Annual Report on Form 10-KSB.
Page 1 of 30
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FORM 10-KSB
Fiscal Year Ended June 30, 1996
ITEM Table of Contents PAGE
PART I
Item 1. Business 3-6
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrants Common Equity and Related
Stockholder Matters. 6-7
Item 6. Management's Discussions and Analysis of Financial
Conditions and Results of Operations. 7-9
Item 7. Financial Statements and Supplementary Data 9
Item 8. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure. 9
PART III
Item 9. Directors and Executive Officers of the Registrant 10
Item 10. Executive Compensation 11
Item 11. Security Ownership of Certain Beneficial Owners
and Management 12
Item 12. Certain Relationships and Related Transactions 12
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8 K 13
Signatures 14
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Item 1. Business
Introduction:
Technical Ventures Inc. (the Company) is a New York corporation formed on
February 12, 1985 to raise capital for the purpose of seeking business
acquisition possibilities throughout North America. The primary objective of
the Company was to search for a business which in the opinion of its
management, demonstrated long-term growth potential that would warrant
involvement. On April 14, 1986, the Company acquired all the issued and
outstanding shares of common stock of Mortile Industries Ltd. (Mortile) a
Canadian corporation. The Company's present operations, assets and employees
are primarily those of Mortile. At June 30, 1996 the Company currently has
eight full time employees, all being employees of Mortile.
The Company's efforts have been concentrated in the development of proprietary
thermoplastic compounds, composite compounds which combine plastic with other
granulated materials and specialty compounding in which the Company compounds
and pelletizes proprietary formulations of the customer. Prior to April 1992,
the Company had been considered to be in its development stage.
Since inception, the Company has expended $2,828,000 US in the development of
it's products, including $53,000 during fiscal 1996, $70,000 during fiscal
1995 and $70,000 in 1994.
Product Description:
Polymer Technologies:
The Company has developed a flame retardant, non-toxic plastic compound which
minimizes the hazards of fire, can be easily processed into end-use products
and resists corrosion.
Flame resistant polymer compositions have been available for many years.
However, the technology relied upon the presence of "halogens" to yield flame
retardancy. Concerns by environmentalists world wide have resulted in
increased pressure to eliminate plastics which emit cyanide, bromide, sulphur
and phosphoric gas, on combustion.
Thermoplastic HFFR's classified as thermoplastic pololefins (TPO's) are based
on polymers and co-polymers of ethylene and propylene and have been the focus
of much research for the construction and transportation industries because of
their greater ease of use in fabrication and their ability to be recycled, and
trimmed into scrap. The difference between thermoplastics and thermosets is
that thermoplastics may be recycled and are much more difficult to develop.
With growing environmental pollution concerns it is expected that the
recycling of plastics will be forced upon the plastic industry by legislation.
The development of a cost-effective and acceptable performance HFFR/TPO has
been a challenging and somewhat elusive project for the industry and extensive
research has been conducted in this area during the last decade, mainly in
wire cable and construction industries.
With breakthroughs in polymer technology, incorporating; halogen free, flame
retardant polyolefins referred to as HFFR/TPO's, the Company's products have
been tested for applications in various industries including, wire cable,
fibre optic, injection and rotational moulding, petrochemical containment and
various other applications.
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Performance test results have concluded that the materials produced by Mortile
emits none of the aforementioned toxins and have shown the product to possess
anticombustion, low toxicity and anticorrosive attributes considered to be
superior to other products presently available. A US Patent was issued to the
company, for its flame retardant material in May 1991, the continuation in
part of this same patent was issued in June 1993. Patents have since been
granted by the European Communities Organization (Austria, Belgum, France,
Germany, Great Britain, Holland, Italy, Spain, Sweden and Switzerland). The
Australian Patent was granted effective March 17, 1989 with official
notification being received in January 1993. The Canadian Patent application
was accepted and is pending.
Development of this material has been a lengthy project. Massive amounts of
stringent tests have been required, with the results being most promising.
Management believes the market potential of the products developed as a result
of these efforts will justify the time and costs.
Compounding, Specialty(Contract):
Specialty compounding may be defined as follows: the compounding, enhancement
of the customers proprietary formulation(s) into pellet form; which is a semi-
manufactured form. This process involves the customers presentation of
required mix components, the physical mixing of the components and then
pelletizing. Component raw materials may be supplied by the customer or
purchased by the Company on behalf of the customer.
Practical and technological expertise gained from use of the compounding and
mixing machinery purchased in 1989 and laboratory facilities which have been
put in place has allowed the Company to successfully secure major customers in
this market. A relative component of this service is what as known as
masterbatches. This the predispersion of powders which are to be mixed with
resins in the final stages of manufacture. The predispersed powders will be
added to the resins at the extruder or moulders. Through its efforts in this
field the Company has qualified to be appointed the compounders with three (3)
major customers. Typical masterbatches are: foaming agents, sulphur, zinc
oxide, flame retardants, curing agents, processing aids, antioxidant
stablizers and slip and anti block agents.
Revenues and a percentage of Consolidated Contract Revenues
CUSTOMER 1996 1995 1994
Endex Polymer Additives $258,836 - 19 % $309,328 - 24%
Shaw Industries $927,392 - 67 % $654,982 - 50 % $436,400 - 54 %
Water Gremlin Co. $175,950 - 13.6 % $98,681 - 12%
Composite Technology
The object of composite technology is to mix plastic binders with fine
granulated material of choice, combining strength and durability with the
design options open to injection moulding, thereby reducing the cost of
machining and die casting significantly. By applying existing technology to
new ideas the Company has been able to successfully produce metalic/plastic
compounds in an effort to meet demand for the replacement of lead in many
applications. Management anticipates opportunities to market these compounds
in the automotive, construction and firearms markets in the near future.
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Other Products
Ceiling tile Inserts and related products; The Company's original product, was
the "Insert", consists of a polymer compound plastic sheet developed by DuPont
which is perforated and bonded by an adhesive to a vapour and moisture barrier
and easily cleaned.
Utilizing this technology and attaching it to various backings such as
fiberglas and perlite (a generic term for expanded volcanic rock) a complete
ceiling tile can be manufactured. Management of the Company has decided to
postpone indefinitely any further substantial investment in the insert and
related products until there is convincing evidence that such investment would
be productive.
Recycling Plastics:
The problem of recycling plastics is well known to most people in the
industry. The Company's management believes that unless a continuous
contractual supply of material is readily available along with an identified
end market, the opportunities will be limited. However, the Company will
continue to monitor and participate in research along these lines, should a
recycling proposal be presented.
Competition
Corporations such as Exxon, DuPont, Union Carbide, Raychem and Megalon
represent the most widely recognized competition with our polymer technology;
all are substantially larger than the Company in terms of financial, marketing
and research and development resources. However, Dow Chemical has licensed our
technology and Lucent Technologies after a five year program rate our product
quality at 100%, based on their internal rating procedures. The application
of our polymer technology in wallboard is still the only plastic in its field
to pass certain fire codes, in various jurisdictions, for high rise buildings
and in other applications where the product is being tested, we are advised
that the Company's technology out performs the competition.
In regard of composite technology; the Company has been able to achieve the
highest filler levels to obtain maximum specific gravity and has no
competition. The Company has patent protection through a licensing agreement
with DuPont Canada, as it pertains to fishing sinkers and lures. The
Company's composite for bushings for copiers and fax machines provides the
scenario that is extremely difficult if not impossible to reverse engineer.
However, as the product becomes more technical compounders such as L&P and
others exist and continue to develop, as do we.
Compounding, Specialty (Contract); in this market the Company has three
distinct advantages, equipment, personnel and size. The equipment was
selected to affect good dispersion in the proprietary polymer technology and
composite technology. The Company's personnel and associations with
consulting scientists and chemist enables it to work closely and co-
operatively with customers to meet their needs. The Company's size allows it
to direct immediate attention to existing and potential customers in a cost
effective and timely manner. The Company directs efforts to "niche" markets
where the following criterion is essential: fast turn around of small orders,
equipment designed for ease of cleaning at minimum downtime and wastage, air
cooled die heads for moisture sensitive materials, excellent dispersion of
powders into the resins and nitrogen blankets for cooling in high humidity.
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Backlog Information:
At June 30, 1996 the Company had a backlog of orders totalling $38,000 US .
Item 2. Properties
The Company presently leases 8,500 square feet of office and production
facilities at 3411 McNicoll Avenue, Scarborough, Ontario; the Company pays a
monthly base rent of $3,188 (Canadian) exclusive of real estate tax
escalations. The lease, expires on March 31, 1997. Although these facilities
are sufficient for the Company's present needs, management does anticipate the
need to expand it's facilities during it's next fiscal year, to improve
capacity for expected increases in production. However, any desired plant
expansion is dependent upon the Company improving its present financial
condition.
Item 3. Legal Proceedings
There are presently no pending legal proceedings to which the registrant or
its subsidiaries is a party or of which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders
Matters
Market Information:
The Company's common stock has been publicly traded since March 21, 1986 on
the over-the- counter market. The following table sets forth the quarterly
high and low bid quotations as reported by the National Quotation Bureau
Incorporated, a registered securities association:
Quarter Low High
Sept. 1994 0.05 0.22
Dec. 1994 0.05 0.16
Mar. 1995 0.09 0.22
June 1995 0.03 0.19
Sept. 1995 0.125 0.25
Dec. 1995 0.063 0.188
Mar. 1996 0.125 0.25
June 1996 0.16 0.25
These prices do not reflect retail mark-up, mark down or commissions and may
not represent actual transactions.
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Holders:
As of June 30, 1996, there were approximately 922 shareholders of record.
Dividends:
To date the Company has paid no dividends to its shareholders. The Board of
Directors of the Company will consider the payment of dividends when it deems
it appropriate to do so, taking into account current and potential Federal and
State regulatory restrictions, the Company's income and financial condition,
economic conditions and other factors. However, no assurance can be given
that dividends will ever be paid to shareholders.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
During the year ended June 30, 1996, the Company's operating loss was funded
primarily by working capital provided by a Canadian Tax refund and debt
financing. The Comany has reduced a portion of past due balances due to
vendors and creditors. However, continued operating losses and significant
monthly debt service requirements continue to leave the Company in a position
where it is unable to meet its monthly cash flow requirements.
Three of the Company's long term debt financing arrangement are currently in
arrears, however, the debtors have verbally agreed to allow a moratorium on
principal repayments until the Company is in a financial position to make
payment(s). The aggregate amount of principal payments currently in arrears
and outstanding, $1,165,886 [US].
A Canadian tax refund for the years 1993 and 1994 was received during May
1996 in the amount of $54,768 (Canadian). The Company will also submit a
claim for fiscal 1995 amounting to approximately $27,000 (Canadian),
additionally a claim for fiscal 1996 of approximately $17,500 (Canadian). The
tax department has notified the Company of their intent to audit all such
claims submitted.
Management does not consider these financings (assuming the above refund
claims are accepted) to be a long-term solution to the Company's financial
needs and efforts are being made to complement these funds with additional
financing. However, the present financial condition has hindered management
in their pursuit of acceptable financing arrangements. Several major
investment banking providers have been meeting with the Company in respect of
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 equity issuance's in the future.
The Company's current capital structure of an authorized issue of fifteen
million common shares is almost complete. Therefore, a change in the capital
structure would become necessary to raise additional funds through private or
public issuance's in the future. However, if significant funds are to be
raised in this manner, it would require approval from a majority of the
Company stockholders, which management is confident it can receive.
Based on projections provided by existing customers, management expects
increases in sales during fiscal 1997, these projections are as follows:
Flame Retardant Products
Royalty payments by Dow to the Company are based on sales of Dow resin to
licensee's and could generate $1.5 million(Canadian) over the remaining 17
year term of license; the agreement does not contain minimum royalty
provisions.
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No Royalty payments were received during fiscal 1996 and Dow has not indicated
the anticipated amount of their 1997 sales of resin, subject to the Royalty
Agreement. Lucent Technologies have specified our material for use in their
fiber optic product and doubled their purchases during fiscal 1996. Sales
levels for the Company's product are forecast at $850,000 if Lucent
Technologies and several clients based in the US., Europe and Canada meet
their forecasts. Sales for this product during fiscal 1996 where less than
$100,000.
Composite Technology
A contract signed with a training munitions manufacturer was renewed for an
additional two years through December 31, 1997 and remains in force; without
significant sales during fiscal 1996. Management has recently been advised
that this manufacturer was successful in its bid for a contract in the US,
the residual effect on the Company has not been indicated by the customer and
the Company retains some optimism. The fishing sinkers were well received,
but there has been some delay in the implementation of legislation giving
rise to a complete ban on lead. However, there are indications that public
pressure to ban the use of lead is on the rise again. There are several
projects within the realm of the metal technology that are currently being
assessed and which could represent major sources of revenue, should they come
to fruition. One such project is the supply of a composition to be used in
the production of a metal filled laminated sheet. The laminated sheet is
being considered in the manufacture of visual display boards, which, by
applying the metal technology would allow the use of magnetized items on the
surface of the display. Other potential markets are: light weight x-ray
blankets, self lubricating bearings and bushings, the toy industry and any
lead replacement industry.
Specialty (Contract) Compounding
During 1996 total contract compounding revenues were $1,380 Million,
representing 92 % of net revenues. Quotes on further contract work have been
given and the Company has been actively looking for suitable applications.
The dispersion of powders into plastic, is normal in the industry. However,
due to environmental concerns and the need for perfect dispersion of the
powders in the resins, more and more companies are starting to use masterbatch
powders and plastics. The powders are predispersed and the extruders or
moulder will add essential ingredients to the resin in the final stages of
manufacture. This is particularly useful when the powders are reactive as in
the curing or cross-linking of rubber or plastic. The Company has
concentrated on this business and has worked very closely for over two years
with a few major customers. The Company has qualified to be appointed the
compounder with three( 3) major customers and expects substantial orders over
a long period. Typical masterbatches are: foaming agents, sulphur, zinc
oxide, flame retardants, curing agents, processing aids, antioxidant
stabilizers and slip and anti block agents.
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.
Results of Operations - Comparison of Fiscal 1996 To Fiscal 1995:
For the fiscal year ending June 30, 1996, the Company had GROSS sales of $1.5
million, of which $1,380,000 was generated from specialty [contract]
compounding work.
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Gross margins as a percentage of net sales decreased to 15.4% from 17.5% for
the year ended June 30, 1996. This decline was the result of lower pricing on
sales orders, caused by a decline in component raw material prices.
Additionally, more resources were committed to production in the current year
increasing the Company's fixed manufacturing overhead.
Financial and Interest Expense increased $36,698 in fiscal 1996. Increases in
average outstanding indebtedness and less favorable foreign currency exchange
positions were the primary factors contributing to this increase.
Administrative expense decreased by $25,880 primarily due to the absence in
fiscal 1996 of non recurring costs relative to the quest for financing. R&D
and selling expenses declined in fiscal 1996 due to utilization of their
resources in manufacturing.
Efforts by the Company in the metal and polymer technologies has opened
several avenues to sales of related products. Lucent Technologies (AT & T)
have specified the Company's material for use in their fiber optic product;
Lucent Technologies (AT&T) doubled their purchases of the Company's material
during fiscal 1996.
Although revenues for fiscal 1996 increased slightly over the preceding year
they were significantly below anticipated levels, in particular, sales of
proprietary products. Furthermore, while the Company's materials have been
accepted by its customers for use in their manufacturing, acceptance of the
finished products by the end users continue to be slower than expected. This
had an adverse effect on demand for the Company's materials during the fiscal
year.
While management is confident that these conditions will only have a temporary
effect on sales of proprietary products, this area of marketing requires
highly qualified representation and in this regard the Company is considering
such qualified representation to market it's proprietary products more
rapidly. There can be no assurance of success in this regard.
Projections for the current year anticipate a major growth of sales revenues.
Such growth is anticipated to take place in all areas of the Company's
expertise and technology. Currently the Company is actively involved in some
15 projects which could lead to the projected major growth. However, there
can be no assurance in this regard. During fiscal 1996 sales to several newer
customers of specialty compounding materials were lower than levels which they
had expected and had indicated to Company management. Additionally, customers
anticipated significant increases in sales of fishing sinkers and munitions
products, manufactured using a composite of metal and plastic materials,
manufactured by the Company as a substitute for lead. Customer projections had
anticipated legislation banning lead, which did not take place. The customers
have indicated their optimism that future growth in this market is imminent,
but there can be no assurance in this regard.
Item 7. Financial Statements and Supplementary Data
See Part IV, item 13 for Index to Consolidated Financial Statements and
Schedules.
Item 8. Changes in and Disagreements on Accounting and Financial Disclosures
None
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PART III
Item 9. Directors and Executive Officers of the Registrant
The directors and officers of the Company at June 30, 1996 are as follows:
Name Age Position with Company
Frank Mortimer 57 Director, President
Bryan Carter 75 Director, Vice President
Larry Leverton 57 Director, Secretary
Treasurer
Frank Mortimer has been President and a Director of the Company since April
1986. He is also President of Fam Tile Restoration Services Ltd. ("FAM"), a
company specializing in the restoration of acoustical ceilings. Fam is a
wholly owned subsidiary of the Company. From 1967 to 1982 Mr. Mortimer
managed several export companies in South Africa. Mr. Mortimer is an
associate member of the Institute of Materials Handling (London UK).
Bryan Carter has been a director of the Company since April 1986. In 1982 he
formed Bryan Carter and Associates, a firm which offers international
consulting and marketing services to the plastics industry and small business.
From 1954 to 1962 he was in charge of the North American base of Rosedale
Assoc. Manufacturers of London (UK.) in Toronto, Canada. From 1962 to 1982
he was President and part owner of Rosedale Plastics, a rotational moulding
company. Mr. Carter has extensive international business experience including
work in Lebanon, Haiti and Australia, on behalf of various organizations. Mr.
Carter pioneered the rotational moulding industry in North America and in 1982
served as the International President of Rotational Moulders.
Larry Leverton has been Secretary and Treasurer of the Company since April
1986. Since 1983 he has been president of L.R. Leverton Enterprises' Inc., a
transportation consulting firm. In 1982 he was vice-president of Newman
Harbour Terminals and Transportation.
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Item 10. Executive Compensation
Frank Mortimer, the Company's Principal Executive Officer, received salary of
$66,000, $65,600 and $65,000, for the years ended June 30, 1996, 1995 and
1994, respectively. These amounts constituted Mr. Mortimer's sole
compensations from the Company. Amounts presented are expressed in US dollars
and have been converted from Canadian dollars using the average exchange rate
for the periods presented. No executive officer of the Company receivd a
total salary and bonus in exces of $100,000 during any of the three year
period ended June 30, 1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and directors of the Company and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Such
executive officers, directors and greater than ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) filings.
Based solely on review of the copies of such forms furnished to the Company
and other information which has been made available to the Company, management
believes that during the year ended June 30, 1996. all Section 16(a) filing
requirements applicable to the executive officers and directors of the Company
and greater than ten-percent beneficial owners were complied with.
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Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table indicates the name of each person who is known by the
Company to be a beneficial owner of more than five-percent of its common stock
as of June 30, 1996, the ownership of those persons on such date, and the
stock ownership of all officers and directors of the Company as a group. The
address of all persons listed is in care of the Company.
Number of Shares
Name of Beneficially Percent of
Beneficial Owner Owned (1) Common Stock
Frank Mortimer 1,037,933 (2) 7.1 %
L.R. Leverton Enterprises 441,448 (3) 3.0 %
Robert Lowe 2,500,000 (4) 17.1 %
Bryan Carter 115,000 0.8 %
Anthony Taverna 805,000 5.5%
All Officers and Directors
as a group 1,594,381 10.9 % (5)
(1) Unless otherwise indicated, each such beneficial owner holds the sole
voting power and investment power over the shares beneficially owned.
(2) Includes 146,320 shares owned by Mr. Mortimer's wife, Anne Mortimer.
(3) L.R. Leverton Entprs.' Inc., is a corporation owned and controlled by
Larry Leverton, Secretary, Treasurer and Director of the Registrant.
(4) Includes 400,000 shares owned by Mr. Lowe's wife, Ida Lowe.
(5) Excludes the effects on total outstanding shares which would result from
exercise of stock purchase options and conversion of debt.
Item 12. Certain Relationships and Related Transactions
For the fiscal year ended June 30, 1996, there were no material transactions
between the Company and any of its officers, directors and/or beneficial
owners.
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PART IV
Item 13. Exhibits, Financial Statements, and Reports on Form 8-K
(A) (1) Financial Statements:
See index to financial statements on Page F-1
(3) Exhibits:
(a) Exhibit 21 Subsidiaries of the Registrant are as
follows:
Mortile Industries Ltd., a Canadian Private Corporation
and majority- owned subsidiary of the Registrant
Fam Tile Restoration Services Ltd., a Canadian Private
Corporation and wholly-owned subsidiary of Mortile
Industries Ltd.
MPI Perlite Ltd., a Canadian Private Corporation and
wholly-owned subsidiary of Mortile Industries Ltd.
(B) Item -5- Reports on Form 8K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TECHNICAL VENTURES INC.
Dated: September 19, 1996 By: Frank Mortimer
Frank Mortimer, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: September 19, 1996 By: Frank Mortimer
Frank Mortimer, President,
Principal Executive Officer and
Director
Dated: September 19, 1996 By: Bryan Carter
Bryan Carter, Vice President
Director
Dated: September 19, 1996 By: Larry Leverton
Larry Leverton, Secretary
Treasurer and Principal
Accounting Officer and Director
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TECHNICAL VENTURES INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996
<PAGE>16
TECHNICAL VENTURES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' report F-2
Technical Ventures Inc. and Subsidiaries
Consolidated Financial Statements:
Balance sheet:
June 30, 1996 F-3
Statement of Operations:
Years ended June 30, 1996 and 1995 F-4
Statement of Changes in Shareholders' Deficiency:
Years ended June 30, 1996 and 1995 F-5
Statement of Cash Flows:
Years ended June 30, 1996 and 1995 F-6 & F-7
Notes to Consolidated Financial Statements F-8 - F-16
F-1
<PAGE>17
Independent Audit on the financial statements for the years ended June 30,
1996 and 1995 have not been completed and therefore this filing includes
unaudited financial statements for these periods. The Registrant intends to
file an amendment to this report under cover of Form 10 KSB-A, when the audits
are completed.
F-2
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30
1996
ASSETS Unaudited
CURRENT ASSETS
Cash $7,552
Accounts Receivable 110,982
Inventory (Note 2) 71,984
Other Current Assets
Advances 33,694
Deposits 9,254
TOTAL CURRENT ASSETS 233,466
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $495,358 at June 30, 1996
(Note 3,6,10) 232,436
INTANGIBLE ASSETS, net of accumulated amortization of
$12,696 at June 30, 1996 31,953
$497,855
LIABILITIES AND STOCK HOLDERS DEFICIENCY
CURRENT LIABILITIES
Notes Payable (Note 11) $140,382
Current Portion of long term debt (Note 6):
Capital lease obligations 97,831
Other 1,116,413
Loans & advances:
Private Lenders (Note 10) 73,266
Shareholders, unsecured interest free 23,832
Accounts payable and accrued expenses 352,660
TOTAL CURRENT LIABILITIES 1,804,383
LONG-TERM DEBT, net of current portion (Note 6 & 10 ):
Shareholder 281,969
Capital lease obligations 3,104
Other 97,095
MINORITY INTEREST (Note 6) 0
COMMITMENTS AND CONTINGENCIES (Note 5,7,9)
SHAREHOLDERS' DEFICIENCY: (NOTE 8)
Common stock, $.01 par value, 15,000,000 shares authorized:
Issued and outstanding, 14,586,341 shares at
June 30, 1996 $145,863
Additional Paid in capital: 4,048,994
Deficit (6,082,810)
Foreign currency translation adjustment 199,256
Total Shareholders' deficiency (1,688,697)
$497,855
See notes to consolidated financial statements.
Information with respect to the June 30, 1996 Balance Sheet is unaudited
<PAGE>19
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Year Ended June 30,
1996 1995
Unaudited Unaudited
NET SALES $1,504,339 $1,469,269
COST OF SALES 1,273,337 1,211,644
GROSS MARGIN 231,002 257,625
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Administration 145,899 171,781
Financial
Interest & Other 136,080 99,382
Research & Development 62,523 68,591
Selling 53,776 60,913
398,278 400,667
LOSS BEFORE INCOME TAX RECOVERY (167,275) (143,042)
INCOME TAX RECOVERY 40,139 154,562
NET INCOME [LOSS] ($127,137) $11,520
NET INCOME (LOSS) PER COMMON SHARE ($0.009) $0.001
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,586,341 14,586,341
Information with respect to the June 30, 1996 AND 1995 Statement of
Operations, is unaudited
See notes to consolidated financial statements.
<PAGE>20
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
UNAUDITED
<S> <C> <C> <C> <C> <C>
Common Stock Additional Cumulative
Issued and Outstanding Paid In Translation
Shares Amount Capital Deficit Adjustment
Year Ended June 30, 1995:
Balance, beginning of year 14,586,341 $145,863 $4,048,994 ($5,967,194) $207,989
Net Profit 11,520
Cumulative Translation Adjustment (1,024)
Balance, end of year 14,586,341 $145,863 $4,048,994 ($5,955,674) $206,965
Year Ended June 30, 1996
Net Loss ($127,137)
Cumulative Translation Adjustment ($7,709)
Balance, end of year 14,586,341 $145,863 $4,048,994 ($6,082,810) $199,256
See notes to consolidated financial statements
Information with respect to the June 30, 1996 and 1995 financial statements are unaudited
</TABLE>
<PAGE>21
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30,
1996 1995
Unaudited Unaudited
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss [Profit] ($127,136) $11,520
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 55,580 61,314
Gain on Disposition of Property & Equipment (3,292)
Net Change in non-cash operating assets
and liabilities (118,131) (175,574)
Net Cash used by operating activities (189,687) (106,032)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property & Equipment Acquisition (554) 0
Proceeds from Disposition of Property & Equipment 3,340
Other 0 (1,354)
Net cash used by Investing Activities (554) 1,986
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) loans,
notes and advances:
Bank Note (3,797) 0
Line of Credit 18,043 (70,997)
Long-term debt 180,385 126,562
Private lenders (16,848) (11,892)
Shareholders 16,705 26,748
Net Cash Provided by Financing Activities 194,488 70,421
EFFECT OF EXCHANGE RATE ON CASH 825 8,281
Change in Cash Balance for the year $5,072 ($25,344)
Cash Balance:
Beginning of year 2,480 27,824
End of Year $7,552 $2,480
Information with respect to the June 30, 1996 and 1995 financial statements
are unaudited
See notes to condensed consolidated financial statements.
<PAGE>22
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTARY CASH FLOW INFORMATION
Year Ended June 30,
1996 1995
Unaudited Unaudited
Non-Cash Financing and Investing Activities:
Liabilities re-classified as long term debt (Note 6)
Shareholder Loans $0 $37,051
Accrued Compensation 0 165,274
Dow Credit Line 65,997 0
Accrued Interest:
Dow 0 105,632
Dow Credit Line 25,256 65,274
Other $91,253 $373,231
Payments made during the year for interest $27,332 $5,298
Net change in non-cash operating assets and liabilities:
Decreases (increases) in operating assets
and increases (decreases) in operating
liabilities:
Accounts Receivable ($1,298) ($82,973)
Inventory 1,526 (25,531)
Other assets (5,741) (28,377)
Accounts Payable and accrued expenses (112,618) (38,693)
($118,131) ($175,574)
Information with respect to the June 30, 1996 and 1995 financial statements
are unaudited
See notes to condensed consolidated financial statements.
<PAGE>23
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies:
Principals of Consolidation:
The consolidated financial statements include the accounts of Technical
Ventures Inc.("the Company") 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.
Organization and Operations:
Mortile, a Canadian corporation, which was organized on February 12,1985, is
involved primarily in the development and manufacture of plastic compounds.
On April 14, 1986, the Company acquired all of the issued and outstanding
shares of common stock of Mortile.
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined by the
first-in, first out method.
Property and Equipment:
Property and equipment are recorded at cost and are depreciated or amortized
over their estimated useful lives or related lease terms using the straight
line and accelerated methods.
Investment Tax Credits:
Refundable foreign investment tax credits related to research and development
activities are recognized as income in the year they are received.
Loss Per Share:
Loss per share is computed based on the average number of common shares
outstanding during the period.
Outstanding warrants and convertible debt were not considered in the
computation as their effect on earnings per share would be anti-dilutive.
Intangible Assets:
Cost of intangible assets are being amortized using the straight-line method
over periods ranging from 5 to 17 years.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and 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
Foreign Currency Translation:
The financial statements of Canadian subsidiaries have been translated into
US. dollars as follows:
(a) Assets and Liabilities at the rate of exchange in effect at the balance
sheet date.
(b) Revenues and expenses at the average exchange rate during the period.
Exchange gains or losses arising from the translation are deferred and
included as a separate component of shareholders' equity (deficiency).
All amounts presented in these financial statements are expressed in US.
dollars unless otherwise stated.
F- 8
<PAGE>24
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Inventory:
Inventory at June 30, 1996 is comprised entirely of raw materials inventory.
Note 3 - Property and Equipment:
Property and equipment at June 30,1996 is comprised as follows:
Equipment:
Under Capitalized Leasing Arrangements $264,229
Other 420,720
Furniture & Fixtures 39,421
Leasehold Improvements 3,425
727,795
Less Accumulated Depreciation & Amortization 495,359
$232,436
Note 4 - Foreign Operations:
The following table summarizes certain information regarding the Company's US.
and Canadian operations:
U.S. Canadian Consolidated
Year Ended June 30, 1996
Revenue from unaffiliated customers $ 1,504,339 $ 1,504,339
Loss From Operations $(36,743) $ (90,393) $ (127,136)
Identifiable assets at end of year $497,855 $497,855
Year Ended June 30, 1995
Revenue from unaffiliated customers $ 1,469,269 $ 1,469,269
Income (Loss) From Operations $ (38,233) $ 49,753 $ 11,520
Identifiable assets at end of year $538,762 $538,762
F- 9
<PAGE>25
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Income Taxes:
During the year ended June 30, 1996, the Company received $54,768 (Canadian)
resulting from research and development refundable tax credit claims filed for
the years ended June 30, 1993 and 1994. It is anticipated that a claim for
approximately $27,000 (Canadian) will be submitted for 1995 and that a claim
for approximately $17,500 (Canadian) will be filed for 1996. It is
anticipated that claims for 1995 and 1996 will be subject to audits and there
can be no assurance that they will be honoured and if they are, the amount of
the refunds may be substantially less than the claim amounts.
Recovery of Income taxes for the year ended June 30, 1996 consists entirely of
a current recovery of Canadian income taxes resulting from a reduction in the
Company's deferred tax asset valuation allowance. The aforementioned tax
refund was the primary factor contributing to the decrease in the valuation
allowance.
The following is a summary of the tax effects of significant temporary
differences which comprise the Company's deferred tax asset at June 30, 1996:
US Federal State & Local Foreign(1)
Loss Carryforwards $276,000 $71,000 $623,227
Credit Carry Forwards:
Refundable credits 32,530
Non Refundable credits 192,927
Depreciation and amortization 0
Valuation allowance (276,000) (71,000) (848,684)
$0 $0 $0
Aggregate net operating loss carryforwards and tax credit carryforwards and
their expirations are summarized as follows:
Net Operating Loss Carryforward
Expiring June 30, US Federal State & Local Foreign(1) Foreign Research
& Development
Tax Credits(1)
1997 $351,867 $53,783
1998 238,533 64,880
1999 420,460 67,607
2000 277,190 3,535
2001 3,000 3,000 279,907 1,093
Thereafter 810,000 806,000 68,447 2,029
TOTAL $813,000 $809,000 $1,636,404 $192,927
(1) Converted to US dollars based on conversion rate at June 30, 1996
F-10
<PAGE>26
<TABLE>
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C> <C> <C>
Note 6 - Long Term Debt:
At June 30, 1996, long-term debt consists of the following:
Notes & Loans
Unsecured shareholder notes, loans and other payable balances: CURRENT NON-CURRENT TOTAL
Subordinate to notes payable to Cooper Financial Corp. and
I.O.C., interest at the greater of prime or 10% $ 25,665 $25,665
Subordinate to note payable, I.O.C. :
Interest 15 % 11,000 11,000
Interest free:
Notes and loans 11,131 11,131
Accrued Interest 74,791 74,791
Accrued compensation 159,383 159,383
$281,970 $281,970
Other:
Dow Chemical Canada, Inc. (Dow), Interest at prime plus 2%,
payable in (2) installments of $25,490 (Canadian), thereafter
in monthly installments of $19,657 (Canadian) through March
1999, at which time the entire unpaid balance becomes due.
At June 30, 1996 the Company was in default and the entire
balance past due (1). $703,676 $703,676
Dow Chemical Canada, Inc. (Dow), Re-Capitalization of Line
of Credit and Accrued Interest to April 30, 1996. Payable
in monthly installments of $6,011.14 (Canadian) including
interest at a rate of 10.75% (4) 46,088 37,952 84,040
Innovation Ontario Corp. (I.O.C.), outstanding balance of
$249,999 (Canadian) at June 30, 1995 plus $250,000 (Canadian)
received in July 1995, are payable in quarterly installments
of $30,315 (Canadian), including interest at 8% beginning
December1995, through September 2000. At June 30, 1996
the Company was in default and the entire balance past due (2) 366,649 366,649
Liabilities Subordinate To I.O.C. Note Payable:
Unsecured loans, private investor, interest at 10% 18,812 18,812
Unsecured loans, private investor 7,333 7,333
Note payable customer, interest at prime plus 1%, repayment
based on volume of materials processed by the Company on
behalf of the customer 32,999 32,999
$1,116,413 $97,096 $1,213,509
Leasing Liabilities
Obligations under capitalized leasing arrangements payable
in monthly installments of:
$9,981 net of amount representing interest of $4,241, at
June 30th the Company was in default and the entire balance
past due (3); $95,561 $95,561
$297(Canadian) through September 1998, net of amount
representing interest of $704 (Canadian). 2,270 3,104 5,374
$97,831 $3,104 $100,935
</TABLE>
F-11
<PAGE>27
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) During the current fiscal year the Company was unable to meet payments on
it's refinanced consolidated note and corresponding accrued interest with
Dow. Accordingly the outstanding balance at June 30, 1996 is reflected as a
current liability in these financial statements.
(2) In accordance with the I.O.C. loan provisions, I.O.C. acquired a 15%
interest in Mortile In March 1995 and an additional 15% interest in July
1995. Mortile had previously been a wholly owned subsidiary of the Company.
I.O.C. investment in Mortile is reflected in the financial statements as a
minority interest, Mortile has the option to repurchase the shares at a
price equal to the amount of the original loan principal times 1.02, times
the number of months the debt is outstanding (but not less than 12), less the
amount of principal and interest payments made by Mortile to I.O.C. This
repurchase option expires in March 1997. The Company has been unable to meet
payments in respect of this loan. Accordingly the outstanding balance at
June 30, 1996 is reflected as a current liability in these financial
statements.
(3) At June 30, 1996, the Company was in default on this capital lease
arrangement and the entire balance was past due. Although the lessor has not
called the lease, it is payable on demand. Accordingly the outstanding
balance at June 30, 1996, is reflected in these financial statements as a
current liability.
(4) In May, 1996 the Company reached an agreement with Dow Chemical of
Canada to recapitalize the outstanding principal of $90,000 (Canadian) and
accrued interest of $34,442 (Canadian) on the Company's line of credit.
Additionally, the new debt instrument bears interest of 10.75%. Monthly
payments of $6,011.14 commenced in May 1996 and are payable through March
1998.
Both the Dow and I.O.C. notes are collateralized by all previously unsecured
assets of the Company. The I.O.C. consolidated position is subordinate to
that of Dow.
F-12
<PAGE>28
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Long-term debt: (continued)
Long-Term debt matures as follows:
Year Ending June 30, Shareholders Other Total
1997 $1,116,413 $1,116,413
1998 70,951 70,951
1999
2000
2001
Thereafter 281,970 26,145 308,115
$281,970 $1,213,509 $1,495,479
The Company's obligations under capitalized leasing arrangements are payable
as follows:
Year Ended June 30,
1997 $ 102,423
1998 2,613
1999 653
$ 105,689
Less amount representing interest 4,754
$ 100,935
Payments of long-term debt and capitalized lease obligations under agreements
expressed in Canadian dollars, have been converted to U.S. dollars based on
the exchange rate at June 30,1996.
F-13
<PAGE>29
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Going concern:
The company has sustained significant operating losses since its inception
and there is doubt as to the Company's ability to continue as a going
concern. The Company's continued existence is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis. It
is not expected that cash flows from operations in the immediate future will
be sufficient to meet the Company's requirements. As a result the Company is
in need of additional financing. Liquidation value of the Company's assets
approximate carrying value. Accordingly, no adjustment has been made to the
value of the Company's assets in consideration of its financial condition.
With expected increases in sales levels in the next fiscal year, it is
anticipated that cash flows required to fund operations will be reduced.
A Canadian income tax claim for approximately $27,000 (Canadian) will be
submitted for the fiscal year 1995, additionally a claim for fiscal 1996 will
be submitted for approximately $19,000 (Canadian). Even if these tax claims
are accepted and the funds are received, they would only be sufficient to
satisfy the Company's immediate cash flow requirements and are not sufficient
for the Company to sustain it's operations and meet current debt service
requirements. Accordingly additional sources of funds are necessary. The
Company continues to assess completing a private or public stock offering.
In order for the Company to raise significant funds through the sale of
common stock, stock purchase warrants or convertible securities, the number
of authorized common shares must be increased or the number of issued and
outstanding shares must be decreased. Either of the actions would require
approval of the majority of the Company's stockholders. Management is
confident such approval can be obtained if necessary.
F-14
<PAGE>30
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Shareholders' deficiency:
Restricted Common Shares reserved for convertible debt and stock purchase
options:
For convertible debt 50,000
For common stock purchase options at:
$.50 per share; without expiration 50,000
100,000
Note 9 - Leases:
At June 30, 1996, under a real property lease classified as an operating
lease which expires in March 1997, the Company's future minimum rental
payments (excluding real estate taxes) are $16,362. Minimum rental payments
in foreign currency have been converted into US. dollars using the exchange
rate at June 30, 1996.
Rent expense was $42,367 and $48,261 for 1996 and 1995 respectively.
Note 10 - Loans and Advances At June 30, 1996:
Private Investors:
Equipment financing:
Interest at 10% $12,723
Unsecured Demand Loans:
Interest Free 25,000
Interest at 10%, convertible in 50,000
shares of common stock 25,000
Interest at 15% 10,543
$73,266
F-15
<PAGE>30
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Note Payable Financial Institution
At June 30, 1996 the Company had a note payable balance of $140,392 due on
demand to Cooper Financial Corp. This obligation, which had previously been
payable to the Federal Deposit Insurance Corporation, as receiver for another
financial institution, is guaranteed by a shareholder of the Company. At
June 30, 1996, the Company was in default of the loan provisions, however,
the Company has been maintaining monthly payments of $2,500 US representing
current interest charges. A portion of this monthly payment is now being
credited to the loan principal and as such the outstanding principal balance
reflects the amount which has been paid against outstanding principal during
fiscal 1996.
F-16
<PAGE>31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT INCLUDED IN PART II, ITEM 7 OF
THE REGISTRANT'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,552
<SECURITIES> 0
<RECEIVABLES> 110,982
<ALLOWANCES> 0
<INVENTORY> 71,984
<CURRENT-ASSETS> 233,466
<PP&E> 727,794
<DEPRECIATION> 495,358
<TOTAL-ASSETS> 497,855
<CURRENT-LIABILITIES> 1,804,383
<BONDS> 0
<COMMON> 145,863
0
0
<OTHER-SE> (1,834,560)
<TOTAL-LIABILITY-AND-EQUITY> 497,855
<SALES> 1,504,339
<TOTAL-REVENUES> 1,504,339
<CGS> 1,273,337
<TOTAL-COSTS> 1,273,337
<OTHER-EXPENSES> 398,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,080
<INCOME-PRETAX> (167,275)
<INCOME-TAX> (40,139)
<INCOME-CONTINUING> (127,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,137)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
